A REPORT

ON

FINANCIAL ANALYSIS OF KAJARIA CERAMICS LTD

A Project report submitted in the partial fulfillment of the requirement for the degree

Of

Master of Business Administration (MBA)

KAJARIA CERAMICS LTD.

Submitted To:

Submitted By:

Mr. AMRENDRA TIWAREE

SYED MOHD. ZIYA

Lecturer-

MBA 3rd semester (Finance)

D.A.M.S. College

Roll No. 0904870089

DAYANAND ACADEMY OF MANAGEMENT STUDIES

GOVIND NAGAR, KANPUR
(AFFILIATED TO G.B.T.U. LUCKNOW, U.P.)
0

CERTIFICATE

This is certify that Mr. Syed Mohd Ziya worked during the period w.e.f.
15.07.2010 to 14.08.2010 on the development of the project Financial analysis of
Kajaria Ceramics Limited, in the partial fulfillment of the requirement for the
degree of MBA (Master of Business Administration) under my guidance &
supervision. To the best of my knowledge, the matter represented in this project is
a bonafide & genuine piece of work.
During her association with the project I found him to be sincere &
motivated individual. He has shown keen interest in this project & him conduct
was excellent.
I wish him all success in his career.

Place:

Date: 25-8-2010

Rajesh Sharma
ASST. GEN. MANAGER
(P & A)
Kajaria Ceramics Ltd. Sikandrabad

Guided by:
Mr. Rajesh Sharma
ASST. GEN. MANAGER
(P & A)
Kajaria Ceramics Ltd. Sikandrabad

DECLARATION
I, SYED MOHD ZIYA, S/O Mr. SYED SHAKEEL AHAMED is a bonafied
student of M.B.A. at DAYANAND ACADEMY OF MANAGEMENT STUDIES.
My enrollment number is 0904870089. I hereby declare that present summer
internship report titled Account of assets is my original work. I conducted this
study at KAJARIA CERAMICS LTD. SIKANDRABAD during 15july, 2010 to
14 Aug, 2010. This report has not been submitted earlier either with DAYANAND
ACADEMY OF MANAGEMENT STUDIES and any other educational
organization as an essential requirement for the award of any Diploma/ Degree.

Date- 17/Aug/2010

Signature: (SYED MOHD ZIYA)

PREFACE

Someone has rightly said that practical knowledge is far better than
classroom teaching. During this project I fully realized this and I came to
know about how a retailer chooses among a varied range of products
available to him.

The subject of my study is Financial Analysis of Kajaria Ceramics

Ltd., which has slowly but steadily evolved from a beginner to a
corporate giant earning laurels and kudos throughout.

The report contains first of all brief introduction about the

company. Finally there comes data presentation and analysis in the end
of my project report. I also put forward some of my suggestion hoping
that they will help Kajaria Ceramics Ltd. Move a step forward to being
the very best.

ACKNOWLEDGEMENT
I acknowledge my deep sense of gratitude for giving me this opportunity to
undergo my project with Kajaria Ceramics Ltd. At this moment of successful
completion of the project, I would like to express my sincere thankfulness and
indebtedness to all those who extended their kind help by spending their precious
time in explaining the various intricacies of the subject and suggesting the correct
approach to me.
To start with I would like to thank not once but twice Mr.Ashok Kajaria
(Chairman) and Mr. Rishi kajaria (M.D.) whose contribution to the project is
beyond my capacity of expression.
I would like to thank Mr. ARUN LATH (GM), Mr. ANIL PRABHAKAR
(AGM A/C), & Mr. Deepak Gupta (Dpt. MGR), who had been my project guide
for their understanding, gracious and constructive advice which played a major in
completion of this project.
At

last

but

not

Mr. AMRENDRA TIWAREE

least

would

also

like

to

thanks

(Lecturer) Guide for providing insights about

performing our work. This Project has been a great learning outcome for me and
without his help it would not have possible for me to this project.

CONTENTS
INTRODUCTION OF K.C.L
1.

KCL - AN OVERVIEW
Company profile
Marketing pattern
Companys business mission & objectives
Board of directors
KCL contribution in India
Bankers
Major competitors
Technician collaborations
Internal control system

2.

AWARDS WON

3.

SWOT ANALYSIS OF KCL

4.

POLICIES ADOPTED
Quality policy (ISO 9001:2000)
Environmental policy (ISO 14001)
Health & safety policy (OHSAS) ISO 18001
Social accountability policy

5.

PRODUCT PROFILE OF KCL

6.

MANUFACTURING PROCESS

7.

RESEARCH & DEVELOPMENT

Methodology
Utility of the research
Extensive literature survey
Collection of data & analysis of data

8.

PERFORMANCE OF THE COMPANY

9.

FINANCE OVER VIEW

Organization Chart of Finance Department
5

10.

KCL FINANCIAL REPORT

Balance Sheet
Profit & Loss

11.

FINANCIAL ANALYSIS
Introduction
Objective of Study
Types of Financial Analysis
Utility of Financial Analysis
Financial Ratios & Utility

12.

INTRODUCTION OF RATIO ANALYSIS

Introduction
Nature
Uses of Financial Statements of Different Parties
Advantages of Ratios
Role of Financial Ratios
Objective of the Study

13.

CLASSIFICATION OF RATIOS
Traditional Classification
Functional Classification
Classification According To Nature
Classification According To Importance

14.

CONCLUSTION

15.

RECOMMENDATIONS

LIST OF CHARTS
Chart.1
Chart.2
Chart.3
Chart.4

Turnover (Sales)
Net Profit
Capacity
Production

EXECUTIVE SUMMARY
Kajaria Ceramics Limited, FMCG with a turnover of Rs.766.75 crore
manufacturing and selling ceramic Floor & Wall Tiles under the brand name
"Kajaria". It is the first tile company in India accredited with ISO 9002
Certification and recipient of one of the Global Growth company award from the
"World Economics Forum". The company has its corporate office at New Delhi
and Regional offices at Ahmedabad, Bangalore, Calcutta, Mumbai and Chennai.
Today kajaria is a well established name in the corporate world. From a modest
beginning of 3,000 sq.mts per day, the company today produces over 33,000
sq.mts of tiles every day, clearly demonstrating Kajarias growing strength over the
years and also indicating rising customer preference for the brand. Manufacturing,
standards, technology user trends, competitiveness, customer preference all have
played a vital role in shaping Kajaria success story. Besides this, the company
enjoys a reputation of rendering products that's at par with international standards.

Within 11 years of operation, Kajaria has moved very close to its vision of
becoming a leader worldwide. Kajaria Ceramics has grown at a breathtaking pace
during the last decade in turnover, profits and foreign earnings. With the new plant
at Bhiwadi, Rajasthan becoming fully operational, it has almost doubled its
capacity from 80,000 TPA 1, 50,000 TPA. The first plant in Sikandrabad U.P.
already has the distinction of always producing over 100% of its capacity.
7

The company's dedicated Research and Development efforts have also

proved to be catalytic in its leadership position.

These include development of special effects floor tiles and development of

FLOOR BORDERS matching PEI_V Tiles having high abrasive resistance. In
house R & D has also enable Kajaria to imbibe innovations and technical methods
of production based on Monoporosa Technology.

Kajaria has always been alert to changing market trends and preferences, by
producing tiles in myriad designs and colours. Infect Malaria is the only tile
company in the country to have an impressive range of over 400 designs with a
many as 50 different variation in Group 5 category, demonstrating out commitment
towards

customer

satisfaction.

Kajaria

also

continued

to

improve

its

communication process with architects, Builders, masons and interior decorators

and designers in order to update their products information and provide them
convenient access to its diverse brands, designs, and colours. Using the effective
technique of sampling with frequent and regular communication through
pamphlets, products folders and catalogues helped to keep the Kajaria brand on the
top_of_mind scale among the priority target customers. In additional, the company
emphasis on participating in national and local exhibitions also enabled it to
enhance its visibility and reach on a continuous basis, throughout the year. This
also helped to inspire and influence product usage at a more rapid pace.
8

Kajaria's dominating presence in the country has been further consolidated

by a uniquely engineered network of dealers. These highly visible retail outlets
have sprung up not only in all major cities and towns but even in the most strategic
market locations.

A huge force of sub dealers cover and breadth of the country. The
tremendous advantage from this marketing strength has been the easy access to and
availability of Kajaria's entire of the customers. In addition, the vast range and
choice enables customers to select their own designs and create their own
individual combinations in exclusive preferences and tastes.

With the tremendous spurt taking place in the realm of information

technology, Kajaria is reaping the benefits from the new medium, by hosting its
own website on the internet. The Kajaria website provides wealth of information
on its entire range of wall and floor tiles, borders including detailed information on
the various specifications. Exquisitily designed, the website contains the full range
of visually appealing graphics on designs, colours and size. With access to this
facility, customers can avail the tremendous benefits of e-commerce of Kajaria
tiles, and even place their orders for quick delivery.

10

COMPANY PROFILE & OVERVIEW

The company was incorporated in December, 1985 with an object of setting

up Ceramic Tile Plant with an initial capacity of 12,000 MT at Sikandrabad (U P)
in technical collaboration with Todagres SA, Spain. The company had started the
commercial production on 12th August, 1988.

Since then, the company has

expanded its capacity at its existing location for floor tiles twice during 1990-91
and 91-92 by 14,000 MT each taking its floor tile capacity 40,000 TPA. In 199394, the company added Wall Tile capacity of 20,000 TPA with Monoporosa
technology which was expanded to 40,000 TPA in 1995-96. The company set up a
green field Plant at Village Gailpur (Rajasthan) of 70,000 MT capacity for the
manufacture of Monocuttra Wall tiles in March, 1998. The company carried out
the modernization of its existing Plant at Sikandrabad in January, 99, which has
resulted increase in capacity from 80,000 MT to 90,000 MT and enhancing the life
of the Plant. The total present capacity of the company is 170,000 MT.

Both the Plants have adopted single firing technology (Monoporosa

technology), which is the most latest, cost efficient and more productive
technology. The company is marketing its products since inception under the
brand name of Kajaria which is a well-known brand within the industry in India
and abroad. The company has also been selected as one of the top performing
Global Growth Company from India by World Economic Forum in 1997. Kajaria
11

is the first ceramic tile company in India and may be 5th in the world accredited
with ISO 9002 certification for its quality system. During the year the company
has also been accredited with the ISO 14001 certification for the Environmental
Management System for manufacturing Ceramic Tiles. The company is the No. 1
preferred company for ceramic tiles in India. The company has also been given
OHSAS 18001 certificate by M/s. TUV Suddeutschland, Germany. The Certificate
has been given for the commitment of the company for fulfilling international
standards in Occupational Health and Safety Management System - Specification.
Kajaria Ceramics is the first ceramic tile company in the world to get this
certification.
Kajaria has an all India network of 600 dealers. Kajaria is selling 80% of its
products to the retail consumer and 20% to the projects.

Since last year company

has franchised exclusive tile Shoppe & tile galleria on all India bases. It displays the
mock bathroom & kitchen with various combinations of tiles. It helps in selection of
the product/ design for the floor & walls. These also have customer support staff,
which advises on sizes, combinations & laying techniques.
The company has opened 11 retail European styled showrooms located in
various parts of the country. Kajaria Ceramics has also opened a showroom in
Melbourne, Australia.

The company is the largest exporter of ceramic tiles from India and accounts
for 40% of total exports of ceramic tiles from India. The Companys exports are
mainly to Australia, Sri Lanka, Bahrain, UAE, Saudi Arabia and Oman. The
12

company has won 7 exports award including the National Export award given in
May 2000.

The company has closed the Financial Year 2009-10 with a turnover of Rs
7667.54 million as against the turnover of Rs 6911.99 million in the corresponding
financial year. The turnover is high mainly because of increase in demand in
domestic market, effective cost control measures, better cash management and
reduction in the interest rate. The company has closed the turnover of the 1st
quarter of 2009-10 is 1598.8 million which ends on 30th of June.

13

MARKETING PATTERN

We have a manufacturing unit at Sikandrabad, Distt. Bulandshahar [U.P.]

and the other at Village- Gailput, Distt. Alwar (Raj.). We are manufacturing Floor
Tiles at Sikandrabad Plant & Wall Tiles at Gailpur Plant. We sell our goods
through dealers and also directly to Builders, Contractors and others. The prices
are charged as per price lists applicable for the particular area. On all the
clearances the Excise Duty is being paid under Section 4A on M.R.P. less
abatement. The goods are delivering at the Factory gate to the Buyer/ on behalf of
the Buyer to the transporter. The freight at actual is paid by the Dealer/Buyer
directly to the transporter at destination. In few cases, the freight at actual is paid
by us which is show separately in the Invoice and realized from the buyer/dealer.

14

COMPANYS BUSINESS MISSION & OBJECTIVES

BUSINESS MISSION
***********************

To maintain a leading position as suppliers of Ceramic Wall & Floor Tiles

the

company utilizes its capabilities and resources to expand the business into

allied areas and other priority sectors of the economy like housing projects etc

BUSINESS OBJECTIVES
*****************************

GROWTH
Expectations to ensure a steady growth by enhancing the competitive edge
of Kajaria Ceramics Ltd.

PROFITABILITY
To provide a reasonable and adequate return on capital employed, primarily
through improvements in operational efficiency, capacity utilization, productivity
and generate adequate internal resources to finance the companys growth.

15

CUSTOMER FOCUS
To build a high degree of customer confidence by providing increased value
for his money through international standards of product quality, performance and
superior services through dealer network.

PEOPLE ORIENTATION
To enable each employee to achieve his potential, improve his capabilities,
perceive his role and responsibilities and participate and contribute positively to
the growth and success of the company. To invest in human resources continuously
and be alive to their needs.

TECHNOLOGY
Achieve technological excellence in operations by development of
indigenous technologies and efficient absorption and adaptations of imported
technologies to suit business need and priorities and provide the competitive
advantage to the company.

IMAGE
To fulfill and the comply the relevant legislation regulations and the
expectations which employees, customers and the country at large have from
Kajaria Ceramics Ltd.
16

BOARD OF DIRECTOR

(As on 15.07.2010)

Mr. A. K. Kajaria

: Chairman & Managing Director

Mr. D. D. Rishi

: Jt. Managing Director

Mr. R. P. Goyal
Mr. D. P. Bagchi
Mr. R. K. Bhargava
Mr. R. R. Bagri
Mr. Chetan Kajaria
Mr. Rishi Kajaria

Mr. R. C. Rawat

: V.P. (F&A) & Company Secretary

Is the Compliance Officer of the
Company.

17

Committees of the Board

Audit Committee
Mr. R. P. Goyal

: Chairman

Mr. R.K. Bhargava

Mr. R.R. Bagri
Share transfer and Investors
Grievance Committee
Mr. R.R. Bagri

: Chairman

Mr. A. K. Kajaria
Mr. D. D. Rishi
Remuneration Committee
Mr. A. K. Kajaria

: Chairman

Mr. D.P. Bagchi

Mr. R. K. Bhargava
Mr. R. R. Bagri
Project Management Committee
Mr. A.K. Kajaria

: Chairman

Mr. D.D. rishi

Mr. Chetan Kajaria
Mr. Rishi Kajaria

18

KCL CONTRIBUTION IN INDIA

CORPORATION OFFICE
J-1/B-1 (Extn.), Mohan Co-operative Industrial Estate,
(Opp. Badarpur Thermal Power Station), Mathura Road,
New Delhi 110 044, India.
Phone: 26946409, Fax: 91-11-26946407, 26949544
Email: newdelhi@kajariaceramics.com
Website: http://www.kajariaceramics.com

REGIONAL OFFICE
MUMBAI : No.201-208, Bonanza, 2nd Floor, Shri Mathura das Vasanji
Road, (Andheri Kurla Road), J.B. Nagar, Andheri (East), Mumbai-400 059
Phone: 28203506, 28203507, Fax: 28203509,
Email: mum@kajariaceramics.com

KOLKATA: Central Plaza, 2/6, Sarat Bose Road, Flat No.807,

Kolkata 700 020
Phone: 24754820, 24762647, and 24763179 Fax: 24748012
Email: kol@kajariaceramics.com

19

AHMEDABAD:
202, Anand Mangal-II, behind Femina Town, C.G.Road, Navrangpura,
Ahmedabad.
Phone: 26465515, 26465516 Fax: 26566669
Email: ahm@kajariaceramics.com

CHENNAI:
28, North Usman Road, T.Nagar, Chennai-600 017
Phone: 28144323, 28144324 Fax: 28144323
Email: chn@kajariaceramics.com

COCHIN:
No.52, 2nd Floor, North Square, Paramara Temple road, Ernakulum, Kerala.
Phone: 2396433, 2393364 Fax: 2396433
Email: coc@kajariaceramics.com

REGISTERED OFFICE
A-27 & 28, Industrial Area, Sikandrabad, (Distt) Bulandshahr [UP]
Phone: (05735) 222819,222393, 223353 Fax: (05735) 222140
Email: skdgmw@kajariaceramics.com, skdaccts@kajariaceramics.com
skd@kajariaceramics.com

20

MANUFACTURING UNITS

KAJARIA CERAMICS LTD.SIKANDRABAD

A-27/28/29, Industrial Area, Sikandrabad, [Distt.] Bulandshahr {UP}
Tel; (05735-222393 / 222819

Fax ;( 05735)-222140

KAJARIA CERAMICS LTD.GAILPUR

19 KM Stone, Bhiwadi Alwar Road, Village Gailpur, Bhiwadi [Raj]
Tel.; [01493] - 243142, 243143, 243507/8/9

Fax: [01493] -243510

21

BANKERS & SOLICITORS

BANKERS: -

State Bank of India

Canara Bank
State Bank of Mysore
HDFC Bank Ltd.
State Bank of Indore
Oriental Bank of Commerce

SOLICITORS:Khaitan & Khaitan

New Delhi

22

MAJOR COMPETITORS OF KCL

Name of organization

State

NITCO

MAHARASHTRA

H & R JOHNSON

MAHARASHTRA MP, KA

SOMANY PILKINGTONS

HR, GJ

SPARTEK CERAMICS

ANDHRA PRADESH

BELL CERAMICS

GJ, KA

REGENCY CERAMICS

ANDHRA PRADESH

REGMA CERAMICS

TAMIL NADU

SAINTINY CERAMICS

ANDHRA PRADESH

SUNEARTH CERAMICS

MAHARASHTRA

ORIENT CERAMICS

UTTER PRADESH

ANANTRAJ INDUSTRIES

HARYANA

SAVANA TILES

GUJARAT

MURUDESHWER CERAMICS

KARNATAKA

EURO CERAMICS

GUJARAT

GOLD COIN CERAMICS

GUJARAT

23

TECHNICAL COLLABORATIONS

PRODUCT

COLLABORATIONS

CERAMIC GLAZED
WALL & FLOOR

TODAGRES, SPAIN TILES

24

INTERNAL CONTROL SYSTEM

The Company has well defined its internal controls in all areas of its
operations.

The Company has an independent internal audit activity, which

measures the efficiency, adequacy and effectiveness of other controls in the

organization.

A summary of audit observations are placed before the Audit

Committee of the Board of Directors. The Audit Committees recommendations

and directions are noted and action taken accordingly. The Company has well
defined the procedures to execute financial transactions.

25

AWARDS WON

Kajaria Ceramics Limited has been awarded the "Super

Brand" Title. Kajaria is the only ceramics tile company who has
won

the

status

of

consumers

"Super

Brand.

Mr. Ashok Kajaria (Chairman & Managing Director) receiving the

award presented by Honorable Minster for Civil Aviation, Mr.
Praful Patel

The company has had a unique distinction of having

received the President's Award for achieving the highest
exports in the industry.

Kajaria Ceramics is the largest exporter of ceramic tiles in

India

and

consistently

winning

the

Export

Awards.

Mr. Chetan Kajaria with the National Export Award Presented by

The Prime Minister of India.

26

SWOT ANALYSIS OF KCL

STRENGTHS

Low cost Producer of quality tiles. Flexible manufacturing set-up for longer
uniformity of product and comprising to international standards fully adaptation,
absorption of technology.

WEAKNESSES & RISKS

The ceramic tiles industry is dependent on the growth in the construction

and housing sector. In the Budget 02-03, tiles have been delisted from the SSI
category and accordingly all manufacturers of tiles come in the excise net. To
some extent they have arrived at the competitive level to the organized sector. But
due to their negligible overheads, tax evasion and copies of designs of organized
sector that retains the potential to under cut the organized sector. There is a stiff
competition within the organized sector which is putting pressure on the price also.

27

OPPORTUNITIES

Strong distribution network across the country and overseas market. With focus on
retail marketing to build and establish exclusive showrooms across the country and
overseas markets.
Using innovative display and communicating to customers through
exhibitions and trade shows for consistent brand building efforts.
Nurturing and cultivating highly skilled human work force by motivating
and rewarding them.

THREATS

The Company is continuously on the path to over come any threats arising
from imports / competition amongst the tile manufacturers by making the product
more competitive in terms of price and quality, which has been possible by
reducing the input costs and providing more value added items with dynamic range
of designs and colours.

28

QUALITY POLICY
(ISO 9001:2000)

We are committed to excel in all areas of Management to be a leader in the

manufacture of Ceramic Glazed Floor and Wall Tiles by complying with the
requirements of our customers, National and International Standards.

We shall achieve this through continual improvement in our Quality

Management System by increasing the productivity, reducing the costs, updating
and up-gradation of technology, optimum utilization of resources and active
involvement of all employees.

29

ENVIROMENTAL POLICY (EMS)

(ISO 14001)

KAJARIA CERAMICS LIMITED, Sikandrabad, Distt. Bulandshahr (UP)

an ISO9001:2000 Company manufacturing Ceramic Glazed Floor & Wall Tiles,
resolve to achieve excellence and leadership in protection the environment.

We are committed to:

Continual reduction in pollution, consumption of energy, raw material and

conservation of other natural resources.

Prevent Air, Land, Water, Noise pollution and Solid waste

Comply relevant environmental legislation regulations and organizations

environmental standards.

Provide awareness and training to all our employees on relevant

Environmental Management issues.

Its continual improvement and periodical

review of the same.

30

HEALTH & SAFETY POLICY (OHSAS)

(ISO 18001)

We believe that safe working methods lead to better business performance,

motivated work force and higher productivity.

We shall create a safety culture in organization by:

Continual improvement in Health and Safety Performance

Complying with all current applicable OH & S legislation and organizational

standards.

Empowering the relevant employees to ensure safety in their working area.

Promoting Safety & Health awareness among all employees, suppliers and
contractors.

Periodically reviewing the policy.

This policy shall be made available to the public.

31

SOCIAL ACCOUNTABILITY POLICY (SA)

(SA 8000)

Committed to:

Conformance of national and international standards requirements w.r.t.

Social Responsibility and Accountability.

Improve its social performance continuously to ensure better quality of life.

32

PRODUCT PROFILE OF KCL

PRODUCT

SIZE

INSTALLED CAPACITY

FLOOR TILES

300 x 300 MM

(At Sikandrabad Unit)

395 x 395 MM

9700000 M2

400 x 400 MM

WALL TILES

200 X 200 MM

(At Gailpur Unit)

200 X 300 MM

8300000 M2

250 X400 MM

33

PRODUCT DEVELOPMENT

The Company has consistently pioneered and brought in the latest

international quality products in India. During the year the Company launched
30X40 cm and 30X45 cm in rectified wall tiles and 45X45 cm joint free floor tiles.
It opened seven Kajaria world show room in 2008-09. This has set a new trend and
has inspired interior designers/architects to recast their designs to provide a better
combination series to discerning customers. The Company has also added a series
of new products namely Oasis/Bermuda/Ranger/Smoke. Leo/Diana/Alfa/Cedar etc
which has been widely accepted by the customers in the market.

34

MANUFACTURING PROCESS

Ceramic Floor Tile is mainly consists of two parts i.e. Body and Glaze.
Body is a mixture of triaxial body i.e. made of three different and distinguishable
Raw materials viz:

Hard materials like Quartz or Siliceous material.

Feldspar which acts as a flux on firing.

Different clays to give suitable properties required in green and fired stages.
All these materials are mixed in pre-determined quantitative proportions and
wet milled in Ball mill. The Body slip thus prepared is duly sieved and demagnetized and stored in under ground tanks and is converted into spray dried
granules in spray Drier.

Similarly, Glaze is prepared by mixing and wet milling of different

constituents like Frit, Feldspar powder, Quartz powder, China clay, Calcined
alumina, Zinc oxide and zirconium slicate in Ball mill depending upon the nature
of Glazes to be produced.
The spray dried granules are fed to the automatic hydraulic press to produce
tiles. These pressed tiles are bone dried in vertical drier by maintaining drier
temperature in the range 100-110 Deg.Cent. The dried tiles then sent to Glaze Line
35

through belt conveyor for Glaze application. Glazing is done in two coatings either
spraying by Disc or by campana depending upon the required surface followed by
screen printing and dry powder application as per design requirement.

The Glazed Tiles are automatically loaded in the box car and then transferred to
the track for roller hearth kiln feeding. At the kiln entry tiles are unloaded and fed
into the kiln in pre-determined firing cycle and temperature. The firing temperature
is in the range between 1130 to 1160 Deg.Cent. Depending upon the firing cycle.
At the kiln exit, the fired tiles are loaded in the box car and transferred to the

sorting section for selection. In Sorting Section, tiles are sorted as First, Second
and Utility depending upon the visible faults and packed in corrugated boxes and
sent to B.S.R. for dispatches.

Name of main Raw material:

Clays & Feldspar

Glaze material such as Quartz, Alumina, China Clay & Ball Clay

Frit

Stains & Pigments

Zirconium

36

RESEARCH AND DEVELOPMENT (R&D)

(1) Specified Areas in which (R&D) carried out by the Company:

Development of alternative basic Raw material / Glazes and its formulation

for cost reduction with standardization of method in preparation of Body /Glaze for
longer uniformity.

Research for further indigenizing pigments/frits for achieving lower firing

cycle and better quality/consistency with increase in the production of tiles.

Installation of Surface Glaze Application Machine and upgraded B&T Storage

Handling Machines at Kiln Feeding & Exit point.

37

(2)

Benefits derived as a result of the above R & D

The Company is able to reduce the cost of raw material, fuel & spare cost.

Several new orders have been received by the Company due to this R&D in
the area of special purpose of laying wall & floor tiles.

The product has become more effective and preferable to all type of
consumers due to its products availability in wide range of floor & wall tiles.

(3)

Future plan of action:

The Company has always been a leader in producing special effect Wall &
Floor Tiles that shares the advantage of existing market scenario.

Introduction of special effect of Wall & Floor tiles in larger sizes and
offering new look completely different from other manufacturers.

Up-gradation and obtain the technique for producing the extra ordinary tiles
which would be staining resistance and excellent quality.

38

To improve Companys infrastructures and R&D team, so that all products

go through an exhaustive Quality Control by use of cheaper and reliable inputs
both Imported and Indigenous.

(4)

Company is going to have the captive power co-generation plant

based on waste heat recoveries from Kiln & Spray Driers.

39

Expenditure on (R&D)

(Rs.in Million)
2009-2010
Capital

2008-2009

--

--

Recurring

0.82

0.20

Total

0.82

0.20

Total R&D expenditure as a

Percentage Of total turnover. (%)

0.011

0.003

40

PERFORMANCE OF THE COMPANY

During the year, the company has registered a turnover of Rs.7667.54

Million as compared to Rs.6911.99 million in the previous year, showing a growth
of more than 11%. Despite cut in Natural Gas supply at Sikandrabad Plant and
substantial increase in fuel prices, the profit before interest, dep & tax has
increased from Rs.127.5 million to Rs.514.4 million showing an increase of 304%,
The profit for the year has been higher mainly on account of increased demand in
domestic market, effective cost control measures, better cash management and
reduction in the interest cost.

The performance of the Company for the past years (since beginning) has
been shown graphically.

41

TURNOVER CHART
(Rs. In Million)

'09-10

7667.54

'08-09

6911.99

'07-08

5289.07

'06-07

4368.03

'05-06

3517.92

'04-05

3003.96

'03-04

2491.8

'02-03

2102.4

'01-02

2278.4

YEAR

00-01

2359.3

99-00

2450.8

98-99

1939.4

97-98

1362.2

96-97

1302.1

95-96

1184.8

94-95

730.9

93-94

487.3

92-93

457

91-92

358.6

90-91

251.6

89-90

152.1

88-89

68.3
0

1000

2000

3000

4000

5000

6000

7000

8000

9000

88- 89- 90- 91- 92- 93- 94- 95- 96- 97- 98- 99- 00- '01- '02- '03- '04- '05- '06- '07- '08- '0989 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
(Rs. In Million) 68.3 152 252 359 457 487 731 1185 1302 13621939 2451 23592278 2102 24923004 3518 43685289 6912 7668
TURNOVER Rs. IN Million

42

NET PROFIT
(Rs. In Million)
'09-10

358.52
89.01

'08-09
'07-08

150.23

'06-07

76.73

'05-06

281.71
254.88

'04-05
'03-04

135.4

'02-03

99.3

'01-02

26.3

YEAR

00-01

68.3

99-00

110.6

98-99

67.5

97-98

148.3

96-97

201.9

95-96

210.2

94-95

129.5

93-94

86

92-93

53

91-92

40.4

90-91

25.6

89-90

7.4

88-89

0.1
0

50

88-89

(Rs. In M illion)

0. 1

100

150

200

250

300

350

400

89-90 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 '01-02 '02-03 '03-04 '04-05 '05-06 '06-07 '07-08 '08-09 '0 9-10

7.4

25. 6

40.4

53

86

129. 5 210.2

201. 9 148.3

67.5

110.6

68.3

26. 3

99. 3

135. 4 254. 88 281.71 76.73 150.23 89. 01 358. 52

NET PROFIT Rs. IN LAC

43

CAPACITY CHART

2010

238000

2009

170000

2008
2007
2006
2005
2004

150000

2003
2002
2001

YEAR

2000
1999
1998
1997

90000

1996
1995

80000

1994

60000

1993
1992

40000

1991
1990

26000

1989
1988

12000.000

50000

100000

150000

200000

250000

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

M Tonne

1200

2600

4000

6000 8000

9000

2E+0

2E+0 2E+0

MT UPTO 1988 SQ,MTR FROM 2010

44

PRODUCTION CHART
GLPR
SKBD

2003

54642

63208

2002

76198

2001

76417

72409

1999

YEAR

90682

74599

2000

92817

81696

2063

1998

91028

1997

84793

1996

80713

1995

56667

1994

40675

1993

40038

1992

32420

1991

25167

1990

15156

1989

8809
0

20000
1991

1992

40000
1993

1994

1995

60000
1996

1997

80000
2000

2001

100000

1989

1990

8809

15156 25167 32420 40038 40675 56667 80713 84793 91028 81696 92817 90682 97910 54642

GLPR
SKBD

97910

1998

1999

2002

2063

72409 74599 76417 76198 63208

120000

2003

MT UPTO 2002 & SQ.MTR FROM 2003

45

ORGANISATION CHART OF FINANCE DEPARTMENT

CHAIRMAN & MANAGING DIRECTOR

Mr. Ashok Kajaria

JT. MANAGING DIRECTOR

Mr. D.D.Rishi

V. P. (FIN. & A/C) & CO.SECY

Mr. R.C.Rawat

AGM (A/C)
MR. ANIL PARABHAKAR

SR. MGR. (A/Cs)

MR. ARUN LATH

Dpt. Manager (A/Cs)

MR. DEEPAK GUPTA

46

KAJARIA CERAMICS LTD

****** ANNUAL REPORT 2009-2010*****

47

BALANCE SHEET
BALANCE SHEET
AS ON 31 MARCH 2010
PARTICULARS

SCHEDULES

(Rs in Millions)
2009-10 2008-09

SOURCES OF FUNDS :
Shareholder Funds:
Share Capital
Reserves & Surplus

1
2

147.17
1746.23
1893.40

147.17
1473.51
1620.68

Loan Funds
Secured Loans
Unsecured Loans

3
4

2588.28
40.00
2628.28
548.52
5070.20

2926.67
325.00
3251.67
534.55
5406.90

5435.46
1987.57
3447.89
25.43
3473.32

5014.92
1738.39
3276.53
--------3276.53

33.94

33.94

8
9
10
11

1402.55
773.21
44.91
755.76
2976.43

1384.57
678.04
78.87
826.82
2968.30

12
13

1197.69
215.80
1413.49
1562.94
5070.20

829.85
42.02
871.87
2096.43
5406.90

Differed Tax Liabilities

Total
Application of Funds
Fixed Assets:
Gross Block
Less : Accumulated Depreciation
Net Block
Capital Work-in-progress

Investments
Current Assets, Loans & Advances
Inventory
Sundry Debtors
Cash and Bank Balance
Loans & Advances

(A)
Less : Current Liabilities & Provisions
Current Liabilities
Provisions
(B)
Net Current Assets
(A-B)
Total Assets..

48

PROFIT AND LOSS (Rupees in Crores)

PROFIT AND LOSS ACCOUNT
AS ON 31 MARCH 2010
PARTICULARS

SCHEDULES

INCOME :
Sales (Gross)
Less: Excise Duty On sales

(Rs in Millions)
2009-10 2008-09
7667.54
312.18
7355.36
8.24
2.75
7366.35

6911.99
263.16
6648.83
9.96
-109.47
6549.32

4811.17
612.84
51.63
298.78
435.21
375.24
267.06
6851.93

4,485.61
504.87
46.67
240.94
311.97
582.42
249.37
6421.85

Profit Before Tax

514.42

127.47

Provisions for:
Income Tax
Fringe Benefit Tax
Deferred Tax
Income Tax/Wealth Tax Adjustment

130.00
--13.97
11.93

16.80
8.00
12.55
1.13

Profit After Tax

Balance as per last year
Profit Available for Appropriation

358.52
819.03
1,177.55

88.99
728.51
817.50

73.58
12.22
100.00
-2.40

14.72
2.50
----18.75

994.15
1,177.55
4.87

819.52
817.50
1.21

Other Income
Increase / decrease in stocks

14
15

EXPENDITURE :
Material Manufacturing & Other Expenses
Salaries, Wages and Amenities
Repairs and Maintenance
Administrative & Other Expenses
Selling & Distribution Expenses
Financial Charges
Depreciation

Appropriation
Proposed Dividend on Equity Shares
Corporate Dividend Tax
Transfer to General Reserve
Transfer from Debenture Redemption Reserve
Surplus carried Over
Basic/Diluted Earnings per share (Rs.)

16
17
18
19
20
21

49

Significant Accounting Policies and Notes on Accounts

22

50

Introduction

Financial Analysis is the process of determining the operating & financial

characteristics of a firm from accounting data & financial statement. The goal of
such analysis is to determine efficiency & performance of the firm management, as
reflected in the financial records and reports. Its main aim is to measure the firms
liquidity, profitability and other indications that business is conducted in a rational
and orderly way.

The basic financial statement

Of the various reports that the companies issue to their shareholder, the
annual report is by far the most important. Two types of information are given in
this report, first there is a text that describes the firms operating results during the
past year and discusses new development that will affect future operations. Second
there are few basic financial statements the income statement, the balance sheet,
the statement of retained earnings and the sources and uses of funds statements.

The financial statement taken together give an accounting picture of the

firms operation and financial positions.

51

Financial statement analysis is largely a study of relationship among the

various financial factors in a business as disclosed by a single set of statements,
and a study of trends of these factors as shown in a series of statements

--- John N. Myer

The analysis and interpretation of financial statement are an attempt to

determine the significance and meaning of the financial statement data so that the
forecast may be made of the prospects for future earnings, ability to pay interest
and debt maturities (both current & long term) and profitability of a sound
dividend policy

--- R.D. and S. % Mc Muller

Thus, analysis of financial statement means such a treatment of the

information contained in the financial statement as to afford a full diagnosis of the
profitability and financial position of the firm concerned.

52

Nature of financial statement

According to the American institute of certified public accountants

financial statement reflected a combination of recorded
facts, accounting conventions and personal judgments.

Objective of financial analysis

The number and types of people interested in financial statements have
changed radically over a period of time.

They need varied information and

fortunately such information may be classified as relating to profitability, liquidity

and solvency.
The Project ANALYSIS AND INTERPRETATION OF FINANCIAL
STATEMENTS is undertaken to fulfill the following objectives.
To estimate the earning capacity
To gouge the financial position and financial performance of the firm
To determine the long terms liquidity of the funds as well as solvency
To determine the debt capacity of the firm
To decide about the future prospective of the firm

53

Types of Financial Analysis

Financial analysis may be classified into different categories dependency upon
The material used
The method of operation followed in the analysis

Graphical representation
Financial Analysis

The material used

the method of operation followed in the Analysis

Internal

External

Horizontal

Vertical

Analysis

Analysis

Analysis

Analysis

54

(a) According to material used

Internal analysis this is performed by the corporate finance and
accounting
Department and is more detailed than external analysis. These departments
have available more details and current information that is available to outsiders.
They are able to prepare perform or future statements and are able to produce a
more accurate and analysis of the firms strength and weakness.
External analysis outsiders to the firm such as creditors, stock-holders or
investment analysis perform this. It makes use of existing financial statement and
involves a limited access to confidential information on a firm.

(b) According to modus operation of analysis

Horizontal analysis this method of classified is based on the modus

operandi of analysis. Horizontal analysis refers to the comparison of the trend of
each item in the financial statement over a number of years or companies. The
figures of this type of analysis are presented horizontally over a number of
columns. Such a column represents a year of a company. This type of analysis is
also called dynamic analysis as it is based on data from year to year, rather than
on data of any one year

55

Vertical analysis it is frequently used for referring to ratios developed for

one data or one accounting period. Vertical analysis is also called static analysis.
This is not very conductive to a proper analysis of the firms financial position and
its interpretation as it does not enable to study data in respective. This can only be
provided by a study conducted over a number of years so that comparison can be
affected. Therefore, vertical analysis is not very useful.

56

Financial Ratio & Utility

A ratio may be defined as a fixed relationship in degree or number between

two numbers. In finance, ratios are used to point out relationship that is not
obvious from the row data. Some uses financial ratios are following

(1) To Compare Different Companies in Some Industry: ratio can high

light the factors association with successful and unsuccessful firms. They can
reveal strong firms and weak firms, overvalued undervalued firms.

(2) To Compare Different Industries: Every industry has its own unique
set of operating and financial characteristics. These can be identified with the help
of ratios.

(3) To Compare Performance In The Different Time Periods: Over a

period of years, a firm or a industry develop certain forms that may indicate future
success or failure. If relationship changes in firms data over different time periods,
the ratio may provide clues and trends of future problems.

57

Utility of Financial Analysis

Following are the advantages of Financial Analysis

With the help of ratios we can determine the ability of the firms to meet its
current-obligation.
Overall operating efficiency and performance of the firm.
Efficiency with which firms is utilizing its various assets in generating
sales Revenue.
Ratios help in inter-firm and intra-firm comparison.
They help in determining the financial strength by highlighting the
liquidity.
They are useful in comparison of performance.
They are also useful in forecasting purpose.

58

59

INTRODUCTION

The ever changing, external & internal environment in which the organization
operates to achieve its goal has often leaded to change in the financial structure of
the firm. This change may be in the assets structure, capital structure or any other
such type of the change have often been found out of bring changes in the liquidity
position, level of activity & profitability of organization.

To be aware of various positions parties concerned with the organization often

go for the various type of analysis one of them being financial analysis, that is
done to know about the present performance of the firm in which they are either
going to invest or do business, with. The responsibility of management to look
after the effective & efficient utilization of resources of the overall sound financial
situation of the organization, increase their requirement to have a detailed report on
probably each & every aspect of financial position which may be liquidity,
activity, profitability.

The presentation of an elaborate system of ratio analysis was made in 1909 by

Alexander wall, who criticized the bankers for its lopsided development owing to
their decisions regarding the grant of credit on current ratios alone.

60

Wall, one of the foremost proponents of ratio analysis, pointed out that, in
order to get a complete picture, it is necessary to consider relationship in financial
statement other than that of current assets to current liabilities relationship that
might be measured quantitatively and used as checks on current ratio. Since then,
comprehensive analysis by means of calculation of a series rapidly became all the
range.
Based upon their wide range of requirement the general trend is of going for
the financial ratio analysis, which is also considered to be the most effective one
capable of giving detailed & accurate information, more detailed & accurate than
any other type of financial analysis.
Financial ratio analysis is an arithmetic relationship between two figures.
Financial ratio analysis is a study of ratio between various items of groups of
items in financial statement. It also based upon various financial ratios, which are
calculated from the data provided in companys balance sheet & profit and loss
account.
As per I.M. Pandey Financial ratio in the relationship between two
accounting figures, expressed mathematically .
In addition to the analysis based on current year financial ratio comparison
with previous year help us in establishing various methods. Which are further
helpful in predicting the future of the concern as well as present financial situation?

61

This report is submitted as a part of brief study of financial condition of

KCL. This report has been prepared for the management purpose to make them
aware of the unit in the various fields of finance.

Detailed analysis is also a part of this report, which is based upon various
ratios calculated & various trends seen. Each & every ratio has been analyzed
briefly & adequately followed by various inferences & suffusions based on this
analysis, which is beneficial for the Top-level Management in the better financial
control & planning for future.

This report is just a part of feedback to the Top-level Management for the
various plans they made regarding allocation of financial resources etc, which were
implemented, in the current financial year.

This report can give a deep insight into various matters if any implementation
of the plans for achieving the objective of the firms.

Various other factors are there which limit the accuracy & correctness of the
report. Even then a great effort has been kind of analysis & interpretation on
personal level.

62

NATURE

Ratio analysis is a powerful tools a financial analysis. In financial analysis, a ratio

is used as a benchmark.

For evaluating the financial position & performance of the firm. The relationship
between two accounting figures, expressed mathematically, is known as a financial
ratio.

Ratio helps to summarized large quantity of financial data & to make

qualitative judgment about the firms financial performance.

This relationship is an index or yardstick, which permits qualitative judgments to

be, formed about the firms ability to, meets its current obligations.

It measured the firms liquidity.

The greater the ratio, the greater the firms

liquidity & vice-versa. The point to be note is that a ratio reflecting a quantitative
relationship helps to form qualitative judgments. Such is the nature of all financial
ratios.

63

USES OF FINANCIAL ANALYSIS FOR DIFFERENT PARTIES

The analysis and interpretation of financial is an important accounting

activity. The end users of business statement are interested in these statements
primarily as an aid to determine the financial position and the results of the
operations. There are different parties interested in the financial analysis of their
statement and their aims and to different parties:

To the financial executives : The first party interested in the financial statements
analysis is the finance department of the business concern itself to the financial
managers such analysis provides a deep insight into the financial condition of the
enterprises and the view of the past performance which helps in future decision
making. The financial statements give vital information concerning the position of
the enterprise as well the result of the operations.

To the top management: The top management of the concern is also increase in
the analysis of these statements because it helps them reaching conclusions
regarding:
Performance appraisal of overall business activities.
Enquire about current financial position and long-term strategic planning.
Queries concerning the relationship of earning to trends in sales etc.
Queries concerning the relationship of earning to investment.
64

To the creditors:

The analysis of these statements is very essential to the

creditors. Also some aspect of enterprises operations are of interested to creditors

in regard to liquidity of funds, soundness of financial structure, profitability of the
operations, effectiveness of working capital management etc.

To the investors and others: Investors presents as well as prospects are also
interested in the measurement of earning capacity of the securities. Investors have
been increasingly concerned with the cash generation capability of an enterprise,
primarily in term of the flexibility available to such enterprise to acquire other
business and new assets on an advantage basis for Thai purpose.

65

ADVANTAGES OF RATIOS

The ratio analysis is one of the most powerful tools of financial analysis. It is use
as a device to analysis and interprets the financial health of enterprise. Just like a
doctor examines his conclusion regarding the illness and before giving his
treatment, a financial analyst analyses the financial statement with various tools of
analysis before commenting upon the financial bearlth or weakness of an
enterprise. A ratio is known as a symptom like blood pressure, the pulse rate or
the temperature of the individual. It is with help of ratios that the financial
statements can be analyzed and decision made from such analysis.

HELPS IN DIVISION MAKING: Financial statements are prepared primarily

for decision making, but the information provided in financial statements is not an
end in itself and no meaningful conclusions can be drawn from these statements
alone. Ratio analysis helps in making decisions from the information provided in
these financial statements.

HELPS IN FINANCIAL FORCASTING AND PLANNING: Ratios analysis is

of much help in financial forecasting and planning. Planning is looking ahead and
the ratios calculated for a number of years work as a guide for the future.
Meaningful conclusions can be drawn for future from these ratios. Thus, ratio
analysis helps in forecasting and planning.
66

HELPS IN COMMUNICATING: The financial strength and weakness of a firm

are communicated in a more easy and understandable manner by the use of ratios
the information contained in a financial statements conveyed in a meaningful
manner to the one for the whom it is meant. Thus, ratios help in communicating
and enhance the value of financial statements.

HELPS IN COORDINATION: Ratios even helps in coordinating, which is

utmost important in effective business management. Better communication of
efficiency and weakness of an enterprise results in better coordination in the
enterprise.

HELPS IN CONTROL: Ratio analysis even helps in making effective control of

the business. Standard ratios can be based upon Performa Financial Statements
and variance or deviations, if any, can be founded by comparing the actual with the
standards so as to take corrective action at the right time.

The weakness or

otherwise, if any, come to the knowledge of the management which helps in

effective control of the business.

67

ROLE OF FINANCIAL RATIO

Aid in financial forecasting:

Ratio analysis is very helpful in financial

forecasting. Ratio relating to the past sales, profits & financial position from the
basis for setting future trends.
Aid in comparison: With the help of ratio analysis ideal ratio can be composed &
they can be used for comparing a firm progress & performance.

Inter firm

comparison with the industry averages is made possible by ratio analysis.

Financial solvency of the firm: Ratio analysis indicates the trend in financial
solvency of the firm. Solvency has to dimensions:
Long-term Solvency
Short-term Solvency
Long term solvency refers to the financial viability of the firm while Short-term
solvency is the liquidity position of the firm.

Communication values: Different financial ratios communicate the strength &

financial standing of the firm to the internal & the external parties. They indicate
overall profitability of the firm

Other uses: Financial ratios are very helpful in the diagnosis & financial health of
a firm. They highlight the liquidity, solvency, profitability & capital gearing etc.
of the firm. They are useful tools of analysis of financial performances.

68

OBJECTIVE OF THE STUDY

An analysis of financial statements with the help of ratio may be termed as

Ratio Analysis. It implies the process of computing determining & presenting
the relationship of the terms or group of items of the financial statements. It also
involves the comparison & interpretation of these ratios & use of them for future
projections.

And the fund flow arises when the net effect of the transaction is to increase or
decrease the amount of working capital.

Normally, a firm will have some

transactions that will change net working capital & some that will cause no change
in net working capital include most of items of profit & loss account and those
business events, which simultaneously effect both current & non-current balance
sheet items.

CLASSIFICATION OF RATIOS

Ratio may be classified in a number of ways to suit any particular purpose.

Different kinds of ratio statement are selected for different types of situations.
Mostly, the purpose for which the ratios are used and the kind of the data available
determine the nature of analysis. In general, the following basis of classification is
in vogue.
69

(a) Traditional classification or classification according to the statements

from which ratios are derived:
A basis of classification of ratios which readily suggests itself is according to the
statement to which the determinants of a ratio belong. From this angle, ratios are
classified as thus:

(1) Balance Sheet Ratios: these ratios are also called financial ratios. They
deal with the relationship between two items, or group of item, which are
together in the balance sheet, example current ratio, liquid ratio, proprietary
ratio, fixed assets ratio, capital gearing ratio, and debt equity ratio.

(2) Profit & Loss Account Ratios: these ratios are also called operating ratios.
The items used for the calculation of these ratios are usually taken out from the
profit and loss statement. Example operating ratio, expensive ratio, net profit
ratio, gross profit ratio, stock turnover ratio.

(3) Inter-statement ratios or combined ratios: the information required for

the compilation of these ratios is normally drawn from both the balance sheet, and
profit & loss account.

Example Return on capital employed, return on

proprietors funds or share holders investment, and return on total investment,

debtors Turnover ratio, creditors turnover ratio, fixed assets turnover ratio,
working capital turnover ratio.
70

(b) Classification according to tests satisfied or functional classification:-

Robert N. Anthony suggested that ratios may be grouped the basis of certain tests
which satisfy needs of the parties having financial interest inventory the business
concern. These tests are:

Test of liquidity
Test of profitability
Market tests

(c)

Classification from the point of view of financial management or

classification according to nature:

This standard of classification envisages the organization of accounting ratios into

four fundamental types which are as follows;

(1) LIQUIDITY RATIOS

Liquidity refers to the ability of the firm to meet its obligations inventory the shortrun, usually one year. Liquidity ratios are generally based on the relationship
between current assets and current liabilities (the sources for meeting short-term
obligations). Example: Current ratio, Acid test ratio.
71

(2) LEVERAGE RATIOS

Capital structure ratio

Earnings ratio
Dividend ratio

Financial leverage refers to the use of debt finance. While debt capital is analysis
cheaper source of finance, it is analysis riskier source of finance. Leverage ratios
helps inventory assessing the risk arising from the use of debt capital. They are
also known as capital structure ratios. Example: Debt-to-equity ratio, fixed assets
to net work, interest coverage ratio.

(3) ACTIVITY RATIOS

They are also called turnover ratios or asset management ratios. They measures
how efficiently the assets are employed by the firm. These ratios are based on the
relationship between the level of activity and the level of various assets. Example:
Fixed assets turnover, Stock turnover, Debtors turnover, Creditors turnover, Total
assets turnover ratio.

These ratios would also indicate the profitability position of the business.

72

(4) PROFITABILITY RATIOS

Profitability reflects the final result of business operations. There are two
types of profitability ratio.

Profit margin ratios

Rate of return ratios

A profit margin ratio shows the relationships between profit and sales. Rates of
return reflect the relationship between profit and investment.

(d) Classification According To Importance:

Some ratios when related to the main objective of the business purpose of analysis
may be more important than others.

This basis classification has been

recommended by the British Institute of Management for inter-firm computations

and the following types have been suggested by the institute:

(i) Primary Ratios:

The primary motive of any commercial under taking is profit and therefore,
ratios like profit-to-sales, return on capital employed may be termed as primary
ratios to such an undertaking.
73

(2) Secondary Ratios:

These ratios are mainly used to explain the primary ratios. They are also
known as subsidiary or supporting ratios. Taking the ratio of return on capital
employed as the primary ratio, the following ratios may be grouped as secondary
ratios:
(a) Profit and Earning ratios
(b) Cost or expenses ratios
(c) Turnover ratios
(d) Capital and related ratios

74

SHORT-TERM SOLVENCY OR LIQUIDITY RATIOS

Liquidity ratios play analysis key role in the analysis of the short-term financial
position of analysis business. Commercial banks and other short-term creditors are
generally interested in such an analysis. However, managements can employ these
ratios to ascertain how efficiently they utilize the working capital in the business.
Shareholders and debenture-holder and long-term creditors can use these ratios to
assets the prospects of dividend and interest payments.

This type of ratios

normally indicates the ability of the business to meet the maturing or current debts,
the efficiency of the management inventory utilizing the working capital and the
progress attained inventory the current financial position.

Description of Principal Ratios:-

1. Current Ratio

Current ratio may be defined as the ratio of current assets to current liabilities. It is
also known as working capital ratio or 2 to 1 ratio. Current ratio shows the
relationship between total current assets and total current liabilities.

75

Components
Current assets normally include cash in hand or at bank, marketable securities
other short-term high quality investment bills receivable, prepaid expenses, workin-progress, sundry debtors and inventories. While current liabilities are composed
of sundry creditors, bills payable, outstanding and accrued expenses, income tax
payable.
Expressed as a formula, the current ratio is as follows:
Current Assets
Current Ratio =

----------------------Current Liabilities

2009-10
2976.43
Current Ratio =

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

= 2.11:1

1413.49

2008-09

2968.30
Current Ratio =

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

= 3.40:1

871.87

76

Explanation:
Coming to KCL the current ratio is 2009 has decreasing in comparison year 2008.
The ratio of 2009 shows that the assets are 2.11 times of current liabilities. Current
Assets should be one and half of current liabilities. According to KCL report is
improving. A low current ratio indicates that the enterprise is short of funds for
honoring its commitment and this was lead to insolvency. On the other hand a
very high current ratio indicates that the firm has a very large amount of current
assets Many times higher than that of current liabilities.
This is a situation of high liquidity and is indicative the existence of excessive
current assets.

2. Acid Test Ratio or Liquid Ratio

Acid test Ratio or Liquid ratio, as it is sometimes called is concerned with the
relationship between liquid assets and liquid liabilities to supplement the
information given by the current ratio. In many lines of business a concern whose
current assets consist largely of inventory can very early become technically, if not
actually; insolvent within analysis very short period of time and this is the rationale
of the term Acid-Test Ratio

77

Components:
Liquid Assets = Current Assets Inventory.
Generally, this ratio is considered to be good if it is 1:1. It shows the relationship
of quick cash-yielding assets to current liabilities.

Expressed as a formula, the liquid ratio is as follows:

Quick Assets
Liquid Ratio =

----------------------Current Liabilities

2009-10
1573.88
Liquid Ratio =

--------------- = 1.11:1
1413.49

The quick ratio is increasing over the period 2008 to 2009. With the help of quick
ratio we analysis the inventory level. The quick ratio analysis gives better picture
than the current ratio towards the payment of current liabilities. It is used to test
the short-term liquidity of the firm in its correct form and represent good position.

78

LONG-TERM SOLVENCY ANALYSIS

Bankers and other short-term creditors are most interested in the current debtpaying ability of business, so the share holders and debenture holders are mainly
concerned with the long-term financial prospects. However, neither group may
logically ignore the financial aspects of primary interest to the other so that both
these groups concern themselves with current and prospective earnings. Some
selected solvency ratios are discussed below:

(a) Debt-Equity-Ratio

Debt-to-equity ratio relates all external liabilities to owners recorded claims. It is

also known as External-Internal Equity Ratio. It is determined to measure the
firms obligations to creditors in relation to the funds invested by the owners.

Components: The term external equities refers to total outside liabilities and
internal equities includes all claims of preference share holders and equity share
holders such as share capital and reserves and surplus. Outside liabilities include
all debts, whether long-term or short-term or in the form of mortgages, bills or
debentures. But when used as analysis long-term financial ratio, only term debts
like debentures etc are to be considered.

79

In generally, Debt-to-equity ratio 2:1 is acceptable.

2009-10
Debt

2628.28

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

1.39:1

1893.40

The ratio indicates the degree of protection provided to the lenders. The lower the
ratio the higher will be the degree of protection. As a general rule, this should not
exceed 2:1. If the debt equity ratio is more than that is shows a rather risky
financial position from the long-term point of view. This ratio shows favorable
condition of KCL.

(b) Proprietary Ratio

This is a variant of the debt-equity ratio. This ratio relates the share holders funds
to total assets. It is calculated by dividing the share holders funds by the total
tangible assets. This ratio indicates the long-term or future solvency position of
the business. It is also known as Equity to total assets ratio or Net Worth to total
Assets ratio.

80

This ratio throws light on the general financial strength of the company.
Higher the ratio, the better it is for all concerned.
2009-10
Proprietary or Shareholder Funds
Proprietary Ratio = -----------------------------------------------Total Assets or Total Equities
1893.40
Proprietary ratio =

------------------------- =

0.37

5070.20

This ratio indicates the long term or future solvency position of the business.
Analysis high ratio shows that there is safety for creditors of all types. A ratio
below 50% may be alarming for the creditors since they may have to lose heavily
in the event of companys liquidation on account of heavy losses.

(c) Ratio of Fixed Assets to Proprietors funds:

This ratio establishes the relationship between fixed assets and shareholders funds.
The purpose of this ratio is to indicate the percentage of the owners funds invested
in fixed assets.

81

Fixed Assets (after depreciation)

Fixed Assets to Proprietors Fund = -----------------------------------------Proprietors funds

3447.89
Fixed Assets to proprietors fund

-------------- = 1.82 or 182%

1893.40

D. Ratio of Current Assets to Proprietors Funds

This ratio establishes the relationship between current assets and share holders
funds. The purpose of this ratio is to indicate the percentage of share holders
funds invested in current assets.
Current Assets
Current Assets to Proprietors funds Ratio =

---------------------Proprietors Funds

2009-10
2976.43
Current Assets to Proprietors funds Ratio

------------- = 1.57 or 157%

1893.40

82

Solvency Ratio

The difference between proprietary ratio as % and 100 percents the ratio is
solvency ratio. This ratio indicates the relationship between total liabilities & total
assets of the business. So it is also known as Ratio of total liabilities to total
assets.
2009-10
Total Liabilities
Solvency Ratio

----------------------Total Assets
4041.77

Solvency Ratio

----------------------- = 0.63 or 63%

6449.75

(f) Fixed Assets Ratio or Ratio of Capital and Long-Term Funds to Fixed
Assets: The ratio of long-term loans to fixed assets is important and another
aspect of long-term financial policy.

83

Components: Fixed assets will mean cost less depreciation or net fixed assets. It
will also include trade investments.

Long-term funds will mean equity share

capital, preference share capital, reserves, debentures and long term loans.
2009-10

Fixed Assets Ratio =

Share holders Funds + Long term loans /

Net Fixed Assets

5070.20
Fixed Assets Ratio = --------------- = 1.45
3507.26

It is also known as Capital Employed to Fixed Assets Ratio.

2009-10
Net Fixed Assets
Fixed Assets Ratio =

----------------------Capital Employed
3447.89

Fixed Assets Ratio

------------------ = 0.76
4521.68

84

This ratio gives an idea as to what part of the capital employed has been used in
purchasing the fixed assets for the concern. If the ratio is less than 1 it is good for
the concern.
G. Debt Service Ratio

This ratio relates the fixed interest charges to the income earned by the business. It
is also known as Interest Coverage Ratio. It indicates whether the business has
earned sufficient profits to pay periodically the interest charges.
2009-10
Net Profit before Interest and Tax
Debt Service Ratio =

-----------------------------------------------Fixed Interest Charges

889.66

Debt Service Ratio =

-------------------------- = 2.37
375.24

In 2009, debt service ratio is higher than 2008 & 2007.

85

B. TEST OF PROFITABILITY

The main object of analysis business concern is to earn profit. In general terms,
efficiency in business is measured by profitability. Profit as compared to the
capital employed indicates profitability of the concern. If analysis concern goes on
losing, its financial condition will definitely be bad sooner or later. Profits enable
analysis firm to improve its financial strength; there, ratios based on profitability
are termed casual ratios, indicating the causes of the present or expected
financial position. These ratios are designed to highlight overall efficiency of
analysis business concern. Thus, analysis measures of profitability are the overall
measure of efficiency.
(1) Gross Profit Ratio
This ratio shows the relationship of sales with the direct costs such as purchases,
manufacturing cost etc and thus is important.
2009-10
Gross Profit
Gross Profit Ratio =

------------------- * 100
Net Sales
2555.18

Gross Profit Ratio =

---------------- * 100 = 34.74%

7355.36
86

Any fluctuation in this gross profit is the result of a change either in sales or the
cost of goods sold or both. Thus, this ratio shows the average margin on goods
sold.
The gross profit is what is revealed by the trading account. It results from the
difference between not sales and cost of goods sold without taking into account
expenses generally charged to the profit and loss account.

Operating Ratio: - This ratio establishes the relationship between operating profit
and sales and is calculated as follows:
2009-10
Operating Profit
Operating Profit Ratio =

----------------------- * 100
Net Sales
1156.72

Operating Profit ratio =

-------------- * 100 = 15.73%

7355.36

Where
Operating Profit = Net Profit + Non-Operating Expenses Non Operating Income

OR
Gross Profit Operating expenses
87

Operating ratio as follows:

Operating profit Ratio = 100 Operating Ratio
Operating Profit margin is greater than 2008 and 2007. This ratio indicates the
portion remaining out of every rupee worth of sales after all operating costs and
expenses, have been met. Higher the ratio better it is.

(3) Expenses Ratio: Expenses ratios are calculated to ascertain the relationship
that exists between operating expenses and volume of sales. These ratios are
calculated by dividing the sales into each individual operating expense. It indicates
the portion of sales which is consumed by the various operating expenses. Thus,
such an analysis will throw good light on the levels of efficiency prevailing in
different aspects of the work. It is useful to work out the following ratios which
will total up to the operating ratios:

Ratio of Materials used to sales:

Direct Material cost / Net Sales x 100

Ratio of Labor to sales:

Direct Labor cost / Net Sales x 100
Ratio of Factory expenses to sales:
Factory expenses / Net sales x 100

88

Ratio of Office and Administration exp to sales:

Administrative Exp. Ratio = Office & Admin. Expenses / Net sales x 100
Selling Expenses Ratio

= selling & distribution exp / Net sales x 100

Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales x 100
Generally all these ratios are expressed in terms of percentage
2009-10
Operating Exp.
Operating Expenses Ratio

----------------------- * 100
Net Sales
1665.52

Operating Expenses Ratio

= ----------------

* 100 = 22.64%

7355.36

(4) Net Profit Ratio:

We all know that gross profit is not the final profit- it is the net profit which is
really significant. Therefore, a ratio of net profit to sales (also called net margin) is
worked out; but in this case the profit considered is profit before interest. This is
the ratio of net income or profit after takes to net sales. Net Profit, as used here, is
the balance of profit and loss account which is arrived at after considered all nonoperating income such as interest an investment, dividend received etc and nonoperating expenses like loss on sale of investments, provision for contingent
liabilities, etc
89

2009-2010
Net Profit after tax
Net Profit Ratio

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

* 100

Net Sales
358.52
Net Profit Ratio

= ----------------

* 100 = 4.68%

7667.54

Net profit ratio is the profit after all expenses and income tax and is available to the
owners. So this ratio indicates that forever hundred rupees of sales, Rs. 4.68 are
earned for the owners. This ratio is profitable for the company because it is
increasing time to time.

(2) OVERALL PROFITABILITY RATIO:

(i) Return On Capital Employed:
The prime objective of making investment in any business is to obtain satisfactory
return on capital invested. Hence, the return on capital employed is used as a
measure of success of a business in realizing this objective, otherwise known as
return on investment this is the overall profitability ratio.

It indicates the

percentage of return on the capital employed in the business and it can be used to
show the efficiency of the business as a whole.
90

2009-2010
Operating Profit
Return on Capital Employed =

----------------------- x 100
Capital Employed

878.67
Return on Capital Employed =

--------------- * 100 = 19.43%

4521.68

This ratio is increasing in comparison of last year which the favorable position of
the Company and this ratio is helpful for making capital budgeting decisions.

This is due to improved efficiencies, high level of order for the purchase of
companys product and rise in prices of companys product and order from abroad
with good margin of profit.

91

(ii) Return on Shareholders Fund

It is the ratio of net profit to shareholders investment. It is also called Return on

Proprietors Funds, or Capital Employed. This ratio establishes the profitability
from the shareholders point of view.
2009-10
Net Profit after Interest & Tax
Return on Shares holders Fund = ----------------------------------

* 100

Shareholders Funds

358.52
Return on Share holders Fund

= ------------------ * 100 = 18.94%

1893.40

This ratio is almost half in comparison of last year. The ratio of net profit to share
holders fund shows the decrease to which profitability objective is being loose.
Higher the ratio, the better it is.

92

(iii) Return on Equity Capital

This ratio relates the net profits finally available to equity share holders to the
amount of capital invested by them.
2009-10
Net Profit after tax, interest
& Preference Dividend
Return on Equity Capital =

------------------------------------- * 100

Equity Share holders Fund or Net Worth

358.52
Return on equity capital = ----------------------- * 100 = 18.93%
1893.40

This ratio indicates what percentage of profits earned are enjoyed by equity
shareholders.

Return on Equity Share Capital or earnings per share helps to

determine the market price of equity shares of the Company while comparing with
the ratios of other companies. It will indicate whether the capital is effectively
used or not.

93

(iv) Return on Total Assets

This ratio is calculated to measure the profit after tax against the amount invested
in total assets to ascertain whether assets are being utilized properly or not.
2009-10
Net Profit after tax
Return on Total Assets =

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

100

Total Assets
358.52
Return on Total Assets =

------------------ * 100 = 5.58%

6424.32

This ratio is increasing in 2009 which shows that assets are being utilized properly
in comparison of 2008.

Explanations:
THE Return on assets shows as to how much is the profit earned by the firm
Per rupees of assets used so 5.58 Rs are realized of 100Rs invested in assets.

94

ACTIVITY (TURNOVER OR PERFORMANCE) RATIOS

Profit depends on the rate of turnover and the net margin. The importance of good
turnover cannot be over-emphasized. Turnover ratios judge how well the facilities
at the disposal of the concern are being used. In other words, these ratios measure
the effectiveness with which analysis concern uses resources at its disposal. The
result is expressed in integers rather than as a percentage. These ratios are usually
calculated on the basis of sales or cost of sales. Turnover ratios for each type of
assets should be calculated separately. Higher the turnover ratio, better the use of
capital or resources; of course, higher the turnover, the better the profitability ratio.
The following are the import activity (turnover or performance) ratios.

1. Stock Turnover Ratio or Inventory Turnover Ratio:

This ratio establishes relationship between the cost of goods sold during a given
period and the average amount of inventory carried during that period. It indicates
whether stock has been efficiently used or not, the purpose being to checkup
whether only the required minimum has been lock up in stocks. It is usually
considered better to work out the turnover against cost of sales since sales include
an element of profit, where as stock is usually at cost.

95

The ratio is calculated as follows:

2009-10
Cost of Goods Sold
Stock Turnover Ratio =

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

* 100

Average inventory at Cost

4800.18
Stock Turnover Ratio = ----------------- * 100 = 344.45%
1393.56

Where,
Cost of Goods Sold = Opening Stock + Purchases + Manufacturing Exp.

- Closing Stock

OR
Cost of Goods Sold = Sales Gross Profit
Average Stock

= (Opening Stock + Closing Stock) / 2

Higher the ratio, the better it is since it indicates that more sales are being produced
by a unit of investment in stocks. Industries, in which stock turnover ratio is high
usually work on a comparatively low margin of profit. The ratio shows better
performance if it increases, since it means that the investment in stocks is leading

96

to higher sales. The reverse is also true. It should be noted that some people
calculate this ratio on the basis of sales.
Notes:
Coming to KCL the data on purchase, sale and stock etc. and are not available
from the Balance Sheet and the other material provided to the investigators by
company. Hence, it is not possible to calculate the turnover ratio of the Company.

2. Debtors (Receivable) Turnover Ratio:

It indicates the number of times on the average the receivable is turnover in each
year. The higher the value of the ratio, the more is the efficient management of
debtors. It measures the accounts receivable (trade debtors and bills receivables) in
terms of number of days of credit sales during a particular period. Average debtors
are calculated by dividing the sum of debtors in the beginning and at the end by 2.
The ratio is measure of the collectability of accounts receivables and tells about
low the credit policy of the company is being enforce

Net Credit Sales

Debtors Turnover Ratio =

----------------------Average account receivable (Drs + B/R)

97

Notes:
The data is not available for the calculation of debtors turnover ratio. It shows
more the chances of bad debts efforts should be made to make the collection
machinery efficient so that the amount due from debtors may be realized in time.

3. Creditors (or Account Payable) Turnover Ratio:

This ratio is calculated roughly as the debtors turnover ratio. It indicates the
velocity with which the payments for credit purchase are made to creditors. The
term account payable includes Creditors and Bills payable. This ratio may be
calculated as follows:

Credit Purchases
Creditors Turnover Ratio =

----------------------Average Accounts Payable (Cr + B/P)

A high ratio indicates that creditors are not paid in time while a low ratio gives an
idea that the business is not taking full advantages of credit period allowed by the
creditors.

98

Sometimes it is also required to calculate the average payment period (or average
age of payable or debt period enjoyed) to indicate the speed with payments for
credit purchase are made to creditors.
Notes:
Coming to KCL the data on purchase sale and stock etc and are not available
from the Balance Sheet and the other material provided to the investigators by
Company. Hence, it is not possible to calculate the turnover ratio of the Company.

4. Fixed Assets Turnover Ratio or Ratio of Sales to Fixed Assets:

This ratio shows how well the fixed assets are being utilized. If compared with a
previous period, it indicates whether the investment in fixed assets has been
judicious or not. This ratio expresses the number of times fixed assets are being
turned-over in a stated period.
The ratio is important in case of manufacturing concerns because sales are
produced not only by use of current assets but also by amount invested in fixed
assets. The higher is the ratio, the better is the performance. On the other hand, a
low ratio indicates that fixed assets are not being efficiently utilized.

99

2009-10
Cost of Sales (or Net Sales)
Fixed Assets Turnover Ratio = -------------------------------------Fixed Assets (less Depreciation)
7355.36
Fixed Assets Turnover Ratio = ---------------- =

2.1

3447.89

Higher is the ratio the better is the performance it indicates that fixed assets are
being efficiently utilized.

An improvement in the ratio indicates better

performance and decline in it would show a declining efficiency or improvident

investment. Increase in Fixed Assets Turnover Ratio indicates that fixed assets
have been used as efficiently as they had been used in previous years.

5. Sales to Capital Employed (or Capital Turnover) Ratio:

This ratio shows the efficiency of Capital Employed in the business by computing
how many times capital employed is turn-over in a stated period.

The higher the ratio, the greater are the profits. A low capital turnover ratio should
be taken to mean that sufficient sales are not being made and profits are lower.

100

Sales
Capital Turnover Ratio =

---------------------------------------------------Capital Employed

(i.e. shareholders fund + Long term liabilities)

2009-10

7355.36

Capital Turnover Ratio = ------------------ = 1.62

4521.68

Capital Turnover Ratio establishes the relationship between sales and capital
employed. The objective of working out this ratio is to determine how efficiently
the capital employed is being used and this in turn shows the promise of
profitability and efficiently of management

101

6. Sales to Working Capital (or Working Capital Turnover) Ratio:

This ratio shows the number of times working capital is turned-over in a stated
period.
2009-10
Sales
Working Capital Turnover Ratio =

--------------------------------------Net Working Capital

(i.e. Current Assets Current Liabilities)

7355.36
Working Capital Turnover Ratio =

----------------- =

4.70

1562.94

Low working capital turnover ratio indicates that working capital is not efficiently
utilized it may put the concern into financial difficulties. This ratio shows the
efficiency or inefficiency in the use of the whole of the working capital and not
merely a part of it. That invested in stock-it is the whole of the working capital
that leads to sales.

102

7. Total Assets Turnover Ratio:

This ratio is calculated by dividing the net sales by the value of Total Assets.
A high ratio is an indicator of over-trading of total assets while a low ratio reveals
ideal capacity. The Traditional Standard for the ratio is two times.
2009-10
Net Sales
Total Assets Turnover Ratio = ----------------Total Assets
7355.36
Total Assets Turnover Ratio = ---------------- =

1.1

6449.75

A high ratio is an indicator of over trading of total assets while a low ratio reveals
ideal capacity.

103

LEVERAGE RATIOS:

The leverage ratios explain the extent to which the debt is employed in the capital
structure of the concerns. Always Concerns use debt funds along with equity
funds, in order to maximize the after tax profits, thereby optimizing earning
available to equity shareholders. The basic facility of debt finds is that after tax
cost of tem will be significantly lower and which can be paid back depending upon
their terms of issue. Further debt funds will not dilute the equity holders control
position.

Leverage refers to an increased means of accomplishing some purpose.

In

financial management, it refers to employment of funds to accelerate rate of return

to owners. It may be favorable or unfavorable when earning are more than the
fixed cost of the funds, it is called favorable. An unfavourable leverage exists if
the rate of return remains to be low. It can be used as a tool of planning by finance
manager. Leverage may be.
(i)

Operating Leverage

(ii)

Financial Leverage

(iii)

Combined Leverage.

104

Operating Leverage: It is the relation between contribution and EBIT (earning

Before Interest & Tax) and is measured as:
Contribution (Sales Variable Cost)
OL

---------------------------------------------------------EBIT

It signifies the change that will result in EBIT for any change in sales. If OL is 3,
it will mean that for every 1% change in sales, the change in EBIT will be 3%. I.e.
three times.

A high ratio would indicate a high business risk and low ratio

business risk.

Financial Leverage: It is the relationship between (EBIT) and (EBT) when a firm
process debt capital to finance its needs, it is said to have Financial Leverage. It
tells the extent of the change in earning before fax (EBT) due to change in
operating income (EBIT). It is calculated with the help of the following formula:
2009-10
Earnings before interest and Tax
Financial Leverage

----------------------------------------------Earnings before tax

105

7227.17
Finance Leverage

= ---------------- = 14.04
514.42

It may be favorable or unfavorable. If the rate of return or investment (ROI) of a

firm is higher than the cost of debt capital, it is said to have favorable financial
leverage. On the other hand, if the rate of return on investment (ROI) is lower than
the cost of debt capital, the firm is said to have unfavorable financial leverage.
Favorable financial leverage is also referred to trading on equity.

Combined Leverage:

It is the combination of operating leverage and financial leverage

CL

OL x FL

(1) Capital Gearing Ratio

Closely related to solvency ratios is the Capital Gearing Ratio which is mainly
used analysis the capital structure of the company. The term Capital Gearing is
used to describe the ratio between the equity share capital and fixed interest
bearing securities of a company. Where the holders of fixed income bearing
106

securities have acquired lions share in the income of a business enterprise, it is

said to be highly geared. The situation is manifested most commonly where
there is a small equity holding compared with fixed income bearing securities.

Variable Cost Bearing Capital

Capital Gearing Ratio =

---------------------------------------------Fixed Cost Bearing Capital

OR
Equity Share Holders Funds
Capital Gearing Ratio =

--------------------------------------------Fixed Cost Bearing Capital

Components:

Equity-share holding for the purpose of capital gearing ratio, includes all
revenue as well as all appropriations of Profits.

Fixed interest bearing funds include debentures, preference share capital and
other long term loans.

Significance:
107

Capital Gearing Ratio belongs to the family of leverage ratios and is

important not only to prospective investors but also to the company. It must be
carefully planned in as much as it affects the companys capacity to maintain an
even divided distribution policy during difficult trading periods that may occur.
Moreover, its immediate effect may be to enable a company to pay higher equity
dividends when there is only a narrow margin of profits but its long range effects
on the efficiency of a company are far-reaching. Distribution policies and the
building up of reserves, as well as a stable dividend policy, are all affected by
companys gear-ratio.

(2) Total Investment to Long-term Liabilities:

This ratio compares share capital to loan capital. Generally a high proportion of
long-term liabilities are risky to any company, which this ratio enables one to find
out.
Long Term Funds
Ratio of Total Investment
to Long-Term Liabilities

--------------------------------------Long Term Liabilities

108

Long term liabilities are decreasing while long term funds are increasing in
comparison of last year. It shows better position of company.

(3) Current Liabilities to Proprietors Funds:

This ratio compares current Liabilities to Proprietors Funds. It measures the

amount of funds raised by the proprietors as against these rose by short-term,
borrowings. A high ratio indicates that the firm will be slow in paying its bills
because, if owner have not put enough of their own funds in the business, suppliers
of long-term funds would be unwilling to expose themselves to the risks and the
firm will have to resort to short-term stop-gap financing to a large extent. The
standard for this ratio is 35 percent.
2009-10
Current Liabilities
Ratio of Current Liabilities
to Proprietors Funds

----------------------Proprietors Funds
1413.49

Ratio of Current Liabilities

To proprietors Funds

= -------------------------- = 0.74
1893.94

109

Coming to KCL the ratio of current liabilities to proprietors funds is 0.74: 1 in

2009 which is too high when compare to the ideal ratio we would be 0.35 : 1.
However, on observation of the data for 2007, 2008 & 2009.

We find that the

ratio as a falling trend which is a healthy sign.

4. Ratio of Reserves to Equity Capital:

The ratio establishes relationship between reserves equity capital. It is important in

a much as it reveals the policy pursued with regard to growth shares.

If a

conservative policy regarding the distribution of dividend is followed, the ratio

may be unduly high. It also indicates the extent to which value of equity shares
has gone up by the plugging back of profits. This ratio shows the strength of
company and the strength of Share / Equity.

Ratio of Reserves to
Equity Capital

Reserves
=

1746.23

----------------------------- = ------------- = 11.86

Equity Share Capital

147.17

Coming to KCL we find that the ratio is increasing over a period of time, it was
9.52: 1 in 2008 and increased 11.86: 1 in 2009.

This is due to high profitability

and good management because of liberal dividend policy has been followed by the
company.
110

Ratio for Prospective Investors

(1)

Book Value per Share:

Book Value per Share means the value which is payable of liquidation of a
company
2009-10
Shareholders Funds
Book Value Per Share =

------------------------------Number of Shares
189,34,00,000

Book Value Per Share = -------------------------------- = 25.73 (Rs)

735,83,580

(2)

Earning Ratio ;

Under this category the following ratios are calculated.

(i)
(ii)
(iii)

Earnings Per Share

Price Earnings Ratio
Capitalization Ratio

111

(I) Earnings per Share

This helps in determining the market price of equity shares of the company and in
estimating the companys capacity to pay dividend to its equity Shareholder.
The Performance and prospects of the company are affected by earning Per Share.
If earning per share increases, there is possibility that the company may pay more
dividend or issue bonus shares. In short the market price of the share of a company
will be affected by all these factors. A comparison of earning per share of the
company with another company will also help in deciding whether the equity
capital is being effectively used or not.
2009-10
Net Profit after Tax & Preference Dividend
Earnings Per Share =

-----------------------------------------------------------Number of Equity Shares

35,85,20,000
Earning Per Share

------------------------ = 4.87 (Rs)

7,35,83,580

Coming to KCL we find a greater degree of fluctuation in earning per share it was
1.21 Rs in 2008 and now it increased to 4.87 Rs, 302.47 % increment in Eps 2009.

112

(ii) Price Earning Ratio:

This ratio indicates the market value of every rupee earning in the firm and is
compared with industry average. High ratio indicates the share is overvalued and
low ratio shows that shares are undervalued. It is computed by the following
formula:
2009-10
Market Price Per Share
Price Earning Ratio

----------------------------------Earning Per Share

55.50

Price Earnings Ratio

( 31st march 10, at BSE)

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

= 11.39

4.87

It is a very important ratio in order to know whether the Shares of the company are
undervalued or in predicting the further market price. Helps the shareholders to be
purchased then it indicates the possibility of Capital appreciation.

113

(iv)

Capitalization Ratio:

2009-10
Earning Per Share
Capitalization Ratios

---------------------------Market Price Per Share

4.87

Capitalization Ratio

---------------------- = 0.08
55.50

114

Dividend Yield Ratio:

Distributed dividend

735, 80,000

Dividend per Share = ------------------------------- = --------------------- = 1.00

No. of Equity share

735, 83,580

Dividend Per Share

Dividend Yield Ratio

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

* 100

Market Price Per Share

1.00
Dividend Yield Ratio

-------------------- * 100 = 1.80%

55.50

This ratio is important for these investors who are interested in the dividend
income. As the Shareholders purchases the Shares in the open market, so his yield
(rate of return) is not equal to the dividend declared by the company.

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2009-10
Dividend Per Equity Share
Dividend Payout Ratio =

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

X 100

Earning Per Share

1.00
Dividend Payout Ratio =

------------------------- * 100 =20.53%

4.87

This ratio indicates as to what proportion of earning per share has been used for
paying dividend and what has been retained for plugging back. This ratio is very
important from Shareholders point of view as it tells him that if a company has
used whole or substantially the whole of its earning for paying dividend and
retained nothing for future growth and expansion purposes, then there will be very
dim chances of capital appreciation in the price of shares of such company. In the
other words, an investor who is more interested in capital appreciation must look
for a company having low pay-out ratio.

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CONCLUSIONS

The study in the preceding pages reveals some important and interesting
conclusions.

The theoretical portion reveals the conclusion of academic

importance and when the Financial Data of Kajaria Ceramics Ltd has been
analyzed, the financial position of the company is brought to surface. The overall
financial position of the company is quite healthy and over the last years which
covered the period of study, the financial position has improved. The current
Ratio, Acid Test Ratio, Debt equity Ratio and Proprietary Ratio all have improved
over the period 2008 to 2009. The credit for this improvement goes to efficient
management, Long term vision of the management, team spirit among the employs
of the company higher level of orders in the hands of the company, better
realization and better overall economic condition of the economy with increased
emphasis of government on expansion and strengthening of economic
infrastructure, it is expected that KAJARIA will gain a lot, its financial Ratio will
improve further and so the financial strength of the company.

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RECOMMENDATIONS
The Tiles industry is huge and has huge potential for growth. The company
should try and revamp its operations, they should lower the price.
It can be done by increase production, achieve economies of scale and then
increase market penetration.
The product is doing reasonably well in most of the market. So they should
promote the product accordingly e.g. free sampling, discounts, prominent
hoardings etc.
Home Solution:

Taff under this Brand name they have got a group of labor who are properly
trend and capable of laying down good tiles. Give training to the Massion,
Technical training in sanitary ware. Only company Employee will go and fit.
(Which are properly trend by company in Jakogi ware.)

Whenever we get any tile approved we should take proper supply schedule
from the client. Proper SAMPLE should be provided to the ARCHITECH &
BUILDER office because they choose the product from sample.

More boards and hoarding should be placed in side of roads and public places.
They should use mass media like TV, newspapers, etc to promote company
product. This will help in increasing the sales volume.
118

BIBLIOGRAPHY
The help have been taken from the following secondary data to analysis the
financial report.
INTERNET SITES:www.kajariaceramics.com
Annual Report 2009-10 of Kajaria Ceramics Ltd.

BOOKS PREFERRED

PRINCIPAL OF FINANCIAL MANAGEMENT

Author Mr. R.P. Rustogi.Galgotia Publishing Co.
FINANCIAL MANAGEMENT
Author.Mr. I.M. Pandey. Vikas,2004 9th Ed.

CORPORATE FINANCE
Author.Mr. M.Y. Khan & Jain TMH,5TH Ed.

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