1.

EXECUTIVE SUMMARY

I work out my study on ratio analysis in the JK FILES Limited, Gane,

Khadpoli. It is a decisive subject to me to study the procedure, methods, merits &

demerits of the ratio analysis. I referred various resource persons like Mr. P.K.Joshi

(Finance Manager), MR. Gulab. I got lot of information on the topic. Familiar with

the working environment in an organization, deal with at least some of the problem

or aspects practically and tackle them as well as understand and analyze them. This

is obviously a way for where they have to lead later.

Company is having both domestic & abroad customers & company is

satisfying them by providing quality material as well as quick supply of material.

The difference in ratios is tackled by comparing final balance sheet of Raymond

limited at the end of the financial year.

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 2. INTRODUCTION

2.1 RATIO ANALYSIS

2.1.1 Introduction of Ratios

Ratio Analysis is the process of establishing a significant relationship between

the items of financial statements to provide a meaningful understanding of the

performance and financial position of the firm. Using the term “Ratio” in relation of

financial statements analysis, it may properly mean “An Accounting Ratio” or

“Financial Ratio”, defined as the mathematical relationship between two accounting

figures, having mutual cause and effect relationship to produce a meaningful and useful

ratio. Ratio is a simple mathematical expressionbetween two items in a more

meaningful way which helps us to draw conclusions.

2.1.2 MEANING OF RATIO:-

A ratio is a simple arithmetical expression of the relation of one number to

another. It may be defined as the indicated quotient of two mathematical expressions.

According to Accountant’s Handbook by Wixon,Kell and Bedford, a ratio “is an

expression of the quantitative relationship between two numbers”.

DEFINITION OF 'RATIO ANALYSIS'

A tool used by individuals to conduct a quantitative analysis of information

in a company's financial statements. Ratios are calculated from current year numbers

and are then compared to previous years, other companies, the industry, or even the

2
economy to judge the performance of the company. Ratio analysis is predominately

used by proponents of fundamental analysis.

2.1.3 NATURE OF RATIO ANALYSIS:

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

analysis. Ratio is defined formally as “the indicated quotient of two mathematical

expressions.” An operational definition of a financial ratio is the relationship between

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

comparing mathematically two values. A company’s total asset turnover is calculated

by dividing the company’s total asset value into its sales figure. This ratio is the

quantified relationship between sales and total assets. The resulting figure is also an

index because it tells us how many times the value of total assets was incorporated into

the firm’s products.

 Selection of relevant data from the financial statements depending upon the

objective of the analysis.

 Calculation of appropriate ratios from the above data

 Comparison of the calculated ratios with the ratios of the same firm in the past, or

the ratios developed from the projected financial statement or the ratios of some

other firms or the comparison with ratios of the industry to which the firm belongs.

It is worthwhile to mention that the ratio must express a relationship that has

significance. Thus, there is a clear- cut direct and understandable relationship between

the sales prices of an item on the one hand and it’s cost on the other. Consequently, the

ratio of cost of goods sold to sales is a significant one. In a sharper contrast to this,

there is no understandable relationship between freight costs incurred and the

3
marketable securities held by an enterprise and hence a ratio of one to the other has no

significance.

When the relationship between two figures of the balance sheet is

established, the ratio thus calculated is called “Balance Sheet Ratio.” The ratio of

current assets to current liabilities is the example of balance sheet ratio. If relationship

between the figures of profit and loss account is established, the result so found is

regarded as “Income Statement Ratio.” If the relationship of figures in the profit and

loss account and in the balance sheet is established, e.g. the ratio of net profit to capital

employed,the ratio is known as “Inter Statement Ratio.”

Ratio may be expressed in any of the three forms:

1. as a pure ratio, e.g., 2:1

2. as a rate, e.g., inventory turnover so many times a year

3. as a percentage, e.g., return on shareholder’s equity being 10 percent.

2.1.4 OBJECTIVES OF RATIO ANALYSIS

 To measure the overall financial position of company.

 To study the important aspects like liquidity, leverage, activity and profitability of

the company.

 To find out the operating efficiency of the company.

 To suggest measures for improving the performance of the company.

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 2.1.5 IMPORTANCE OF RATIO ANALYSIS:

The importance of ratio analysis lies in the fact that it presents facts on a

comparative basis and enables the drawing of inferences regarding the performance of

a firm Ratio Analysis in relevant in assessing the performance of a firm in respect of

the following points.

i. LIQUIDITY POSITION: With the help of ratio analysis conclusions can be

drawn regarding the liquidity position of the firm. The liquidity ratios are

particularly useful in credit analysis by banks and other suppliers of short-term

loans.

ii. OPERATING EFFICIENCY:It is relevant from the view point of management,

and it throws light on the degree of efficiency in management and utilization of

assets.

iii. OVER ALL PROFITABILITY: In this, the management in constantly concerned

about the overall profitability of the enterprise. They are concerned about the

ability of the firm to meet its short term as well as long term obligations to

creditors.

2.1.6 ADVANTAGES OF RATIO ANALYSIS:

Ratio analysis is an important and age-old technique of financial analysis.

The following are some of the advantages / Benefits of ratio analysis:

i. Simplifies financial statements: It simplifies the comprehension of financial

statements. Ratios tell the whole story of changes in the financial condition of the

business

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 ii. Facilitates inter-firm comparison: It provides data for inter-firm comparison.

Ratios highlight the factors associated with successful and unsuccessful firm. They

also reveal strong firms and weak firms, overvalued and undervalued firms.

iii. Helps in planning: It helps in planning and forecasting. Ratios can assist

management, in its basic functions of forecasting. Planning, co-ordination, control

and communications.

iv. Makes inter-firm comparison possible: Ratios analysis also makes possible

comparison of the performance of different divisions of the firm. The ratios are

helpful in deciding about their efficiency or otherwise in the past and likely

performance in the future.

v. Help in investment decisions: It helps in investment decisions in the case of

investors and lending decisions in the case of bankers etc.

2.1.6 NEED AND SIGNIFICANCE OF RATIO ANALYSIS:-

The ratio analysis is one of the most important and powerful tools of

financial analysis, to determine a particular financial characteristic of the firm. It is

used as a device to analyze and interpret the financial health of an enterprise. It is with

help of ratios that the financial statements can be analyzed more clearly and decisions

made from such analysis. The use of ratios is not confined to financial managers only

but there are different parties interested in to ratio analysis for knowing the financial

position of a firm for different purposes. The supplier of good on credit, banks,

financial institutions, investors, shareholders and management all make use of ratio

analysis as a tool in evaluating the financial position and performance of a firm for

granting credit, providing loans or making investments in the firm and can point out

6
whether the condition is strong, good questionable or poor. The conclusions can also

be drawn as to whether the performance of the firm is improving or deteriorating.

(A) Managerial Uses of Ratio Analysis:

1) Helps in decision-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 conclusion can be drawn from these statements alone. Ratio

Analysis helps in making decisions from the information provided in these statements

2) Helps in financial forecasting and planning: Ratio 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.

3) 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 the financial statements is conveyed in a meaningful manner

to which it is meant. Thus, ratios help in communicating and enhance the value of the

financial statements.

4) Helps in co-ordination: Ratios even help in co-ordination which is of utmost

importance in effective business management. Better communication of efficiency and

weakness of an enterprise results in better co-ordination in the enterprise.

5) Helps in Control: Ratio analysis even helps in making effective control of the

business. Standards ratios can be based upon proforma financial statements and

variances or deviations, if any, can be found by comparing the actual with the

standards so as to take acorrective action at the right time. The weakness or otherwise,

7
if any, come to theknowledge of the management which helps in effective control of

the business.

6)Other Uses: There are so many other uses of the ratio analysis as it is an essential

partof the budgetary control and standard costing. Ratios are immense importance in

theinterpretation of financial statements as they bring the strength or weakness of the

firm.

(B) Utility of Shareholders / Investors:

An investor in the company will like to assess the financial position of theconcern

where he is going to invest. His first interest will be the security of hisinvestment and

then a return in the form of dividend or interest. Long term solvencyratios will help in

accessing financial position of the concern. Probability ratios, on theother hand, will be

useful to determine profitability position. Ratio analysis will be usefulto the investor in

making up his mind whether present financial position of the concernwarrants further.

(C) Utility to Creditors:The creditors or suppliers extend short-term credit to the

concern. They areinterested to know whether financial position of the concern warrants

their payments at specified time or not. The concern pays shot-term creditors out of its

current assets. If the current assets are quite sufficient to meet the current liabilities

then the creditor will hesitate in extending credit facilities. Current and acid-test ratio

will give an idea about the current financial position of the concern.

(D) Utility to Employees:

The employees are also interested in the financial position of the concernespecially

profitability. Their wage increases and amount of fringe benefits are related tothe

volume of profits earned by the concern. The employees make use of

8
informationavailable in financial statements. Various profitability ratios relating to

gross profit,operating profit, net profit etc., enable employees to put forward their

viewpoint for theincrease of wages and other benefits.

(E) Utility to Government:Government is interested to know the overall strength of

the industry. Variousfinancial statements published by industrial units are used to

calculate ratios for determining short-term, long-term and overall financial position of

the concerns.Profitability indexes can also be prepared with the help of ratios.

Government may baseits future policies on the basis of industrial information available

from various units. Theratios may be used as indicators of overall financial strength of

public and private sectors.

2.1.7 CLASSIFICATIONS OF RATIOS

The use of ratio analysis is not confined to financial manager only. There are

different parties interested in the ratio analysis for knowing the financial position of a

firm for different purposes. Various accounting ratios can be classified as follows:

1. Traditional Classification

2. Functional Classification

3. Significance ratio

1) TraditionalClassification: Itincludes the following:

 Balance sheet (or) position statement ratio: They deal with the relationship between

two balance sheet items, e.g. the ratio of current assets to current liabilities etc.,

both the items must, however, pertain to the same balance sheet.

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 Profit & loss account (or) revenue statement ratios: These ratios deal with the

relationship between two profit & loss account items, e.g. the ratio of gross profit

to sales etc.,

 Composite (or) inter statement ratios: These ratios exhibit the relation between a

profit & loss account or income statement item and a balance sheet items, e.g. stock

turnover ratio, or the ratio of total assets to sales.

2) Functional Classification: These include liquidity ratios, long term solvency and

leverageratios, activity ratios and profitability ratios.

3) Significance ratios:Some ratios are important than others and the firm may

classifythem as primary and secondary ratios. The primary ratio is one, which is of the

prime importance to a concern. The other ratios that support the primaryratio are called

secondary ratios.

4) Functional ratios:

A. Liquidity ratio

B. Leverage ratio

C. Activity ratio

D. Profitability ratio

A. LIQUIDITY RATIOS: Liquidity refers to the ability of a concern to meet its

current obligations as & when there becomes due. The short term obligations of afirm

can be met only when there are sufficient liquid assets. The short termobligations are

met by realizing amounts from current, floating (or)circulating assets The current

assets should either be calculated liquid (or)near liquidity. They should be convertible

10
into cash for paying obligations of short term nature. The sufficiency (or) insufficiency

of current assets should be assessed by comparing them with short-term current

liabilities. If currentassets can pay off current liabilities, then liquidity position will be

satisfactory .To measure the liquidity of a firm the following ratios can be calculated

• Current ratio

• Quick (or) Acid-test (or) Liquid ratio

• Absolute liquid ratio (or) Cash position ratio

1. CURRENT RATIO: Current ratio may be defined as the relationship

betweencurrent assets and current liabilities. This ratio also known as

Workingcapital ratio is a measure of general liquidity and is most widely used

tomake the analysis of a short-term financial position (or) liquidity of a firm.

2. QUICK RATIO: Quick ratio is a test of liquidity than the current ratio. The

termliquidity refers to the ability of a firm to pay its short-term obligations as

&when they become due. Quick ratio may be defined as the relationship between

quick or liquid assets and current liabilities. An asset is said to beliquid if it is

converted into cash within a short period without loss of value.

3. ABSOLUTE LIQUID RATIO: Although receivable, debtors and bills receivable

are generallymore liquid than inventories, yet there may be doubts regarding their

realization into cash immediately or in time. Hence, absolute liquid ratio should

also be calculated together with current ratio and quick ratio so as toexclude even

receivables from the current assets and find out the absoluteliquid asset.Absolute

liquid assets include cash in hand etc. The acceptableforms for this ratio is 50%

(or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquidassets are considered to pay Rs.2

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 worth current liabilities in time as all the creditors are nor accepted to demand cash

at the same time and then cashmay also be realized from debtors and inventories.

B. LEVERAGE RATIOS: The leverage or solvency ratio refers to the ability of a

concernto meet its long term obligations. Accordingly, long term solvency

ratiosindicate firm’s ability to meet the fixed interest and costs and

repaymentschedules associated with its long term borrowings. The following ratio

serves the purpose of determining thesolvency of the concern.

1. PROPRIETORY RATIO: A variant to the debt-equity ratio is the proprietary

ratio which is also known as equity ratio. This ratio establishes relationship

between shareholders’ funds to total assets of the firm. The proprietary ratio

establishes the relationship between shareholders’ funds to total assets. It

determines the long-term solvency of the firm. This ratio indicates the extent to

which the assets of the company can be lost without affecting the interest of the

company.

2. DEBT-EQUITY RATIO: This ratio relates the entire creditors claim on assets to

the owners claim. It is computed by dividing the total debt both current and long-

term of the business by its tangible net worth consisting of common stock and

reserves and surplus. If the ratio is greater it would mean creditors have more

invested in the business than the owners. This means creditors would suffer more

in times of distress than the owner. This is why creditors prefer low debt-equity

ratio.

C. ACTIVITY RATIOS: Funds are invested in various assets in business to make

salesand earn profits. The efficiency with which assets are managed directlyaffect the

volume of sales. Activity ratios measure the efficiency (or) effectiveness with which a

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 firm manages its resources (or) assets. Theseratios are also called “Turn over ratios”

because they indicate the speed withwhich assets are converted or turned over into

sales.

(a) Working capital turnover ratio

(b) Fixed assets turnover ratio

(c) Capital turnover ratio

(d) Current assets to fixed assets ratio

a) WORKING CAPITAL TURNOVER RATIO: Working capital of a concern is

directly related to sales. It indicates the velocity of the utilization of net working

capital. This indicates the no. of times the working capital is turned over in thecourse

of a year. A higher ratio indicates efficient utilization of workingcapital and a lower

ratio indicates inefficient utilization.

b) FIXED ASSETS TURNOVER RATIO: It is also known as sales to fixed assets

ratio. This ratio measures the efficiency and profit earning capacity of the firm.

Higher theratio, greater is the intensive utilization of fixed assets. Lower ratio

meansunder-utilization of fixed assets.

c) CAPITAL TURNOVER RATIO: Sometimes the efficiency and effectiveness of

the operationsare judged by comparing the cost of sales or sales with amount of

capitalinvested in the business and not with assets held in the business, though in both

cases the same result is expected. Capital invested in the business may be classified

as long-term and short-term capital or as fixed capital andworking capital or Owned

Capital and Loaned Capital. All capital turnovers are calculated to study the uses of

various types of capital.

d) CURRENT ASSETS TO FIXED ASSETS RATIO:This ratio differs from industry

to industry. The increase in the ratio means that trading is slack or mechanization has

13
 been used. A decline in the ratio means that debtors and stocks are increased too

much or fixed assets are more intensively used. If current assets increase with the

corresponding increase in profit, it will show that the business is expandingcurrent

assets to fixed assets ratio,

D.PROFITABILITY RATIOS:The primary objectives of business undertaking are to

earn profits. Because profit is the engine, that drives the business enterprise.

• Net profit ratio

• Return on total assets

• Reserves and surplus to capital ratio

• Earnings per share

• Operating profit ratio

• Price earnings ratio

• Return on investments

(a) NET PROFIT RATIO : Net profit ratio establishes a relationship between

net profit (after tax) and sales and indicates the efficiency of the management

inmanufacturing, selling administrative and other activities of the firm. It also

indicates the firm’s capacity to face adverse economicconditions such as price

competitors, low demand etc. Obviously higher theratio, the better is the

profitability.

(b) RETURN ON TOTAL ASSETS: Profitability can be measured in terms of

relationship betweennet profit and assets. This ratio is also known as profit-to-

assets ratio. Itmeasures the profitability of investments.

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(c) RESERVES AND SURPLUS TO CAPITAL RATIO: It reveals the policy

pursued by the companywith regard togrowth shares. A very high ratio indicates a

conservative dividend policyand increased plugging back to profit. Higher the ratio

better will be the position.

(d) EARNINGS PER SHARE: Earnings per share is a small verification of return

of equity andis calculated by dividing the net profits earned .The Earnings per

share is a good measure of profitability whencompared with EPS of similar other

components (or) companies, it gives aview of the comparative earnings of a firm.

(e) OPERATING PROFIT RATIO: Operating ratio establishes the relationship

between cost of goods sold and other operating expenses on the one hand and the

sales onthe other hand .However 75 to 85% may be considered to be a good ratio in

case of a manufacturing under taking.Operating profit ratio is calculated by

dividing operating profit by sales.

(f) PRICE - EARNING RATIO: Price Earnings ratio is the ratio between market

price per equityshare and earnings per share. The ratio is calculated to make an

estimate of appreciation in the value of a share of a company and is widely used by

investors to decide whether (or) not to buy shares in a particular company.

(g) RETURN ON INVESTMENTS: Return on shareholder’s investment,

popularly known asReturn on investments (or) return on shareholders or

proprietor’s funds isthe relationship between net profit (after interest and tax) and

the proprietor’s funds.

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2.2 COMPANY PROFILE

JK Files (India) Limited, a subsidiary of Raymond Ltd is today the largest

producer of files in the world. It has an impressive 32% global market share.

Manufacturing is done according to any specifications of customers including BS,

FS, ISI and DIN. JK Files main product is engineering files (tools & equipment)

and quantity, volume wise it is first in world.

The plants located in India are Ratnagiri and Chiplun (all in Maharashtra),

Pithampur (in Madhya Pradesh), Kolkata and Surabaya in Indonesia are all ISO

9001:2008 certified. Main headquarters is at Thane. It has a joint venture with

M.O.B, France based company and product is engineering files only machines are

different than the existing machines of JK Files India Ltd.

With the expertise of over 60 years in the business of files and drills, JK Files

(India) Limited has established over 1300 Distributors and dealers networks across

globe. Since 1972 this division has been regularly receiving the Engineering

Export Promotion Council Excellence award. Customers all over the world prefer

products as it means value for their money in terms of all aspects of the product,

services etc.

Company brings its rich experience and legacy of Files & Drills also a quality in

Hand Tools category which includes non-powered devices, consistency in Power

Tools category of handheld and also electric powered tools for simply laborious

task carried out by carpenters ,masons, electricians, metal fabricators etc. with a

very high degree of productivity.

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It uses various short forms for production:

P = Producer

D = Distributor

S = Service Provider

E = Exporter

I = Importer

2.2.1 HISTORY & MILESTONES:

2011: Introduced range of solid carbide drills and taps

2010: Introduced range of power tools

2009: Name changed from JK Files & Tools to JK Files (I) Limited and it became

a subsidiary of Raymond Ltd.

2006: Set up of J.K. Talabot Ltd - JV with MOB, France for the manufacturing of

files.

2005: Introduced range of hand tools

2002: HFL Plant was acquired from the HGI, Birla Group

1995: Name changed to JKFT from JK Engineers

1995: Setup of Pithampur Plant for Hot Rolling Mill

1991: Setup of Pithampur Plant for Files

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2.2.2 PRODUCTS:

 Power Tools

 Hand Tools

 Cutting Tools – Drills

 Cutting Tools – Tap

 Cutting Tools - Solid Carbide

 Files

2.2.3 CORE VALUES:

JK Files is based on very strong pillars of values built over a long period of 62

years. The values are:

 Leadership

 Excellence

 Quality

 Trust

2.2.4 CORPORATE SOCIAL RESPONSIBILITY (CSR)

AT JKF (I) L we realize that an organization should encourage a positive impact

through its activities on the environment, consumers, employees, communities,

stakeholders and all other members of the public sphere. We strive to make sure

that our actions lead to a better society at large. All the plants are OSHAS & EMS

certified and we are continually improving our processes to make them more

environmental friendly. Some of the activities are blood donation drives.

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EB Parivartan:

EB Parivartan is a team of the top management and is the culture keeper of the

organization. We strongly believe that behaviors displayed at the top percolate

down to everyone and hence all the leaders are in JK Files walk the talk and

discuss all the cultural issues in a monthly cultural review meeting. The team

adheres to the Raymond Values and Leadership Archetype and hence leads by

example to everyone else in the organization. They are the cultural change agents

for Engineering Business.

There are certain behaviors which you will find with everyone working with JK

Files and these behaviors are a part of what sets us apart from other players in the

industry. Deceptively simple, these behaviors are powerful reflections of an

individual’s character and personal value system. They have irreversible impact on

the leadership brand of an individual and when collectively exhibited, on the

leadership brand value of the organization.

Culture:

There are six pillars of culture at JK Files:

 Fair & Transparent

 Performance Drive

 Passion & Energy

 Fun Place to work

 Collaborative

 Learning

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Opportunities

Working with JK Files is not a job; it’s a journey and an experience. You want a

challenging and enjoyable work and we want you to realize your full potential.It is

a very exciting time to work for JK Files as the company is looking for 400%

growth in the next five years. You can be a part of this exceptional growth story

and grow with the organization.Talent Management & Individual Development

Program: Career discussion is carried out with every employee and his supervisor

to chart out a probable career path. Then a gap analysis is done to see what are the

additional skills required to achieve the desired career path. Finally it comes down

to an individual development plan where training calendar is made for everyone to

fill the skill and competency gaps.

Performance Culture: A strong PMS means that your efforts will never go waste

and that your efforts are properly rewarded. There are various other rewards for

being a high performer like being part of critical talent list, the coveted Raymond

Leadership Academy and Raymond awards for excellence.

2.2.5 THE RAYMOND GROUP:

The Raymond Group was incorporated in 1925 and within a span of a few years,

transformed from being an Indian textile major to a global conglomerate.

In our endeavor to keep nurturing quality and leadership, we always choose the

path untaken - from being the first in 1959 to introduce a polywool blend in India

20
 to creating the world's finest suiting fabric the Super 240s made from the superfine

11.6 micron wool.

Today, the Raymond group is vertically and horizontally integrated to provide

customers total textile solutions. Few companies globally have such a diverse

product range of nearly 20,000 varieties of worsted suiting to cater to customers

across age groups, occasions and styles. Manufacture for the world the finest

fabrics - from wool to wool-blended worsted suiting to specialty ring denims as

well as high value shirting. After making a mark in textiles, Raymond forayed into

garmenting through highly successful ventures like Silver Spark Apparel Ltd., Ever

Blue Apparel Ltd. (Jeanswear) and Celebrations Apparel Ltd. (Shirts).

We also have some of the most highly respected apparel brands in our portfolio:

Raymond, Raymond Premium Apparel, Park Avenue, Color Plus, Parx and Notting

Hill.

The Raymond Group also has an expansive retail presence established through the

exclusive chain of 'The Raymond Shop' and stand-alone brand stores.

It is today one of the largest players in fabrics, designer wear, denim, cosmetics &

toiletries, engineering files & tools, prophylactics and air charter services in

national and international markets. All our plants are ISO certified, leveraging on

cutting-edge technology that adheres to the highest quality parameters while also

being environment friendly.

Group Companies:

 Raymond Ltd:Raymond Ltd. is among the largest integrated manufacturers of

worsted fabrics in the world.

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 Raymond Apparel Ltd:Raymond Apparel Ltd. has in its folio some of the most

highly regarded apparel brands in India – Raymond Premium Apparel, Park

Avenue, Parx and Notting Hill.

 Color Plus Fashions Ltd:Color Plus is among the largest smart casual brands in

thepremium category. The company was acquired by Raymond to cater to the

growing demand for a high end, casual wear brand in the country for Men

&Women.

 Silver Spark Apparel Ltd:A garmenting facility that manufactures formal suits,

trousers and jackets.

 Ever Blue Apparel Ltd:A state-of-the-art denim garmenting facility.

 Celebrations Apparel Ltd: A facility set-up for the manufacture of formal shirts.

 JK Files India Ltd:A leading player in the Engineering Files & Tools segment

and the largest producer of steel files in the world.

 Ring Plus Aqua Ltd:A leading manufacturer in the engineering automotive

components.

 J.K. Helene Curtis Ltd: A leading player in the grooming, accessories and

toiletries category.

 J.K. Investo Trade (India) Ltd: JKIT is an investment company registered with

Reserve Bank of India as Non-Banking Financial Company.

2.2.6 MANUFACTURING FACILITIES:

All the manufacturing facilities of JK Files (I) Limited are OSHAS&EMS

certified and modernization efforts are going in every plant to enhance their

capabilities.

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JKF (I) L Chiplun: The plant was established in 1989 and for the first time the

company started manufacturing of Drills, the plant was significant because it was the

first step with view towards becoming a complete tools solution provider and not just a

files company.

JK Talabot Plant: The entire plant is divided into four value streams based on the

concept of "Cropping to Carton" for major product lines. The main plant building is

5000 Square meters without any column support in between thus facilitating high

degree of flexibility for plant layout.

Some of the technologically superior processes installed are:

 A 'robotic hardening furnace' and Programmable Logic controlled transfer lines

 A six axis 'pick and place' robotic arm performs salt bath soaking and quenching

operations.

JKF (I) L Pithampur: Manufacturing of files started at Pithampur in 1991 in the just

commissioned SEZ with a view to strengthen and enhance manufacturing capabilities.

A Hot Rolling Mill was set up at Pithampur in 1995 with a view to de-risk raw

material availability and bring down input costs. The HRM also helped in supplying

special raw material requirements for new product development.

Ratnagiri Plant: Established in 1978, it is currently the oldest plant of JK Files in

India. It is also the largest Plant by area and manufactures Files & Rasps. It is

strategically located with all the means of transportation rail, road, air and sea located

within 5 KM radius of the plant. Ratnagiri also boasts of an in-house training center at

registered office.

23
HFL, Kolkata: Hindustan Files Limited plant was acquired from HGI, Birla Group in

2002 to gain an unprecedented domestic market share so that entry of new players

becomes extremely difficult. Acquisition also helped in having products across a wide

cost range.

2.2.7Vision:

Vision is to go beyond files and Drills towards a complete “Tools Hardware

Company” providing solution to professional and Industrial Segments. Going forward,

the Strategy is to leverage “JK Brand” in the market to be a Market Leader or Strong

Challenger in all focus products segments. While focusing on the new products we

will ensure firmly anchoring “JK as the No. 1File Producer” across all continents. To

achieve our vision we are buildings strong foundation through challenging

assumptions, questioning the status quo and redefining what is possible! Our business

is a powerful combination of exploring people potential, pragmatic product strategy

and best practices in manufacturing, which will deliver desired business results and

create exceptional business value.Last but not least, we have a strong, motivated team

of Employees, Dealers, Agents, Suppliers and Strong Customer based across the

global.Last but not least, they have a strong, motivated team of Employees, Dealers,

Agents, Suppliers and Strong Customer based across the global.

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 3. OBJECTIVES OF STUDY

1. To study the present financial system.

2. To determine the Profitability, Liquidity Ratios.

3. To analyze the capital structure of the company with the help of Leverage ratio.

4. To offer appropriate suggestions for the better performance of the organization

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 4. RESEARCH METHODOLOGY

Research Methodology is the provision of information on methods &

techniques used in conducting research. It includes information on research design,

methods of data collection, use of sampling, field work, organization, analysis &

interpretation of data collection etc.

PRIMARY SOURCES SECONDARY SOURCES

Questionnaires JK Files presentations & other documents
Observation Books & Annual reports
Discussion Website

4.1 Primary Data Sources

I have collected the information and data through formal and informal

discussions with our professional guide in the organization, and through personal

interviews, questionnaire, observation etc. which are methods available for primary

data collection.The information is collected through secondary sources during the

project. That information was utilized for calculating performance evaluation and

based on that, interpretations were made.

4.2 Secondary Data Sources:

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

company provided statements.Referring standard texts and referred books collected

some of the information regarding theoretical aspects. Method- to assess the

performance of the company method of observation of the work in finance

department in followed.

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5. DATA COLLECTION AND INTERPRETATION

TABLE 1: CURRENT RATIO:

Current assets
Current Ratio=
Current liabilities

Particulars 2011 2012

C.A 117875.04 131277.41

C.L 75801.26 100100.72

C.R 1.55 1.31

CURRENT RATIO
1.6

1.55

1.5

1.45

1.4 C.R

1.35

1.3

1.25

1.2

1.15
2011 2012

Interpretation:

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 As a rule, the current ratio with 2:1 (or) more is considered assatisfactory

position of the firm.When compared with 2011, there is an increase in the

provisionfor tax, because the debtors are raised and for that the provision is created.

The current liabilities majorly included JK files group of company for consultancy

additional services. The sundry debtors have increased due to the increase to

corporate taxes .In the year 2011, the cash and bank balance is reduced because

that is used for payment of dividends. In the year 2012, the loans and advances

include majorly the advances to employees and depositgovernment.

TABLE 2: QUICK RATIO

Quick assets
QUICK RATIO=
Current liabilities

Particulars 2011 2012

Q.A 76565.94 86510.51
Q.L 75801.26 100100.72
Q.R 1.01 0.86

QUICK RATIO
1.05

0.95
Q.R
0.9

0.85

0.8

0.75
2011 2012

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Interpretation: Quick assets are those assets which can be converted into cash

within a short period of time, say to six months. So, here the sundry debtors which

are with the long period does not include in the quick assets. Compare with 2012,

the Quick ratio is decreased because the sundry debtors are decreased due to the

decreased in the corporate tax and for that the provision created is also decreased.

TABLE 3: ABSOLUTE LIQUID RATIO

Absolute liquid assets

Absolute liquid ratio¿
Current liabilities

Particulars 2011 2012

Absolute Liquid Assets 1551.24 1285.82
Current Liabilities 75801.26 100100.72
Absolute Ratio 0.020 0.012

Absolute Ratio
0.03

0.02

0.02 Absolute Ratio

0.01

0.01

0
2011 2013

Interpretation:

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 The current assets which are ready in the form of cash areconsidered as

absolute liquid assets. Here, the cash and bank balance and the interest on fixed

assets are absolute liquid assets. In the year 2011, the cash and bank balance is

increased due to increase in the deposits and the current liabilities are also

increased. That caused a decrease in the current year’s ratio.

TABLE 4: PROPRIETORY RATIO

Share holders fund

Proprietory ratio=
Total assets

Particulars 2011 2012

Shareholders fund 205164.12 128071.76

Total Assets 280965.38 295087.48

Proprietary Ratio 0.73 0.43

Proprietary Ratio
0.8
0.7
0.6
0.5
Proprietary Ratio
0.4
0.3
0.2
0.1
0
2011 2012

Interpretation:

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 There is no increase in the capital for both the years. The shareholder’s

funds include capital and reserves and surplus. The reserves and surplus is

increased due to the increase in balance in profit and loss account, which is caused

by the increase of income from services. Total assets, includes fixed and current

assets. The fixed assets are reduced because of the depreciation and there are no

major increments in the fixed assets. The current assets are increased. Total assets

are also decreased than precious year, which resulted a decrease in ratio than older.

TABLE NO 5: DEBT EQUITY RATIO

DEBT
DEBT EQUITY RATIO=
EQUITY

Particulars 2011 2012

Debt 98605.63 84556

Equity 106558.49 110429.76

Debt Equity
0.92 0.76
Ratio

Debt Equity Ratio

1
0.9
0.8
0.7
0.6 Debt Equity Ratio
0.5
0.4
0.3
0.2
0.1
0
2011 2013

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Interpretation:

Here we can see in 2011 the debt equity ratio is 0.92& in 2012 it is 0.76. It

has reduced to 0.16. If look the standard ratio then we comes to know that it is not

even 30% of it.Company has limited borrowed fund so they don’t pay more money

in the form of interest. Even company can borrow fund and that fund can be

utilized for productive purpose.

TABLE 6: WORKING CAPITAL TURNOVER RATIO

Cost of goods sold

Working Capital turnover ratio ¿ Working capital

Particulars 2011 2012

Cost of goods sold 151993 163063
Working capital 42073.78 31176.69
Working capital turnover ratio 5.23 3.61

Working Capital Turnover Ratio

1.66

1.64

1.62 Working Capital Turnover

Ratio
1.6

1.58

1.56

1.54
2011 2012

Interpretation: Income from services is greatly increased due to the extrainvoice

for Operations & Maintenance fee and the working capital is alsoincreased greater

due to the increase in from services because the hugeincrease in current assets.The

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 income from services is raised and the current assets arealso raised together

resulted in the decrease of the ratio of 2012 compared with 2011

TABLE 7: FIXED ASSETS TURNOVER

turn Cost of sales

¿ assets assets ¿
¿ Net ¿

Particulars 2011 2012

Cost of sales 151993 163063
Net fixed assets 95972 98377
Fixed assets turn over 1.58 1.65

Fixed Assets Turnover Ratio

1.66

1.64

1.62
Fixed Assets Turnover
1.6 Ratio

1.58

1.56

1.54
2011 2012

Cost of sales= Income from services

Net fixed assets= Fixed assets – Depreciation

Interpretation:

Fixed assets are used in the business for producing the goods to be sold.

This ratio shows the firm’s ability in generating sales from allfinancial resources

committed to total assets. The ratio indicates the accountof one rupee investment in

33
 fixed assets.The income from services is increased in the currentyear due to the

increase in the Operations & Maintenance fee due to theincrease in extra invoice

and the net fixed assets are reduced because of theincreased charge of depreciation.

Finally, that affected a huge increase in theratio compared with the previous year’s

ratio.

TABLE 8:CAPITAL TURN OVER RATIO

Cost of goods sold

Capital Turnover Ratio=
Capital employed

Cost of goods sold= Income from services

Capital employed= Capital + Reserves + debt

Particulars 2011 2012

Cost of goods sold 151993 163063
Capital employed 205164.12 194986.76
capital turnover ratio 0.74 0.84

Capital Turnover Ratio

0.86
0.84
0.82
0.8
0.78 Capital Turnover Ratio

0.76
0.74
0.72
0.7
0.68
2011 2012

Interpretation:

34
 This is another ratio to judge the efficiency and effectivenessof the

company like profitability ratio.The income from services is increased

comparedwith the previous year and the total capital employed includes capital

andreserves& surplus. Due to huge increase in the net profit the capitalemployed is

also increased along with income from services. There is a slight increase in the

current year ratio.

TABLE 9:CURRENT ASSETS TO FIXED ASSETS RATIO

Current assets
Current Assets to Fixed Assets Ratio =
¿ assets

Particulars 2011 2012

Current Assets 117875.04 131277.41
Fixed Assets 95972 98377
Current Assets to Fixed 1.22 1.33

Current Assets to Fixed Assets Ratio

1.34
1.32
1.3
1.28
1.26 Current Assets to Fixed
Assets Ratio
1.24
1.22
1.2
1.18
1.16
2011 2012

Interpretation:

Current assets are increased due to the increase in the sundrydebtors and

the net fixed assets of the firm are decreased due to the chargeof depreciation and

35
 there is no major increment in the fixed assets.The increment in current assets and

the decrease in fixed assetsresulted an increase in the ratio compared with the

previous year.

TABLE 10: NET PROFIT RATIO

Net Profit After Tax

Net Profit Ratio= ∗100
Net Sales

Particulars 2011 2012

NPAT -10487 5635
Net Sales 157270 195903
Net Profit Ratio -6.66% 2.87%

Net Profit Ratio

4.00%

2.00%

0.00%
2011 2012 Net Profit Ratio
-2.00%

-4.00%

-6.00%

-8.00%

Interpretation:

The net profit ratio is the overall measure of the firm’s ability toturn each

rupee of income from services in net profit. If the net margin isinadequate the firm

will fail to achieve return on shareholder’s funds. Highnet profit ratio will help the

firm service in the fall of income from services,rise in cost of production or

36
 declining demand.The net profit is increased because the income from services

isincreased. The increment resulted a slight increase in 2012 ratio compared with

the year 2011.

TABLE NO 11: RETURN ON ASSETS

Net profit
Return on assets= ∗100
Total assets

Particulars 2011 2012

Net Profit 9853.94 8374.19

Total Assets 280965.38 295087.48

Return on Assets 3.50% 2.83%

Return on Assets
4.00%
3.50%
3.00%
2.50%
Return on Assets
2.00%
1.50%
1.00%
0.50%
0.00%
2011 2012

37
 Interpretation:

This is the ratio between net profit and total assets. The ratioindicates

the return on total assets in the form of profits. The net profit is decreased in the

current year because of the reduction in the income from services due to the

decrease in Operations &Maintenance fee. The fixed assets are reduced due to the

charge of depreciation and no major increments in fixed assets but the current

assets are decreased because of sundry debtors and that effects an decrease in the

current year ratio.

TABLE 12: RESERVES & SURPLUS TO CAPITAL

Reserves∧Surplus
Reserves∧Surplus ¿ capital=
capital

Particulars 2011 2012

Reserves & Surplus 100420.41 104291.96

Capital 205164.12 194986.76

Reserves & Surplus to capital 0.48 0.53

Interpretation:

The ratio is used to reveal the policy pursued by the company avery high

ratio indicates a conservative dividend policy and vice-versa.Higher the ratio better

will be the position.The reserves & surplus is decreased in the year 2011, due to the

38
 payment of dividends and in the year 2012 the profit is increased. But thecapital is

remaining constant for both the years. So the increase in thereserves& surplus

caused a greater increase in the current year’s ratiocompared with the older.

Table no 13: Earning per share

NPAT
EPS=
No .of eq . shares

Particulars 2011 2012

NPAT -10487 5635

No. of Equity Shares 20000 20000

EPS -0.52 0.28

Interpretation:

Earnings per share ratio are used to find out the return that

theshareholder’s earn from their shares. After charging depreciation and after

payment of tax, the remaining amount will be distributed by all theshareholders.Net

39
profit after tax is increased due to the huge increase in theincome from services.

That is the amount which is available to the shareholders to take. The share capital

is constant for both the years. Due to the huge increase in net profitthe earnings per

share is increased in 2012.

TABLE NO 14:OPERATING PROFIT RATIO

Operating Profit
Operating profit ratio= *100
Net sales

Operating profit= Net sales-Operating cost

Operating profit ratio= Operating profit / Sales

Particulars 2011 2012

Operating profit 9853.94 8374.19

Net sales 157270 195903

Operating profit ratio 6.26% 4.27%

Interpretation: In the year 2011 the operating profit ratio was 6.26% and this year

it reduced to 4.27%. As compared to last year the company had made fewer

expenses including selling, administrative and finance expenses, but it resulted in

decrease in overall performance of company’s profit as compared to last year.

TABLE NO 15: PRICE EARNING RATIO

40
 Market price
Price earningratio=
Eps

Market Price per Share=Capital + Reserves & Surplus/No.of eq. shares

EPS = EBIT/No.of eq. shares

Particulars 2011 2012

Market Price 5.32 5.52

EPS 0.49 0.41

Price Earning Ratio 10.85 13.46

Price Earning Ratio

16
14
12
10 Price Earning Ratio
8
6
4
2
0
2011 2012

Interpretation: The ratio is calculated to make an estimate of application in

thevalue of share of a company.The market price per share is increased due to the

increase inthe reserves & surplus. The earnings per share are also increased

compared with the last year because of increase in the net profit.

TABLE NO16: RETURN ON SHARE HOLDERS INVESTMENT

41
 NPAT
Return on shareholder’s investment = Shareholders fund *100

Particulars 2011 2012

NPAT -10487 5635

Shareholders fund 205164.12 128071.76

Return on shareholder’s
-5.11% 4.39%
investment

Return on Shaareholders Investment

6.00%

4.00%

2.00% Return on Shaareholders

Investment
0.00%
2011 2012
-2.00%

-4.00%

-6.00%

Interpretation: This is the ratio between net profits and shareholders’ funds.

Theratio is generally calculated as percentage multiplying with 100.The net profit

is increased due to the increase in the income from services ant the shareholders’

funds are increased because of reserve &surplus. So, the ratio is increased in the

current year.

42
 6. OBSERVATIONS

As I studied in JK files India Ltd. for completing my summer project on

Ratio Analysis. I observed finance related technical things which are as follows:

1) They are using mainly quick ratio, current ratio as well as proprietary ratio.

2) Ratios are mainly calculated by taking into consideration balance sheet of

Raymond ltd.

3) Ratios are calculated by comparing 2 years.

4) As well as income statement is also considered of Raymond ltd.

5) For getting more and more benefit, they always try to increase sales.

6) Various internal as well as external audits are conducted by the industry.

7) Apart from all this proper maintenance of machineries, periodic checking of

machine is done for safety management and also for insurance.

43
8) Proper stacking & proper handling of hazardous material is also done by each

and every employee under the observation of supervisor.

7. FINDINGS AND CONCLUSION

Ratios make the related information comparable. A single figure by itself

has no meaning, but when expressed in terms of a related figure, it yields

significant interferences. Thus, ratios are relative figures reflecting the relationship

between related variables. Their use as tools of financial analysis involves their

comparison as single ratios, like absolute figures, are not of much use. Ratio

analysis has a major significance in analyzing the financial performance of a

company over a period of time. Decisions affecting product prices, per unit costs,

volume or efficiency have an impact on the profit margin or turnover ratios of a

company. Financial ratios are essentially concerned with the identification of

significant accounting data relationships, which give the decision-maker insights

into the financial performance of a company. The analysis of financial statements

is a process of evaluating the relationship between component parts of financial

statements to obtain a better understanding of the firm‘s position and performance.

The first task of financial analyst is to select the information relevant to the

44
decision under consideration from the total information contained in the financial

statements. The second step is to arrange the information in a way to highlight

significant relationships. The final step is interpretation and drawing of inferences

and conclusions. In brief, financial analysis is the process of selection, relation and

evaluation. Ratio analysis in view of its several limitations should be considered

only as a tool for analysis rather than as an end in itself. The reliability and

significance attached to ratios will largely hinge upon the quality of data on which

they are based. They are as good or as bad as the data itself. Nevertheless, they are

an important tool of financial analysis.

8. LIMITATIONS

1. Limitations of financial statements: Ratios are based only on the information

which has been recorded in the financial statements. Financial statements

themselves are subject to several limitations. Thus ratios derived, there from, are

also subject to those limitations. Financial statements are affected to a very great

extent by accounting conventions and concepts. Personal judgment plays a great

part in determining the figures for financial statements.

2. Comparative study required: Ratios are useful in judging the efficiency of the

business only when they are compared with past results of the business. However,

such a comparison only provide glimpse of the past performance and forecasts for

future may not prove correct since several other factors like market conditions,

management policies, etc. may affect the future operations.

3. Problems of price level changes: A change in price level can affect the validity

of ratios calculated for different time periods. In such a case the ratio analysis may

45
not clearly indicate the trend in solvency and profitability of the company. The

financialstatements, therefore, be adjusted keeping in view the price level changes

if a meaningful comparison is to be made through accounting ratios.

4. Lack of adequate standard: No fixed standard can be laid down for ideal

ratios. There are no well accepted standards or rule of thumb for all ratios which

can be accepted as norm. It renders interpretation of the ratios difficult.

5. Limited use of single ratios: A single ratio, usually, does not convey much of a

sense. To make a better interpretation, a number of ratios have to be calculated

which is likely to confuse the analyst than help him in making any good decision.

6. Personal bias: Ratios are only means of financial analysis and not an end in

itself. Ratios have to interpret and different people may interpret the same ratio in

different way.

7. Incomparable: Not only industries differ in their nature, but also the firms of

the similar business widely differ in their size and accounting procedures etc. It

makes comparison of ratios difficult and misleading.

46
 BIBLIOGRAPHY

References

 FINANCIAL MANAGEMENT - I. M. PANDEY

 FINANCIAL MANAGEMENT - Welingkar Institute

 MANAGEMENT ACCOUNTING – SHARMA & GUPTA

Websites

 www.ercap.org

 www.wikipedia.com

 www.jkfiles.com

 www.google.com

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