© studocu MINI Project Stun rt pond or enor yay alge o unieay Downloaded by Manu KrishA Study On Financial Performance By Ratio Analysis CHAPTER-1 INTRODUCTION OF THE STUDYA Study On Financial Performance By Ratio Analysis 1.1 INTRODUCTION KERALA STATE FINANCIAL ENTERPRISES LTD came into existence in 1969 as a miscellaneous non-banking finance company wholly owned by the government of Kerala. It is the first public sector company to conduct chit business in whole of India, It was created with the objective of providing an alternative to the private chitty fund business, so as to save the public from the clutches of unscrupulous fly-by-night chit and operators. It works with the motto “save and grow with KSFE”. A striking point is that all the funds mobilized by KSFE through it is various deposit schemes and chitties are advanced wholly to the public in Kerala itself, whereas other financial institutions and bank channel their deposits collected in Kerala for advances outside the state. ‘he project is conducted in KERALA STATE FINANCIAL ENTERPRISES LTD and is based on “A STUDY ON FINANCIAL PERFORMANCE BY RATIO ANALYSIS”. The study is for analyzing the financial performance of KSFE by using ratio methods. Prime factor of the study is to analyze the factors of financial performance. Financial statements are the end products of financial accounting. They are the statements containing financial information of a business enterprise. They are the summarized periodical reports of financial and operative data contained in the books of accounts known as general ledger. Financial statements may be defined as a the statements as they containing summaries of detailed information about the financial position and performance of an enterprise. The basic purpose of preparing financial statement is to convey to owners, creditors and investors about financial position of the enterprise. It includes balance sheet, income sheet, statement of retained earnings, fund flow statement and cash flow statement.The purpose of financial analysis is to diagnose the information contained in the financial ststements so as to judge the profitability and financial soundness of the firm. sare the tools that ‘The analysis provide valuable information for managerial decision. Rati represents value of one number expressed in terms of another number. It shows numerical relationship between two figures. Accounting ratio refers to relationship between two Downloaded by Manu Kish (manukeish127@gmal.com)A Study On Financial Performance By Ratio Analysis accounting figures expressed mathematically. The term accounting ratio is used to describe the significant relationship which exist between figures shown in a balance sheet, profit and loss account, in a budgetary control system or in any other part of the accounting organization. 1.2 STATEMENT OF THE PROBLEM The study is about demonstrating the use of ratios to examine the financial health of the firm. ‘his method allows evaluator to understand a firm’s financial statement in order to point out the strengths and weakness of the firm, and the areas that need improvement. Study of financial performance involves comparing a firm’s performance with that of other firms in the same industry, as well as evaluating trends in a firm’s position over time. Analysts, investors and lenders analyze the financial health of a business by calculating financial ratios, They use the numbers on financial statements to calculate the ratios. While financial ratios provide @ good indication of the company’s financial status, since there may some problem and limitations to using financial ratio analysis. 1.3. SCOPE OF THE STIUDY The study was conducted in KSFE LTD, Thrissur, mainly focuses on the “Financial Performance”. Now a days financial performance analysis is very important because firm largely depends upon financial policies and activities, Financial performance is a crucial factor for all organization, for its well being. The financial analysis helps the organization to improve the performance by understanding its strength and weakness. This study aims to analyze the financial performance of KSFE LTD. 3 This documents vibe ree of charge on § studocu Downloaded by Manu Kish (manukeish27@gmal.com)A Study On Financial Performance By Ratio Analysis 1.4 OBJECTIVE OF THE STUDY The major objective of this study is to know about the financial strength and weakness of KSFE LTD, through financial ratio analysis. Also; © To study the present financial system of KSFE LTD. * To determine the profitability, liquidity ratios © To analyze the capital structure of the company with the help of the Leverage Ratio * To offer appropriate suggestions for the better performance of the organization. * To analyze the short term and long term financial position of the firm. 1.5 METHODOLOGY 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. The secondary data required for the study has been collected from the published and unpublished records, annual reports also from financial statements of the KSFE LTD. In order to elicit more information a casual conversation has been made with the officials and guide of concem to express their view. 1.6 TOOLS FOR THE Downloaded by Manu Kish (manuksish127@gmal.com)A Study On Financial Performance By Ratio Analysis T using ratio analysis, graphs, diagram, chart, tables, ete. Different types of accounting ratios project is to analyze the financial performance of KSFE LTD. This project completed by are used to analyze the financial performance of KSFE LTD. Accounting ratio simply refers to relationship between two accounting figures mathematical 1.7 LIMITATIONS OF THE STUDY * ‘The financial analysis mainly depends upon secondary data. * The analysis is done by comparing the data of five years only. So the data cannot compare to the longer life of the KSFE LTD. © Time is most important limiting factor. * One of the factors of the study was lack of availability of ample information. Most of the information has been kept confidential and as such as not assessed as art of policy of company. 5 This documents vibe ree of charge on § studocu Downloaded by Manu Kish (manukeish27@amal.com)A Study On Financial Performance By Ratio Analysis CHAPTER 2 REVIEW OF THE LITERATUREA Study On Financial Performance By Ratio Analysis 2.1 REVIEW OF LITERATURE “Shameera” (2012) conducted a study on “profitability analysis of KSFE LTD”. The main objective of the study is to find out the trends of profitability and analysis the liquidity position of KSFE LTD. Study reveals the profitability and analysis the liquidity position of company is good. The study suggests the company to take steps to improve the current ratio, In order to meet its short term obligations as and when required. The timely collection of debtors and effective utilization of assets will enable the company to earn more returns. “ASSOCHAM? (2009) Conducted a study on Indian Bank V/S NBFCs; Profitability analysis The ASSOCHAM Research Bureau (ARB) has analyzed in total 29 banks and 7 NBFCs. The ASSOCHAM Financial pulse study has examined and compared the profitability of banks with NBFCs during the financial year 2008-2009. Simple average and profitability ratio of the The ARB study titled “Indian bank V/S NEFCs, Profitability two segments have been studies Analysis” reveals that during the financial year 2008-2009, non-banking financial companies (NBFCs) average profitability stood higher at 18.90 % as compared to the banks with 10.08%, “Nazir Ahmed Gilkar” (2008) in the books “Profitability Analysis on Exploratory Studies” highlights the role of profitability in a business enterprise operating in a competitive environment and discuss the various techniques of profitability analysis. It reflects the signature of cost effectiveness for a business enterprise and focuses on the strategies needed to meet the challenges posted by liberalized economy “Sanitha” (2006) in her studies made the following conclusion, in ana era of dynamic economy and hectic competition, the performance of a financial institution with respect to numbers of branches and numbers of employees the growth of KSFE LTD is tremendous. As a public sector institution it has to contribute towards the social and economic goal. Reasons behind the commencement of KSFE LTD itself, is to save the public from exploitation from the achievement of KSFE LTD, it is very clear that the performance of the company is good. “Baburaj” (1999) conducted a study on the working of KSFE LTD an analysis of the following parameter to asset its performance, The selected parameters were volume of business, profitability, recovery performance, self sufficiency in financial resources, number s, 7 This documents vibe ree of charge on § studocu Downloaded by Manu Kish (manukeish27@amal.com)A Study On Financial Performance By Ratio Analysis of branches, number of employees, per employee productivity, extent of target achieved, number of services offered. Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis CHAPTER 3 PROFILE 3.1 INDUSTRY PROFILE 9 edoanerowiaicreectaneon EL studocu Downloaded by Manu Krsh (manuksish127@gmall.com)A Study On Financial Performance By Ratio Analysis Non-Banking Financial Institutions (NBFIS) plays an important role in the Indian Financial System given their unique position of providing complimentary and competitiveness to banks. They score over the traditional banks by providing enhanced equity and risk-based produets. ‘The Hierarchy of NBFCs in India- NBFIs * Development Finance * Non-Banking Finance > Investment Company > Hire Purchase > Equipment Leasing > Loan Company + Insurance Company Primary Dealers © Mutual Funds A non-banking financial institution (NBFC) is a financial institution that does not have a full banking license or is not the supervised by a national or intemational banking regulatory agency. Non-banking finance company is a business entity whether incorporated under the companies Act 1956 or not which devotes its resources in providing to the society the financial services of various descriptions which are different from and uncompaired to normal banking services. Non-Banking Financial Companies(NBFC) also known as non-banks are financial institutions that provide banking services without meeting the legal definition of the bank ie ,one that does not hold banking license operations are regardless of this still exercised under the banking regulations A Non-Banking Financial Company (NBFC) can be defined as “Any hire purchase finance, investment, loan or mutual benefit financial company, land and equipment leasing company, but does not include any insurance company or stock exchange or stock broking.” Non-banking financial institutions frequently act as a supplier of loans and credit facilities. ‘They market their products like any other marketing organizations, They are not allowed to raise deposits from the general public and to find other means of funding their operations such 10 Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis as issuing debt instrument. In India, most NBFCs raise their capital through marketing their chit funds. RBI DEFINITION OF NBFC NBEC has been defined under clause (1) of paragraph 2(1) of Non Banking Financial Companies (RBI Direction) as under “Non-Banking Financial Company” means any hire purchase finance investment, loan or mutual benefit financial company or land and equipment leasing company but does not include any insurance company or a stock exchange ora stock broking company. Non-Banking Financial Companies are engaged in variety of fund based and non fund based activities. The main fund based activities are leasing, hire purchasing, and bill discounting and the main non fund based activities are issue management, co- corporate advisory services, loan syndication and fore advisory services. The NBFCs activities have certain limitations.RBI directions, 1997 in the Para 2(1)(1) specifically excludes business of insurance, stock exchange or stock broking activities from the purview of NBFC activities. In India, the major difference in regulation between the banks and NBFCs are; * Low capital requirement for NBFC Rs.20 million as against Rs.200 million for banks. + Low Statutory Liquidity Ratio (SLR) for NBFCs. * No Cash Reserve Ratio (CRR) For NBFC. * Higher Capital Adequacy Ratio (CAR) For NBFC changing from 12 to 15 percent depending on the type of the business. 3.2 COMPANY PROFILE CD KSFE 4 I). the Kerala State Financial Enterprises Ltd. [A Goot. of Kerala: Undertaking) uu This documents vibe ree of charge on § studocu Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis Type Public sector Industry NBFC(Non-banking financial companies in India) Founded 6" November 1969 Head office Thrissur Products Chitty,joans,savings No of employees 6000 ‘Owner Government of kerala Total equity Rs.20 crore HISTORY Kerala State Financial Enterprises Limited (KSFE) is a public sector non-banking financial company based in Thrissur city, Kerala, India. Tt started functioning on November 6, 1969, with Thrissur city as its headquarters. It started with a capital of Rs 2,00,000, 45 employees and 10 branches. It has now 500 branches. KSFE is a Miscellaneous Non-Banking Financial Company (MNBEC) and is fully owned by the Government of Kerala. KSFE is the only chitty Company owned by the Government in the whole of India. 1. KSFE was created by the Government of Kerala on 6 November 1969. ‘The Paid up capital then was Rs. 2 Lakhs. Total number of employees at the start was 45. ‘The number of branches KSFE began with was 10, weeny . The Head Office of KSFE is placed in Thrissur, the hub of Chitty business in Kerala. ORGIN OF KSFE In 1967, The Government of Kerala took a policy decision to the effect that Chitties should be conducted under state auspices as a means for the collection of small savings. The then Finance Minister, in his budget speech for the financial year 1967-68 made the following announcement on the floor of the Kerala Assembly. "I view this decision as a bold step 2 Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis forward along the path towards socialism, aimed at bringing banks and other financial institutions under social control". As the follow-up, the Government of Kerala, appointed a Special Officer in the year 1967, to look into the feasibility and desirability of starting Chit Funds in the public sector and also to prepare objectives of starting Chit Funds in the public sector was to control the mushroom growth of comprehensive scheme for starting Chits under government control. One of the private Chit Funds and to restrain their growth by offering effective competition. The Special Officer, who presented his Report on 7th October 1967, recommended strongly the entry of the Government into the field of Chits. Though the recommendation was for conducting Chit as an adjunct of the Registration Department, the Government took a different view and decided to bring within its purview and control, not only Chitties or Kuries, but also certain other financial transactions for which socialization was felt necessary. Accordingly the Government decided to organize a public sector undertaking with the name "The Kerala State Financial Enterprises Ltd." (KSFE) for the purpose of conducting Chits, hire purchase and insurance business under Government control. This apart, the Government of Kerala had a progressive vision for generating non-revenue income through such public sector ventures. ‘Thus, KSFE Ltd. was incorporated as a Government Company on 6" November 1969 with its Head Office at Trichur with the objective of serving as a discipline factor to private Chit Funds", The first Board of Directors was constituted as per G.O. (Rt.) 4876/69/Fin dated 26th November 1969. KSFE comes under the group of Miscellaneous Non-Banking Financial Intermediaries. KSFE has the unique status of being the only public sector undertaking in India, which runs Chits and also one of the few profit making companies owned by the Government of Kerala. MISSION OF KSFE The mission of KSFE Ltd is well being of public by its different products like chitties, loans, deposits etc. for the welfare of the society. The chitties are come under the Kerala Chitties Act 1975, which brought into force with effect from 25" august 1975, The act is to 13 This documents vibe ree of charge on § studocu Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis give adequacy and safety to the fimds of the society and gave good returns to them. It also ensures lesser rate of interest for loans and advances. 14 Downloaded by Manu Kish (manuksish127@gmail.com)VISION OF KSFE ervices and products. as Srovidingrwpnkcanesy havaidy Adopting technology and benchmark standards in customer service and performance + Spreading our wings beyond the borders of Kerala, on a global level + Retaining the pre-eminent role in Chitty business. * Focus on extending resources to the Govt. of Kerala, * Sustaining commitment to the weaker sections of society, as the neighborhood. institution for support, trust and security OBJECTIVES OF KSFE _The following are the important objectives + To start, conduct, promote, manage and carry on the business of chitties in India or elsewhere. + To promote, undertake, organize, conduct and carry on the business of general and miscellaneous insurance of any kind in India or elsewhere * To start, promote, conduct, operate, carry on and manage the business of dealers agents and traders under hire purchase system of articles, vehicles, machinery, materials goods and tools of all capital goods and consumer goods and property of all nature and description for personal, domestic, office, commercial, industrial and community use and consumption as a business of the company or as agents of government, state or central, or anybody or organization there under or any other company. Besides these, there are many other objectives which are incidental to the main objectives. They are = + To advance, deposit or lend money * To received or grant or concession of the nature MANAGEMENT OF KSFE LTD ‘The Management of the company is vested in the Board of Directors constituted by Governor from time to time. The number of Directors shall not be less than 2 and shall not the more than 9. The maximum number has been subsequently raised to 15, The Directors shall hold office during the pleasure of the Governor. The Governor may, from time to time, appoint 2 Directors other than the Managing Director as Chairman and Vice Chairman of the Board. The first Board was constituted as per Government Order No.G.O. (Rt) 4876/69/Fin. Dated 26th November 1969 and they assumed'tharge on 28" November 1969, The Managing Director is appointed. bythe: Gavenoconsuchien Ey Studoow as he may think fit from among the Directofeforthe coviductiandhimaridgentartaofethic business of the companyA Study On Financial Performance By Ratio Analysis 16 Downloaded by Manu Krish (manuksish27@gmaicom)A Study On Financial Performance By Ratio Analysis CHAPTER 4 THEORETICAL FRAMEWORK 4.1 THEORETICAL FRAMEWORK RATIO ANALYSIS Ratio analysis was introduced by Alexander Wall in the year 1919.Ratio analysis is a technique used by management in studying the relationship between two figures. Probably the most widely used financial analysis technique is ratio analysis, the analysis of relationships between two or more line items on the financial statement. Financial ratios are usually expressed in percentage or times. Computation of ratios involves only a simple arithmetic v inscoamersoninieteectoweeen Ly studocu Downloaded by Manu Kish (manukeish27 @gmal.com)A Study On Financial Performance By Ratio Analysis operation, but its interpretation is a difficult exercise. The analysis of a ratio disclose relationships as well as bases of comparison that reveals conditions or trends that cannot be detected by going through the individual components of ratio. The usefuulness of ratios ultimately depends on their intelligent and skilful interpretation. MEANING AND DEFINITION OF RATIOS The relationship between two figures expressed mathematically is called ratio. It is a numerical relationship between two numbers which are related in some manner. It is calculated by dividing one by another. Ratios are relationships expressed in mathematical terms between figures which are connected with other in some manner, Obviously, no purpose will be served by comparing two sets of figures which are not all connected with each other. A ratio can be computed from any pair of numbers. Given the large quantity of variables included in financial statements, a very long list of meaningful ratios can be derived. A standard list of ratios or standard computation of them does not exist. The following ratio presentation includes ratios that are most often used when evaluating the credit worthiness of a customer. Ratio analysis becomes a very personal or company driven procedure. Analysts are drawn to and use the ones they are comfortable with and understand ADVANTAGES OF RATIO ANALYSIS © Simplifies Financial Statements * Facilitate Intra firm Comparison * Facilitate Inter firm Comparison © Helps in Forecasting & Planning * Helps in Co-ordination © Helps in Control LIMITATIONS OF RATIO ANALYSIS, ‘* Ratios can some time misleading if an analyst does not know the reliability and soundness of figures. Ratios are only preliminary steps in interpretation, Ratios can never be substitute if raw figurers. Price level changes make ratio analysis difficult. SIGNIFICANCE OF RATIO ANALYSIS 18 Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis Ratio analysis is a powerful tool of financial analysis. It is used as a device to analyze & interpret the financial health of a firm. Analysis of financial statements with the aid of ratios helps the management in decision making & control. The use of ratio analysis is not confined to financial managers only. Different parties are interested in knowing financial position for different purposes. Ratio analysis is used by creditors, banks, financial institutions, investors and shareholders. It helps them in making decision regarding the grading of credit and making investments in the firm, Thus Ratio Analysis has wide applications and is of immense use. CLASSIFICATION OF RATIOS 1) Liquidity ratios 2) Leverage ratios 3) Profitability ratios 1, Liquidity Ratios Liquidity ratios measure a firm's ability to meet its current obligations, Liquid assets are those that can be converted into cash quickly The short-term liquidity ratios show the firm’s ability to meet its short-term obligations. Thus a higher ratio would indicate a greater liquidity and lower risk for short-term lenders. While high liquidity means that the company will not default on its short-term obligations, one should keep in mind that by retaining assets as cash, valuable investment opportunities may be lost. Obviously, cash by itself does not generate any return, Only if it is invested will we get future return. a) Current Rat Current Ratio is the relationship between Current Assets and Current liabilities. The Rules of Thumb for acceptable values are: Current Ratio (2:1) i.e, for every one rupee of current Liability there must be current assets of Rs.2/-.If the ratio is less than two it is difficult for a firm to pay current liabilities. If the ratio is more than two, it is an indication of ideal funds. But a very high current ratio is not desirable, since it means less efficient use of available funds. Current Ratio = Current Assets/ Current Liabili 19 This documents vibe ree of charge on § studocu Downloaded by Manu Kish (manukeish27 @amal.com)A Study On Financial Performance By Ratio Analysis Current Assets means assets that will be either be used up or converted in to cash within a year’s time or normal operating cycle of business cycle whichever is longer. Current Liabilities means Liabilities payable within a year or operating cycle, whichever is longer, out of the existing current assets or by creation of current Liabilities. b) Quick Ratio/Acid Test Ratio/Liquid Ratio: Quick Ratio is the relationship between Quick Assets and Current liabilities. It is also called acid test ratio because it is the Acid test of a concerns financial soundness. The Rules of Thumb for acceptable values are: Current Ratio (1:1) ie. for every one rupee of current Liability there must be current assets of Rs. 1/-. Quick Ratio= (Current Assets-Inventories)/Current Liabil Quick Ratio= Liquid Assets/Current Liabilities Quick Asset = Total Current Assets[Inventories + prepaid Expenses] Quick Liabilities—Total Current Liabilities — Bank overdraft In the quick ratio, we subtract inventories and prepaid expenses from total current assets, since they are the least liquid among the current assets. We subtract Bank overdraft from total current Liabilities, since they are the least Liquid among the current liabilities. 2. Leverage ratios or Long Term Solvency Ratios It measures the degree of protection of suppliers of long-term funds and can also aid in judging a firm's ability (o raise additional debt and its capacity to pay its liabilities on time, It shows the relation between total debts and owned capital. It is the ratio of amount invested by outsiders to the ratio of amount invested by shareholders. Here the rule of thumb is1:1.It establishes the relationship between share holders fund and out side’s fund. It was calculated to measure the extents to which debt financing has been used in the business. Debt Equity Ratio = (Debt / Equity) or (External Equity / Internal Equity) 20 Downloaded by Manu Kish (manuksish127@gmal.com)A Study On Financial Performance By Ratio Analysis Itis an index of degree of protection the creditors have. A high ratio shows that creditors have invested more in business than shareholders. A low ratio indicates smaller claim of creditors. b. Debt ratio/Solvency ratio: s ratio is the small variant of equity ratio and can be calculated as 100% equity ratio.0.25:1 is the rule of thumb. The ratio indicates the relationship between the total liabilities to outsiders to total asset of a firm, DR = Total Assets/ Total Liabilities 3. Profitability Rati Generally Profitability ratios are calculated either in relation to sales or in relation to investment. Profitability ratios measure management's ebility to control expenses and to ean a return on the resources committed to the business. The profitability ratios are 1. Earnings per share ratios 2, Profit margin ratio 3. Foreman’: 4. Interest income ratio 5. Return on asset ratio ‘commission ratio Earnings per share ratio (EPS ratio) ‘The overall profitability can also be judged by calculating earnings per share with the help of following formula EPS = Net Profit available to sharcholders/Number of equity shares Foreman’s commission ratio Foreman’s commission is the main source of income to the KSFE. The foreman is entitled to certain percentage of the chitty amount (not more than 5% of the chitty amount) as his 21 This documents vibe ree of charge on § studocu Downloaded by Manu Kish (manukeish127 @gmal.com)A Study On Financial Performance By Ratio Analysis commission from each member, This ratio shows the relationship between foreman’: commission and total income. The ratio calculated as Foreman’s commission rati Foreman’s Commission/ Total Income Interest income ratio KSFE offers different loan schemes to the public. It includes gold loan, vehicle loan, chitty loan, housing Joan etc. It is a main source of income to KSFE. This ratio shows the relationship between total interests received and total income. The ratio is calculated as Interest income ratio = (Interest Received/ Total Income)*100 Return on asset ratio Return on assets is also called as Return on Investment (ROI) or Return on Gross Capital Employed. It is calculated by dividing operating profit by total assets. Return on asset ratio = (Net Profit after Tax/ Total Assets)*100 22 Downloaded by Manu Kish (manuksish127@gmall.com)A Study On Financial Performance By Ratio Analysis CHAPTER 5 ANALYSIS AND INTERPRETATION 5.1 DATA ANAYSIS AND INTERPRETATION The data after collection has to be processed and analyzed in accordance with the outline laid down for the purpose at the time of developing the research plan. This is essential for the scientific study and for ensuring the researcher has all relevant data for making contemplated comparison analysis. Analysis of Financial Statement means a detailed study of Financial Statements by breaking and rearranging them into a simple format, The analysis of statements will help the 23 inscbamersoninoeteectoweeen Ly studocu Downloaded by Manu Kish (manukeish27@gmal.com)A Study On Financial Performance By Ratio Analysis management at self appraisal and the vary statements help the shareholders to judge the performance of management, Interpretation is the process of understanding terms of analyzed Financial Statements and forming opinions about the financial health profitability, efficiency of the undertaking. According to F, Wood, “interpreting means to put out the meaning of a tement into simple terms for the benefit of a person”. Interpretation and Analys are closely interconnected because interpretation impossible without analysis. At the same time, analysis is of no use without interpretation. RATIO ANALYSIS Current Ratio: Current ratio may be defined as the relationship between current assets and current liabilities. It is the most common ratio for measuring liquidity. CR = Current Assets/ Current Liability cam CURRENT ASSETS | CURRENT CURRENT (CA) LIABILITIES (C.L) RATIO 2008-2009) 502510.58 263979.01 2.53894 2009-2010 691911.56 37947332 1.82335 2010-2011 828365.10 497915.45 1.66366 2011-2012 993873.86 600582.84 | L6s48s 2012-2013 | Average 1.93638, Table 3.1.Current ratio 24 Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis (Source; balance sheet and profit & loss account of KSFE LTD Thrissur 2007-2012) CURRENT RATIO 254 1661.65 CURRENT RATIO 2008 = 2009 201020112012 Chart.3.1.Current ratio Interpretation As a conventional rule As a conventional rule a current ratio of 2:1 or more is considered to be best. The current ratio of the firm for the five years is just satisfactory. The average is showing 1.93638:1. The ratio indicates an average liquidity position of the firm. Quick Ratio: This is the ratio of liquid assets to liquid liabilities. Liquid assets are those which can be easily converted into cash within a short period. It shows a firm’s ability to meet current liabilities with its most liquid (quick) assets, The ideal liquid ratio is 1:1 QR = Quick Assets/ Quick Liabilities Quick Asset = Total Current Assets-[Inventories + prepaid Expenses] Quick Liabilities=Total Current Liabilities — Bank overdraft 25, insctcononisnanbarwectowseen y studocu Downloaded by Manu Kish (manukrish127@gmall.com)A Study On Financial Performance By Ratio Analysis YEAR QUICK ASSETS Channa S (CL) ano. 2008-2009 499258.25 263979.01 1.89 2009-2010 690241.29 379473.32 1.81 2010-2011 828361.54 497915.45 1.66 2011-2012 993872.44 600582.84 1.65 2012-2013 AVERAGE 1.80 ‘Table 3.2.Quick ratio (Source; balance sheet and profit & loss account of KSFE LTD Thrissur 2007-2012) Interpretation 2008 2009 QUICK RATIO 2010-2011, Chart 3.2.Quick ratio 26 = QUICK RATIO. 2012 Downloaded by Manu Kish (manuksisht27@gmai.com)A Study On Financial Performance By Ratio Analysis As a conventional rule a quick ratio of 1:1 or more is considered to be best. KSFE achieved this ratio for all years. The ratio indicates a good liquidity position of the firm. LEVERAGE RATIO Debit Equity Ratio: It shows the relation between total debts and owned capital. It is the ratio of amount invested by outsiders to the ratio of amount invested by shareholders. Here the rule of thumb is]:1. It establishes the relationship between share holders fund and out side’s fund. It was calculated to measure the extents to which debt financing has been used in the business. Debit equity ratio = Debt/Equity YEAR DEBT EQUITY a tv 2008-2009 _| 22595036291 1344332026 16.81 2009-2010 __| 29729090952 1678665632 71 2010-2011 31356021004 1911285525 1641 2011-2012 36977461462 2592019617 14.27 2012-2013 AVERAGE 1632 ‘Table 3.3.Debit equity ratio (Source; balance sheet and profit & loss account of KSFE LTD Thrissur 2007-2012 27 necscurenisonisieteeciswrn EY studocu Downloaded by Manu Kish (manuksish127@gmall.com)A Study On Financial Performance By Ratio Analysis DEBT EQUITY RATIO i427 |= DEBT EQUITY RATIO. 2008 2009-2010 2011.-S«(2012 Chart 3.3.Debit equity ratio Interpretation Debt Equity ratio measures the long term financial solvency of the firm, by relating between fund and equity, The Debt equity ratio for 2012 is lowest one of previous four years. There are no norms for any maximum or minimum debt equity ratio. The lower the debt to equity ratio, the higher the degree of protection felt by the lenders. The ratio showed a mixed trend. Increasing trend isn’t good. Solvency ratio The ratio indicates the relationship between the total liabilities to outsiders to total asset of a firm, Solvency ratio = Total Assets/ Total outside liability YEAR TOTAL ASSETS Liapiucins IDE a 2008-2009 50337228197 26397901015 1.91 2009-2010 69355047843 37947332394 1.83 2010-2011 83058810479 49791545085 1.67 2011-2012 99627724132 (60058284188 1.66 28 Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis 2012-2013 AVERAGE 181 Table 3.4.Solvency ratio (Source; balance sheet and profit & loss account of KSFE LTD Thrissur 2007-2012) SOLVENCY RATIO 2504 2.002 167166 1504 SOLVENCY RATIO. 1.00 | oso | o.00 | 2008 | 2009 2010-2011 2012 Chart 3.4.Solvency ratio Interpretation Generally higher the solvency ratio the stronger is the firm’s ability to meet the outside liabilities. Solvency ratio represents the firm’s ability to pay the outside liabilities, In KSFE solvency ratios shows a steadily decreasing position from 2008-2012, PROFITABILITY RATIO Profitability ratios are best indicators of overall efficiency of the business concem because they compare retum of value over and above the values put into a business with sale or service carried on by the firm with the help of asset employed. Generally Profitability ratios are calculated either in relation to sales or in relation to investment. Profitability ratios 29 insctcononisnanbarmectowsee €y studocu Downloaded by Manu Kish (manuksish127@gmall.com)A Study On Financial Performance By Ratio Analysis measure management's ability to control expenses and to eam a retum on the resources committed to the business. The profitability ratios are 1, Earnings per share ratios 2. Profit margin ratio 3. Foreman’s com sion ratio 4, Interest income ratio 5. Return on asset ratio Earnings per share ratio (EPS ratio) The overall profitability can also be judged by calculating earnings per share with the help of following formula EPS = Net profit available to shareholder/ Number of equity shares ven | SELRRORTATAS | SOGEEGU [a 2008-2009 1258.22 20 62.911 2010-2011 5224.95 20 261.2475 ‘Table 3.5.Earnings per share (Source; balance sheet and profit & loss account of KSFE LTD Thrissur 2007-2012) 30 Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis EPS 547.78 2+ EPS 2008, 2009 2010 2011 2012 Chart 3.5.Earnings per share Interpretation EPS shows the profitability of the firm on a per share basis. From 2008 to 2012, the numbers of share holders have increased from 10 lakhs to 20 lakhs. In the year 2012 has more than EPS ratio compared to other years. KSFE is more focus to the profitability. Profit Margin Ratio Profit margin is very useful when comparing companies in similar industries. Net profit margin is an indicator of how efficient a company is how well it controls its costs. The higher margin is, the more effective the company is in converting revenue into actual profit. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin ratis Net profit after tax/ Total income) *100 31 necccurenisonisieteeciswn EY studocu Downloaded by Manu Kish (manuksish127@gmall.com)A Study On Financial Performance By Ratio Analysis (Rs.Jn lakhs ) YEAR [SETFRORTAFTER Tyoratawcown | RORTNARGIN 2011-2012 10955.61 ($4772.29 12.92 ‘Table 3.6.Profit margin ratio (Source; balance sheet and profit & loss account of KSFE LTD Thrissur 2007-2012) PROFIT MARGIN RATIO 12.92 ‘B+ PROFIT MARGIN RATIO. 2009 ©2010-2011. 2012, Chart 3.6.Profit margin ratio Interpretation The ratio shows profitability of the firm, Profit margin ratio shows steadily growth trend throughout the year. So KSFE profit margin is healthy indication 32 Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis Foreman’s commission ratio Foreman’s commission is the main source of income to the KSFE. The foreman is entitled to certain percentage of the chitty amount (not more than 5% of the chitty amount) as his commission from each member. This ratio shows the relationship between foreman’s commission and total income. The ratio calculated as Foreman’s commission ratio= Foreman’s commission / Total Income (Rs.fn lakhs ) FOREMAN'S , FOREMAN'S REAR COMISSION RETR COMISSION RATIO 2008-2009 | 16298.98 1343.32 1.21 2009-2010 23449.23 16786.65. 1.39 2010-2011 _ | 3139343, 19112,85 1.64 2011-2012 37425.81 25920.19 1.44 AVERAGE 1.334 Table 3.7.Foreman’s commission ratio (Source; balance sheet and profit & loss account of KSFE LTD Thrissur 2007-2012) FOREMAN'S COMISSION RATIO ge 1.39 121 0.99 mp FOREMANS COMISSION RATIO 2008 = 200920102011. 2012 33, insctcononisnanbarmectowsee €y studocu Downloaded by Manu Kish (manuksish127@gmall.com)A Study On Financial Performance By Ratio Analysis Chart 3.7.Foreman’s commission ratio Interpretation Foreman’s commission is the main source of income to the KSFE. From 2007-08 to 2011-12 the ratio shows a increasing trend, But 2012 foreman’s commission ratio shows a decreasing trend, But from 2012 KSFE isn’t good for an organization. Interest Income Ratio KSFE offers different loan schemes to the public. It includes gold loan, vehicle loan, chitty loan, housing loan etc. It is a main source of income to KSFE. This ratio shows the relationship between total interests received and total income. The ratio is calculated as Interest income ratio= Interest received / Total income x 100 (Rs.tn lakhs ) YEAR heen TOTALINCOME | NTE arto 2008-2009 _| 2387.68 43278.35 55.19 2009-2010 | 32038.67 59394.89 | 53.94 2010-2011 __| 36452.42 71740.73 50.81 2011-2012 _| 4138.05 $4772.29 48.76 ‘Table 3.8.Interest income ratio (Source; balance sheet and profit & loss account of KSFE LID Thrissur 2007-2012) 34 Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis INTEREST INCOME RATIO 58 56 54 INTEREST INCOME 524 = RATIO. 50+} 48.76 43 46 | 44 j—_____, 2008 ©2009 «2010» «2011-2012 Chart 3.8.Interest income ratio Interpretation Interest income to total income ratio tries to reflect the relation between interest income and total income the chart shows is due that the fluctuating trend, The ratio shows a decreasing trend this to changing proportion of total income, Both are increasing but interest income inereasing at a lower value. Return on asset ratio Return on assets is also called as Return on Investment (ROI) or Return on Gross Capital Employed. It is calculated by dividing operating profit by total assets. Return on asset ratio = Net profit after tax/Total assets x100 (Rs.tn lakhs ) , NET PROFIT RETURN ON YEAR eorentrte TOTAL ASSET ASSET RATIO 35 necscurenisonisieteeciswrn EY studocu Downloaded by Manu Kish (manuksish127@gmall.com)A Study On Financial Performance By Ratio Analysis 2008-2009 | 1258.22 503372 0.249 2009-2010 | 3813.23 693550 0.549 2010-2011 | $224.95 830588 0.629 2011-2012 _| 10955.61 996277 1.099 ‘Table 3.9.Return on asset ratio (Source; balance sheet and profit & loss account of KSFE LTD Thrissur 2007-2012) RETURN ON ASSET RATIO 12 os | 0.63 my RETURN ON ASSET os | RATIO oa | 0.25 o2 | 2008 2009-2010 2011-2012 Chart 3.9.Return on asset ratio Interpretation Return on asset ratio shows in graph a increasing trend. It is mainly because of Net profit after tax comes up from 5224.95 to 10955.61 lakhs of rupees (2010-11 to 2011-12) 36 Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis 37 This documents valle ee of charge on § studocu Downloaded by Manu Krsh (manuksish127@gmall.com)A Study On Financial Performance By Ratio Analysis CHAPTER 6 FINDINGS AND CONCLUSION 6.1 FINDINGS * Asa conventional rule a current ratio of 2:1 or more is considered to be best. The current ratio of the company isn’t enough for paying of current liabilities. The current ratio of the firm for the five years is just satisfactory. * Asa conventional rule a quick ratio of 1:1 or more is considered to be best. KSFE achieved this ratio for all years, The ratio indicates a good liquidity position of the firm. 38 Downloaded by Manu Kish (manukeish127@gmal.com)A Study On Financial Performance By Ratio Analysis © There are no norms for any maximum or minimum debt equity ratio. The lower the debt to equity ratio, the higher the degree of protection felt by the lenders. The ratio showed a mixed trend, Increasing trend isn’t good. * Solvency ratio represents the firm’s ability to pay the outside liabilities. In KSFE solvency ratios shows a steadily decreasing position from 2007-2013. EPS shows the profitability of the firm on a per share basis. From 2007 to 2008-2012, the numbers of share holders have increased from 10 lakhs to 20 lakhs, In the year 2012 has more than EPS ratio compared to other years. KSFE is more focus to the profitability. * Profit margin ratio shows steadily growth trend throughout the year. So KSFE profit margin is healthy indication * Foreman’s commission is the main source of income to the KSFE. From 2007-2011 the ratio shows a increasing trend. But 2012 foreman’s commission ratio shows a decreasing trend, But from 2012 KSFE isn’t good for an organization. * Interest income to total income ratio tries to reflect the relation between interest income and total income the chart shows that the fluctuating trend. The ratio shows a decreasing trend this is due to changing proportion of total income, Both are inereasing but interest income increasing at a lower value. * Return of asset ratio shows a steadily increasing trend. So the company’s performance is satisfactory * In comparative income statements, the overall performance of income sources such as foreman’s commission, interest income ete shows an increasing trend. The expenditure also shows increasing trend, We could find that the total income of the firm is more than the total expenditure. And also the operating profit shows an increasing trend during the five years, But KSFE is making profit continuously. + On comparing the balance sheet for various years, we could find that the relationship between current assets and current liabilities is satisfactory. This is a healthy indication of KSFE. * The trend analysis of working capital shows an increasing trend during the year 2012 compared to 2007, which is taken as the base year ie approximately. Thus overall 39 This documents vibe ree of charge on § studocu Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis working capi | position is good and indicates an improvement in the financial position of the organization. 6.2 RECOMMENDATIONS + The company’s liquidity position has to improved by the way of increasing the volume of business, + The company should efficiently utilize its working capital to profitable businesses such as chitty, loans ete * The company should adopt new marketing tools to know much about its products to customers. + Company should remit loans and advances as early as possible. 40 Downloaded by Manu Kish (manuksish127@gmail.com)A Study On Financial Performance By Ratio Analysis + The firm can balance liquidity and profitability by reducing the current liabilities. + The company should take necessary steps to improve their promotional activities. + An estimate of cash requirement should be prepared in order to understand the future cash needs. * Suitable techniques should be introduced for the better management of assets. The firm should take adequate care while applying the funds in purchase of fixed assets, redemption of share ete. + The firm should not depend more on long term funds for purchasing the fixed assets. + For the better management of working capital in future, proper techniques should be introduced. + Since the competition is becoming so tight, the firm should give prime importance to its competitors. + KSFE should reduce the unproductive expenses * By introducing core banking system it makes easy payment and speed up collection. + The company can increase its profitability by giving due care to housing finance sector, 6.3 CONCLUSION The study considered on the financial performance analysis of KSFE LTD, Thrissur. The journey of KSFE LTD started out slowly in small scale basis, but today KSFE LTD has got a great role in the financial market of Kerala, It is based on the published study annual report of the company. Various financial tools are used in this study. It can conclude that the liquidity position of the firm is not satisfactory. During the period of study there is no enough current assets to meet the current liabilities of a This documents vibe ree of charge on § studocu Downloaded by Manu Kish (manuksish127@gmall.com)A Study On Financial Performance By Ratio Analysis the firm, The expenditure of the firm shows an increasing trend, It is not good situation. Profit of the company in a fluctuating trend but KSFE is a profit making company. Earnings per share of the company are in a increasing trend. It is a good situation. The analysis and findings about the financial performance will be an indicator of the weak points was the company should more concentrate. The chit fund as an innovative access of finance to low and medium income people, from the analysis done it is determined that the profitability of ars and the chit funds act as an innovative access of KSFE LTD is increasing over the y finance for low and medium income people by providing immediate fund for them Finally the study helped me to acquire practical knowledge that was only over by books and papers alone. I take up this opportunity to thank one and all for making this study a complete one, 42 Downloaded by Manu Kish (manuksish127@gmall.com)