SUMMER TRAINING PROJECT REPORT ON Analysis of Financial Ratio at Kings International ltd.

SUBMITTED FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTERS IN BUSINESS ADMINISTRATION SUBMITTED BY: Shariq Muin (10- MBA-58) UNDER THE SUPERVISION OF: Brijesh kumar gupta (Manager-Finance) kings international ltd. kanpur DEPARTMENT OF BUSINESS ADMINISTRATION FACULTY OF MANAGEMENT STUDIES AND RESEARCH ALIGARH MUSLIM UNIVERSITY ALIGARH (2010-2011) Acknowledgement This is my pleasure to acknowledge the people who helped me during the course of this project. I would like to thank ,my supervisor, Mr.Brijesh Kumar Gupta, for patience, motivation and guidance throughout all the stages of my project. And special thanks to Mr. Afaq Ahmad,(manager of export import) and all the people w ho helped me during my project at Kings International Ltd . I owe everything in this life to my parents who are a constant source of inspira tion and pillar of support and also thank to the faculty members of FMSR and my friend who helped me directly or indirectly in this project. Above all I would like to thanks the almighty God without whose will this work c ould never have been completed.

SHARIQMUIN

TABLE OF CONTENT • Training certificate • Acknowledgement • Executive summary Chapter 1. Introduction 1.1 Industry Analysis 1.2 Indian Snack Industry 1.3 Constraints And Drivers Of Growth 1.4 Investments 1.5 SWOT Analysis Chapter 2 Profile Of Organisation 2.1 Establishment 2.2 Growth & Diversification

2.3 SWOT Analysis of ITC 2.4 Product & Service Profile Chapter .3 Objectives & Limitations of Study 3.1 Objectives 3.2 Nature of study 3.3 Usefulness of study 3.4 Limitations 3.5 Logical flow of the project 3.6 Benefits of the study Chapter .4 Analysis and Findings Chapter.5 Proposal & Recommendations 5.1 Pilot distribution model 5.2 Recommendations Chapter.6 Conclusion List of references Abbreviations

OBJECTIVE OF THE STUDY To understand the information contained in financial statements with a v iew to know the strength or weaknesses of the firm and to make forecast about th e future prospects of the firm and thereby enabling the financial analyst to tak e different decisions regarding the operations of the firm. The above study aimed at: To gain the overall idea about the organization. To gain a firsthand knowledge about the structure and the functioning of the fi nance Department and the return on investment policy. To gain and enhance different managerial skills. To see the applicability and usability of theory which have been taught To us during the first year of the course? To find out the financial performance of the organization To find out the importance of finance in business. To find out the future requirement of finance in business. To study the investment decisions based on the return. Depending on the studies as started above suggest some new innovative ideas whic h may Beneficial to the organization.

RESEARCH METHODOLOGY The information was collected from various sources which are listed below:For the official document. From records and manuals of different departments of the organizations. From a close observation of the functioning of various departments of the organi zations. Last but not least, knowledge, both negative and positive precipitated through i nformal discussions with the employees of different departments. PLAN OF STUDY A proper and systematic approach is essential in any project work. Proper planni ng should be conducting the data collection, completion and presentation of the project. Each and every step must be so planned that it leads to the next step a utomatically. This systematic approach is a blend a planning and organization an d major emphasis is given to independences of various steps. The plan of this study is as follows:Research Purpose The purpose of the research was to criteria on which investment of the company i s raised every year and a favourable rate of return is arrived at, increasing th e net result of the company as per their budget. Research Objective The main objective the research is:₪ To know the investment decisions. ₪ To analyze the investment depending on internal rate of return. Research Design ₪ Research design helps in proper collection and analysis of the data. It helps in further course of action. Research Approaches ₪ The most appropriate research is descriptive. This is because the goal of the st udy is clear research will help to understand to concept better. Classification of Data Primary data ₪ This includes the information collected mainly from the office. This has served as primary source of data for this study. Secondary data ₪ This includes the information gathered from various website. Sampling Size and Techniques ₪ The sample size selected is of five years. ₪ The sampling procedure employed for this is judgmental sampling a convenience sa mpling technique in which elements are based on the judgment of researcher Softw are tools used for the data analysis . The software tools used for data analysis in MS WORD & MS EXCEL

RATIO ANALYSIS Fundamental Analysis has a very broad scope. One aspect looks at the general (qualitative) factors of a company. The other side considers tangible a nd measurable factors (quantitative). This means crunching and analyzing numbers from the financial statements. If used in conjunction with other methods, quant itative analysis can produce excellent results. Ratio analysis isn't just comparing different numbers from the balanc e sheet, income statement, and cash flow statement. It's comparing the number ag ainst previous years, other companies, the industry, or even the economy in gene ral. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, nd might perform in the future. MEANING OF RATIO: A ratio is one figure express in terms of another figure. It is a mathematical y ardstick that measures the relationship two figures, which are related to each o ther and mutually interdependent. Ratio is express by dividing one figure by the other related figure. Thus a ratio is an expression relating one number to anot her. It is simply the quotient of two numbers. It can be expressed as a fraction or as a decimal or as a pure ratio or in absolute figures as “ so many times”. As a ccounting ratio is an expression relating two figures or accounts or two sets of account heads or group contain in the financial statements. MEANING OF RATIO ANALYSIS: Ratio analysis is the method or process by which the relationship of items or gr oup of items in the financial statement are computed, determined and presented. Ratio analysis is an attempt to derive quantitative measure or guides concerning the financial health and profitability of business enterprises. Ratio analysis can be used both in trend and static analysis. There are several ratios at the d isposal of an annalist but their group of ratio he would prefer depends on the p urpose and the objective of analysis. While a detailed explanation of ratio analysis is beyond the scope of this secti on, we will focus on a technique, which is easy to use. It can provide you with a valuable investment analysis tool. This technique is called cross-sectional analysis. Cross-sectional analysis comp ares financial ratios of several companies from the same industry. Ratio analysi s can provide valuable information about a company's financial health. A financi al ratio measures a company's performance in a specific area. For example, you c ould use a ratio of a company's debt to its equity to measure a company's levera ge. By comparing the leverage ratios of two companies, you can determine which c ompany uses greater debt in the conduct of its business. A company whose leverag e ratio is higher than a competitor's has more debt per equity. You can use this information to make a judgment as to which company is a better investment risk. However, you must be careful not to place too much importance on one ratio. You obtain a better indication of the direction in which a company is moving when se veral ratios are taken as a group. OBJECTIVE OF RATIOS Ratio is work out to analyze the following aspects of business organizationA) Solvency1) Long term 2) Short term 3) Immediate B) Stability C) Profitability D) Operational efficiency E) Credit standing F) Structural analysis G) Effective utilization of resources

H)

Leverage or external financing

FORMS OF RATIO: Since a ratio is a mathematical relationship between to or more variable s / accounting figures, such relationship can be expressed in different ways as follows – A] As a pure ratio: For example the equity share capital of a company is Rs. 20,00,000 & the preference share capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is 20,00,000: 5,00,000 or simply 4:1. B] As a rate of times: In the above case the equity share capital may also be described as 4 t imes that of preference share capital. Similarly, the cash sales of a firm are Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales can be described as 2.5 [30,00,000/12,00,000] or simply by saying th at the credit sales are 2.5 times that of cash sales. C] As a percentage: In such a case, one item may be expressed as a percentage of some other item. For example, net sales of the firm are Rs.50,00,000 & the amount of the gr oss profit is Rs. 10,00,000, then the gross profit may be described as 20% of sa les [ 10,00,000/50,00,000] STEPS IN RATIO ANALYSIS The ratio analysis requires two steps as follows: 1] Calculation of ratio 2] Comparing the ratio with some predetermined standards. The standard ratio may be the past ratio of the same firm or industry’s average ratio or a projected rat io or the ratio of the most successful firm in the industry. In interpreting the ratio of a particular firm, the analyst cannot reach any fruitful conclusion un less the calculated ratio is compared with some predetermined standard. The impo rtance of a correct standard is oblivious as the conclusion is going to be based on the standard itself. TYPES OF COMPARISONS The ratio can be compared in three different ways – 1] Cross section analysis: One of the way of comparing the ratio or ratios of the firm is to compar e them with the ratio or ratios of some other selected firm in the same industry at the same point of time. So it involves the comparison of two or more firm’s fi nancial ratio at the same point of time. The cross section analysis helps the an alyst to find out as to how a particular firm has performed in relation to its c ompetitors. The firms performance may be compared with the performance of the le ader in the industry in order to uncover the major operational inefficiencies. T he cross section analysis is easy to be undertaken as most of the data required for this may be available in financial statement of the firm. 2] Time series analysis: The analysis is called Time series analysis when the performance of a fi rm is evaluated over a period of time. By comparing the present performance of a firm with the performance of the same firm over the last few years, an assessme nt can be made about the trend in progress of the firm, about the direction of p rogress of the firm. Time series analysis helps to the firm to assess whether th e firm is approaching the long-term goals or not. The Time series analysis looks for (1) important trends in financial performance (2) shift in trend over the y ears (3) significant deviation if any from the other set of data\ 3] Combined analysis: If the cross section & time analysis, both are combined together to study the be havior & pattern of ratio, then meaningful & comprehensive evaluation of the per formance of the firm can definitely be made. A trend of ratio of a firm compared with the trend of the ratio of the standard firm can give good results. For exa mple, the ratio of operating expenses to net sales for firm may be higher than t he industry average however, over the years it has been declining for the firm, whereas the industry average has not shown any significant changes.

The combined analysis as depicted in the above diagram, which clearly shows that the ratio of the firm is above the industry average, but it is decreasing over the years & is approaching the industry average. PRE-REQUISITIES TO RATIO ANALYSIS In order to use the ratio analysis as device to make purposeful conclusi ons, there are certain pre-requisites, which must be taken care of. It may be no ted that these prerequisites are not conditions for calculations for meaningful conclusions. The accounting figures are inactive in them & can be used for any r atio but meaningful & correct interpretation & conclusion can be arrived at only if the following points are well considered. 1) The dates of different financial statements from where data is taken mus t be same. 2) If possible, only audited financial statements should be considered, oth erwise there must be sufficient evidence that the data is correct. 3) Accounting policies followed by different firms must be same in case of cross section analysis otherwise the results of the ratio analysis would be dist orted. 4) One ratio may not throw light on any performance of the firm. Therefore, a group of ratios must be preferred. This will be conductive to counter checks. 5) Last but not least, the analyst must find out that the two figures being used to calculate a ratio must be related to each other, otherwise there is no purpose of calculating a ratio.

CLASSIFICATION OF RATIO

BASED ON FINANCIAL STATEMENT

BASED ON FUNCTION

BASED ON USER

1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR RATIO 2] LEVERAGE RATIO SHORT TERM 2] REVENUE 3] ACTIVITY RATIO CREDITORS STATEMENT 4] PROFITABILITY 2] RATIO FOR RATIO RATIO SHAREHOLDER 3] COMPOSITE R RATIO MANAGEMENT 4] RATIO FOR LONG TERM CREDITORS BASED ON FINANCIAL STATEMENT 5] COVERAGE RATIO 3] RATIOS FO

Accounting ratios express the relationship between figures taken from fi nancial statements. Figures may be taken from Balance Sheet , P& P A/C, or both. One-way of classification of ratios is based upon the sources from which are ta ken. 1] Balance sheet ratio: If the ratios are based on the figures of balance sheet, they are called Balance Sheet Ratios. Eg. ratio of current assets to current liabilities or rat io of debt to equity. While calculating these ratios, there is no need to refer to the Revenue statement. These ratios study the relationship between the assets & the liabilities, of the concern. These ratio help to judge the liquidity, sol vency & capital structure of the concern. Balance sheet ratios are Current ratio , Liquid ratio, and Proprietory ratio, Capital gearing ratio, Debt equity ratio, and Stock working capital ratio. 2] Revenue ratio: Ratio based on the figures from the revenue statement is called revenue statement ratios. These ratio study the relationship between the profitability & the sales of the concern. Revenue ratios are Gross profit ratio, Operating rati o, Expense ratio, Net profit ratio, Net operating profit ratio, Stock turnover r atio. 3] Composite ratio: These ratios indicate the relationship between two items, of which one i s found in the balance sheet & other in revenue statement. There are two types of composite ratiosa) Some composite ratios study the relationship between the profits & the i nvestments of the concern. E.g. return on capital employed, return on proprietor s fund, return on equity capital etc. b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend payout ratios, & debt service ratios

BASED ON FUNCTION: Accounting ratios can also be classified according to their functions in to liqu idity ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios. 1] Liquidity ratios: It shows the relationship between the current assets & current liabiliti es of the concern e.g. liquid ratios & current ratios. 2] Leverage ratios: It shows the relationship between proprietors funds & debts used in fin ancing the assets of the concern e.g. capital gearing ratios, debt equity ratios , & Proprietory ratios. 3] Activity ratios: It shows relationship between the sales & the assets. It is also known a s Turnover ratios & productivity ratios e.g. stock turnover ratios, debtors turn over ratios. 4] Profitability ratios: a) It shows the relationship between profits & sales e.g. operating ratios, gross profit ratios, operating net profit ratios, expenses ratios b) It shows the relationship between profit & investment e.g. return on inv estment, return on equity capital.

5] Coverage ratios: It shows the relationship between the profit on the one hand & the claim s of the outsiders to be paid out of such profit e.g. dividend payout ratios & d ebt service ratios. BASED ON USER: 1] Ratios for short-term creditors: Current ratios, liquid ratios, stock working capital ratios 2] Ratios for the shareholders: Return on proprietors fund, return on equity capital 3] Ratios for management: Return on capital employed, turnover ratios, operating ratios, expenses ratios 4] Ratios for long-term creditors: Debt equity ratios, return on capital employed, proprietor ratios.

LIQUIDITY RATIO: Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year) obligations. The ratios, which indicate the liquidity of a company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below

CURRENT RATIO Meaning: This ratio compares the current assests with the current liabilities. It is also known as ‘working capital ratio’ or ‘ solvency ratio’. It is expressed in the form of p ure ratio. Formula: Current assets Current ratio = Current liabilities The current assests of a firm represents those assets which can be, in the ordin ary course of business, converted into cash within a short period time, normally not exceeding one year. The current liabilities defined as liabilities which ar e short term maturing obligations to be met, as originally contemplated, with in a year. Current ratio (CR) is the ratio of total current assets (CA) to total current li abilities (CL). Current assets include cash and bank balances; inventory of raw materials, semi-finished and finished goods; marketable securities; debtors (net of provision for bad and doubtful debts); bills receivable; and prepaid expense s. Current liabilities consist of trade creditors, bills payable, bank credit, p rovision for taxation, dividends payable and outstanding expenses. This ratio me asures the liquidity of the current assets and the ability of a company to meet its short-term debt obligation. CR measures the ability of the company to meet its CL, i.e., CA gets converted i nto cash in the operating cycle of the firm and provides the funds needed to pay for CL. The higher the current ratio, the greater the short-term solvency. This compares assets, which will become liquid within approximately twelve months wi th liabilities, which will be due for payment in the same period and is intended to indicate whether there are sufficient short-term assets to meet the short- t erm liabilities. Recommended current ratio is 2: 1. Any ratio below indicates th at the entity may face liquidity problem but also Ratio over 2: 1 as above indic ates over trading, that is the entity is under utilizing its current assets. LIQUID RATIO: Meaning: Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compa re the quick assets with the quick liabilities. It is expressed in the form of p ure ratio. The term quick assets refer to current assets, which can be converted into, cash immediately or at a short notice without diminution of value. Formula: Quick assets Liquid ratio = Quick liabilities Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refer s to those current assets that can be converted into cash immediately without an

y value strength. QA includes cash and bank balances, short-term marketable secu rities, and sundry debtors. Inventory and prepaid expenses are excluded since th ese cannot be turned into cash as and when required. QR indicates the extent to which a company can pay its current liabilities witho ut relying on the sale of inventory. This is a fairly stringent measure of liqui dity because it is based on those current assets, which are highly liquid. Inven tories are excluded from the numerator of this ratio because they are deemed the least liquid component of current assets. Generally, a quick ratio of 1:1 is co nsidered good. One drawback of the quick ratio is that it ignores the timing of receipts and payments. CASH RATIO Meaning: This is also called as super quick ratio. This ratio considers only the absolute liquidity available with the firm. Formula: Cash + Bank + Marketable securities Cash ratio = Total current liabilities Since cash and bank balances and short term marketable securities are the most l iquid assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are too much in relation to the current liabilities then it may af fect the profitability of the firm.

INVESTMENT / SHAREHOLDER

EARNING PER SAHRE:Meaning: Earnings per Share are calculated to find out overall profitability of the organ ization. An earnings per Share represents earning of the company whether or not dividends are declared. If there is only one class of shares, the earning per sh are are determined by dividing net profit by the number of equity shares. EPS measures the profits available to the equity shareholders on each share held . Formula: NPAT

Earning per share = Number of equity share The higher EPS will attract more investors to acquire shares in the company as i t indicates that the business is more profitable enough to pay the dividends in time. But remember not all profit earned is going to be distributed as dividends the company also retains some profits for the business DIVIDEND PER SHARE:Meaning: DPS shows how much is paid as dividend to the shareholders on each share held. Formula: Dividend Paid to Ordinary Shareholders Dividend per Share = Number of Ordinary Shares DIVIDEND PAYOUT RATIO:Meaning: Dividend Pay-out Ratio shows the relationship between the dividend paid to equi ty shareholders out of the profit available to the equity shareholders. Formula: Dividend per share Dividend Pay out ratio = *100 Earning per share D/P ratio shows the percentage share of net profits after taxes and after prefer ence dividend has been paid to the preference equity holders. GEARING

CAPITAL GEARING RATIO:Meaning: Gearing means the process of increasing the equity shareholders return through t he use of debt. Equity shareholders earn more when the rate of the return on tot al capital is more than the rate of interest on debts. This is also known as lev erage or trading on equity. The Capital-gearing ratio shows the relationship bet ween two types of capital viz: - equity capital & preference capital & long term borrowings. It is expressed as a pure ratio.

Formula: Preference capital+ secured loan Capital gearing ratio = Equity capital & reserve & surplus Capital gearing ratio indicates the proportion of debt & equity in the financing of assets of a concern. PROFITABILITY These ratios help measure the profitability of a firm. A firm, which generates a substantial amount of profits per rupee of sales, can comfortably meet its oper ating expenses and provide more returns to its shareholders. The relationship be tween profit and sales is measured by profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit Margin.

GROSS PROFIT RATIO:Meaning: This ratio measures the relationship between gross profit and sales. It is defin ed as the excess of the net sales over cost of goods sold or excess of revenue o ver cost. This ratio shows the profit that remains after the manufacturing costs have been met. It measures the efficiency of production as well as pricing. Thi s ratio helps to judge how efficient the concern is I managing its production, p urchase, selling & inventory, how good its control is over the direct cost, how productive the concern , how much amount is left to meet other expenses & earn n et profit. Formula: Gross profit Gross profit ratio = * 100 Net sales NET PROFIT RATIO:Meaning: Net Profit ratio indicates the relationship between the net profit & the sales it is usually expressed in the form of a percentage. Formula: NPAT Net profit ratio = * 100 Net sales This ratio shows the net earnings (to be distributed to both equity and preferen ce shareholders) as a percentage of net sales. It measures the overall efficienc

y of production, administration, selling, financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios provide an understan ding of the cost and profit structure of a firm. RETURN ON CAPITAL EMPLOYED:Meaning: The profitability of the firm can also be analyzed from the point of view of the total funds employed in the firm. The term fund employed or the capital employe d refers to the total long-term source of funds. It means that the capital emplo yed comprises of shareholder funds plus long-term debts. Alternatively it can al so be defined as fixed assets plus net working capital. Capital employed refers to the long-term funds invested by the creditors and the owners of a firm. It is the sum of long-term liabilities and owner s equity. RO CE indicates the efficiency with which the long-term funds of a firm are utilize d. Formula: NPAT Return on capital employed = Capital employed *100

FINANCIAL These ratios determine how quickly certain current assets can be converted into cash. They are also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in managing assets. These ratios are based on the relationship between the level of activity represented by sales or cost of g oods sold and levels of investment in various assets. The important turnover rat ios are debtors turnover ratio, average collection period, inventory/stock turno ver ratio, fixed assets turnover ratio, and total assets turnover ratio. These a re described below:

DEBTORS TURNOVER RATIO (DTO) Meaning: DTO is calculated by dividing the net credit sales by average debtors outstandin g during the year. It measures the liquidity of a firm s debts. Net credit sales are the gross credit sales minus returns, if any, from customers. Average debto rs are the average of debtors at the beginning and at the end of the year. This ratio shows how rapidly debts are collected. The higher the DTO, the better it i

 

 

s for the organization. Formula: Credit sales Debtors turnover ratio = Average debtors INVENTORY OR STOCK TURNOVER RATIO (ITR) Meaning: ITR refers to the number of times the inventory is sold and replaced during the accounting period. Formula: COGS Stock Turnover Ratio = Average stock ITR reflects the efficiency of inventory management. The higher the ratio, the m ore efficient is the management of inventories, and vice versa. However, a high inventory turnover may also result from a low level of inventory, which may lead to frequent stock outs and loss of sales and customer goodwill. For calculating ITR, the average of inventories at the beginning and the end of the year is tak en. In general, averages may be used when a flow figure (in this case, cost of g oods sold) is related to a stock figure (inventories). FIXED ASSETS TURNOVER (FAT) The FAT ratio measures the net sales per rupee of investment in fixed assets. Formula: Net sales Fixed assets turnover = Net fixed assets This ratio measures the efficiency with which fixed assets are employed. A high ratio indicates a high degree of efficiency in asset utilization while a low rat io reflects an inefficient use of assets. However, this ratio should be used wit h caution because when the fixed assets of a firm are old and substantially depr eciated, the fixed assets turnover ratio tends to be high (because the denominat or of the ratio is very low).

PROPRIETORS RATIO: Meaning: Proprietary ratio is a test of financial & credit strength of the business. It r elates shareholders fund to total assets. This ratio determines the long term or ultimate solvency of the company. In other words, Proprietary ratio determines as to what extent the owner’s interes t & expectations are fulfilled from the total investment made in the business op eration. Proprietary ratio compares the proprietor fund with total liabilities. It is usu ally expressed in the form of percentage. Total assets also know it as net worth . Formula: Proprietary fund Proprietary ratio = OR Total fund

Shareholders fund

Proprietary ratio = Fixed assets + current liabilities STOCK WORKING CAPITAL RATIO: Meaning: This ratio shows the relationship between the closing stock & the working capita l. It helps to judge the quantum of inventories in relation to the working capit al of the business. The purpose of this ratio is to show the extent to which wor king capital is blocked in inventories. The ratio highlights the predominance of stocks in the current financial position of the company. It is expressed as a p ercentage. Formula: Stock Stock working capital ratio = Working Capital Stock working capital ratio is a liquidity ratio. It indicates the composition & quality of the working capital. This ratio also helps to study the solvency of a concern. It is a qualitative test of solvency. It shows the extent of funds bl ocked in stock. If investment in stock is higher it means that the amount of liq uid assets is lower. DEBT EQUITY RATIO: MEANING: This ratio compares the long-term debts with shareholders fund. The relationship between borrowed funds & owners capital is a popular measure of the long term f inancial solvency of a firm. This relationship is shown by debt equity ratio. Al ternatively, this ratio indicates the relative proportion of debt & equity in fi nancing the assets of the firm. It is usually expressed as a pure ratio. E.g. 2 :1 Formula: Total long-term debt Debt equity ratio = Total shareholders fund Debt equity ratio is also called as leverage ratio. Leverage means the process o f the increasing the equity shareholders return through the use of debt. Leverag e is also known as ‘gearing’ or ‘trading on equity’. Debt equity ratio shows the margin of safety for long-term creditors & the balance between debt & equity. RETURN ON PROPRIETOR FUND: Meaning: Return on proprietors fund is also known as ‘return on proprietors equity’ or ‘return on shareholders investment’ or ‘ investment ratio’. This ratio indicates the relations hip between net profit earned & total proprietors funds. Return on proprietors f und is a profitability ratio, which the relationship between profit & investment by the proprietors in the concern. Its purpose is to measure the rate of return on the total fund made available by the owners. This ratio helps to judge how e fficient the concern is in managing the owner’s fund at disposal. This ratio is of practical importance to prospective investors & shareholders. Formula: NPAT Return on proprietors fund = * 100 Proprietors fund CREDITORS TURNOVER RATIO: It is same as debtors turnover ratio. It shows the speed at which payments are m

ade to the supplier for purchase made from them. It is a relation between net cr edit purchase and average creditors Net credit purchase Credit turnover ratio = Average creditors

Months in a year Average age of accounts payable = Credit turnover ra tio

Both the ratios indicate promptness in payment of creditor purchases. Higher cre ditors turnover ratio or a lower credit period enjoyed signifies that the credit ors are being paid promptly. It enhances credit worthiness of the company. A ver y low ratio indicates that the company is not taking full benefit of the credit period allowed by the creditors. IMPORTANCE OF RATIO ANALYSIS: As a tool of financial management, ratios are of crucial significance. The impor tance of ratio analysis lies in the fact that it presents facts on a comparative basis & enables the drawing of interference regarding the performance of a firm . Ratio analysis is relevant in assessing the performance of a firm in respect o f the following aspects: 1] Liquidity position, 2] Long-term solvency, 3] Operating efficiency, 4] Overall profitability, 5] Inter firm comparison 6] Trend analysis. 1] LIQUIDITY POSITION: With the help of Ratio analysis conclusion can be drawn regarding the li quidity position of a firm. The liquidity position of a firm would be satisfacto ry if it is able to meet its current obligation when they become due. A firm can be said to have the ability to meet its short-term liabilities if it has suffic ient liquid funds to pay the interest on its short maturing debt usually within a year as well as to repay the principal. This ability is reflected in the liqui dity ratio of a firm. The liquidity ratio are particularly useful in credit anal ysis by bank & other suppliers of short term loans. 2] LONG TERM SOLVENCY: Ratio analysis is equally useful for assessing the long-term financial viability of a firm. This respect of the financial position of a borrower is of concern t o the long-term creditors, security analyst & the present & potential owners of a business. The long-term solvency is measured by the leverage/ capital structur e & profitability ratio Ratio analysis s that focus on earning power & operating efficiency. Ratio analysis reveals the strength & weaknesses of a firm in this respect. The leverage ratios, for instance, will indicate whether a firm has a reasonable pro portion of various sources of finance or if it is heavily loaded with debt in wh ich case its solvency is exposed to serious strain. Similarly the various profit ability ratios would reveal whether or not the firm is able to offer adequate re turn to its owners consistent with the risk involved. 3] OPERATING EFFICIENCY:

Yet another dimension of the useful of the ratio analysis, relevant from the viewpoint of management, is that it throws light on the degree of efficienc y in management & utilization of its assets. The various activity ratios measure s this kind of operational efficiency. In fact, the solvency of a firm is, in th e ultimate analysis, dependent upon the sales revenues generated by the use of i ts assets- total as well as its components. 4] OVERALL PROFITABILITY: Unlike the outsides parties, which are interested in one aspect of the f inancial position of a firm, the management is constantly concerned about overal l profitability of the enterprise. That is, they are concerned about the ability of the firm to meets its short term as well as long term obligations to its cre ditors, to ensure a reasonable return to its owners & secure optimum utilization of the assets of the firm. This is possible if an integrated view is taken & a ll the ratios are considered together. 5] INTER – FIRM COMPARISON: Ratio analysis not only throws light on the financial position of firm b ut also serves as a stepping-stone to remedial measures. This is made possible d ue to inter firm comparison & comparison with the industry averages. A single fi gure of a particular ratio is meaningless unless it is related to some standard or norm. one of the popular techniques is to compare the ratios of a firm with t he industry average. It should be reasonably expected that the performance of a firm should be in broad conformity with that of the industry to which it belongs . An inter firm comparison would demonstrate the firms position vice-versa its c ompetitors. If the results are at variance either with the industry average or w ith the those of the competitors, the firm can seek to identify the probable rea sons & in light, take remedial measures. 6] TREND ANALYSIS: Finally, ratio analysis enables a firm to take the time dimension into a ccount. In other words, whether the financial position of a firm is improving or deteriorating over the years. This is made possible by the use of trend analys is. The significance of the trend analysis of ratio lies in the fact that the an alysts can know the direction of movement, that is, whether the movement is favo rable or unfavorable. For example, the ratio may be low as compared to the norm but the trend may be upward. On the other hand, though the present level may be satisfactory but the trend may be a declining one. ADVANTAGES OF RATIO ANALYSIS Financial ratios are essentially concerned with the identification of significan t accounting data relationships, which give the decision-maker insights into the financial performance of a company. The advantages of ratio analysis can be sum marized as follows: Ratios facilitate conducting trend analysis, which is important for decision mak ing and forecasting. Ratio analysis helps in the assessment of the liquidity, operating efficiency, p rofitability and solvency of a firm. Ratio analysis provides a basis for both intra-firm as well as inter-firm compar isons. The comparison of actual ratios with base year ratios or standard ratios helps t he management analyze the financial performance of the firm. LIMITATIONS OF RATIO ANALYSIS Ratio analysis has its limitations. These limitations are described below: 1] Information problems Ratios require quantitative information for analysis but it is not decisive abou t analytical output . The figures in a set of accounts are likely to be at least several months out of date, and so might not give a proper indication of the company’s current financia l position. Where historical cost convention is used, asset valuations in the balance sheet could be misleading. Ratios based on this information will not be very useful fo

r decision-making. 2] Comparison of performance over time When comparing performance over time, there rice. The movement in performance should be in line When comparing performance over time, there echnology. The movement in performance should be in hnology. Changes in accounting policy may affect the ent accounting years as misleading. is need to consider the changes in p with the changes in price. is need to consider the changes in t line with the changes in tec comparison of results between differ

3] Inter-firm comparison Companies may have different capital structures and to make comparison of perfor mance when one is all equity financed and another is a geared company it may not be a good analysis. Selective application of government incentives to various companies may also dis tort intercompany comparison. comparing the performance of two enterprises may b e misleading. Inter-firm comparison may not be useful unless the firms compared are of the sam e size and age, and employ similar production methods and accounting practices. Even within a company, comparisons can be distorted by changes in the price leve l. Ratios provide only quantitative information, not qualitative information. Ratios are calculated on the basis of past financial statements. They do not ind icate future trends and they do not consider economic conditions. PURPOSE OF RATIO ANLYSIS: 1] To identify aspects of a businesses performance to aid decision making 2] Quantitative process – may need to be supplemented by qualitative Factors to get a complete picture. 3] 5 main areas:Liquidity – the ability of the firm to pay its way Investment/shareholders – information to enable decisions to be made on the extent of the risk and the earning potential of a business investment Gearing – information on the relationship between the exposure of the business to loans as opposed to share capital Profitability – how effective the firm is at generating profits given sales and or its capital assets Financial – the rate at which the company sells its stock and the efficiency with which it uses its assets ROLE OF RATIO ANALYSIS: It is true that the technique of ratio analysis is not a creative techni que in the sense that it uses the same figure & information, which is already ap pearing in the financial statement. At the same time, it is true that what can b e achieved by the technique of ratio analysis cannot be achieved by the mere pre paration of financial statement. Ratio analysis helps to appraise the firm in terms of their profitability & effi ciency of performance, either individually or in relation to those of other firm s in the same industry. The process of this appraisal is not complete until the ratio so computed can be compared with something, as the ratio all by them do no t mean anything. This comparison may be in the form of intra firm comparison, in ter firm comparison or comparison with standard ratios. Thus proper comparison o f ratios may reveal where a firm is placed as compared with earlier period or in

comparison with the other firms in the same industry. Ratio analysis is one of the best possible techniques available to the managemen t to impart the basic functions like planning & control. As the future is closel y related to the immediate past, ratio calculated on the basis of historical fi nancial statements may be of good assistance to predict the future. Ratio analys is also helps to locate & point out the various areas, which need the management attention in order to improve the situation. As the ratio analysis is concerned with all the aspect of a firms financial anal ysis i.e. liquidity, solvency, activity, profitability & overall performance, it enables the interested persons to know the financial & operational characterist ics of an organisation & take the suitable decision

EVALUATION OF KINGS INTERNATIONAL THROUGH RATIO ANALYSIS

COMPANY PROFILE THE COMPANY – KINGS Limited is a professionally managed Private Limited company. Since its inception in 1985, KINGS has been serving the global market with wide range of leather products meeting the international standards for safety and reliabi lity. They specialize in making leather products, saddlery and harness goods. KI NGS enjoys worldwide recognition for the quality of its products, business integ rity.

ABOUT KINGS: Manufacturer-exporter of saddlery and harness goods since 25 years. Government of India recognized export house. A state of the art technology tannery deploying eco friendly tanning process. It serves customer global customer par excellence. Company with no child labour. A modern, purpose built, mechanized saddlery/belt making facility. Received awards and recognitions for outstanding export performance. It enjoys worldwide recognition for the quality of its business integrity. MISSION: To deliver high quality leather products, on time, with in budget, as per the cu stomer specification in a manner profitable to both, our customers & so to us. VISION: To be a global player, recognized for quality & integrity. To be the TOP INDIAN COMPANY as conceived by our customers. To be “ THE BEST ” company to work for, as rated by our employees. GOAL: Goal at KINGS is extract ordinary customer service as we provide our customer ne eds in the personal service industry.

CORPORATE MISSION – 1] To achieve healthy and profitable growth of the company in the interest of ou r customers & the shareholders. 2] To encourage teamwork, reward innovation and maintain healthy interpersonal r elations within the organization. 3] To expand knowledge and remain at the leading edge in technology to serve the global market. 4] To understand the customer’s needs and provide solutions than merely selling pr oducts. 5] To create intellectual capital by investing in hardware and embedded software development.

VALUES & BELIEFS: Their values & beliefs required that they Treat employees with respect & give them an opportunity for input on how to cont inuously improve their service goals. Offer opportunities for growth, professional development & recognition. Provide most effective & corrective action, to resolve customer service issues, to ensure customer satisfaction. Foster an open door policy, which encourages interaction, discussion & ideas to improve work environment & increase productivity. “ Do it right the first time & every time” is their team commitment * our way of do ng business, it ensures as growth & prosperity. THE 21ST CENTURY SUCCESS – KINGS had planned to enter the 21st Century with a program for a fast an d healthy growth in the global market based on company’s high technology foundatio n and the reputation of three decades for prompt customer service and as a relia ble solution provider. After completing three years in the new era, we can say w ith pride that we have been delivering our promises to our customers and the sha reholders. QUALITY IS OUR WORK CULTURE - ISO 9002 Quality at KINGS is a part of our people’s attitude. Entire organization i s committed to create an environment that encourages individual excellence and a personal commitment to quality. In KINGS, “Quality is everybody’s responsibility” and all strive to “do it right the first time”. It is therefore natural that KINGS Limi ted is certified for quality with ISO 9002 registration. QUALITY POLICY: KINGS will deliver to its customer products & services that consistently meet or exceed their requirement. KINGS will achieve this by total commitment & involvement of every individual. KINGS will encourage its employees & suppliers to develop quality products preve nt defects & make continual improvement in all processes. QUALITY OBJECTIVE: KINGS is an ISO 9002 certifies company. ISO 14001 accredited company for Environmental Management System. OHSAS 18001 certified company for Occupational Health and Safety Management Syst em. 100% customer satisfaction. RESEARCH AND DEVELOPMENT

Developing innovative products with the latest technology is the core st rength of KINGS. It is recognized not only for manufacturing standard products b ut also in providing solutions and services as per the customer specifications. We spend more than 4% of the company revenue in Research & Development activitie s. Specific areas in which the company carries out R&D 1. Development of new product especially hi-tech intelligent product & elec tronic transaction control system. 2. Improvement in the existing products & production processes, import subs titution. 3. Development of products to suit exports markets. 4. Customizing the products to the customer’s specifications & adaptation of imported technology. The company has achieved its position of leadership in the Indian instru mentation industry & continuous to maintain it through its strong grip of techno logy. Almost all the products manufactured by the company are import substitutio n items, which are fully developed in house. It has resulted in considerable sav ing of foreign exchange. With the company, R&D is an ongoing process. Through a continuous interaction with production& Quality Assurance Depa rtment takes up redesign of existing products. This is done to achieve state of the art in our design & to bring about improvement to get maximum performance / cost ratio. FUTURE PLAN OF ACTION Major R&D activity is concentrated around up gradation of product design & re-alignment of production processes to bring about improved quality at lower cost. This will greatly help the company in facing competition in local markets from foreign companies. EXPORT KINGS currently exports over 25% of its production to Western Europe & U SA. Over 30 million U.S. Dollars worth of lether products and saddler from KINGS are today operational in UK, Germany, France, Sweden, Belgium, Canada, and USA & Australia KINGS’S ORGANISATION CHART EXECUTIVE CHAIRMAN MANAGING DIRECTOR DIRECTOR TECHNICAL GENERAL MANAGER MAEKETING DIRECTOR

FINANCE G.M. MANAGER

G.M PROD. &

G.M. MARKETING MANAGER

MATERIAL EXPORT DESIGN

G.M.

IMPORT

OFFICERS STAFF WORKERS PRODUCTS OF KINGS: a. MARATHON HARNESS AND ALL PURPOSE SADDLE LIKE STOCK SADDLE, JUMPING SADDL E, CLOSE CONTACT SADDLE. b. BRIDLE, PELHAM BRIDLE, HEAVY CAVESON. c. ALL TYPES OF GIRTHS. d. HORSE BOOTS AND ALL TYPES OF CASUAL BELTS. BRIDLE GIRTH

CASUAL BELTS KINGS INTERNATIONAL LIMITED BALANCE SHEET AS AT 31ST MARCH 2007 (RS.’000) AS AT 31ST 2007 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital 5,00,00 Reserves and surplus 16,29,69 21,29,69 LOANS Secured 12,13,48 Unsecured 3,67,99 15,81,47 DEFFERED TAX LIABILITY (NET) TOTAL 38,18,01 APPLICATION OF FUNDS FIXED ASSETS Gross block 15,90,33 Less: depreciation 10,32,96 Net block 5,57,37 Capital work in progress 6,11,73 INVESTMENT 1,22,32 CURRENT ASSESTS, LOANS & ADVANCES Inventories 19,09,77 Sundry debtors 18,49,35 Cash & bank balances 3,31,32

JUMPING SADDLE

1,06,85

54,36

Loan & advances 5,80,36 46,70,80 CURRENT LIABLITIES & PROVISIONS Current liabilities 15,36,09 Provisions 57,57 15,93,66 NET CURRENT ASSESTS 30,77,14 MISCELLANEOUS EXPENDITURE 6,84 Total 3818,01

PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST MARCH 2007 (RS.’000) AS AT 31-3-2007 INCOME: Sales and operating earnings 48,19,19 Other income 80,50 Variation in stock 1,31,07 50,30,76 EXPENCES: Materials consumed 18,97,28 Purchase of trading goods 8,61,75 Payments to & provision for 9,95,04 Employees Manufacturing expenses 2,21,37 Excise duty 65,05 Other expenses 5,76,71 Interest & finance charges 2,60,22 Depreciation 1,05,37 Less: transferred to revaluation 1,15 1,04,22 49,81,64 PROFIT BEFORE TAX 49,12 PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax 24,42 Deferred tax liability / (Assets) 4,02 PROFIT AFTER TAX 20,68 Balance brought forward from previous year Balance available for appropriation 20,69 Appropriations: General reserve 20,68 Surplus / (loss) carried to B/S Proposed dividend Tax on proposed dividend 20,69 Basic earning per share (rupee) 0.41 0.41 BALANCE SHEET AS AT 31ST MARCH 2008 (RS.’000)

1

1

AS AT 31-3- 2008 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital 5,00,00 Reserves and surplus 16,55,19 21,55,19 LOANS Secured 10,27,55 Unsecured 4,53,16 14,80,71 DEFFERED TAX LIABILITY (NET) TOTAL 37,23,11 87,21

APPLICATION OF FUNDS FIXED ASSETS Gross block 17,40,97 Less: depreciation 11,40,93 Net block 6,00,04 Capital work in progress 29,74 6,29,78 INVESTMENT 1,47,26 CURRENT ASSESTS, LOANS & ADVANCES Inventories 19,02,79 Sundary debtors 19,05,76 Cash & bank balances 3,95,25 Loan & advances 8,98,62 51,02,42 CURRENT LIABLITIES & PROVISIONS Current liabilities 20,41,56 Provisions 1,20,76 21,62,32 NET CURRENT ASSESTS 29,40,10 MISCELLANEOUS EXPENDITURE 5,97 TOTAL 37,23,11 PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST MARCH 2008 (RS.’000) AS AT 31-3- 2008 INCOME: Sales and operating earnings 59,62,22 Other income 15,04 Variation in stock (59,27) 59,17,99 EXPENCES: Materials consumed 22,41,60 Purchase of trading goods 10,37,52 Payments to & provision for 10,63,96 Employees Manufacturing expenses 2,69,99 Excise duty 72,69 Other expenses 7,62,23

Interest & finance charges Depreciation 1,07,97 Less: transferred to revaluation

2,36,57 1,03 1,06,94

57,91,50 PROFIT BEFORE TAX 1,26,49 PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax 63,19 Deferred tax liability / (Assets) PROFIT AFTER TAX 82,94 Balance brought forward from previous year Balance available for appropriation Appropriations: General reserve 26,50 Surplus / (loss) carried to B/S Proposed dividend 50,00 Tax on proposed dividend 82,95 Basic earning per share (rupee)

(19,64) 1 82,95

4 6,41 1.66

BALANCE SHEET AS AT 31ST MARCH 2009 (RS.’000) AS AT 31-3- 2009 SOURCES OF FUNDS SHAREHOLDERS FUND Share capital 5,00,00 Reserves and surplus 17,42,59 22,42,59 LOANS Secured 11,38,86 Unsecured 5,58,29 16,97.15 DEFFERED TAX LIABILITY (NET) TOTAL 40,35,07 APPLICATION OF FUNDS FIXED ASSETS Gross block 18,41,58 Less: depreciation 12,40,03 Net block 6,01,55 Capital work in progress 6,16,84 INVESTMENT 1,48,34 CURRENT ASSESTS, LOANS & ADVANCES Inventories 21,46,20 Sundary debtors 19,51,56 Cash & bank balances 4,49,74 Loan & advances 850,58 53,98,08 95,33

15,29

CURRENT LIABLITIES & PROVISIONS Current liabilities 18,16,17 Provisions 3,12,02 21,28,19 NET CURRENT ASSESTS 32,69,89 TOTAL 40,35,07

PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST MARCH 2009 (RS.’000) AS AT 31-3-2009 INCOME: Sales and operating earnings 73,90,47 Other income 31,39 Variation in stock 53,99 74,75,85 EXPENCES: Materials consumed 28,51,40 Purchase of trading goods 14,03,33 Payments to & provision for 12,94,47 Employees Manufacturing expenses 3,07,51 Excise duty 70,08 Other expenses 9,17,94 Interest & finance charges 2,46,30 Depreciation 1,10,89 Less: transferred to revaluation 93 1,09,96 72,00,99 PROFIT BEFORE TAX 2,74,86 PRIOR YEAR ADJUSTMENT (NET) 25,71 PROVISION FOR TAXATION Current tax 1,19,50 Deferred tax liability / (Assets) PROFIT AFTER TAX 17294 Balance brought forward from previous year Balance available for appropriation

8,13 4 1,72,98

Appropriations: General reserve 88,30 Surplus / (loss) carried to B/S Proposed dividend 75,00 Tax on proposed dividend 1,72,98 Basic earning per share (rupee) BALANCE SHEET AS AT 31ST MARCH 2010 (RS.’000) AS AT 31-3- 2010 SOURCES OF FUNDS SHAREHOLDERS FUND

7 9,61 3.46

Share capital 5,00,00 Reserves and surplus 19,14,91 24,14,91 LOANS Secured 17,23,12 Unsecured 5,36,89 22,60,01 DEFFERED TAX LIABILITY (NET) TOTAL 47,66,94 92,02

APPLICATION OF FUNDS FIXED ASSETS Gross block 21,64,89 Less: depreciation 13,43,05 Net block 8,21,84 Capital work in progress 8,21,84 INVESTMENT 2,32,91 CURRENT ASSESTS, LOANS & ADVANCES Inventories 19,32,88 Sundary debtors 23,06,67 Cash & bank balances 6,04,64 Loan & advances 10,04,02 58,48,21 CURRENT LIABLITIES & PROVISIONS Current liabilities 16,55,15 Provisions 4,80,87 21,36,02 NET CURRENT ASSESTS 37,12,19 TOTAL 47,66,19

PROFIT & LOSS ACCOUNT FOR THE ENDED 31ST MARCH 2010 (RS.’000) AS AT 31-3 2010 INCOME: Sales and operating earnings 74,20,31 Other income 41,69 Variation in stock (38,45) 74,23,55 EXPENCES: Materials consumed 25,91,83 Purchase of trading goods 15,21,00 Payments to & provision for 13,54,15 Employees Manufacturing expenses 2,71,41 Excise duty 75,41 Other expenses 8,44,78 Interest & finance charges 2,15,82 Depreciation 1,26,68 Less: transferred to revaluation 84 1,25,84

70,00,24 PROFIT BEFORE TAX 4,23,31 PRIOR YEAR ADJUSTMENT (NET) PROVISION FOR TAXATION Current tax 1,50,84 Deferred tax liability / (Assets) PROFIT AFTER TAX 2,75,78 Balance brought forward from previous year Balance available for appropriation Appropriations: General reserve 1,73,20 Surplus / (loss) carried to B/S Proposed dividend 90,00 2,75,85 Basic earning per share (rupee)

(3,31) 7 2,75,85

3 5.52

CALCULATIONS AND INTERPRETATION OF RATIO’S 1] CURRENT RATIO: Formula: Current assets Current ratio = Current liabilities YEAR Current Current Current 2006-2007 2007-2008 2008-2009 2009 -2010 assets 46,70,80 51,08,39 53,98,08 58,28,21 liabilities 15,93,66 21,62,32 21,28,19 21,36,02 ratio 2.93 2.36 2.53 2.72

COMMENTS: In KINGS the current ratio is 2.72:1 in 2009-2010. It means that for one rupee o f current liabilities, the current assets are 2.72 rupee are available to the th em. In other words the current assets are 2.72 times the current liabilities. Almost 4 years current ratio is same but current ratio in 2009-2010 is bit high er, which makes company more sound. The consistency increase in the value of cur rent assets will increase the ability of the company to meets its obligations & therefore from the point of view of creditors the company is less risky. The available working capital with the company is in increasing order. 2006-2007 - 30,77,14 2007-2008 - 29,46,07 2008-2009 - 32,69,89 2009-2010 - 36,92,19 The company has sufficient working capital to meets its urgency/ obligations. A company has a high percentage of its current assets in the form of working capit al, cash that would be more liquid in the sense of being able to meet obligation s as & when they become due. From this working capital, the company meets its d ay-to-day financial obligations. Thus, the current ratio throws light on the com pany’s ability to pay its current liabilities out of its current assets. The KINGS has a very good liquidity position of company. 2] LIQUID RATIO: Formula: Quick assets Liquid ratio =

Quick liabilities YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 Quick assets 21,80,67 23,01,01 24,01,30 29,11,31 Quick liabilities 15,93,66 21,62,32 21,28,19 21,36,02 Liquid ratio 1.36 1.06 1.12 1.36 COMMENTS: The liquid or quick ratio indicates the liquid financial position of an enterpri se. Almost in all 4 years the liquid ratio is same, which is better for the com pany to meet the urgency. The liquid ratio of the KINGS Company has increased fr om 1.12 to 1.36 in 2009-2010. Day to day solvency is more sound for company in 2 009-2010 over the year 2008-2009. This indicates that the dependence on the short-term liabilities & creditors are less & the company is following a conservative working capital policy. Liquid ratio of Company is favorable because the quick assets of the company are more than the quick liabilities. The liquid ratio shows the company’s ability to meet its immediate obligations promptly. 3] PROPRIETORY RATIO: Formula: Proprietary fund Proprietary ratio = Total fund Shareholders fund Proprietary ratio = Fixed assets + current liabilities YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 Proprietary fund 21,29,69 21,55,19 22,42,59 24,14,91 Total fund 52,82,53 57,38,17 66,14,92 66,70,05 Proprietary ratio 40 37.55 33.90 36.20 COMMENTS: The Proprietary ratio of the company is 36.20% in the year 2009-2010. It means t hat the for every one rupee of total assets contribution of 36 paise has come fr om owners fund & remaining balance 66 paise is contributed by the outside credit ors. This shows that the contribution by outside to total assets is more than th e owners fund. This Proprietary ratio of the Company shows a downward trend for the last 4 years. As the Proprietary ratio is not favorable the Company’s long-ter m solvency position is not sound. 4] STOCK WORKING CAPITAL RATIO: Formula: Stock Stock working capital ratio = Working Capital YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 Stock 19,09,77 19,02,79 21,46,20 19,32,88 Working Capital 30,77,14 29,46,07 32,69,89 37,12,19 Stock working capital ratio 62.06 64.58 65.63 52.06 OR

COMMENTS: This ratio shows that extend of funds blocked in stock. The amount of stock is i ncreasing from the year 2006-2007 to 2008-2009. However in the year 2009-2010 it

has declined to 52%. In the year 2009-2010 the sale is increased which affects decrease in stock that effected in increase in working capital in 2009-2010. It shows that the solvency position of the company is sound. 5] CAPITAL GEARING RATIO: Formula: Preference capital+ secured loan Capital gearing ratio = Equity capital & reserve & surplus YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 Secured loan 12,13,48 10,27,56 11,38,86 1,72,312 Equity capital & reserves & surplus 21,29,69 21,55,19 22,42,59 2,41,491 Capital gearing ratio 56.97 47.67 50.78 71 COMMENTS: Gearing means the process of increasing the equity shareholders return through t he use of debt. Capital gearing ratio is a leverage ratio, which indicates the p roportion of debt & equity in the financing of assets of a company. For the last 3 years [i.e.2006-2007 TO 2008-2009] Capital gearing ratio is all m ost same which indicates, near about 50% of the fund covering the secured loan p osition. But in the year 2009-2010 the Capital-gearing ratio is 71%. It means th at during the year 2009-2010 company has borrowed more secured loans for the com pany’s expansion. 6] DEBT EQUITY RATIO: Formula: Total long term debt Debt equity ratio = Total shareholders fund YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 Long term debt 15,81,47 14,80,70 16,97,15 22,60,01 Shareholders fund 21,29,69 21,55,19 22,42,59 24,14,91 Debt Equity Ratio 0.74 0.68 0.75 0.93

COMMENTS: The debt equity ratio is important tool of financial analysis to appraise the fi nancial structure of the company. It expresses the relation between the external equities & internal equities. This ratio is very important from the point of vi ew of creditors & owners. The rate of debt equity ratio is increased from 0.74 to 0.93 during the year 20 06-2007 to 2009-2010. This shows that with the increase in debt, the shareholde rs fund also increased. This shows long-term capital structure. The lower ratio viewed as favorable from long term creditors point of view. 7] GROSS PROFIT RATIO: Formula:

Gross profit Gross profit ratio Net sales

=

* 100

YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 Gross profit 24,54,48 37,65,90 45,57,45 42,37,52 Net sales 43,45,46 51,02,37 68,76,89 68,09,78 Gross profit Ratio 56.48 73.80 66.27 62.22 COMMENTS: The gross profit is the profit made on sale of goods. It is the profit on turnov er. In the year 2006-2007 the gross profit ratio is 56.48%. It has increased to 73.80% in the year 2007-2008 due to increase in sales without corresponding incr ease in cost of goods sold. However the gross profit ratio decreased to 66.27% i n the year 2008-2009. It is further declined to 62.22% in the year 2009-2010, due to high cost of purc hases & overheads. Although the gross profit ratio is declined during the year 2 007-2008 to 2009-2010. The net sales and gross profit is continuously increasing from the year 2006-2007 to 2009-2010.

8] OPERATING RATIO: Formula: COGS+ operating expenses Operating ratio = *100 Net sales YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 COGS + Operating expenses 18,90,98 + 2,21,37 + 5,76,71 21,96,32 + 2,69,98 + 7,62,23 28,33,02 + 3,07,51 + 9,17,94 2,57,226+ 27,141+ 84,478 Net sales 43,45,46 51,02,37 68,76,89 6,80,978 Operating ratio 61.88% 63.27% 59% 54.16% COMMENTS: The operating ratio shows the relationship between costs of activities & net sal es. Operating ratio over a period of 4 years when compared that indicate the cha nge in the operational efficiency of the company. The operating ratio of the company has decreased in all 4 year. This is due to i ncrease in the cost of goods sold, which in 2006-2007 was 61.88%, in 2007-2008 w as 63.27%, in 2008-2009 was 59% & in 2009-20060 it is 54.16%. though the cost h as increased in 2007-2008 as compared to 2006-2007, it is reducing continuously over the next two years, indicate downward trend in cost but upward / positive t rend in operational performance. 9] EXPENSE RATIO: The ratio of each item of expense or each group of expense to net sales is known

as ‘Expense ratio’. The expense ratio brings out the relationship between various e lements of operating cost & net sales. Expense ratio analyzes each individual it em of expense or group of expense& expresses them as a percentage in relation to net sales.

A] MANUFACTURING EXPENSES: Formula: Manufacturing expenses Manufacturing expense ratio = Net sales *100

YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 Manufacturing expenses 2,21,37 2,69,98 3,07,51 2,71,41 Net sales 43,45,46 51,02,37 68,76,89 68,09,78 Manufacturing expenses ratio 5% 5.29% 4.47% 3.98% COMMENTS: The manufacturing expense is shows the downward trend. During the year 2006–2007 to 2007-2008 the manufacturing expense increased because there is incre ase in the charges like labour, rent , power & electricity, repair to plant & ma chinery & miscellaneous works expenses. The manufacturing expense during the ye ar 2006-2007 to 2009-20060 is decreased from 5% to 3.96%. This indicates that th e company has control over the manufacturing expense. B] OTHER EXPENSES: Formula: Other expenses Other expense ratio = *100 Net sales YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 Other expenses 5,76,71 7,62,23 9,17,94 8,44,78 Net sales 43,45,46 51,02,37 68,76,89 68,09,78 Other expenses ratio 13.2% 14.93% 13.34% 12.40% COMMENTS: The other expense of company is increased during the 2006-2007 to 2008-2009, bec ause increase in the charges of rent of office, equipment lease rental, printing & stationary, advertisement & publicity, transport outward & other charges. But during the year 2009-2010 the other expenses is decrease from 13.34% to 12.40%. Because decrease in equipment lease rental, advertisement & publicity, transpor t charges, commission & discount, sales tax & purchase tax . This indicates that the company also controlling the other expenses.

10) NET PROFIT RATIO Formula: NPAT Net profit ratio *100

YEAR NPAT

2006-2007 20,98 82,94

2007-2008 2008-2009 1,72,94 2,75,78

Net sales 2009 -2010

Net sales 434546 51,02,37 Net profit ratio 0.48 1.6

68,76,89 2.5 4.04

68,09,78

COMMENTS: The net profit ratio of the company is low in all year but the net profit is inc reasing order from this ratio of 4 year it has been observe that the from 2006-2 007 to 2009-2010 the net profit is increased i.e. in 2008 it is increased by 1.1 2 in 2008-2009 by 0.9 & in 2009-2010 by 1.54. Profitability ratio of company shows considerable increase. Company’s sale s have increased in all 4 years & at the same time company has been successful i n controlling the expenses i.e. manufacturing & other expenses. It is a clear index of cost control, managerial efficiency & sales promo tion.

11] STOCK TURNOVER RATIO: Formula: COGS Stock Turnover Ratio =

Average stock 2009 -2010 25,72,26

YEAR 2006-2007 2007-2008 2008-2009 COGS 18,90,98 21,96,32 28,33,02 Average stock 5,49,90 5,97,58 6,73,11 6,89,30

COMMENTS: Stock turnover ratio shows the relationship between the sales & stock it means h ow stock is being turned over into sales. The stock turnover ratio is 2006-2007 was 3.4 times which indicate that the stoc k is being turned into sales 3.4 times during the year. The inventory cycle mak es 3.4 round during the year. It helps to work out the stock holding period, it means the stock turnover ratio is 3.4 times then the stock holding period is 3.5 months [12/3.4=3.5months]. This indicates that it takes 3.5 months for stock to be sold out after it is produced. For the last 4 years stock turnover ratio is lower than the standard but it is i n increasing order. In the year 2006-2007 to 2009-2010 the stock turnover ratio has improved from 3.4 to 3.73 times, it means with lower inventory the company h as achieved greater sales. Thus, the stock of the company is moving fast in the market. 12] RETURN ON CAPITAL EMPLOYED: Formula: NPAT Return on capital employed = *100 Capital employed

YEAR 2006-2007 2007-2008 2008-2009 NPAT 20,68 82,94 1,72,94 2,75,78 Capital employed 38,18,01 37,23,11 Return on capital employed 0.54 2.23 4.28

2009 -2010 40,35,07 5.79 47,66,93

COMMENTS: The return on capital employed shows the relationship between profit & investmen t. Its purpose is to measure the overall profitability from the total funds made

available by the owner & lenders. The return on capital employed of Rs.5 indicate that net return of Rs.5 is earne d on a capital employed of Rs.100. this amount of Rs.5 is available to take care of interest, tax,& appropriation. The return on capital employed is show-increasing trend, i.e. from 0.54 to 5.79. All of sudden in 2006-2007 the return on capital employed increased from 0.54 to 5.79. This indicates a very high profitability on each rupee of investment & has a great scope to attract large amount of fresh fund.

15] COST OF GOODS SOLD: Formula: COGS Cost of goods sold Ratio = * 100 Net sales

YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 COGS 18,90,98 21,96,32 28,33,02 25,72,26 Net sales 43,45,46 51,02,37 68,76,89 68,09,78 Cost of goods sold ratio 43.51 43.04 41.19 37.77

COMMENTS: This ratio shows the rate of consumption of raw material in the process of produ ction. In the year 2006-2007 the cost of goods sold ratio is 43.51% so the gross profit is 56.49%. it indicates that in 2006-2007, the 43% of raw material is co nsumed in the process of production. During the last 4 years the rate of cost of goods sold ratio is continuously dec reasing however the gross profit & sales is increased during the same period.

16] CASH RATIO: Formula: Cash + Bank + Marketable securities Cash ratio = Total current liabilities YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 Cash + Bank + Marketable securities 3,31,32 3,95,25 4,49,74 6,04,64 Total current liabilities 15,93,66 21,62,32 21,28,19 21,36,02 Cash ratio 0.20 0.18 0.21 0.28 COMMENTS: This ratio is called as super quick ratio or absolute liquidity ratio. In the ye ar 2006-2007 the cash ratio is 0.20 & then it is decreased to 0.18 in the year 2 007-2008. Then again it is increased to 0.21 in the year 2008-2009 & 0.28 in the year 2009-2010. This shows that the company has sufficient cash, bank balance, & marketable secu rities to meet any contingency. 17] RETURN ON PROPRIETORS FUND: Formula: NPAT

Return on proprietors fund =

* 100 Proprietors fund 2009 -2010 22,42,59 11.41 24,14,91

YEAR 2006-2007 2007-2008 2008-2009 NPAT 20,68 82,94 1,72,94 2,75,78 Proprietors fund 21,29,69 21,55,19 Return on proprietors fund 0.97 3.84 7.71

COMMENTS: Return on proprietors fund shows the relationship between profits & investments by proprietors in the company. In the year 2007-2008 the return on proprietors f und is 3.84% it means the net return of Rs. 3 approximately is earned on the eac h Rs. 100 of funds contributed by the owners. During the last 4 years the rate of return on proprietors fund is in increasing order. The return on proprietors fund during the year 2006-2007 to 2009-2010 is increased from 0.97% to 11.41%. It shows that the company has a very large returns available to take care of hig h dividends, large transfers to reserve etc. & has a great scope to attract larg e amount of fresh fund from owners. 19] OPERATING PROFIT RATIO: Formula: Operating profit Operating profit ratio = Net sales

*100

COMMENTS: Operating profit ratio shows the relationship between operating profit & the sal es. The operating profit is equal to gross profit minus all operating expenses o r sales less cost of goods sold and operating expenses. The operating profit ratio of 7.11% indicates that average operating margin of R s.7 is earned on sale of Rs. 100. this amount of Rs. 7 is available for meeting non operating expenses. In the other words operating profit ratio 7.11% means th at 7.11% of net sales remains as operating profit after meeting all operating ex penses. During the last 4 years the operating profit ratio is increased from 7.11% to 9. 38%. It indicates that the company has great efficiency in managing all its oper ations of production, purchase, inventory, selling and distribution and also has control over the direct and indirect costs. Thus, company has a large margin is available to meet non-operating expenses and earn net profit. 20] CREDITORS TURNOVER RATIO: Formula: Net credit purchase Credit turnover ratio = Average creditors

Months in a year Average age of accounts payable = Credit turnover r atio

YEAR 2006-2007 Net credit purchase Average creditors Credit turnover ratio Average age of accounts 4 months

2007-2008 2008-2009 2009 -2010 21,21,43 22,71,80 29,08,61 25,29,04 5,88,42 7,91,21 6,96,86 7,80,39 3.6 times 3.6 times 4 times 3 times payable 3.3 months 3.3 months 3 months

COMMENTS: The creditors turnover ratio shows the relationship between the credit purchase and average trade creditors. It shows the speed with which the payments are ma de to the suppliers for the purchase made from them. The credit turnover ratio of 4, indicate that the creditors are being turned ove r 4times during the year. It indicates the number of rounds taken by the credit cycle of payables during the year. There is no standard ratio in absolute term. The creditors ratio for the year 20 06-2007 and 2007-2008 as good as the same, but it is increased by 3.6 to 4 in 20 08-2009.this means the company has settled the creditors dues very fastly than t he previous year. DEBTORS TURNOVER RATIO: Formula: Credit sales Debtors turnover ratio = Average debtors Days in a year Debt collection period = Debtor’s turnover YEAR 2006-2007 2007-2008 2008-2009 2009 -2010 Credit sales 47,77,48 55,21,33 74,87,36 68,09,78 Average debtors 18,49,35 19,05,76 19,51,56 23,06,67 Debtors turnover ratio 2.5 times 2.8 times 3.8 times 2.9 time s Debt collection period 146 days 130 days 96 days 125 days COMMENTS: Debtor’s turnover ratio is alternative known as “ Accounts Receivable Turnover Ratio”. This ratio measures the collectibility of debtors & other accounts receivable, it means the rate at which the trade debts are being collected. The Debtors turnover ratio of 2.5 indicates that the debtors are being turned ov er 2.5 times during the year. It means that the credit cycle of debtors makes 2. 5 rounds during the year. It helps to workout the debt collection period i.e. 14 6 days [365/ 2.5 = 146]. This indicates that it take146 days on an average for t he debtors to be settled. Debt collection period indicates the duration of the c redit cycle of the debtors. The Debtors turnover ratio is almost same during the year 2006-2007 to 2009-2010, which indicates that the debts are being collected at a fast speed du ring the year. The operating cycle of the debtors is short. In other words the d ebts collection period is short which result into less chance of bad debts.

SUMMARY OF FINANCIAL POSITION OF KINGS LIMITED After going through the various ratios, I would like to state that: • The short-term solvency of the company is quite satisfactory. • Immediate solvency position of the company is also quite satisfactory. The compa ny can meet its urgent obligations immediately. • Credit policies are effective. • Over all profitability position of the company is quite satisfactory. • Stock turnover rate is satisfactory. Stock of the company is moving fast in the market. • The company is paying promptly to the suppliers. • The return on capital employed is satisfactory. The management should take care of inventory management and speed up the movemen t of stock. Effective selling technique or product modification may be adopted t o face the competitors and to improve the financial position of the company by t aking appropriate decisions.

CONCLUSION: The focus of financial analysis is on key figures contained in the financial sta tements and the significant relationship that exits. The reliability and signifi cance attach to the ratios will largely on hinge upon the quality of data on whi ch they are best. They are as good for as bad as the data it self. Financial ratios are a useful by product of financial statement and provide stan dardized measures of firms financial position, profitability and riskiness. It i s an important and powerful tool in the hands of financial analyst. By calculati ng one or other ratio or group of ratios he can analyze the performance of a fir m from the different point of view. The ratio analysis can help in understanding the liquidity and short-term solven cy of the firm, particularly for the trade creditors and banks. Long-term solven cy position as measured by different debt ratios can help a debt investor or fin ancial institutions to evaluate the degree of financial risk. The operational ef ficiency of the firm in utilizing its assets to generate profits can be assessed on the basis of different turnover ratios. The profitability of the firm can be analyzed with the help of profitability ratios. However the ratio analyses suffers from different limitations also. The ratios n eed not be taken for granted and accepted at face values. These ratios are numer ous and there are wide spread variations in the same measure. Ratios generally d o the work of diagnosing a problem only and failed to provide the solution to th e problem.

BIBLIOGRAPHY REFERENCE BOOKS – FINANCIAL MANAGEMENT Theory, Concepts & problems R.P.RUSTAGI FINANCIAL MANAGEMENT Text and problems M.Y. KHAN AND P. K. JAIN MANAGEMENT ACCOUNTING AINAPURE FINANCIAL MANAGEMENT L.N. CHOPDE D.N. CHOUDHARI S.L. CHOPDE ANAUAL REPORTS OF KINGS INTERNATIONAL LIMITED 2006-2007 2007-2008 2008-2009 2009-2010 WEBSITES www.bizd.ac.uk/compfact/ratio www.cecunc.org.com/business/financial www.zeromillion.com.business/financial

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