A STUDY ON FINANCIAL PERFORMANCE ANALYSIS OF SAKTHI

FINANCE LIMITED

Under the guidance of

Presented by
Dr.P.CHELLASAMY
K.MANJULADEVI
Associate Professor
(14COMD11)
School of Commerce
Bharathiar university
Coimbatore-641046
INTRODUCTION OF THE COMPANY

Sakthi Finance Ltd. was incorporated in the year 1955

as a Non-banking finance company [NBFC] initially towards
catering the hire purchase financial requirements of the
people. This captive hire purchase business eventually
transformed the company into a major player in this sector.
The able leadership of the Group's visionary Chairman, Dr.
N. Mahalingam together with the combined strength of the
group in multifarious fields has helped Sakthi Finance Ltd. to
become an edifice of mutual trust and faith among the public.
Sakthi Finance Ltd is part of Sakthi Group of Companies
based at Coimbatore, South India.
Conti...

The company was later converted into public limited company

as “Sakthi Finance Limited” on 27th July 1967. The company
came out with its first public issue of equity shares in 1984 and
right issues in 1986. Today, Sakthi Finance is one of the leading
non-banking finance company with over 42 branches in
Tamilnadu, Kerala, Karnataka and Andhra Pradesh.
The Company’s main focus is on hire purchase financing of
used commercial vehicles and Construction Equipment
machineries and refinancing of used commercial vehicles and
construction equipment. Major source of income to the company
is derived from financial charges on hire purchase. The company
offers various financing schemes to cater to the funding
requirements of commercial vehicle operators.
PROFILE OF THE COMPANY
Year Of Incorporation : 1955
Chairman : Mr.M.Manickam
Managing Director : Mr. M.Balasubramaniam
Company Name : Sakthi Finance Limited
62, Dr. Nanjappa Road,
Coimbatore-641 018,
Tamilnadu, India.
Phone No : 2231471 - 474, 4236200
Fax No : 0422-2231915
Email ID : sakthif_info@sakthifinance.com
Website : www.sakthifinance limited.com
Auditors : M/s P N Raghavendra Rao &co
Coimbatore
INTRODUCTION OF THE STUDY

The finance is a money management. It deals with the

way in which businessman, Investor, Government, financial
institution and individual handle the money, finance offer a
much wider scope. It is often described as a ‘part of the
nervous system’ of the business.
Finance holds the key to all human activity. It guides for
regulating investment decision and expenditure and
endeavours to squeeze the most our every available rupee.
Out of these finance is a resource and it has to be managed
efficiently for the successful functioning of an enterprise.
Financial management is that managerial activity which is
concerned with the planning and controlling of the firm’s
financial resource.
STATEMENT OF THE PROBLEM

 Whether the liquidity and profitability position

of the concern is satisfactory or not
 Whether the solvency position is satisfactory
or not
 Whether the company has stable fund
management
OBJECTIVES OF THE STUDY

 To analyze the liquidity position of the Sakthi Finance Ltd.

 To analyze the profitability position of the Sakthi Finance Ltd.

 To analyze the solvency position of the Sakthi Finance Ltd.

METHODOLOGY

Data
The study based on secondary data.
Source of data
The data’s are collected from the company websites and
annual report of the company.
 The company Balance Sheet.
 Journals.
 Internet.
 Books.
Period of study
The study based on the historical data collected for a period
of five years from 2010- 2011 to 2014- 2015
 TOOLS FOR ANALYSIS
Ratio Analysis
Liquidity:
Current Ratio
Quick Ratio
Profitability:
 Gross Profit Ratio
Net Profit Ratio
Operating Profit Ratio
Return on Equity Ratio
Return on Capital Employed
Solvency Ratio
Debt Equity Ratio
Proprietory Ratio
Statistical tools
Mean
Standard deviation
Co-efficient of variance
 Importance of the Study

 The study has both academic and practical values.

 Liquidity ratio shows a current obligation of the
firm.
 Profitability ratio show a company’s overall
efficiency and performance.
 Solvency ratio shows a company share holder
funds performance
 This study is to assign the revenues expenses, assets
and liabilities to the concern.
 CHAPTER SCHEME
The Report contains five chapter, which are arranged in a
systematically order.
Chapter I
It includes about the Introduction and Design of the Study,
Review of literature.
Chapter II
It includes Profile of the Company
Chapter III
It includes Liquidity analysis of the company.
Chapter IV
It includes Analysis and Interpretation of Profitability Position.
Chapter V
This contains Findings, Suggestion and Conclusion of the study.
 CURRENT RATIO:

Current ratio expresses the relationship of current assets to current liabilities. This ratio is
also called Working Capital Ratio or Banker Ratio. The need of computing this ratio is to measure the
ability of the firm meet its short – term obligations.
Current ratio = Current Asset / Current Liabilities
TABLE 3.1
CURRENT RATIO (Rs in Crore) CHART 3.1

Year Current Current Ratio

asset liability
CURRENT RATIO
2010- 2011 59421.73 51516.53 1.15 2

2011-2012 68923.14 59205.32 1.16 1.5

2012-2013 75896.67 64207.69 1.18 1

Ratio
1.1800000000 1.41
1.1599999999
1.1499999999 1.6
2013-2014 82666.13 58619.26 1.41
0.5 9999 9999 0001
2014-2015 107669.47 67446.56 1.6
0
  Mean 0.26 2010- 2011- 2012- 2013- 2014-
  Standard 0.20 2011 2012 2013 2014 2015
deviation
  Co-efficient 0.77
Year
of variance

INTERPRETATION:
  The table shows the Current Ratio of Sakthi finance Ltd during the study period from 2010-2011 to 2014-2015. The higher the
current ratio, the greater is the firm’s ability to meet its short term obligation. The ratio is not satisfactory. The standard norms of current
ratio is 2:1. The ratio is below the standard norms due to increase in liabilities. Current ratio is the Mean of 0.26, Standard deviation of
0.20 and co- efficient of variance of 0.77
LIQUID RATIO:
Quick ratio is defined as the relationship between quick/liquid assets and current/liquid
liabilities. The term liquidity refers to the ability of a firm to pay its short – term obligation as and when
they become due.

QUICK/LIQUID RATIO = QUICK ASSETS / CURRENT LIABILITIES

TABLE 3.2

LIQUID RATIO (Rs in Crore)

Year Liquid asset Current liabilities Ratio CHART 3.2

2010-2011 67.72 74.9 0.9 LIQUID RATIO
1
2011-2012 68.26 85.76 0.79
0.8
2012-2013 40.79 100.72 0.4
0.6

Ratio
2013-2014 77.55 137.18 0.57 0.9
0.4 0.79 0.6000000000
2014-2015 200.15 338.99 0.6 0.57 00001
0.2 0.4
  Mean 0.65 0
  Standard deviation 0.20
2010- 2011- 2012- 2013- 2014-
2011 2012 2013 2014 2015
    Co-efficientof variance 0.30
Year

Interpretation:
Table shows the Liquid Ratio of Sakthi Finance Ltd during the study period from 2010-2011 to 2014-
2015. The ratio is not satisfactory. The standard norms of Liquid ratio is 1:1. The ratio is low than the
standard norms. It is due decrease in liquid assets and increase in current liabilities. The liquid ratio is
the Mean of 0.65, Standard deviation 0.20 and co- efficient of variance is 0.30.
NET PROFIT RATIO:
Net profit ratio (NP ratio) is a popular profitability ratio that shows relationship between
net profits after tax net sales. It is computed by dividing the net profit (after tax) by net sales.

NET PROFIT RATIO = NET PROFIT AFTER TAX / SALES × 100

TABLE 3.3
NET PROFIT RATIO (Rs in Crore) CHART 3.3

Year Net profit Net Sales Ratio

2010-2011 7.94 88.37 9.01 NET PROFIT RATIO
12

2011-2012 11.62 111.94 10.4 10

8

Ratio
2012-2013 14 122.05 11.4 6
10.4 11.4 10.74 10.79
4 9.01
2013-2014 14.16 131.83 10.74
2
2014-2015 15.85 146.79 10.79 0
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
  Mean 10.47
Year
  Standard Deviation 0.89
    Co- efficient of variance 0.09

INTERPRETATION:
The table shows the Net Profit Ratio of Sakthi Finance Ltd during the year the study period from 2010-2011 to
2014-2015. Net Profit is high in the year 2012-2013. And low in the year 2010-2011. This is due to increase in
expenses and due to depreciation of assets, even it is a non cash item it reduces profit. Net profit is the Mean of
10.47, Standard deviation of 0.89 and co-efficient of variance is 0.09.
GROSS PROFIT RATIO:
Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between
gross profit and total net sales revenue. It is a popular tool to evaluate the operating performance
of the business. The ratio is compute by dividing the gross profit figure by net sales.
GROSS PROFIT RATIO = GROSS PROFIT/ NET SALES
TABLE 3.4
GROSS PROFIT RATIO (Rs in Crore) CHART 3.4

Year Gross profit Net Sales Ratio

2010-2011 124.99 88.37 141.4

2011-2012 153.97 111.94 137.54 GROSS PROFIT

142
2012- 169.39 122.05 138.78
141
2013 140
2013- 182.51 131.83 138.46 139

Ratio
138 141.4
2014
137 138.78 138.46 139.19
2014- 204.33 146.79 139.19 136 137.54
2015 135
2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Mean 139.07
Standard 1.44 Year
deviation
Co-efficient of 0.01
INTERPRETATION: variance
Table show the Gross Profit Ratio of Sakthi Finance Ltd during the study period from 2010-2011 to 2014-2015.
It is high in the year 2010-2011. It is due to increase in sales. It is low in the year 2013-2014. It is to decrease in sales.
The Gross profit Ratio is the Mean of 139.07, Standard deviation of 1.44 and Co-efficient of variance 0.01.
 
 
OPERATING PROFIT RATIO:
The profit earned from a firm’s normal core business operations. This value does not include any
profit earned from the firm’s investments (such as earnings from firms in which the company has partial
interest) and the effects of interest and taxes also known as “earnings before interest and tax” (EBIT) or
“operating income”.
OPERATING PROFIT RATIO = OPERATING PROFIT / NET SALES

TABLE 3.5
OPERATING PROFIT RATIO
(Rs in Crore) CHART
OPERATING 3.5
PROFIT RATIO
.4 Yea r Operating profit Net Sales Ratio

2010-2011 65.77 88.37 74.4 75.2

75
2011-2012 82.77 111.94 74 74.8
2012-2013 90.13 122.05 73.9
74.6
74.4

Ratio
2013-2014 97.61 131.83 74.04 74.2 75.06
74
2014-2015 110.19 146.79 75.06 73.8 74.4
73.6 74 73.9 74.04
  Mean 74.28
73.4
  Standard 0.48 73.2
deviation 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

    Co-efficient of 0.01 Year

variance

INTERPRETATION:
The table shows the Operating Profit Ratio of Sakthi Finance Ltd during the year the study period from 2010-2011 to
2014-2015. It is high during the year 2014-2015. Its low in the year 2012-2013. and increase in the year 2014-2015 .This
due to increase and decrease in operating profit and sales during the study period. The Operating profit is the Mean of
74.28, Standard deviation of value 0.48 and co- efficient variance of 0.01.
 RETURN ON CAPITAL EMPLOYED

Return on capital employed establishes the relationship between profits and the capital employed
. It is most widely used to measure the overall profitability and efficiency of the business.
Return on Capital employed = Net profit before tax / Average capital employed
Table 3.6
RETURN ON CAPITAL EMPLOYED (Rs in Crore) chart 3.6

Year Net profit Average capital Ratio

before tax employed RETURN ON CAPITAL
2010-2011 10.94 96.91 11.30 EMPLOYED
2011-2012 17.16 131.09 13.09 16.00
2012-2013 21.34 138.82 15.4 12.00
2013-2014 22.78 142.94 15.9
8.00 15.4 15.9

Ratio
13.09 14
2014-2015 21.29 151.64 14 11.3
4.00
  Mean 13.94
0.00
  Standard 1.85 2010- 2011- 2012- 2013- 2014-
2011 2012 2013 2014 2015
deviation
    Co efficient of 0.13 Year
variance

INTERPRETATION
The table shows the Return on capital employed Ratio of Sakthi Finance Ltd during the year the
study period from 2010-2011 to 2014-2015. The return on capital employed ratio is increase in the
year 2013-2014. And the decrease in the year 2010-2011. The Return on capital as the Mean of
13.94, Standard deviation of 1.85 and Co- efficient of variance 0.13.
RETURN ON EQUITY CAPITAL

Return on equity capital is the relationship between profits of a company and its equity capital. Thus
share holder’s more interested in the profitability of the company. And the performance of the company
should be judged on the basis of returns on the equity capital of the company.
Return on equity capital = Net profit after tax / Equity capital x 100
Table 3.7
RETURN ON EQITY CAPITAL (Rs in Crore) Chart 3.7
Year Net profit Equity capital Ratio RETURN ON EQUITY CAPITAL
35
2010-2011 7.94 30.11 26.36 30
2011-2012 11.62 50 23.24 25
2012-2013 14 50 28 20

Ratio
2013-2014 14.16 50 28.32 15 28 28.32 31.7
26.36 23.24
2014-2015 15.85 50 31.7 10
  Mean 27.52 5
0
  Standard deviation 3.08 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Year
    Co-efficient of 0.11
variance

INTERPRETATION
The table shows the Return on Equity Capital of Sakthi Finance Ltd during the year the study period
from 2010-2011 to 2014-2015. It shows the fluctuating trend. It is due to changes in the company’s net
profit. The Return on Equity capital as the Mean 27.52 of Standard deviation of 3.08 and Co-efficient
of variance is 0.11.
ANALYSIS OF SOLVENCY POSITION
PROPRIETORY RATIO
Proprietary ratio is the relationship between proprietary fund and total tangible assets. It is also termed as net
worth to total asset ratio. This ratio is vital for determining long solvency of the firm.
Proprietory Ratio = Shareholders funds / Total tangible assets
Table 3.8
PROPRIETORY RATIO (Rs in Crore) Chart 3.8

Year Share holders Total tangable Ratio PROPRIETARY RATIO

fund asset 0.03
2010-2011 96.91 7,079.34 0.013 0.025
2011-2012 131.09 6,759.34 0.019 0.02
2012-2013 138.82 6208 0.022 0.015 0.0270000000

Ratio
2013-2014 142.94 5689.77 0.025 0.025 000002
0.01 0.0190000000 0.022
2014-2015 151.64 5518.93 0.027 000001
0.013
0.005
Mean 0.02
Standard deviation 0.01 0
2010- 2011- 2012- 2013- 2014-
2011 2012 2013 2014 2015
Co-efficient of 0.26 Year
variance

INTERPRETATION
Table shows the Proprietary ratio of Sakthi Finance Ltd during the year the study period from 2010-2011 to
2014-2015. It is high in during the year 2014-2015. And it is low in the year 2010-2011. The proprietary ratio
as the Mean of 0.02, Standard deviation of value is 0.01 and Co-efficient of variance as 0.26.
 DEBT EQUITY RATIO

This ratio is also called as “EXTERNAL-INTERNAL” equity ratio. The debt-equity ratio establishes the
relationship between shareholders fund and outsider’s funds. Outsiders fund includes all long term and short
term debts. Shareholders fund consist of preference share capital, equity share capital and reserves& surplus.
This ratio is determined to ascertain the soundness of the long term financial policies of the company.
Debt- Equity Ratio = Outsiders funds / Shareholders funds
Table 3.9
DEBT- EQUITY RATIO (Rs in Crore) Chart 3.9

Year Total debt Share holders Ratio

fund DEBT EQUITY RATIO
2010-2011 493.38 96.91 5.09
6
2011-2012 551.02 131.09 4.2
2012-2013 597.18 138.82 4.3 4

Ratio
2013-2014 622.04 142.94 4.35 5.09 4.2 4.3 4.35 4.43
2
2014-2015 672 151.64 4.43
0
Mean 4.47 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Standard
0.35
Year
deviation
Co-efficient of
12.63
INTERPRETATION variance

Table shows the .Debt equity ratio of Sakthi Finance Ltd during the year the study period from 2010-2011 to
2014-2015. This is due to increase in the year 2010- 2011. The decrease in the year 2011-2012. The Debt –
equity as the Mean of 4.47, Standard deviation of 0.35 and co-efficient of variance is 12.63.
 FINDINGS

 The Current Ratio of Sakthi Finance Limited during the study period
2010-2011 to 2014-2015. The higher the current ratio, the greater is
the firm’s ability to meet short term obligation. The ratio is not
satisfactory. The standard norms of current ratio is 2:1. The ratio is
below the standard norms due to increase in liabilities.
 The Liquid Ratio of Sakthi Finance Limited during the study period
2010-2011 to 2014-2015. The ratio is not satisfactory. The standard
norms of Liquid Ratio is 1:1. The ratio is low than the standard
norms. It is due to decrease in liquid assets and increase in current
liabilities.
 The Gross Profit Ratio of Sakthi Finance Limited during the study
period 2010-2011 to 2014-2015. It is high in the year 2010-2011. It is
due to increase in sales. It is low in the year 2013-2014. It is to
decrease in sales.
 The Net Profit Ratio of Sakthi Finance Limited during the study
period 2010-2011 to 2014-2015. Net Profit is high in the year 2012-
2013. And low in the year 2010-2011. It is not satisfactory. This is due
to increase in expenses and due to depreciation of assets, even it is a
 The Operating Profit Ratio of Sakthi Finance Limited during the
study period 2010-2011 to 2014-2015. It is high during the year
2014-2015. It is low in the year 2012-2013. This due to increase
and decrease in operating profit and sales during the study period.
 The Return on Capital Employed Ratio of Sakthi Finance Limited
during the study period 2010-2011 to 2014-2015. The Return on
Capital Employed ratio is increase in the year 2013-2014. And the
decrease in the year 2010-2011.
 The Return on Equity Capital Ratio of Sakthi Finance Limited
during the study period 2010-2011 to 2014-2015. It is the
fluctuating trend. It is due to changes in the company’s net profit.
 The Proprietary Ratio of Sakthi Finance Limited during the study
period 2010-2011 to 2014-2015. It is high in during the year 2014-
2015. And it is low in the year 2010-2011.
 The Debt- Equity Ratio of Sakthi Finance Limited during the study
period 2010-2011 to 2014-2015. This is due to increase in the year
2010- 2011. The decrease in the year 2011-2012.
SUGGESTION
 
 The company can introduce a new attractive schemes for the
depositors.
 The company should reduce the administration and office expenses
to increase their net income.
 The company should also maintain is liquidity position. The
Liquidity Ratio is low than the standard norms. So that the
company can easily meet out its current requirements without
making delay.
 The management should take adequate steps to utilize the current
assets for generating more revenue.
 credit period for payment should be reduced so that profitability
of the firm can be increased.
 CONCLUSION:

The study entitled “Financial performance analysis of Sakthi

Finance Ltd” has been taken up with the purpose of assessing the
Financial performance of Sakthi Finance Ltd during the five years is
analyzed with the help of the various tools based on income statement
and balance sheet of the company. This study will guide the
management should be more active, effective and efficient financial
management in order to pinpoint the problem and adopt the necessary
and relevant steps for smooth running of the organization based on the
above analysis and the subsequent finding it is concluded that the
financial performance of the concern is satisfactory during the study
period.