FINANCIAL PERFORMANCE ANALYSIS OF KERALA AGRO MACHINARIES CORPORATION LIMITED

PROJECT REPORT
Submitted in Partial Fulfillment of the Requirements for the Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

BIJI BABY
(Reg. No.0635F0178)

Miss. M. GOMATHI, M. Com., M. Phil., PGDCA

Under the Guidance of

2006-2008

DEPARTMENT OF MANAGEMENT STUDIES

MAHARAJA COLLEGE FOR WOMEN

(Affiliated to Bharathiar University) PERUNDURAI, ERODE 638052

Financial Statement

DECLARATION

I here declare that the project work entitiled FINANCIAL PERFORMANCE ANALYSIS OF KERALA AGRO MACHINARIES CORPORATION LIMITED submitted to the Bharathiar University, Coimbatore in partial fulfillment of the requirements award of the Degree of MASTER OF BUSINESS ADMINISTRATION is a record of original research work done by me under the guidance of Miss. M. GOMATHI, M.Com., M. Phil.,

PGDCA., Lecturer, Department of Business Management, Maharaja

College for women, Perundurai and it has not formed that basic for the award of any Degree / Deploma / Associateship / Felloship or other title to any candidate of any University.

Signature of the candidate, PLACE: DATE: BIJI BABY.

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ACKNOWLEDGEMENT
I am extremely greateful to my project guide Miss. M. GOMATHI, M.Com., M. Phil., PGDCA., Lecturer in Management department, Maharaja College for Women, Perundurai for her valuable guidance and suggestion rendered throughout the study. I own deep sense of gratitude to Sri. MADHAVAN, Manager, Kerala Agro Machinaries Corporation Limited, Athani, for the help rendered in providing adequate information for the completion of the project work. Last but not the least my sincere gratitude to my parents and friends who have mentally supported me through the project and to bringing the report in its final stage.

BIJI BABY.

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CONTENTS
Sl.No. Particulars Page No.

I. INTRODUCTION TO THE STUDY

I.1. Scope of the study I.2. Objectives of the study I.3. Limitations of the study I.4. Finance - the key function of the business

II. COMPANY PROFILE

II.1. Profile of the company II.2. SWOT Analysis II.3. Capital structure of the Company II.4. Asset structure of the Company

III. REVIEW OF RELATED LITERATURE

III.1. Introduction to Financial Management III.2. Meaning & concept of financial analysis III.3. Procedure of financial statement analysis III.4. Type of financial analysis III.5. Methods of financial analysis Maharaja College for Women Erode 4

Financial Statement

IV. PROBLEM ANALYSIS

IV.1. Research problem IV.2. Methodology IV.3. Tools used for analysis IV.4. Limitations

V. ANALYSIS & INTERPRETATION

V.1. Ratio analysis V.2. Trend analysis V.3. Common size statement V.4. Statement of changes id working capital V.5. Fund flow analysis V.6. SWOT analysis

VI. FINDINGS & SUGGESTIONS VII. CONCLUSION VIII. ANNEXURE IX. BIBLIOGRAPHY

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LIST OF TABLES

TABLES NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

TITLE Capital Structure of the company. Asset Structure of the company. Working Capital. Current Ratio. Quick Ratio. Gross Profit Ratio. Net Profit Ratio. Return on Shareholders fund. Return on Shareholders fund. Inventory Turnover Ratio. Fixed Asset Turnover Ratio. Current Asset Turnover Ratio. Working capital Turnover Ratio. Trend Analysis Common Size Statement. Schedule of changes in working capital. Fund flow Statement.

PAGE NO.

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LIST OF GRAPHS

GRAPH NO 1 2 3 4 5 6 7 8 9 10 11 Current Ratio. Quick Ratio.

TITLE

PAGE NO

Gross Profit Ratio Return of Shareholders fund. Net Profit Ratio. Return on Shareholders fund. Return on total asset Fund. Inventory Turnover Ratio. Fixed Asset Turnover Ratio. Current Asset Turnover Ration. Working capital Turnover Ratio. Trend Analysis.

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1. INTRODUCTION
1.1. SCOPE OF STUDY
Financial performance of an organization is a very important factor for the long term survival profitability of any organization. The purpose of financial analysis is to diagnose the information contained in financial statements so as to grudge the profitability and financial soundness of the firm. For the purpose the study has been conducted for a period of last five years.

1.2. OBJECTIVE OF THE STUDY

The main objective of the study is to make an analysis of the financial performance KERALA AGRO MACHINARIES CORPORATION LTD. The objectives are

To assess the liquidity position of the company To assess the profitability position KAMCO for the period of 5 years. To evaluate the turnover position of the company To assess the effective utilization of the owners fund To know the working capital of the company To analyze the current assets & current liabilities of the company To suggest suitable measures To improve the financial health of the company To measure the over all performance of KAMCO

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To find the long term and short-term solvency position of the company To ensures the long term liquidity of fund

1.3. LIMATIONS OF THE SUDY

The basic nature of financial statements is historical data. So the informations cant be completely reliable. The study will be only a professional one based on the data collected annual report and accounts during the subject to refinement. KAMCO is government undertaking. So there is lack of confidential data. To do the performance analysis only the last five years figures are taken in to account.

1.4. FINANCE THE KEY FUNCTION OF THE BUSINESS

Finance is defined as the provision of money at the time when it is required. Every enterprise, whether big, medium or small, needs finance to carry on its operations to achieve its targets. It is the lifeblood of an enterprise. Without adequate finance, no enterprise can possibly accomplish its objectives. Finance is specialized function and draws heavily on the relative function like marketing, production, personnel, purchase etc. Finance deals with the internal management of the enterprise so as to maximize its value give the principles affecting valuation. In away, finance is an aspect of economic theory of firm. Finance has undergone a sufficient change and its concerned with the Flow of Funds and decision relating business operation effecting the valuation of the firm. Accounting primarily involves Data gathering relating to an existing

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Financial Statement or new project, while finance involves Data analysis with focus on decision making. Accounting is compliling of data in financial term and making the same available for decision making. These to area related, ones supporting the other.

II. COMPANY PROFILE

II.1. PROFILE OF THE COMPANY
KERLA AGRO MACHINARIES CORPORATION LTD. (KAMCO) is established in 1973. KAMCO is a fully state owned unit engaged in the manufacturing of power tillers and other Agricultural products. KAMCo having four units in Kerala. One in Athani, in Plakkad, in Kalamassery and in Mala. The head office is at Ahani. It was separated from Japanese company, early days it was known as KAIC. The main products of this company are power tiller, reapers, etc. This governmentoriented organization is mainly focusing on small farmers. The company has informed with the intention to manufacture agricultural machineries suitable to small farmers at affordable price. The company has certain unique feature, which distinguishes it deform other public sectors enterprise. They are:Company is running on profit continuously for the last 25 years. 1. Company has been paying dividend ranging from 10-30% for the last 20 years without fail. 2. Company has no loaned funds and hence finance charge is also nil. 3. Company has fixed deposits, which earn interest to the company 4. Company has no working capital loans. 5. Company is professionally managed organization.

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Financial Statement Company occupies around 50% of total market share of power tillers. Company has deals in all state and main dealer is located at west Bengal. Main competitor of the company is VHST.NEW PROJECTS: The new innovation of the company is launched power stone cutter. The company is expected the continuous production of the product in the subsequent years.

ISO 9001 2000 Companys quality policy and its uncompromising attitude toward quality parameter ere rewarded ISO 9001 200 certification to the company. kallamessery units are working with ISO9001 2000 certificates. CAPITAL STRUCTURE The authorized capital of the company is Rs.200 lacks and paid up capital Rs.1500900. Presently it has increased to Rs. 161.46 lacks divided in to 161460 equity share of Rs.100 each fully paid up and entirely help up by Govt.of Kerala. This company is not having any secured and unsecured loans. EMPLOYEE DETAILES OFFICERS WORKERS TEMPORARY WORKERS APPRENTICES TRAINEES TOTAL SHIFTS FUTURE OUTLOOK In spite of threat from imported and indigenous makes of power tiller, KAMCO Power Tiller continues to be the preferred choice of farmers attaining the moderate market share for the year. Power paper also had been able to each the imagination of the small farmers. Maharaja College for Women Erode 11 : 60 : 600 : 3 : 42 : 705 : 2 Athani, Palakkad nd

Financial Statement The response for the newly launched KAMCO SUPER Power Triller is very encouraging . However the companys success depends upon the fortunes of the farmer and to this extent there is an element beyond the control of the Company. Diversification of the products and services is an essential prerequisite for success. With this view Company is examining possibilities of entering into other areas while retaining its market share in the existing products.

II.2. SWOT ANALYSIS

An analysis strength, weakness, opportunities and threts are the key elements for influents the survival and development of the organization. improvement of the organization strategies. STRENGTH It will helpful for the

Largest manufacturing of consumer needed agricultural goods Capacity to produce high agricultural goods. A team of professional managers of the organization High skilled workers are there Satisfied and committed work forces thy providing The organization making profit for the last 25 years Sincere employees. The old are experts in manufacturing work Manufacturing cost is limited

WEAKNESS Business diversification is not there Only limited numbers of products are there. All products are mainly based on agricultural goods The agriculture field become dull it will be wrongly effect the business

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Financial Statement

Lack of modern machineries.

OPERTUNITIES Company is having good opportunities especially in export The Cochin port and airport is near to the company, which is an added advantage.

THREAT The major threat is the liberalization policy of the government Anybody can enter in to the market, which will increase the competition in the business.

II.3. CAPITAL STRUCTURE

A capital structure refers to the total combined investment of a business. Decesion as to the composition of capitalization is reflected in capital structure. Thus, what type of fund should a firm seek to meet its investment opportunities in what proportions these funds would be raised are the basic issues that has to be dealt with under capital structure. It is there for necessary that a correct estimate of the current and future needs be made to have an optimum capital structure.

The capital structure of KAMCO, include share capital, capital reserve, current liabilities and provisions. The total capitalization of the company had increased from 2000-2001 to 2004-2005.

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Financial Statement

CAPITAL STRUCTURE OF THE KAMCO 9in Rs.Lakhs) Table

Particulars Share Capital Reserve Surplus Loans Current liabilities and Provisions Total &

00-01 161.46 3770.02 Nil 1013.08 4944.56

01-02 161.46 4393.46 Nil 1192.39 5747.31

02-03 161.46 4982.73 Nil 1268.93 6413.12

03-04 161.46 5440.21 Nil 974.20 6575.87

04-05 161.46 5852.68 Nil 1050.56 7064.70

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Financial Statement

II.4. ASSET STRUCTURE

The asset of any firm constitute of the fixed asset and current asset. Current assets are those assets, which can be readily converted to cash. They include sundry Debtors, cash and bank balance, inventories, loans and advances, other current assets. Fixed asset are usually converted to cash only in the long run. Inventories & Sundry Deabtors constitute the major portion of current assets. ASSETS STRUCTURE OF THE KAMCO (in rs.Lacks) Table

Particulars Fixed Asset Current Asset Loose Tools Inventories

00-01 931.37

01-02 879.75

02-03 826.90

03-04 714.36

04-05 766.01

12.47 1180.28

9.93 1415.13

8.76 1437.69

11.53 1796.92

9.86 1781.92

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Financial Statement Sundry Debtors Cash & Bank balance Other Current Assets Loans Advances Total &

419.74 1436.72 98.66 682.47 4761.71

592.31 1843.43 133.54 688.58 5562.67

669.22 2471.56 138.92 731.72 6284.78

909.98 2247.06 108.89 607.89 6396.64

891.43 2771.42 103.60 648.50 6972.75

KAMCO FINANCE DEPARTMENT STRUCTURE

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Financial Statement MANAGING DIRECTOR

GENERAL MANAGER

MANAGER COST/AUDIT

DGM FINANCE

DY.MANAGER

DY. MANAGER

ASST.MANAGER COST/AUDIT

ASST. MANAGER ACCOUNT

SUPERINENDENT

SUPERINTENDENT

ACCOUNTANT

ACCOUNTANT

As the study is mainly concerned with finance department the organization chart of finance department only has been shown. Company has various other departments like marketing, engineering, system, hrm, quality assurance, maintenance stores and production. Officers of various levels are place and high skilled workers are there. FUNCTIONS OF FINANCE DEPARTMENT

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Financial Statement

FUNCTIONS OF FINANCE DEPARTMENT

CASH MANAGEMENT

BILL PROCESSING

BANK RECEPTS

BANK PAYMENT

SALES ACCOUNTING

COSTING

FINANCE DEPARTMENT FUNCTIONS

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Financial Statement

The account manager look after the entire function of the company. The finance department is computerized. The major source of fund includes share capital. Reserve & surplus and not include loan fund.

FUNCTION

Proper utilization of funds Developing sufficient funds. Budget preparing Pure accounting Increase profitability Taxation etc.
The financial function call for stains full planning control and execution of four activities. The main function of the financial department includes the receipt and payment of cash, settlement of account proper custody and safe guard important and valuable document. The other functions are financial planning, budgeting and also analyzing the companys current performance with past performance and inform their performance to the necessary authority.

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Financial Statement

III. REVIEW OF RELATED LITERATURE

III.1. INTRODUCTION TO FINANCIAL MANAGEMENT
Financial management refers to the part of the management activity, which is concerned with the planning and controlling of firms financial resources. It deals with finding out various resources of raising funds for the firm. In other words, financial management means the entire management efforts devoted to the management of finance both in its sources and uses. The most appropriate use of funds also reforms a part of financial management. Financial management is applicable to every type of organization irrespective of its size, kind of nature. It is useful to a small concern as to big unit. A trading concern gets the same utility from its applications as a manufacturing unit may expert. This subject is important and useful for all types of ownership organizations. Where there is use of finance, management is helpful.

III.2. MEANING AND CONCEPT OF FINANCIAL ANALYSIS

The term financial Analysis also known as analysis and interpretation of financial statement, refers to the process of determining financial strength and weakness of the firm by establishing strategic relationship between the items of the balance sheet, profit and loss account and other operative data. The purpose of financial Analysis is to diagnose the information contained in financial statement so as to grudge the profitability and financial soundness of the firm. The analysis and interpretation of financial statement essential to bring out the mystery behind the figures in financial statement. The term financial Statement Analysis includes both analysis Ana interpretation. While the term Analysis is to mean the the simplification of financial statement, interpretation means explaining the meaning and significant of the date so simplified.

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Financial Statement Analyzing financial statement, according to Metcalf and Titard, is a process of

evaluating the relationship between component parts of a financial statement to obtain better understanding of a firms position and performance.

III.3. TYPE OF FINANCIAL ANALYSIS

TYPE OF FINANCIAL ANALYSIS

On the basis of material used

On the basis of modus operandi

Internal Analysis

External Analysis

Horizontal Analysis

Vertical Analysis

We can classify various types financial analysis in to different categories depend upon

1. On the basis of material used According to the materials used, financial analysis can be of two types

a) External analysis This analysis is done by outsiders who do not have access to the detailed internal accounting records of the business of the firm. This outsider includes investors. Potential investors, creditors, potential creditors, government agencies, credit agencies and general public. For financial analysis these external parties to the firm depend almost entirely of the published financial statements.

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Financial Statement

b) Internal analysis The analysis conducted by persons who have access to the internal accounting records of the business firm is known as internal analysis. Such an analysis can, therefore performed by executives and employees of the organizations as well as the government agencies which have statutory powers vested in them. II. On the basis of modus operandi According to the method of the operation followed in the analysis, financial analysis can also be of two types.

a) Horizontal analysis Horizontal analysis refers to the comparison of financial data of a company of several years. The figures for this type of analysis are presented horizontally over a number of columns the figures of various years are compared with the standard or base year. A base year is a year chosen as beginning point. The horizontal analyses make it possible to focus attention on items that have changed significantly during the period under review. statements and trend percentage are two tools employed in horizontal analysis. b) Vertical analysis Vertical analysis refers to the study of relationship of the various items in the financial statement of on me accounting period In this type of analysis the figures from financial statement of a year are compares with a base selected from the same years statement. Common-size financial statements and financial ratios are the two tools employed in vertical analysis. Comparative

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Financial Statement

III.4. PROCEDURE OF FINANCIAL STATEMENT ANALYSIS

There are three steps involved in the analysis of financial statements. These are 1. Selection 2. Classification 3. Interpretation 1. Selection This step involves selection of information relevant to the purpose of analysis of financial statement. 2. Classification It involves the methodical classification of data. 3. Interpretation It includes drawing of inferences and conclusions. PROCEDURE 1. The analyst should acquaint himself with the principles and postulates of accounting. 2. The extend of analysis should be determined so that the sphere of work may be decided. 3. Financial data given in the statement should be reorganized and rearranged. 4. A relationship established among financial statement with the help of tools techniques of analysis such as ratios, Trends, common size, fund flow etc. 5. The information is interrupted in a simple and understandable 6. The conclusion drawn from interpretation.

III.5. METHODS OF FINANCIAL ANALYSIS

1. Ratio Analysis 2. Trend Analysis 3. Common-size statement Maharaja College for Women Erode 23

Financial Statement 4. Schedule of changes in working capital 5. Fund flow Statement.

IV. PROBLEM ANALYSIS

IV.1. RESEARCH PROBLEM
KAMCO is fully state owned unit engaged in the manufacturing Power tiller and agricultural products. Company is running on profit continuously for the last 25 years. Company has no loaned funds and finance charge is also nilled. Company has no working capital loans. The company is running on profit continuously but the profit is founded decreasing even though turnover is see increased. Due to liberalization Company imported brand of power tillers were available in the market. increasing cost. Hence profit is declined. The purpose of financial Analysis is to diagnose the information contained in financial statements so as to judge the profitability and financial soundness of the firm. Financial statements are prepared primarily for devesion-making. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end as it self as no meaningful conclusion can be drawn from these statement alone. However the information provided in the financial statements is of immense use in making decision thorough analysis and interpretation of financial statements. A sound managerial control requires the proper management of the various component of working capital. Impact of mismanagement of working capital will be very much adverse on the performance of any firm. Thus the working capital management is an important function in any business organization. Brand like Chinese are relatively very low priced compared to Indian power tillers as a result company could not increase the price to pass on the

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Financial Statement

IV.2. METHODOLOGY
1. Data collection To study is an empirical one. It uses both primary and secondary Primary Data Primary data where collected through depth interview with concerned officers of the company. Secondary Data Secondary date where collected from the financial statements of KAMCO for five years. Profit & Loss account, Balancesheet, Books magazines where also referred.

IV.3. TOOLS USED FOR ANALYSIS

The different tool used such as Ratio analysis, working capital analysis, fund flow analysis provided as an insight on KAMCO performance. The tool SWOT analysis is used to find out the strength, weakness, opportunities and Threats of KAMCO. 3. Scope of study Financial performance of an organization is a very important factor for the long term survival profitability of any organization. The purpose of financial analysis is to diagnose the information contained in financial statements so as to grudge the profitability and financial soundness of the firm. For the purpose the study has been conducted for a period of last five years.

IV.4. LIMITATIONS OF THE STUDY

The basic nature of financial statement is historical data. So the informations cant be completely reliable.

The study will be only a professional one based on the data collected annual report and accounts during the subject to refinement.

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Financial Statement

KAMCO is government undertaking. So there is lack of confidential data. To do the performance analysis only the last five years figures are taken in to account.

BALANCE SHEET OF KAMCO LTD. ATHANI Particulars I. Source of funds 1. Shareholders fund a. Capital b. Reserve & Surplus 2. Loan funds 3. Deffered tax Liabilities Total II. Application of funds 1. Fixed Asset a) Gross block b) Less Depreciation c) Net block d) Capital working progress Total 2.Investment in shares 3. Current asset loan & advance 3.Current Asset a) Loose tools b) Inventories c) Sundry debtors d) Cash & Bank balance e) Other current asset B. Loans & Advance Total Less: Current Liabilities Provision a) Current liabilities b) Provision Total Net Current Asset 2001 161.46 3770.02 Nil Nil 3931.49 1626.07 694.70 931.37 7.85 939.22 175.00 12.47 1180.28 419.74 1436.72 98.66 682.47 3830.34 602.15 410.92 1013.07 2817.27 2002 161.46 4393.46 Nil Nil 4554.92 1687.19 807.44 879.75 9.64 889.39 175.00 9.93 1415.14 592.31 1843.42 133.54 688.58 4682.92 809.40 382.99 1192.39 3490.53 2003 161.46 4982.73 Nil 47.57 5191.76 1725.7 898.8 826.9 0.9 827.8 175 8.76 1437.69 669.22 2471.56 138.92 731.71 5457.88 885.83 383.10 1268.93 4188.95 2004 161.46 5440.21 Nil 53.9 5655.57 1749.85 983.84 766.01 6.47 772.48 175.00 11.53 1796.92 909.98 2247.06 108.89 607.89 5682.28 668.55 305.64 974.19 4708.09 2005 161.46 5852.68 Nil 51.98 6066.12 1778.39 1064.03 714.36 0.53 714.89 175.00 9.86 1781.92 891.42 2771.42 103.60 648.50 6206.75 725.18 325.39 1050.56 5156.18

Total

3931.4 9

4554.9 2

5191.7 6

5655.5 6066.12 7

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Financial Statement

PROFOT AND LOSS ACCOUNT OF KAMCO. LTD. ATHANI Particulars I. Income Sales Other Income II.Variation in Stock Total III. Expenditure Consumption a) Material b) Traded good Manufacturing & Other exp. Staff Cost Administration & General exp. Selling & Distribution exp. Depreciation Total Operating Profit Prior period adjustment Profit before tax Less: provision for taxation a) Current Tax b) Deferred Tax Profit after Tax Profit available for appropriation Appropriation a) Proposed dividend b) Dividend Tax c) Transfer to other Reserve 3817.6 7 378.73 123.09 994.32 85.68 616.89 94.11 6110.4 9 991.39 -1.75 989.64 355.00 Nil 634.64 634.64 40.37 70.00 4224.4 8 160.85 364.21 1028.0 5 83.62 406.48 110.01 6377.7 983.04 1.56 984.60 313.00 Nil 671.60 671.60 48.44 70.00 4131.7 3 173.34 535.76 1036.6 2 108.63 495.99 97.59 6579.6 7 1010.3 7 -6.89 1003.4 8 312.00 6.67 684.80 684.80 48.44 6.20 70.00 3985.8 4820.42 7 193.19 244.15 497.29 582.45 1169.9 1271.83 3 99.2 122.7 509.22 100.13 87.90 81.30 6542.6 7223.00 3 780.26 -8.07 772.19 253.73 6.33 512.12 512.13 48.44 6.21 70.00 726.23 -19.55 730.90 265.00 -1.92 467.83 467.83 48.44 6.92 70.00 2001 6809.3 3 195.73 96.83 7101.8 8 2002 6745.1 4 221.06 394.55 7360.7 5 2003 7342.8 9 257.94 -10.78 7590.0 4 2004 2005

6815.4 7934.39 0 218.75 209.6 285.4 -194.76 7322.8 7949.24 9

Total
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524.28 553.17 560.17 387.48 342.47

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V. ANALYSIS AND INTERPRETATION

V.1. RATIO ANALYSIS
INDRODUCTION Financial statements are prepared primarily for decision making. They plan a dominant role in setting the frame work of managerial decisions. But the information provided in the financial statements are not an end in it self as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial strengths and weakness of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. There are various methods and techniques used in analyzing financial statements, such as comparative statements, schedule of change in working capital. Common size percentages, funds analysis, trend analysis and ratio analysis. The ratio analysis is the most powerful tool of financial statements.

NATURE OF RATIO ANALYSIS A ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things. In financial analysis, a ratio is used as an index or yardstick for evaluation the financial analysis, a ratio is used as an index or yardstick for evaluating the financial position and performance of a firm. The relationship between two accounting figures expressed mathematically known as the financial ratio. A helps to make qualitative judgment about the firms financial position and performance. The ratio indicated a qualitative relationship which is the nature all financial ratios.

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Financial Statement A ratio analysis involves compression for a usual interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison may consist of

Ratios calculated from the past financial statements at the same firm Ratios developed using the projected (or) proforma financial statement of the same firm. Ratios of same selected firms, especially the most progressive and successful at the same point in time. Ratio of the industry to which the firm belongs.

SIGNIFICANCE OF RATIO ANALYSIS The ratio analysis is the most powerful tool of the financial analysis. Divers group of people who are interested in analyzing financial information use ratio to determine a particular financial characteristic at the firm in which they are interested with the help of ratios can determine.

The ability to the firm of meets its current obligations. The extend to which the has used its long term solvency by borrowing funds. The efficiency with which the firm is utilizing its various assets in generating sales revenue. The overall operating efficiency and performance of the firm. Ratio analysis suffers from some serious limitations.

LIMITATIONS OF RATIO ANALYSIS They are given below:

A single ratio usually does not convey much of sense to make a better interpretation. A member of ratios has to be calculated in making any meaningful conclusion. Change in accounting procedure by a firm often makes ratio analysis misleading. Ratio are only means of financial analysis are not an end itself and they have to interpreted different people may interpret the same ratio in different ways.

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Financial Statement

Differences in accounting procedures make the comparison of ratios difficult and misleading. The ratio analysis is primarily a quantitative analysis and not a quantitative analysis.

APPLICATION OF A ACCOUNTING RATIOS To analysis the financial performance through the application of accounting ratio the following ratio are selected and analysis. The selected ratios are grouped under the following four heading.

Liquidity Ratios Leverage Ratios Activity Ratios Profitability Ratios

This chapter deals with Liquidity, Leverage, Activity and Profitability of KAMCO LTD. By applying selected ratios. 1. LIQUIDITY RATIOS Liquidity refers to the ability of a concern to meet its current obligations as and when they become its due. Christy and Redden The Liquidity of an asset as money ness The short term obligations are met by realizing accounts from current floating or circulating assets. The current assets should either be liquid or near liquidity. The bankers, suppliers of goods and other short term creditors are interested in the liquidity of the concern. Ratio can be calculated Current ratio, Liquid ratio, Absolute Liquid ratio.

a. Current Ratio: Financial performance of KAMCO LTD., current ratio is the most common ratio for measuring liquidity. Current ratio expresses relationship between current assets and current liabilities. It is calculated by dividing the total of current assets by total of the current assets by total of the current liabilities. Formulation: Current Ratio = Maharaja College for Women Erode Current Assets ________________ 30

Financial Statement

Current Liabilities

CURRENT RATIO OF KAMCO.LTD Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 INFERENCE A current ratio of 2:1 is considered as ideal one. From the above table the current ratio of the company in the year 2001 2005 is increasing. The average current ratio is 4.13:1 which higher than standard ratio. It is more than 2:1 indicate sound solvency position. CURRENT RATIO OF KAMCO.LTD CURRENT ASSET 3147.88 3994.33 4726.16 5074.40 5558.24 CURRENT LIABILITIES 1013.08 1192.39 1268.93 974.20 1050.00 RATIO 3.11 3.35 3.72 5.20 5.29

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Financial Statement Figure

6 5 4 3 2 1 0 RATIO

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

Current ratios

b. QUICK (OR) ACID TEST (OR) LIQUID RATIO: Quick ratio is also called Acid Test Ratio or Liquid Ratio The quick ratio is a measure of liquidity designed to overcome this defect of the current ratio. It is used as complimentary ratio to the current ratio.

Formation: Quick Assets Quick/liquid or Acid Test Ratio = ________________ Current Liabilities

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Financial Statement

LIQUID RATIO OF KAMCO.LTD Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 LIQUID ASSET 1960.70 2572.60 3279.38 3283.56 3754.61 LIQUID LIABILITIES 1013.08 1192.39 1268.93 974.20 1050.00 LIQUID RATIO 1.94 2.15 2.58 3.37 3.57

INFERENCE The average liquid ratio is 2.72:1 it is more than the standard ratio 1:1. It shows the efficiency of the firms capacity to pay off current obligation immediately. LIQUID RATIO OF KAMCO.LTD

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Financial Statement Figure

4 3.5 3 2.5 2 1.5 1 0.5 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

LIQUID RATIO

c) ABSOLUTE LIQUIDITY RATIO OR CASH POSITION RATIO

It is a variation of quick ratio. When liquidity is highly restricted in terms of cash and cash equivalents, this ratio should be calculated. The inventory and the debtors are excluded from current asset, to calculate the ratio. Absolute liquid asset include cash in hand and a bank and marketable securities or temporary investments. The acceptable norm for this ratio is 5:1.

Formation: Absolute Liquid Ratio = Cash + Market Securities ______________________ Current Liabilities

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Financial Statement

ABSOLUTE LIQUIDITY RATIO OR CASH RATIO Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 CASH&BANK 1436.72 1843.42 2471.56 2247.06 2771.42 CURRENT LIABILITIES 1013.08 1192.39 1268.93 974.20 1020.56 ABSOLUTE LIQUIDITY RATIO 1.44 1.55 1.95 2.31 2.64

INFERENCE

The acceptable form the ratio 5:1. The average absolute liquid ratio is 1.97:1. This shows that company financial position satisfactory.

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Financial Statement

ABSOLUTE LIQUIDITY RATIO OR CASH RATIO Figure

3 2.5 2 1.5 1 0.5 0 ABSOLUTE LIQUIDITY RATIO

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

2) SOLVENCY AND LEVERAGE RATIO Financial leverage refers to the use of debt as a source of finance. The debt capital is a cheaper source of finance as well as riskier source of finance. Leverage ratio helps in assessing the risk arising from the use of debt capital. Leverage or capital structure ratios may be defined as financial ratios with throw light on the long term solvency of the firm as reflected in its ability to assure long term creditors with regard to (i) periodic payment of interest during the period of the loan and (ii) repayment of principle on maturity or in predetermined installments at due date. The two types of ratio commonly used to analysis financial leverage are structural ratio and leverage ratio and leverage ratio, structural ratio are based on the proportions of debt and equity in the financial structure of the firm. Debt equity ratio and debt assets ratio coverage ratio show the relationship between debt servicing commitments and the sources for meeting these burdens. coverage ratios are interest coverage ratio and cash & flow coverage ratio. a) Debt Equity Ratios The important

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Financial Statement The financing of total assets of a business concern is done by owners equity as well as outside debts. The relationship between borrowed funds and owners capital is a popular measure of the long-term financial solvency of a firm. This relationship is down by the debt-equity ratio. It is calculated as follows: 1. Debt-Equity Ratio = External Equity / Internal Equity or 2. Debt-Equity Ratio = Outsiders Funds / Shareholders Funds Since the company has no secured loan or unsecured loan Debt-Equity ratio not relevant to compare hence not analyzed.

b) Fixed Assets Ratio Financial policy requires that long-term funds should be used to meet the requirements of fixed and part of working capital. Fixed assets ratio tells about the relationship between fixed assets and long-term funds. It is calculated by this formula. Fixed assets ratio = Fixed assets _______________ Long term funds c) Interest Coverage Ratio This ratio also known as fixed charge cover ratio. Loan creditors are not only interested in capacity of their borrowers in repaying the principle amount but they would also look in to their ability to pay the interest as and when due. The ability to pay interest is reflected in the profits of the business. The formula for calculating interest coverage ratio is as follows. Interest coverage ratio = EBIT ________ interest

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Financial Statement As KAMCO has no loaned funds secured or unsecured and loan not shown. So these three ratios are not relevant to the company. d) Proprietary Ratio or Equity Ratio Proprietary Ratio relates the shareholders funds on total assets. This ratio shows the long term or future solvency of the business. Proprietary Ratio = Shareholders Funds _________________ Total Asset Preference share capital, equity share capital plus all reserve and surplus item are called shareholders fund. The acceptable norm of ratio is 1:3. The ratio shows the general strength of the company.

PROPRIETARY OR EQUITY RATIO Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 SHARE HOLDERS FUND 3931.49 4554.92 5144.19 5601.67 6014.14 TOTAL ASSET 4944.56 5747.31 6460.69 6629.77 7116.68 PROPRITERY RATIO 79.51 79.25 79.62 84.49 84.51

INFERENCE The acceptable form of the ratio is 1:3. It is very important to creditors as it help them to find out proportion of shareholders fund in the total assets used business. Higher ratio indicates secured position to creditors. There was continuous increasing in the ratio. It shows a satisfactory condition to the creditors of the company. Maharaja College for Women Erode 38

Financial Statement Figure

85 84 83 82 81 80 79 78 77 76 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

PROPRITERY RATIO

3. ACTIVITY RATIOS / EFFICIENCY RATIOS Activity ratio measure the efficiency or effectiveness with which a firm managers its resources or assets. These ratios are also called turnover ratios, because, they indicate the speed with which assets are converted or turnover into sales. This category of ratios includes those ratios which highlight upon the activity and operational efficiency. This ratio are being used and they are collectively called as activity ratios or performance ratio. a. Debtors Turnover Ratio: Debtors turnover ratio indicates the velocity of debt collection of firm. The higher the value of debtors turnover the more efficient is the management of debtors/sales or more liquid are the debtors. Similarly, low debtors turnover implies insufficient management of debtors/ sales and less liquid debtors. Formulation: Opening Debtors + Closing Debtors Average Debtors = ______________________________ 2

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Financial Statement Net Credit Annual Sales Debtors Turnover Ratio = _____________________ Average Trade Debtors

b. Inventory Turnover Ratio: Inventory turnover ratio indicates the number of times the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. The figure of inventory at the end of the year should not be taken for calculating stock velocity because normally the stock at the year end us low.

Formation: Average inventory = Opening stock + Closing stock __________________________ 2 Inventory Turnover Ratio = Cost of goods sold ______________________ Average inventory at cost

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Financial Statement

INVENTORY TURNOVER RATIO Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 SALES 6809.32 6745.14 7342.89 6815.40 7934.39 INVENTORY 1180.28 1415.14 1437.7 1796.92 1781.91 INVENTORY TURNOVER RATIO 5.77 4.77 5.11 3.79 4.45

INFERENCE A higher inventory turnover indicates efficient management of inventory because more frequently the stock sold. In the year 2000-2001 the inventory turn over ratio is 5.77.

INVENTORY TURNOVER RATIOS

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Financial Statement Figure

6 5 4 3 2 1 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 INVENTORY TURNOVER RATIO

c) Working Capital Turnover Ratio

The working capital turnover ratio is used to measure the efficiency of the firm. This is also indicates whether or not working capital has been effectively utilized in making sales. In case the company can achieve higher volume of sales with relatively small amount of working capital. It is an indication of thee operating efficiency of the company. The ratio is calculated as follows:Formulation: Working Capital Turnover Ratio = Net Sales _______________ Working Capital

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Financial Statement

WORKING CAPITAL TURNOVER RATIO Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 SALES 6809.32 6745.14 7342.89 6815.40 7934.39 NET WORKING CAPITAL 2817.27 3490.53 4188.95 4708.08 5156.18 WC RATIO 2.42 1.93 1.75 1.45 1.54

INFERENCE It shows a decreasing trend. Because good portion of companies working capital has invested a current deposit in bank or other financial institution. It producing a good amount of interest net working capital is increasing this is due to increasing in the bank balance & decreasing current liabilities shows a good sign of health. WORKING CAPITAL TURNOVER RATIO

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Financial Statement Figure

2.5 2 1.5 1 0.5 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 WC RATIO

d) Asset Turn Over Ratio

Assets are used to generate sales. Therefore a firm should manage its asset efficiently to maximize sales. The relationship between sales and asset is called asset turnover. Several assets and turnover ratio can be calculated. Fixed Asset Turnover and Current Asset Turnover The firm wish to know its efficiency of utilizing fixed asset and current asset respectively. Fixed Asset Turnover :

Fixed Asset Turnover =

Sales __________ Fixed Asset

Current Asset Turnover:

Current Asset Turnover = Sales Maharaja College for Women Erode 44

Financial Statement ____________ Current Asset

FIXED ASSET TURNOVER RATIO Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 SALES 6809.32 6745.14 7342.89 6815.40 7934.39 NET FIXED ASSET 931.37 879.75 826.9 714.36 766.01 FIXED ASSET RATIO 7.31 8.88 8.88 9.54 10.36

INFERENCE The table shows fluctuation in fixed assets. In 2005 the ratio indicate the greater the intensive utilization of assets and it help to increase in production & sales.

FIXED ASSET TURNOVER Figure

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Financial Statement

12 10 8 6 4 2 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 FIXED ASSET RATIO

CURRENT ASSET TURNOVER RATIO Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 SALES 6809.32 6745.14 7342.89 6815.40 7934.39 CURRENT ASSET 3147.88 3994.33 4726.16 5074.40 5558.24 CA TURNOVER RATIO 2.16 1.69 1.55 1.34 1.42

INFERENCE The table shows CATR is declining. The CATR of the company for the current year is 1.42 is less than compared to the previous year.

CURRENT ASSET TURNOVER RATIO Figure

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Financial Statement

2.5 2 1.5 1 0.5 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 CA TURNOVER RATIO

4) PROFITABILITY RATIO: The primary objective of business undertaking is to earn profits. Profit earning is considered essential for the survival of the business. In the words of Lord Keynes profit is the engine that drives the business enterprise. Profits are an index of economic progress. Profitability ratios are calculated to measure the overall efficiency of the business. Generally, profitability ratios are calculated either in relation to sales or in relation to investment. A company should be able to produce adequate profit on each rupee of sales. If sales do not generate sufficient profits, it would be difficult for the firm to cover operating expenses and interest charges and as result will to earn any profits to owner. Profitability in Relation to Sales are

Gross profit ratio Net profit ratio Operating profit ratio Operating ratio
Profitability in Ratios to Investment The profitability of the company should also be evaluated in terms of the firms investment. Profitability Ratios in Relation to Investment are

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Financial Statement

Return on assets (ROA) Return on share holders equity (ROE)

By employing ratio analysis technique, the effectiveness of use of resources to enhance profitability of the company has been studied. a) Gross Profit Ratio The Gross profit ratio is also known as Gross Margin Ratio. The difference between Net Sales and Cost of Goods sold is known as Gross Profit. The earning capacity of the business can be ascertained by taking the margin between cost of goods sold and sales revenue. It test of profitability and management efficiency. Gross Profit Ratio = Gross Profit ___________ Net Sales

GROSS PROFIT RATIO Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 GROSS PROFIT 1431.68 2778.33 2474.56 2238.78 2918.73 SALES 6809.32 6745.14 7342.89 6815.40 7934.39 GROSS PRIFT RATIO 21.03 41.19 33.70 32.85 36.79

INFERENCE Higher gross profit ratio better result. In the year 2002 GPR is 41.19 which less than the year 2005, ratio is 36.79. GROSS PROFIT RATIO Figure Maharaja College for Women Erode 48

Financial Statement

50 40 30 20 10 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 GROSS PROFIT RATIO

b) Net Profit Ratio

Net profit margin ratio establishes a relationship between net profit and sales and indicates managements efficiency in manufacturing administrating and selling the products. This ratio is the overall measure of the firms ability to turn each purpose in to net profit. The net profit margin ratio is measured by dividing profit after tax by sales.

Net Profit Ratio =

Net Profit __________ Net Sales

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Financial Statement

NET PROFIT RATIO Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 NET PROFIT 634.64 671.60 684.80 512.13 461.83 SALES 6809.32 6745.14 7342.89 6815.40 7934.39 NET PROFIT RATIO 9.32 9.95 9.32 7.51 5.89

INFERENCE Generally higher ratio better the profitability. The NPR of the company for the current year is 5.89 is less than compared to the previous year.

NET PROFIT RATIO

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Financial Statement Figure

10 8 6 4 2 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 NET PROFIT RATIO

B) OPERATING PROFIT RATIO The ratio establishes the relationship between total operating expenses and sales. Total operating expenses include cost of goods, administrative expences, financial expenses and selling expences. Cost of goods sold is known as operating expenses and the rest are known as other operating expenses.

Operating profit Ratio =

Operating profit ______________ Sales

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Financial Statement

OPERATING PROFIT RATIO Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 INFERENCE The ratio indicates general profitability of the concern. Operating profit ratio of the company for the current year is 9.15 is less than compare to previous year. OPERATING PROFIT 991.39 983.04 1010.37 780.26 726.23 SALES 6809.32 6745.14 7342.89 6815.40 7934.39 OPERATING PROFIT RATIO 14.56 14.57 13.45 11.45 9.15

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Financial Statement

OPERATING PROFIT RATIO Figure

16 14 12 10 8 6 4 2 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

OPERATING PROFIT RATIO

a) Return On Shareholders Fund

The ratio establishes the profitability from the shareholders point of view.

Return on shareholders fund =

Net profit ________________ * 100 Shareholders fund

The term net profit as used here, means net income after payment of interest and tax including net operational income. Shareholders fund includes both preference and equity share capital and all reserves and surplus belonging to shareholders.

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Financial Statement

RETURN ON SHAREHOLDERS FUND Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 NET PROFIT 634.64 671.60 684.80 512.13 461.83 SHARE HOLDERS FUND 3931.49 4554.92 5144.19 5601.67 6014.14 RATIO 16.14 14.74 13.31 9.14 7.78

INFERENCE It measures the earning power of equity capital. and surplus also increasing due to plowing back of profit. Maharaja College for Women Erode 54 The ratio is decreasing is first

companys profit is decreasing due to increasing cost of production. In addition to that reserve

Financial Statement b) RETURN ON SHAREHOLDERS FUND Figure

18 16 14 12 10 8 6 4 2 0

RATIO

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

b) Return On Total Asset Profitability can be measured in term of relationship between net profit and assets. This ratio also known as profit-to-asset ratio. It measures the profitability of investment. Return on total asset = Net Profit __________ Total asset RETURN ON TOTAL ASSET Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 NET PROFIT 634.64 671.60 684.80 512.13 461.83 SHARE HOLDERS FUND 3931.49 4554.92 5144.19 5601.67 6014.14 RATIO 16.14 14.74 13.31 9.14 7.78

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Financial Statement INFERENCE The return on total assets is fluctuating year by year. The return on total assets of the company for the current year is 6.57. RETURN ON TOTAL ASSET Figure
20 15 10 5 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

RATIO

c) Earnings Per Share: Earnings per share measure the profit available to equity shareholders on a per share basis. It is calculated by dividing the net profit available to equity shareholders by the number of outstanding shares. Earning per share is useful in analyzing the effect on change in leverage on net operating earnings to the ordinary shareholders.

Formulation: Earnings per Share = Net Profit after Tax Preference Dividend ____________________________________ No of Equity Share

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Financial Statement

EARNING PER SHARE Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 NET PROFIT 634.64 671.60 684.80 512.13 461.83 TOTAL ASSET 161.46 161.46 161.46 161.46 161.46 RATIO 3.93 4.15 4.21 3.71 2.89

INFERENCE The earning per share is decreasing. The reason for decrease is competition in the market with low-priced and low quality imported of power tiller.

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Financial Statement

EARNING PER SHARE Figure

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

RATIO

2000-2001 2001-2002 2002-2003 2003-2004 2004-2005

VALUE ADDITION Table YEAR 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 NET PROFIT 6906.16 7139.69 7332.11 7100.8 7739.63 SHARES 4196.4 4385.33 4305.07 4179.06 4844.84 RATIO 2709.76 2754.36 3027.04 2921.74 2894.79

INFERENCE

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Financial Statement Value addition represents the combination of the company. Purchase represents the contribution of various suppliers. Value addition of the company represents contribution of men & machine. Increasing value addition shows favorable trend if employee strength and machine capacity remains the same. To make it relative value addition per employee also can be analyzed.

V.2. TREND ANALYSIS

Trend percentage is also referred to trend ratio. The financial performance for a series of years may be analyzed to determine the trend of the data contained therein. This method of analysis is adopted to determine, the direction, upward or downward. The method of calculating trend percentage includes the calculation of percentage relationship the each item bears to the same item in the base year. Any year may be taken as the base year. Each item of the base year is taken as 100 and on that basis the percentage for each of the item of each of the year is calculated. There are different steps for calculating trend percentage. 1. Selection of the base year, which may be earliest, latest on any intervening period. 2. Assignment of a weight of 100 to each amount of the base year is next step. 3. Mention each item amount of every other year as a percentage of its base year amount by applying the formula.

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Financial Statement Trend percentage thus shows not only the magnitude but also the direction upward or down ward profit various years and hence is quite useful in horizontal analysis. While calculating the trend percentage care be taken regard in various point such as: 1. The accounting principle followed should be constant through out the period on which analysis is made. 2. The base year should be carefully selected. representative of the item shown the statement. It should be normal year and

3. Tend percentage should be calculated only for item having logical relationship with one another. 4. Trend percentage should be studied after considering the absolute figures on which they are based, otherwise they me give misleading result. 5. The figure for the current year should also be adjusted in the light of price level changes as compared to the base year before calculating trend percentage. In order to know the change in figures, trend percentage of various items of the company is calculating. From the table, it is understood that the company is growing widely its assets and liabilities shown an increasing trend. Details are followed. The company still now issues shares and collect money. It keeps adequate resources and surplus every year.

TREND RATIO Table

Particulars ASSETS Fixed Assets Current Assets Loose Tools Inventories Sundry Debtors Cash & Bank Other CA 12.47 1180.2 8 419.47 1436.7 2 98.66 9.93 1415.1 4 592.31 1843.4 2 133.54 8.76 1437.6 9 669.22 2471.5 6 138.92 11.53 1796.9 2 909.98 2247.0 6 108.89 9.86 1781.9 2 891.42 2771.4 2 103.60 100.0 0 100.0 0 100.0 0 100.0 0 100.0 0 79.63 199.9 0 141.2 0 128.3 0 135.3 5 70.25 121.8 1 159.5 4 172.0 2 140.8 1 92.46 152.2 5 216.9 4 156.4 0 110.3 6 79.06 150.97 212.51 192.90 105.00 2001 2002 2003 2004 2005 2001 100.0 0 2002 2003 2004 2005

939.22

889.39

827.8

772.48

714.89

94.67

88.14

82.25

76.12

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Financial Statement
100.0 0 100.0 0 100.0 0 % 100.0 0 100.9 0 100.0 0 116.2 4 2004 107.2 0 100.0 0 130.6 6 % 100.0 0

Loans & Advance Investment in share Total Assets LIABILITIES Particulars Sales Share Capital Add: Variation in stock Reserve & Surplus Total Loans Deferred Tax Material goods Liabilities Manufacturing Total Liabilities exp. Staff cost Administration & General exp. Selling & distribution exp. Depreciation Total Operating profit

682.47 175.00 4944.5 5 2001 6809.32 161.46 96.82 3770.0 2 6906.14 Nil

688.58 175.00 5747.3 1 % 161.46

731.71 175.00 6460.6 9 2002 6745.1 161.46 4

607.89 175.00 6629.7 7 %

648.50 175.00 7116.6 8 2003

89.00 100.0 0 134.0 0 2005

95.00 100.00 143.90 % 100.00 155.00 Nil 103.70 65.04% 143.90 7.52% 13.15% 1.59% 1.29% 1.05%

7342.8 161.46 161.46 9 -10.78 5440.2 5852.6 17332.1 8 1 Nil Nil

394.55 4393.4 4982.7 6 7139.9 3 5 Nil Nil

6815.4 100.0 0 0 285.40 100.0 116.5 0 7100.8 4 0 Nil Nil

7934.3 100.0 9 0 -194.76 132.1 144.3 7 7739.6 0 3 Nil Nil 125.2 58.85 %6 130.6 7% 6 16.48 % 1.39% 7.11% 1.23% 96.20 5064.5 7 134.0 582.45 0 1271.8 3 122.7 100.13 81.3 7223 10.99 % 726.23

1013.0 60.76 1192.3 4385.3 1268.9 61.39 974.194305.0 1050.5 58.72 100.0 4179.0 117.7 4196.44 7 % 9 3 3 % 7 6 % 0 6 0 4944.5 1.78% 5747.3 364.21 6460.6 5.10% 6629.7535.76 7116.67.30% 100.0 497.29 116.2 123.09 5 1 9 7 8 0 4 14.39 1028.0 14.39 1036.6 14.14 1169.9 994.32 % 5 % 2 % 3 85.68 616.89 94.11 6110.49 991.39 14.35 % 1.24% 8.93% 1.36% 83.62 406.48 110.01 6377.7 983.04 13.77 % 1.17% 5.69% 1.54% 108.63 495.99 97.59 6579.6 7 1010.3 7 1.48% 6.76% 1.33% 99.2 509.22 87.9 6542.6 3 13.77 % 780.26

9.38%

COMMON SIZE IN THE PROFIT & LOSS ACCOUNT Table

INFERENCE Material cost of the firm increasing. In the year 2004 that was 58.8% but in the year 2005 that was 66% may be thats because of competition. If competition increased we

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Financial Statement cant increase the product price. In the year 2004 staff cost is 16.48% and in the year 2005 staff cost is 13%. The increase is due ANNUAL increment and increase in DA rate. So gradually there will be an increase in the staff cost. Diversification and growth is main method for decreasing prorate ate expenses.

FUND FLOW STATEMENT The statement if changes in financial position, prepared to determine only the source and uses of working capital between dates of two balance sheets is known as Fund Flow statement. In other words, the statement showing source and application of funds is popularly known as Fund flow statement. It is condensed report of how the activities of the business are financial and how the financial sources were used during the institutions and financial managers, etc.uses the fund flow statement widely. The basic purpose of this statement is to indicate on a historical basis where cash came and where it was used. The basic purpose of a fund flow statement is to reveal the changes in the working capital in the two balance sheets. A Fund flow statement helps in explaining how effectively the management has used its working capital and suggest ways to improve working capital position of the firm. Found flow statement is a useful tool in the finance managers analystical kit. The management can formulate its financial policies, dividend, reserves etc. on the basis of this statement. It tells whether source of funds increase or decreasing or constant. It point out the cause for changes in working capital. Preparation of Fund flow statement a) Statement of changes in Working capital b) Fund flow statement. a) Statement of changes in working capital The working capital does change due to various transactions. The working capital position at the beginning period is changed to a different position at the end of the period. A statement of working capital is prepared depict the changes in WC. WC represent excess of

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Financial Statement current assets over current liabilities. It is necessary to measure the increase or decrease there in by preparing a statement of change in WC. Fund flow statement. b) Fund flow statement. After preparing the statement of working capital, the statement of sources and application of fund is prepared. This statement is prepared with the help of the remaining items in the balance sheet of the two periods- all non-current asset and non current liabilities and other information given in the problem. STATEMENT OF CHANGES IN WORKING CAPITAL Table Particulars Current asset 1. Loose Tools 2. Inventories 3. Sundry debtors 4. Cash & Bank 5. 6. 7. 8. Prepaid Exp. Work in Progress Loans & Advance Other Current Asset 2001 12.48 1180.2 8 419.74 1436.7 2 6.89 7.85 682.47 98.66 3825.0 9 602.15 410.92 40.37 355.00 1408.9 4 2436.6 5 708.69 3145.3 3145.3 926.85 2002 Increase (Dr) Decrease (Cr) 9.93 1415.1 4 592.31 1843.4 3 6.59 9.64 688.58 133.54 4699.1 6 809.40 382.99 48.43 313.00 1553.8 2 3145.3 4 708.69 926.85 207.25 27.93 8.06 42 2.55 234.86 172.57 406.71 0.3 1.79 6.11 34.88

Total Current Liabilities 1. CL 2. Provision 3. Prospond Divident 4. Provision for taxation Total Working capital Increase in Working Capital

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Financial Statement 4 4

FUND FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2002 Table Source Amount Application Amount Fund from operation 771.86 Increase in working capital 708.69 Purchase of fixed assets 63.17 771.86 771.86

STATEMENT OF CHANGES IN WORKING CAPITAL Particulars Current Asset 1. Loose Tools 2. Inventories 3. Sundry Debtors 4. Cash & Bank 5. Prepaid Expense 6. Working Progress 7. Loans & Advance 8. Other CA 2002 9.93 1415.1 4 592.31 1843.4 3 6.59 9.64 688.58 133.54 4699.1 6 2003 Increase(Dr) Decrease(Cr) 8.76 1437.6 9 669.22 2471.5 6 9.08 0.903 731.72 138.92 5467.8 5 1.17 22.55 76.91 628.13 2.49 8.74 43.14 5.38

Total Current Liabilities 1. CL 2. Provision 3. Prospond Dividend 4. Provision for Taxation

809.40 382.99 48.43 313.00

885.83 383.10 318.67

76.43 00.11 5.67

Total

1553.8 2

1636.0 3

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Financial Statement 3145.3 4 686.48 3831.8 2 3831.8 2 686.48 3831.8 2 778.60 778.6

Working Capital Increase in Working Capital

FUND FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2003 Source Amount Application Amount Fund from operation 734.95 Increase in working capital 686.48 Purchase of fixed assets 48.47 734.95 734.95

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Financial Statement

STATEMENT OF CHANGES IN WORKING CAPITAL Particulars Current Asset 1. Loose Tools 2. Inventories 3. Sundry Debtors 4. Cash & Bank 5. Prepaid Expense 6. Working Progress 7. Loans & Advance 8. Other CA Total Current Liabilities 1. CL 2. Provision 3. Prospond Dividend 4. Provision for Taxation Total Working Capital Increase in Working Capital 2003 8.76 1437.6 9 669.22 2471.5 6 9.08 .903 731.72 138.92 5467.8 5 2004 Increase(Dr) Decrease(Cr) 11.5 1796.9 2 950.98 2247.0 6 9.92 6.47 607.89 108.89 5698.6 6 2.77 359.23 240.76 224.5 0.84 5.57 123.83 30.03

885.83 383.10 48.43 318.67 1636.0 3 3831.8 2 584.15 3831.8 2

668.55 305.64 48.43 260.06 1282.6 9 4415.9 7

217.28 77.46 58.61

584.15 4415.9 7 962.52 962.52

FUND FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2004 Source Amount Application Amount Fund from operation 647.32 Increase in working capital 584.15 Maharaja College for Women Erode 66

Financial Statement Purchase of fixed assets 647.32 63.17 647.3

STATEMENT OF CHANGES IN WORKING CAPITAL Particulars 2004 11.5 1796.9 2 909.98 2247.0 6 9.92 6.47 607.89 108.89 5698.6 6 2005 Increase(Dr) Decrease(Cr) 9.86 1781.9 2 891.43 2771.4 3 6.71 0.53 648.50 103.60 6213.9 8 1.63 15.00 18.56 524.37 3.22 5.94 40.61 5.29

Current Asset
1. Loose Tools 2. Inventories 3. Sundry Debtors 4. Cash & Bank 5. Prepaid Expense 6. Working Progress 7. Loans & Advance 8. Other CA Total

Current Liabilities
1. CL 2. Provision 3. Prospond Dividend 4. Provision for Taxation 668.55 305.64 48.43 260.06 1282.6 9 4415.9 7 435.93 4851.9 0 725.18 325.39 48.43 263.08 1362.0 8 4851.9 0 435.93 4851.9 0 565.00 565.00 56.63 19.75 3.02

Total
Working Capital Increase in Working Capital

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Financial Statement FUND FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2005 Source Amount Application Amount Fund from operation 465.57 Increase in working capital 435.93 Purchase of fixed assets 29.64

465.57

465.57

MANANGEMENT OF WORKING CAPITAL Working capital is the lifeblood and nerve center of a business. It is essential to maintain the smooth running of the business. There are number of aspect of working capital management that makes an important topic for study. They are follows:

There is a positive correlation between the sale of firm and its current assets, so as to increase sale, a corresponding increase in current asset is required. Hence their proper administration becomes significant.

Working capital needs are generally financed through outside sources, so acuminous care is necessary to utilize them in the best way. Working capital is particularly important for small firm has relatively limited access to the long-term capital market. Therefore it must rely heavily on trade credit and shortterm bank loans, which are current liabilities.

The basic objective of working capital management is to manage each of firms current asset and current liabilities in such a way an acceptable level of working capital is always maintained in the business. Each current assets must be managed effectively in order to maintain the firms liquidity while not keeping too high the profitability of the concern. Hence the problem of efficient working capital management is to establish a trade off between liquidity and profitability.

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CONCEPT OF WORKING CAPITAL a) Balance sheet concept b) Operating Cycle Concept a) Balance sheet Concept There are two interpretation of working capital under the balance sheet concept. Sheet concept. 1. Gross working capital 2. Net working capital Gross working capital is the capital invested in total current asset of the enterprise. Net working capital is the excess of current asset over current liabilities. Net Working Capital = Current Asset Current Liabilities As per the general practice, net working capital is referred to simply as working capital. b) Operating cycle Concept Operating cycle is the time duration required to convert sales, after the conversion of resources in to inventories in to cash.

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Cash

Debtors

Raw materials

Sales

Work in progress

Finished goods Working capital cycle

VI. FINDINGS
The study covers an analysis of KAMCO LTD over a period of the year from 20002001 to 2004-2005. The various findings and conclusion of the study are stated in the relevant chapter itself. However it is considered suitable to provide summary of those findings and conclusions. LIQUIDITY RATIO

The ratios for measuring the short-term liquidity of the company are current ratio, quick ratio and absolute ratio. Current ratio of the company range from 3.72 to 5.29. An ideal current ratio is 2:1. Average current ratio for the last five years is 4.13, better sound solvency position. Companies quick ratio for the last five years is 2.72. The standard norm fixed for quick ratio is 1:1. The company has made a very good liquid ratio. This is favorable to creditors. The average absolute liquid ratio is 1.97. This shows that companys financial position is satisfactory.

PROFITABILITY RATIO

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Profitability ratio shows the operating efficiency of the company. The first profitability ratio in relation to sales in the gross profit margin. In the year 2002 CPR is 41.99, which less than the year 2005 ratio is 36.79. Net profit ratio shows a downward trend. It range from 9.95 to 5.89, current year ratio is less than the previous year ratio due to high operating cost. The operating profit ratio has decreased from 14.56 in 00-01 to 9.15 in 04-05; the reason can be attributed to increasing operating cost. The measure the earning power of equity capital. The ratio is decreasing. The reason for decreasing due to increasing cost of production. In addition to that reserve surplus also increasing pawing back of profit. The ratio is great impotent to the present and prospective shareholders as well as the management of the company. The company is getting sufficient return on the use of its assets. This is evident by that the returns have gone up many folds as compared to total asset. The return on total assets is fluctuating year by year. The return on total assets of the company for the current year is 6.57.

EFFICIENCY RATIO

A higher inventory turnover indicates efficient management of inventory because more frequently the stock sold. In the year 200-2001 the inventory turn over ratio is 5.77. The Working turnover ratio is not hopeful. A major part of capital is transferred to short-term deposits. Debtors turnover indicates the number of times debtors turnover each year. Majority of the company sales are against advanced receipt and the year end debtors shown in the balance sheet represent amount available against document recognized through bank during march and relative during April/ March. Fixed asset turnover ratio show upward and Current assets turnover ratio downward trend. In 2005 the ratio is 10.36 indicate the greater the intensive utilization of assets and it help to increase in production & sales. The CATR of the company for the current year is 1.42 is less than compared to the previous year.

SOLVENCY RATIO

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KAMCO has no loaned funds secured or unsecured and loan not shown. So these debt-equity, Fixed asset and interest coverage ratios are not relevant to the company.

RECOMMEDATIONS From the above study it is clear that the KAMCO LTD. has to make some more improvements in performance. Following are the recommendations for further improvement.

There exist wide gap between gross profit ratio and net profit ratio because of heavy operating cost. Steps must be taking to reduce all operating expense. In order to increase the operating profit, if it is possible to increase the sales, reduce the total capital employed in the business. Management should take necessary steps to monitor the constant increase in the current liabilities. Stock turnover ratio of the company is low efforts must be made to increase sales. No company can survive without growth. The is because in an inflationary economy operating cost will definitely increase year after year to cover the increase in expense or either price should be increased or volume of sale should be increased. In competitive economy increasing price may not be feasible the alternative is to increase the sales volume for this diversification of products also may be tried.

VII. CONCLUSION
In this study an attempt is made to provide an idea about the way on which a decision can be taken to plan the field of finance for better progress. Analysis and interpretation of financial statement s shows that the financial position of KAMCO is quite satisfactory level. In the last year companys sales turnover is better, but net profit is comparatively less than previous year. Through this analysis it can be concluded that even through the company is progressing. There are so many problems in the industry like competitors with low cost machines, increasing cost of material etc. So steps must be taken to improve the efficiency in utilization of all factors of production for better prospect in future.

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VIII. ANNEXURE NET PROFIT FOR THE FIVE YEARS AT AGLANCE

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Table

YEAR 2000 - 2001 2001 - 2002 2002 - 2003 2003 - 2004 2004 - 2005

NET PROFIT 634.64 671.60 684.80 512.13 467.83

Figure

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700 600 500 400 300 200 100 0 2000 - 2001 2001 - 2002 2002 - 2003 2003 - 2004 2004 - 2005 RATIO

IX. BIBLIOGRAPHY

R.K. Sharma & Shashi. K. Gupta, Management Accounting.

Practices, New Delhi, Kalyani Publishers, 1986.

Principles and

S.P Jain & K.L. Narang, Companay Accounts, Klyani Publishers, New Delhi Pillai
R.S.N. and Bagavathi. V., Management Accounting, New Delhi, S. Chand & Company Ltd., 1997

Maheswari.

S.N. Principles of Management Accounting, New Delhi. Sullan

Chand and Sons, 1985.

Annual Reports of Kerala Agro Machinaries Corporation Ltd., for five years
from 2000 2001 to 2004 2005.

WEB SITE:

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Financial Statement www.kamcoindia.com

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