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KERAFED

INTRODUCTION
Financial performance refers to the act of performing financial activity. In broader sense, financial performance refers to the degree to which financial objectives being or has been accomplished. It is the process of measuring the results of a firm's policies and operations in monetary terms. It is used to measure firm's overall financial health over a given period of time and can also be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.

The financial performance analysis identifies the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and profit and loss account. The first task is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second is to arrange the information in a way to highlight significant relationships. The final is interpretation and drawing of inferences and conclusions. In short, financial performance analysis is the process of selection, relation, and evaluation.

The project study conducted in Kerala Kerakarhaka Sahakarna Federation Limited (KERAFED) for a period of 45 days. KERAFED is the apex co-operative federation of coconut farmers in Kerala and is the largest producers of coconut oil in India. The federation started commercial production in 1993. The head office of KERAFED is located in thiruvananthapuram. This study mainly focus on current financial position and utilization of funds by minimizing such losses. The analysis of financial statement may provide an opportunity to the practical and theoretical knowhow. Financial performance analysis is the process of determining the operating and financial characteristics of a firm from accounting and financial statements. The goal of such analysis is to determine the efficiency and Performance of firms management, as reflected in th e financial records and reports. The technique of financial analysis is typically devoted to evaluate the past, current and project performance of a business firm. This project evaluates the performance, present financial position, liquidity position, enquire into profitability of the firm and plan for future operations

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The financial statement are prepared for the purpose of presenting a periodical review or report on the progress made by the concern and deal with the status of the investment in the business and result achieved during the accounting period. The aim of maintaining various records is to exhibit the various financial position of the business. Financial Statement, Income Statement and statements are the outcome of the accounting process.

BACKGROUND AND DEFINITION OF THE PROBLEM


Financial performance analysis is an analysis to find out how much the firm is financially performing well. . Kerafed is a profit making concern and currently their financial strength is very good. Hence, this analysis tells in what extent Kerafed is making profit. It is done by using different tools which shows exact performance of the company in monetary terms. This analysis also tells different interested people such as creditors, bankers, government and shareholders to know the current and predicted financial growth.

NEED AND SIGNIFICANCE OF THE STUDY


The study was conducted mainly to find out financial performance, financial growth/loss, sales and profitability of Kerafed and suggest to improve the financial position of the company based on findings.

OBJECTIVES OF THE STUDY


1. 2. 3. 4. 5. To know about the financial performance of Kerafed. To identify change in financial growth/loss of the company To find out the relation between sales & profitablity. To suggest means to improve the financial position of the company based on findings. To analyze the liquidity of the firm.

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RESEARCH METHODOLOGY
Research refers to the search for knowledge. Research is an art of scientific investigation. It is an attempt to discover answer to intellectual and practical problems through the application of scientific method. Research Methodology is a way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. The type of research will be used in this study are analytical research and descriptive research. In analytical research the researcher has to use facts or information already available, and analyze these to make a critical evaluation of the material whereas descriptive research is conducted on the basis of survey for analyzing the problem. The data were collected using both primary and secondary sources Primary data: it refers to those data which is collected by the researcher himself. This data do not exist in records or publication. Primary data is collected by conducting discussion with various functional managers.

Secondary data: it refers to those data which are gathered for some other purpose and are already available in the firms external records and publications. The secondary data collected from annual reports of the company and most of the data used in study are secondary in nature. The analytical tools are using such as; Ratio analysis Comparative balance sheet Correlation coefficient Regression analysis

SCOPE OF THE STUDY


This Financial Performance Analysis aims at generating and understanding the overall financial performance, liquidity and profitability of Kerafed through various tools like Ratio analysis, Comparative balance sheet analysis and Correlation & Regression analysis. The

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major sources of information for this study were Annual Reports of the company from the year 2005-2006 to 2009-2010.

LIMITATIONS OF THE STUDY


1. The data is mostly secondary in nature. 2. In the absence of sufficient data personnel judgment have been taken on reasonable assumption. 3. The various risk involved in raising the fund from different sources cant be determined. 4. Data collection was delayed due to busy work schedule

CHAPTERISATION
Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 : Introduction to the study : Industry and Company Profile : Literature review : Theoretical Framework : Data Analysis and Interpretation : Findings, Suggestions and Conclusion

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INDUSTRY PROFILE
The coconut palm is one of the most valuable plants to man. In Sanskrit the coconut palm is called kalpa vrisksha which roughly translated means tree of life. In India, it provides livelihood to about 10 million people through various activities from its cultivation to processing of its products. All the parts of the coconut tree can be put to useful purposes the roots the trunk, the wood, leaves the blossom and all the parts of the nut. Two major clauses of coconut palm are typically recognized on the basis of structure: tall and dwarf. The one of the most commonly planted for commercial purposes are the tall varieties, which are slow to mature and first flower six to ten years after planting. They produce medium to large size nuts and have a life span of sixty to seventy years. The dwarf varieties may have originated as a mutation of tall types. The dwarf variety may grow to height of twenty five to thirty feet and begin flower after three years when they are only about three feet tall. Their life span is only about 30 years India is the 3rd largest coconut producing country in the world country Indonesia Philippines India Brazil Srilanka Thailand Mexico Veitnam Malayasia Papua New guinea production 16,300,000 14,500,000 9,500,000 3,033,830 1,950,000 1,500,000 959,000 940,000 710,000 650,000

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STATE SCENARIO Available information shows that India is the largest (3rd) coconut producing country in the world with an area of 1.2 millions hectares, the production are from kerala , followed by Karnataka, Thailand and Andraprdesh. Among the coconut growing states in the country kerala, karnataka, Thailand and Andraprades together account for more than 90% of the total area. The socio economic development of Kerala is much dependent on the fortunes of coconut crops coconut account foor 9.29% of other total income and 26.2% of the total agricultural income of the state. During the year 1950-1951 Kerala contributed 65% of Indias total coconut production. But over the years its share big the total national output. In Kerala there are many coconut oil extraction industries throughout the state. Edible oil sector has been one of these commodity sectors that have been in news through out the year in fact every now and then the industry has been pleading the government for protection from cheap imports.

INDIAN SCENARIO Coconut palms are grown widely in the coastal tracts of the county. The coconut economy of India is in a convenient status. India accounts for 22.34 percent of the worlds coconut production and is one of the major players in the worlds coconut trade. Currently the crop is grown in 1.91 million hectares with an annual production of nearly 13000million nuts. Copra processing, coconut oil extraction and coir manufacturing are the traditional coconut based industries in the country. The price of the coconut in the country is dependent on the prevailing price of coconut oil which is characterized by recurring violent fluctuations. The behavior of coconut oil price is relatively dependent on overall supply of oils and fats in the country. The fluctuation in the price of the coconut oil simultaneously reflects on the price of coconut oil simultaneously reflects on the price of coconut. The volatile price situation often ends in the negligence of the coconut gardens, leading to attack of pets and diseases and low productivity of the range of ways, promoting cost effective coconut based farming system, product diversification and value addition play a crucial role in the stabilization of the coconut industry cost effective and globally competitive. The coconut development board has been playing pivotal role in promoting viable coconut based farming system, on farm processing and products development the production and
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marketing of value added products have started attracting commercial interest and the situation brought rejuvenation in the sector. The market promotional measures undertaken in pursuit of the popularization of health benefits of coconut oil driven coconut economy. There has been a well defined network in the country to undertake the R&D of coconut. The state Agricultural universities, Agriculture/horticulture departments of states organizations like NAFED, KERAFED etc and private institutions contribute to the pursuit of the research and development process of coconut in the country. Strength of Indian coconut industry One of the leading producers of coconut in the world producing 13 billion nuts per annum Coconut area distributed in 18 states and three union territories under different agro climatic conditions. 3000 years tradition in coconut cultivation Premier coir manufacturing country in the world Producer of hest grade milling copra inn the world yielding high grade coconut oil won for its aroma and flavor Large number of farmers co-operative societies in primary processing and marketing Government agencies such as KERAFED, state trading corporation, Kerala state marketing federation in manufacturing and marketing of branded coconut oil in small packs Wide range of coconut products both edible and non- edible available for export Technical know-how and trained manpower for the manufacture of various coconut based products. Availability of research support by reputed research organization such as CSIR,KAR, and DRDO.

Coconut products of india A large number of coconut products are manufactured in the country which have hoth domestic and export market Vinegar and soft drink are manufactured in the country from coconut water tender coconut water is another product which is manufactured and marketed successfully.

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Coconut products Tender coconut water Copra Coconut oil Raw kernel Coconut cake coconut toddy Coconut shell based products Coconut wood based products Coconut leaves Coir pith

NAFED National agricultural co-operative marketing federation which was organized in 1958, represents the entire marketing structure at the national level. It was established with the objective of co-coordinating and promoting the marketing and trading activities of the members in agricultural and other commodities The main objectives are To make arrangement for the supply of agricultural requirements of its members. To promote interstate and international trade in agricultural and other commodities To render advice and technical guidance to its members.

The main aim of NAFED is to assist the marketing of cooperatives in the states to develop their marketing business. In order to achieve this NAFED adopts various strategies with a view to ensure better returns to the farmers. It undertakes price support operation, buffer stocking, export and important of commodities etc to balance production with consumption. When the government of India formulates policies for support price in respect of certain commodities it appoints NAFED as its agency for procurement. GLOBAL SCENARIO When we talk about industry we refer to a vast network of different enterprises making goods providing service for the community. Many large business houses are producing coconut oil in

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the world wide. More than 80% of 10 million hectares are under coconut cultivation in the world is in south and south East Asia. In showing the coconut wise area and production of coconut in different coconut growing countries of the world. It is noted Philippines is the leading followed by Indonesia and India. These countries account for 85% of the total are and production under coconut. Available information shows that India is the largest (3rd) coconut producing country in the world with an area of 1.2 million hectares, the producing of coconut oil in India places at around 6.9 millions. Bulks of production are Kerala followed by Karnataka, Tamilnadu and Andra Pradesh. Among the coconut growing states in the country Kerala, Karnataka, Tamilnadu and Andrapradesh together account for more than 90% of the total area. The Scio economic development of Kerala is much for 9.29% of other total income and 26.2% of the total agricultural income of the state. About the million people depend directly or indirectly on account cultivation and industry livelihood. During the year 1950-51 Kerala contributed 65% of Indias total national output has been declining fast in 1995-96 through Indias coconut production touched 136968 million, Kerala contributed only 40% of this total output. In Kerala there are many coconut oil extraction industries throughout the state. Edible oil sector has been one of those commodity sectors that have been pleading the government for protection from cheap imports. Every time the duty hike has been concurrent with excess production and drop in prices of palm oil in the international market thus making and high infective presently Malaysia Is the largest producer of (crude palm oil) in the world followed by Indonesia, while India is largest importer of edible oil. These two leading palm oil exporter have designed their export duty structure such that they could retain the India n market. As India has following duty structure for edible oil

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COMPANY PROFILE
Kerala Kerakarhaka Sahakarna federation LTD(KERAFED) was registered under the cooperatives societies Act in 1987, with assistance of European Economic Community, National cooperative development corporation and the government of kerala. KERAFED is the apex co-operative federation of coconut farmers in Kerala and is the largest producer of coconut oil in India. The federation started commercial production in 1993. The head office of KERAFEDS coconut oil complex at karunagapally in kollam district is one of he biggest such units in India with a capacity of 200 tons per day. Kerafed is the single largest procurer of coconut/copra produced in kerala. A massive daily effort undertaken at the door steps of the farmers and involving primary agricultural cooperative societies, spread all over the state this direct interaction eliminating middle men results in the entire benefits Being accrued to the farmers. And only the very best of the raw material thus source goes into the making of KERA. The primary objective of KERAFED is to organize coconut growers by bringing them under the co-operative umbrella and to provide them all supplies and services to augment their income base by increased productivity and view addition through the integrated system of publication achievement, storage, processing diversification and marketing of coconut oil and all / any products of coconut palm at a price remunerative growers and fair to consumers. Kera brand of coconut oil, produced by KERAFED from copra of the finest quality is directly procured from coconut growers in Kerala through 900 primary agricultural co-operative societies (PACS). An apex body of co-operative societies involved in integrated coconut production, procurement, processing and marketing KERAFED also owns the largest oil mill in the country. KERAFED own two oil processing plant at Karunagapally(kollam) and Nadavannur (Kozhikode). The oil complex at Kollam houses state of the art facilities for extraction as the largest coconut oil mill subcontinent with as installed capacity of 200 TPD. The facility at Kozhikode provides a production of 90 TPD, to sum up the total production to 8000 metric tons per annum.

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Objectives of KERAFED To reduce edible oil imports To provide an impulse effect on internal production of coconut To develop agricultural potential of Kerala state To strengthen the co-operative movement To secure the marketing of coconut and its by products, there by assuring economic prices to the growers To establish and manage infrastructure facilities for production and supply of inputs and processing, manufacturing and marketing of products by products of coconut palm. To undertake research and development activities on production processing and marketing. For effectively and effectively carting out the administrative and operational practices on a day to day basis, the state is divided into three region, the southern region the northern region and central region. The southern region consist of the revenue districts Thiruvanathapuram, Kollam, Pathanamthita and Alapuzha, the northern region cosists of Malappuram, Kozhikkode, Wayanad, Kannur and Kasargode districts and the central region consists of Kottayam, Idukki, Eranakulam, Thrissur, Palaghat districts.300 primary agricultural credit cooperatives societies in each region are members of the federation to undertake production, procurement, marketing activities at the farmers level for processing and product diversification each region will have one processing plant with a capacity 200 tones of copra per day. PRODUCT PROFILE Kerafed is the largest procurer of coconut/ copra produced in Kerala. A massive daily effort undertaken at the door steps of the farmers and involving primary agricultural co-operative societies, spread all over the state this direct interaction eliminating middleman result in the entire benefits being accrued to the farmers, and only the very best of the raw material thus sourced goes into the making of KERA.

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The products which are mainly produced in KERAFED are KERAOIL

The oil is packed in a number of tins cans and bottles 15kg tin 5kg can 1litre pet 1litre pouch 500 ml per bottle 500 ml pouch

KERA GOLD This oil is mainly exported in the foreign countries like dubai. This is specially processed

oil form selected cups of copra which has got below .5 FFA(Free Fatty Acid). This is the one factor why it is beeb exported.

KERA KESH This product is hair oil which is produced by mixing kera coconut oil with selected herbal

extracts out of these products kera oil is the only product that is been continuously produced, the customers demand for this product is also high.

KERA POPULAR AND AGMARK These are to important products of kerafed. Kera agmarks can be get in one litter packs and

kera-popular is available 500ml,5kg, 100ml pouches.


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COPRA CAUSE This is the cake from the oil extraction process. The sale of a cake is made when the stock

reaches at a particular level. The sale is made to a person who quotes highest price. This is sold in sacks bags.

COMPETITORS The main competitors of KERAFED are KPL SHUDHI, KLF NIRMAL,PARACHUTE, SHALIMAR, TATA products etc KPL shudhi:

KPL shudhi started in 1941 KPL oil mill has a rich tradition in the coconut oil production and marketing in the country. Always striving hard to maintain high quality standard in the industry, KPL products undergo strict, verification process before it reaches the end consumers KPLoil mill captured the coconut oil market with its long standing brand name KPL shudhi coconut oil and has ever since introduced innovative products in the market using state of art manufacturing facilities.

The company has introduced diverse products in the market like KPL shudhi, gingili oil, KPL coconut oil milk powder, KPL products have presence in diverse markets in the country like Kerala, Tamilnadu, Karnataka, Mumbai delhi and so on. KLF nirmal With a history of more than 60 years in the edible oil industry, nirmal is among the top selling brands of coconut oil in the country. Adhering to the highest quality parameters through processing to processing to packaging, nirmal is synonymous with whats pure, whole some and healthy in edible oils, with a state of the art extraction and packaging plant located at iringalikuda in thrissur district of kerala, nirmal produces hih grade coconut oil and sesame (gingelly) oil. Parachute Manufactured by Marico industries limited, Bombay has a good market share in the coconut oil business in India. The annual turnover of the company is high. In northern states sales is higher when compared to the southern states.

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Shalimar coconut oil Shalimar chemical works limited was incorporated in may17, 1945 as private one of the leading FMCG organizations in India having range of brands like Shalimars popular coconut oil etc. The organization has expanded its sales network all over India through its sales branches and developed a legend of its quality standard. Nihar Nihar was launched in 1950s as tata oil a prodiuct of the tata oil mills company ltd. Nihar coconut oil is a brand of pure coconut oil that has used the platform of purity to become the market leader in he eastern region. The brand is particularly strong in the states of bihar and Jharkhand. Nihar coconut oil speaks to young mothers whose lives revolve around their families. Aware and educated they take great pride in shouldering their family responsibilities and want to buy only the best for their family

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ORGANIZATION CHART
Managing Director Administrative officer

Project manager

Project manager

Production and instituitonal development

Processing plant

Project manager

Corporate planning and finance Finance

Plant manager

Extension

Processing plant Assistant manger

Project Accounting and costing

Procurement and instituitonal development Marketing Manager

Assistant manager

Office manager

Office manager

Case And consumer packs

Assistant

Attender

Sweeper

Factory workers

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LITERATURE REVIEW
1)

Farhan, Raza and Akram (2011) ranked the venture capital companies operating in Pakistan during the period of 2006-2009 on the base of their financial performance. Ratio analysis technique was used to rank the venture capital companies using profitability / efficiency ratios and total assets as proxies of financial performance. This study concludes that TRG Pakistan Limited is at first in ranking on the bases of return on assets (ROA), return on equity (ROE), and total assets, and at second on the base of earnings per share (EPS). AMZ Ventures Limited is at first on the base of earnings per share (EPS), at second in ranking on the bases of return on assets (ROA), return on equity (ROE), and total assets. TMT Ventures Limited is third on the bases of all ratios, and total assets. This is the first attempt that was made with an objective to facilitate the students, investors and management of company with useful information regarding financial performance of all venture capital companies operating in Pakistan.

2)

Sathe (2011) states that finance is life blood of business. The finance is most important function of the organization. Effective management of finance can do much more to the success of the business while its ineffective management will undoubtedly lead to ensure failure of the business. In the past few years the sugar industry has been facing several problems like mounting stocks, controls by the Government and underutilization of capacity. The financial Analysis of Sugar unit was done by using Ratio Analysis technique and analyzed previous five years financial statements from 2004-05 to 2008-09. It was observed that the particular unit needs to improve its liquidity position and should utilize its financial resources which is helpful for increasing the profitability of the sugar unit.

3)

Keown, Martin and Petty (2009) say that financial ratios are used to restate the accounting data in relative terms to identify some of the financial strengths and weaknesses of a company. The objective in using a ratio when analyzing financial information is simply to standardize the information being analyzed, so that the comparison can be made between ratios of different firms or possibly the same firm at different points in time.

4)

Ravichandran (2009) analysed the Financial Statement of Sundaram Clayton, Ltd. for analyzing the stability of the organization in terms of analyzing and computing the various ratio analysis from the balance sheet and profit and Loss Accounts of the organization for 5 consecutive years form 2002 to 2006 to predict the financial state of the organization. Its strength and weakness and its stages where it has to improve and giving

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the overall position of the organization for the management for decision making so that its resources are used most effectively and efficiently. This study not only help the management, it also gives a clear - view to the owners, share holders, creditors and investors.
5)

Sreevastava and Misra (2008) says that financial analysis are undertaken to interpret the position of an enterprise. Financial analysis includes the study of relationships within a set of financial statements at a point in time. Analysis of financial statement is a process of evaluating the relationship between component part of a financial statement to obtain a better understanding of a firms position and performance.

6)

Myer (2006) describes that financial Statement provide a summary of the accounts of a business enterprise, the balance sheet reflecting the assets and liabilities and the income statement showing the result of operations during a certain period. It emphasis the important of balance sheet and profit and loss account, but ignores the important of other Financial Statement like Cash flow Statement, Fund Flow Statement, and Statement of Retained Earning.

7)

Bolong Cao, (2006) states that financial statement analysis is one of the cornerstones of the modern financial analysis. The financial statements from firms provide the information upon the dynamic and innovative process of contemporary business practices by analyzing financial statements, investors, business partners, managers and government agencies can inter the efficiency and risk involved in the business of the firm. Which is extremely important in their decision making therefore understanding how to deduct useful information or detect accounting shenanigans from financial statements becomes indispensable in todays business world. Researchers in modern accounting, corporate finance and investment rely heavily on financial statement analysis techniques, proficiency in financial statement analysis is also essential in professional certificate like CPA or CFA exams.

8)

Jawahar lal (2002) described that financial statement analysis an analysis which highlights important relationship in the financial statements. It focuses on evaluation of past operation as revealed by the analysis of basis statements. Financial statement analysis embraces the methods used in assessing and interpreting the results of past performance and current financial position as they relate to the particulars factors of interest in investment decision.

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It is an important means of assessing past performance and in forecasting and planning future performance.
9)

Guthmann, (2002) The Statement of Profit and Loss is the condensed and classified record of gains and losses causing changes in the owners interest in the business for a period of time. Hence profit and loss account in the statement of revenues earned and expenses incurred during a particular period. It is prepared taking into consideration all expenses paid and payable and all incomes received and receivable during a particular period, generally a year. The excess of revenues earned over the expenditure incurred is termed as profit or earnings and excess of expenditure incurred over the revenues earned is termed as loss.

10)Ismael

D. Tabije, (2002) says that financial ratio analysis doesn't involve just comparing

different numbers from the balance sheet, income statement, and cash flow statement. It's comparing the numbers against previous years, other companies, the industry, or even the economy in general. It's an excellent method for determining the overall financial condition of a business. Ratios can also help you spot potential threats to company health to help you decide where to dive deeper into the analysis. Financial ratio analysis is well developed and the actual ratios are well known. Don't assume, however, that the conclusions based on the analysis are cut and dried. Accountants who spend a lot of time doing financial analysis develop their own measures for particular industries and even for individual companies. They often differ drastically in their conclusions from the same ratio analysis.
11)Coderre,

(2000) Ratio analysis identifies potential frauds by computing the variance in asset

of transactions of then calculating the ratios for selected numeric fields. Three commonly employed ratios are the ratio of the highest value to the lowest value , the ratio of the highest value to the next highest, and the ratio of one numeric field to another, such as the current year to the previous year or one operational area to another.
12)Metcall

and Tiford (2000) state that analysis of financial statement is a process of

evaluating the relation between component parts of a financial statement to obtain a better understanding of a firms position and performance.
13)Ramachandran

and Ramkumar (2000) say that a meaningful analysis of financial statement

involves aggregation and disaggregating of the information and comparison and relation of that information. Ratios reduce large figures to an easily undesirable relationship. Ratios do

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not make conclusions. Financial statement information can be used as an important tool for internal management.
14)Khan

and P K Jain, (2000) ratio analysis is a widely used tool of financial analysis. It is

defined as the systematic use of ratio to interpret financial statements so that the strengths and weaknesses of a firm, as well as its historical performance and current financial condition can be determined. Ratios are relative figures reflecting the relationship between related variables.
15)Brighain

(1999) explained that financial statement analysis is useful both to help anticipate

future conditions and more important as a starting point for planning action that will improve the firms future performance.
16)Maheshwari

(1996) states that accounting ratios are relationships expressed in

mathematical terms between figures which are connected with each other in some manner. Obviously, no purpose will be served by comparing two sets of figures which are not at all connected with each other. Moreover absolute figures are unit for comparison

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THEORETICAL FRAMEWORK
Finance: Managing a firms finance is both an art and science. It requires not only a feel for the situation and analytical steel but also a thorough knowledge of the techniques and tools of financial analysis and the knowledge to apply them and interpret the results Finance is defined as the administrative function in an organization which relate with the arrangement of cash and credit to the organization to carry out its objectives as satisfactory as possible. Every business enterprise whether large, medium and small size needs finance to carry out its operations and to achieve its targets. Finance is rightly said to be the life blood of an enterprise. The main activities essential to the successful administration of finance in any organization consist of financial planning and control, determinant of business success, Focal point of decision making, raising the needed fund, financial analysis and measure of performance. The future plan of any organization should be laid down in view of the organizations financial strength and weakness. Financial analysis is the starting point for making plans, before using any sophisticated forecasting and budgeting procedure. Analysis of past things should be of great value in improving the standards, techniques and procedures of financial control involved in the business activities. Financial management: Financial Management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. It was a branch of economics till 1890, and as a discipline, it is of recent origin. The three important managerial functions are Investment asset mix decision, Financing or capital mix decision, and Dividend or profit allocation decision. A firms success and even survival, depend on its ability and willingness to maintain production and investment in fixed or working capital are to a very considerable extend determined by its financial policies both past and present.

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Financial statement: A financial statement is an organized collection of data according to logical and consistent accounting procedures. Its purpose is to convey an understanding of some financial aspects of a business firm. It may show a position at a moment of time as in the case of a balance sheet, or may reveal a series of activities over a given period of time, as in the case of an income statement. The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions."Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities, equity, income and expenses are directly related to an organization's financial position. Financial statements are intended to be understandable by readers who have "a reasonable knowledge of business and economic activities and accounting and who are willing to study the information diligently." Financial statements may be used by users for different purposes:

Owners and managers require financial statements to make important business decisions that affect its continued operations. Financial analysis is then performed on these statements to provide management with a more detailed understanding of the figures. These statements are also used as part of management's annual report to the stockholders.

Employees also need these reports in making collective bargaining agreements (CBA) with the management, in the case of labor unions or for individuals in discussing their compensation, promotion and rankings.

Prospective investors make use of financial statements to assess the viability of investing in a business. Financial analyses are often used by investors and are prepared by professionals (financial analysts), thus providing them with the basis for making investment decisions.

Financial institutions (banks and other lending companies) use them to decide whether to grant a company with fresh working capital or extend debt securities (such as a longterm bank loan or debentures) to finance expansion and other significant expenditures.

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Government entities (tax authorities) need financial statements to ascertain the propriety and accuracy of taxes and other duties declared and paid by a company.

Vendors who extend credit to a business require financial statements to assess the creditworthiness of the business.

Media and the general public are also interested in financial statements for a variety of reasons. The main financial statements are;

i) Balancesheet. It is a statement showing to all the assets owned by the firms and represents all the liabilities including the equities of owners and outsiders at a particular time. ii) Profit and loss account. It shows the summary of operations of a firm in a given period providing details of revenue, cost, and profit. Financial analysis: It is the process of identifying the financial strength and weakness of a firm from the available accounting data and financial statement. The analysis is done by properly establishing the relationship between the items of balance sheet and profit and loss account.The first task of financial analyst is to determine the information relevant to the decision under consideration from the total information contained in the financial statement. The second step is to arrange information in a way to highlight significant relationship. The final step is interpretation and drawing of inferences and conclusion. Thus financial analysis is the process of selection relating and evaluation of the accounting data/information. Objectives of financial analysis: The following are the main objectives of the analysis of financial statements. To estimate the earning capacity of the firm To gauge the financial position and financial performance of the firm. To determine the long-term liquidity of the funds. To Judge the solvency of the firm. To determine the debt capacity of the firm.
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To decide about the future prospects of the firm. To know the progress of the firm To measure the efficiency of operations.

Use of financial analysis: Following are the uses of financial Analysis, Security Analysis: dividend pay-out policy and behaviour a share can be assessed with the help of financial analysis, Credit Analysis: Financial Analysis helps a firm which is extending credit to a

prospective customer to know the risk associate with extending the credit. Debt Analysis: This to check the borrowing capacity of a firm, which can be done through the analysis of Debt-equity Dividend Deacons: Analysis of financial statement may provide as insight to the shareholders regarding the future trend in dividend payment by the company. Mergers & Acquisitions: A company generating surplus cash flows in relation to its competitors may be tempted to expand the business by acquitting other companies and make profitable investment. General Business Analysis: General businesses Indicators assess the future potential of the company. They help in identifying the key factors which will influence the

profitability of the company. Regulatory compliance: Regulators consists of registrars of companies, department of company affairs, stock exchanges, SEBI analyses these to ensure compliance with the prevailing rules and regulation. Limitations of financial analysis Suffering from the limitation of financial statements: financial statements are prepared according to certain conventions at a point of time, whereas the investor its concerned with the present and future of the company. Ignoring price level changes: The results shown by financial statements may be

misleading if price level changes have not been accounted for. Ignoring qualitative aspect: Financial analysis does not measure the qualitative aspects of the firm eg: Skill, technical know-how etc

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Variation in accounting policies and procedures: Due to diversity of accounting practices found in practice, comparative financial statement analysis may be vitiated. Mis-leading results in the absence of absolute data: results shown by financial analysis may be misleading in the absence of absolute data. Financial statements are affected by the personal ability and bias of analysis: The

financial statement are often analysed and interpreted by shrewd analysts who may have their own views reflected in the analysis. METHODS OR DEVICES OF FINANCIAL ANALYSIS The analysis and interpretation of financial statements is used to determine the financial position and results of operations as well. A number of methods or devices are used to study the relationship between different statements. An effort is made to use those devices which clearly analyse the position of the position of the enterprise. The following methods of analysis are generally used: Ratio analysis Comparative Balance sheet Correlation Analysis Regression Analysis

RATIO ANALYSIS
Ratio analysis is one of the most important financial tools which has come to be used very frequently for analyzing the financial strength and weaknesses of the enterprise. Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. Ratio may be expressed in either of three ways. It may be a quotient obtained by dividing one value by the other. This unit of expression is called as times. If the quotient is multiplied by one hundred, the unit of expression becomes percentage. It may also be stated in terms of proportion between the two figures. Thus times, percentage and proportion are the three forms of expressing ratio.

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ADVANTAGES OF RATIO ANALYSIS It makes it easy to grasp the relationship between various items and helps in understanding the financial statements. Inter firm comparisons can be made with the help of ratios, which may help management in evolving future market strategies. It throws light on the degree of efficiency of the management and utilization of the assets and that is why it is called surveyor of efficiency. They help management in decision making. A. LIQUIDITY RATIO 1. Current ratio Current Ratio is the most common ratio for measuring liquidity. It represents the ratio of current assets to current liabilities. It is also called Working Capital Ratio, is a measure of general liquidity and is most widely used to make the analysis of a short term financial position or liquidity of a firm. It is calculated by dividing the total of current assets by current liabilities. Current Ratio = Current Assets/Current Liabilities

Significance The current ratio of firm measures its short term solvency, i.e., its ability to meet short term obligations. In a sound business a current ratio of 2:1 is considered an ideal one. It provides a margin of safety to the creditors. It is an index of the firms financial stability. The current ratio must not only be equal to current liabilities but should leave a comfortable margin of working capital after paying of the current liabilities. A high ratio indicates sound solvency position and a low ratio indicates inadequate working capital. 2. Quick ratio This ratio is also known as Acid Test or Liquid Ratio, is a more rigorous test of liquidity than the current ratio. The term liquidity refers to the ability of a firm to pay its short term obligations and when they become due. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be
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liquid if it can be converted into cash within a short period without loss of value. The quick ratio can be calculated by dividing the total of the quick assets by current liabilities. Quick Ratio = Quick or Liquid Assets/Current Liabilities Significance An Acid Test Ratio of 1:1 is considered satisfactory as a firm can easily meet all its current liabilities. If the ratio is less than 1:1, then the financial position of the concern shall be deemed to be unsound. On the other hand, if the ratio is more than 1:1, then the financial position of the concern is sound and good. Quick ratio is the true test of business solvency. A higher ratio indicates sound financial position and vice-versa. 3. Absolute liquid ratio This ratio is obtained by dividing cash and marketable securities by current liabilities. It is also known as cash position ratio. Some authorities are of the opinion that the absolute liquid liquid ratio should also be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets. Absolute Liquid Ratio = Absolute Liquid Assets/ Current Liabilities Significance The acceptable norm for this ratio is 50% or 0.5:1 or 2 i.e. Re. 1 worth absolute liquid assets are considered adequate to pay Rs. 2 worth current liabilities in time as all the creditors are not expected to demand cash at the same time and then cash may also be realized from debtors and inventories. B. LEVERAE RATIO 1. Debt-Equity Ratio The relationship between borrowed funds and owners capital is a popular measure of the long term financial solvency of a firm. Thos relationship is shown by the debt-equity ratio. This ratio indicates the relative proport5ion of debt and equity in financing the assets of a firm. This ratio is computed by dividing the total debt of the firm by its net worth. Debt-Equity Ratio = Debt/Equity

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Significance An acceptable norm for this ratio is considered to be 2:1. A high ratio shows that the claims of creditors are greater than those of owners. A very high ratio is unfavorable from the point of view of the firm. A high debt company(high geared or leveraged) is able to borrow funds on very restrictive term and conditions. A low debt-equity ratio implies a greater claim of owners than creditors. From the point of view of creditors, it represents a satisfactory capital structure of the business. 2. Proprietary Ratio A variant to the debt-equity ratio is the proprietary ratio which is also known as Equity Ratio or Shareholders to Total Equities Ratio or Net Worth or Total Assets Ratio. This ratio establishes the relationship between shareholders funds to total assets of the firm. The ratio of proprietors funds to total funds is an important ratio for determining long term solvency of a firm. The components of this ratio are Shareholders Funds or Proprietors Funds and Total Assets. Proprietary Ratio = Shareholders Funds/Total Assets Significance This ratio shows the financial strength of the company. It helps the creditors to find out the proportion of shareholders fund in the total assets. Higher ratio indicates a secured position to creditors and a low ratio indicates greater risk to creditors. It indicates the long term solvency of the firm. 3. Fixed Assets to Net worth Ratio This ratio shows the relationship between fixed assets and shareholders fund. The purpose of this ratio is to find out the percentage of the owners fund invested in fixed assets. Fixed Assets to Net Worth = Fixed Assets/Shareholders Fund Significance If the ratio is greater than one, it means that creditors funds have been used to acquire a part of the fixed assets. If the ratio is less than 100%, it implies that owners funds are more than total fixed assets and a part of the working capital is provided by the shareholders. When
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the ratio is more than 100%, it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. C. PROFITABILITY RATIO 1. Gross profit ratio The gross profit ratio plays an important role in two management areas. In the area of financial management, the ratio serves as a valuable indicator of the firms ability to utilize effectively outside sources of fund. Gross profit ratio=Gross profit/Net Sales*100 2. Net profit ratio The ratio is also calleda s the net profit to sales or net profit margin ratio. It determined by dividing the net income after tax to the net sales for the period and measures the profit per rupee of sales. Net profit ratio=Net profit/sales*100 D. ACTIVITY RATIO These ratios are also called as Turnover Ratios. This ratio highlights upon the activity and operational efficiency of the business concern. Activity ratios measure how efficient the assets are employed by the firm. This ratio indicates the speed with which assets are converted into sales. These ratios are also called efficiency ratios. i. Total Asset Turnover Ratio A firm ability to produce a large volume of sales for a given amount of net assets is the most important aspect of its operating performance. It shows the firm operating efficiency. This ratio shows the firms ability in generating sales from all financial resources committed to assets.

Total Asset Turn Over Ratio =

Net Sales Net Total Assets

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ii. Fixed Asset Turnover Ratio It measures the capacity of utilization and the quantity of fixed assets. This ratio expresses the number of times fixed assets are being turned over. This ratio shows the relationship between sales and fixed assets. Thus ratio shows how the fixed asset will are being used in the business. Higher the ratio, indicate the better performance. Fixed Asset Turnover Ratio = Net Sales Fixed Asset iii. Inventory Turnover Ratio Inventory turnover ratio shows how rapidly the inventory is turning into receivables through sales. Inventory ratio expresses the relationship between sales and inventory. It denotes the efficiency in inventory management. Inventory Turnover Ratio = Sales Inventory iv. Debtors Turnover Ratio Debtors turnover ratio indicates the number of times debtors turnover each year. This ratio the measure of the accounts receivables and tells about the efficiency of the credit policy of the company. Higher the ratio indicates, more efficient in the management of credit. Debtors Turnover Ratio = Net Sales Sundry Debtors v. Average Collection Period Average collection period indicates how fast the debtors of the firm are get collected. Shorter the average collection period, better will be the quality of the debtors.

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Average Collection Period =

Sundry debtors Sales

x 360

vi.

Working capital turnover ratio This ratio provides information about how effeciently the working capital is rotated in the business within a period of one year.The higher the ratio,the greater would be the operational effeciency of the business on utilising the short-term funds.

Working Capital Turnover =

Net Sales Working Capital

vii.

Inventory holding period The number of days inventory is also known as average inventory period and inventory holding period. A high number of days inventory indicates that their is a lack of demand for the product being sold.A low days inventory ratio (inventory holding period) may indicate that the company is not keeping enough stock on hand to meet demands. Inventory holding period is calculated as follows: Inventory holding period = Inventory / Sales x 365

COMPARATIVE BALANCE SHEET


Comparative balance sheet as on two or more different dates can be used for assets and liabilities and we can find there is an increase or decrease in those items. Thus, it is very useful in studying the trends in an enterprise. It is helpful to know 1. Current financial position and liquidity position 2. Long term financial position 3. Profitability of the concern

CORRELATION CO-EFFICIENT
The coefficient of correlation measures the degree of relationship between two casually related variables. The value of this coefficient can never be more than +1 or less than -1.Thus +1 and -1 are the limits of this coefficient. For a unit change in independent variable, if there happens to be a constant change in the dependent variable in the same direction, then the value of the coefficient will be +1, indicating the perfect positive correlation. But if such a change occurs
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in the opposite direction, the value the value of coefficient will be -1, indicating the perfect negative correlation. But if such a change occurs in the opposite direction, the value of the coefficient will be -1, indicating the perfect negative correlation. If the coefficient of correlation has a zero value then it means that there exists no correlation between the variable under study.

REGRESSION ANALYSIS
Regression analysis means the estimation or prediction of the unknown value of one variable from the known value of the other variable. It is one of the very important statistical tools which are extensively used in almost all sciences natural, social and physical. It is specially used in business and economics to study the relationship cost functions, production and consumption function, etc. this can be used for prediction or estimation of future production, price, sales, income, profits etc which are of great importance to a business.

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DATA ANALYSIS AND INTERPRETATION RATIO ANALYSIS


Ratio analysis helps to analysis and understands the financial health and trend of a business. Past performance and future projection could be reviewed through the ratio analysis easily.

A. LIQUIDITY RATIO 1. CURRENT RATIO


Current Ratio is the most common ratio for measuring liquidity. It represents the ratio of current assets to current liabilities.It is calculated by dividing the total of current assets by current liabilities. Current Ratio = Current Assets/Current Liabilities

Table 1 Current Ratio


Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Current Assets 582391840.2 604450049.7 664216747.7 733935193.9 866528081.9 Current Liabilities 331308348.1 366716639.3 388033106.7 413891972.4 491713872.5

Current Ratio
1.76 1.64 1.71 1.77 1.76

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Chart 1

Current Ratio
1.8

1.75

1.7 Ratio 1.65

1.6

1.55 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

INTERPRETATION: Current Ratio of the Kerafed shows a fluctuating trend. The standard norm of current ratio of the firm is 2:1. In the year 2005-2006,the ratio was 1.76 and then it came down to 1.64 in the year 2006-2007 and later again increased to 1.71 in 2007-2008 and 1.77 in 2008-2009. Finally in the year 2009-2010 ratio is slightly changed to 1.76 .But from the chart we can understand that the company has not been able to achieve that ,hence it is unsatisfactory.

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2. QUICK RATIO
This ratio is also known as Acid Test or Liquid Ratio, is a more rigorous test of liquidity than the current ratio. The term liquidity refers to the ability of a firm to pay its short term obligations and when they become due. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities.The quick ratio can be calculated by dividing the total of the quick assets by current liabilities. Quick Ratio = Quick or Liquid Assets/Current Liabilities

Table 2 Quick Ratio


Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Quick Assets 408003972.4 414879021.9 479319040.9 522199218.9 684385458.6 Current Liabilities 331308348.1 366716639.3 388033106.7 413891972.4 491713872.5 Quick Ratio 1.23 1.13 1.23 1.26 1.39

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Chart 2

Quick Ratio
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Quick Ratio

INTERPRETATION: Quick Ratio of 1:1 is considered to represent a satisfactory current financial condition. The quick ratio of Kerafed shows a satisfactory level as it is more than standard level and in the current year it is approximately equal to one. From this, it can be understood that the company has liquid asset sufficient to provide a cover to current liability and Kerafed can meet all its current liability easily.

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3. ABSOLUTE LIQUID RATIO


This ratio is obtained by dividing cash and marketable securities by current liabilities. It is also known as cash position ratio. Some authorities are of the opinion that the absolute liquid liquid ratio should also be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets. Absolute Liquid Ratio = Absolute Liquid Assets/ Current Liabilities

Table 3 Absolute Liquid Ratio


Year Liquid Assets Current Liabilities

Absolute Liquid Ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

352061720.97 366985760.77 428579450.95 460439196.01 547161990.04

331308348.1 366716639.3 388033106.7 413891972.4 491713872.5

1.06 1.0007 1.10 1.11 1.112

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Chart 3

Absolute Liquid Ratio


1.14 1.12 1.1 1.08 1.06 1.04 1.02 1 0.98 0.96 0.94 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Absolute Liquid Ratio

INTERPRETATION: Absolute liquid ratio is 1.06 in 2005-2006, 1.0007 in 2006-2007, 1.10 in 2007-2008, 1.11 in 2008-2009 and 1.112 in 2009-2010 respectively. Kerafed shows its cash position is not normal.

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B. PROFITABILITY RATIO 1. GROSS PROFIT RATIO


The gross profit ratioplays an important role in two management areas. In the area of financial management, the ratio serves as a valuable indicator of the firms ability to utilize effectively outside sources of fund. Gross profit ratio=Gross profit/Net Sales*100

Table 4 Gross profit ratio


Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Gross Profit 13000795.54 26677628.51 55040975.37 63766911.49 63971812.15 Net Sales 430665072.65 479040440.44 645304879.12 800548594 1814893244.18

Gross profit ratio


3.01 5.56 8.52 7.96 3.52

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Chart 4

Gross profit ratio


9 8 7 6 5 4 3 2 1 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Gross profit ratio

INTERPRETATION: Ratio of Gross profit is 3.01in 2005-2006, 5.56 in 2006-2007, 8.52 in 2007-2008, 7.96 in
2008-2009 and 3.52 in 2009-2010 respectively. In the year 2007-2008 the gross profit ratio of the

organization is favourable. But in 2009-2010 the gross profit ratio is unfavourable. In the year
2008-2009 it shows a declining trend. It affects the whole performance of the company. So the

company has to improve net sales by providing better customer sales.

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2. NET PROFIT RATIO


The ratio is also called as the net profit to sales or net profit margin rtio.It determined by dividing the net income after tax to the net sales for the period and measures the profit per rupee of sales. Net profit ratio=Net profit/sales*100

Table 5 Net profit ratio


Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Net Profit -426299419.28 -424285803.65 -388664930.54 -339828637.45 -298888054.98 Net Sales 430665072.65 479040440.44 645304879.12 800548594 1814893244.18

Net profit ratio


-98.98 -88.56 -60.22 -42.44 -16.46

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Chart 5

Net profit ratio


0 2005-2006 -20 -40 -60 -80 -100 -120 Net profit ratio 2006-2007 2007-2008 2008-2009 2009-2010

INTERPRETATION: This ratio is used to measure the overall profitability and hence it is very useful to proprietors. It is an index of efficiency and profitability of the business.Ratio of Net profit is 98.98in 2006, -88.56in 2007, -60.22in 2008, -42.44 in 2009 and -16.46 in 2010 respectively.

From the year 2006-2010 the company shows a negative trend in the case of net profit ratio. It is unfavourable. This negative trend of the net profit ratio will affect the survival of the company.

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3. OPERATING RATIO
This ratio is complementary of net profit ratio. The operating expenses include overheads and direct cost. This ratio is the test of the operational efficiency with which the business is being carried. The operating ratio should be low enough to leave a portion of sales to give a fair return, to the investors. A comparison of the operating ratio will indicate whether the cost component is high or low in the figure of sales. In case the comparison shows that there is increase should be found out and management be advice to check the increase. The expenses ratio is, therefore very important for analyzing the profitability of a firm.

Operating Ratio = (Cost of Goods Sold +Operating expenses)/Net Sales*100

Table 6 Operating Ratio


Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Operating cost
50858512.5 62592591.45 70418144.67 88949167.21 107990214.7

Net Sales 430665072.65 479040440.44 645304879.12 800548594 1814893244.18

Operating Ratio
11.80 13.06 10.91 11.11 5.95

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Chart 6

Operating Ratio
14 12 10 8 6 4 2 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Operating Ratio

INTERPRETATION: The implication of high expenses ratio as shown here is less than one, shows that a relatively standard level . The amount of interest for loan is very high in the company. Management should keep to maintain operating ratio below 1.

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C. LEVERAGE RATIO 1. DEBT EQUITY RATIO


The relationship between borrowed funds and owners capital is a popular measure of the long term financial solvency of a firm. Thos relationship is shown by the debt-equity ratio. This ratio indicates the relative proportion of debt and equity in financing the assets of a firm. This ratio is computed by dividing the total debt of the firm by its net worth. Debt equity ratio = Debt/Equity

Table 7 Debt equity ratio Year


2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Debt 590106148.1 625514439.3 646830906.7 672689772.4 750511672.5

Equity 306081251.7 306758674.7 311491520.7 309493062.7 309493062,7

Debt equity ratio 1.92 2.03 2.07 2.17 2.42

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Chart 7

Debt equity ratio


3 2.5 2 1.5 1 0.5 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Debt equity ratio

INTERPRETATION: A debt equity ratio of 2:1 may be usually considered as satisfactory ratio. The ratio in the year 2006-2007, 2007-2008, 2008-2009 and 2009-2010 is comparatively high. A high ratio indicates that the claims of creditors are greater than those of owners. A low debt equity ratio implies a greater claim of owners than creditors.

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2. PROPRIETARY RATIO
A variant to the debt-equity ratio is the proprietary ratio which is also known as Equity Ratio or Shareholders to Total Equities Ratio or Net Worth or Total Assets Ratio. This ratio establishes the relationship between shareholders funds to total assets of the firm. This ratio shows the financial strength of the company. It helps the creditors to find out the proportion of shareholders fund in the total assets. Higher ratio indicates a secured position to creditors and a low ratio indicates greater risk to creditors Proprietary ratio = Shareholders Fund/Total Assets

Table 8 Proprietary ratio


Year Equity

Total Assets

Proprietary ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

306081251.7 306758674.7 311491520.7 309493062.7 309493062,7

870341727 905004361 971531677 1049568195 1187338382

0.35 0.33 0.32 0.29 0.26

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Chart 8

Proprietary ratio
0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Proprietary ratio

INTERPRETATION: The proprietary ratio of Kerafed has decreased drastically over the period from 2005 06 to 2009 10. A higher ratio indicates a secured position to the creditors of the company and low ratio indicates that the creditors will have no guarantee for their money.

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3. FIXED ASSETS TO NET WORTH RATIO


This ratio shows the relationship between fixed assets and shareholders fund. The purpose of this ratio is to find out the percentage of the owners fund invested in fixed assets If the ratio is greater than one, it means that creditors funds have been used to acquire a part of the fixed assets. If the ratio is less than 100%, it implies that owners funds are more than total fixed assets and a part of the working capital is provided by the shareholders. When the ratio is more than 100%, it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. Fixed asset to net worth ratio = Fixed assets/Shareholders Fund

Table 9 Fixed asset to net worth ratio Year Fixed assets Shareholders Fund
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Fixed asset to net worth ratio 0.95 0.99 0.99 1.03 1.04

291385306.1 303989731.1 310750348.6 319068420.1 324245719

306081251.7 306758674.7 311491520.7 309493062.7 309493062.7

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Chart 9

Fixed asset to net worth ratio


1.06 1.04 1.02 1 0.98 0.96 0.94 0.92 0.9 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Fixed asset to net worth ratio

INTERPRETATION: The fixed assets ratio help in asserting the long-term solvency of a firm which depends basically on whether the firm has adequate resources to meet its long term funds requirement. The fixed assets ratio explains the firm has raised adequate long-tem funds to meet its fixed assets requirements. The ratio should not be more than 1. If it is less than 1, it shows that a part of the working capital has been financed through long-term funds. During the period of study the ratio was increasing year after year, it is unfavorable to the organization.

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D. WORKING CAPITAL RATIO 1. FIXED ASSET TURNOVER RATIO


This ratio expresses the number of times fixed assets are being turned over. This ratio shows the relationship between sales and fixed assets. Thus ratio shows how will the fixed asset are being used in the business. It measures the capacity of utilization and the quantity of fixed assets Higher the ratio , indicate the better performance. Fixed Asset Turnover Ratio = Sales / fixed asset

Table 10 Fixed Asset Turnover Ratio Year


Sales

Fixed assets

Fixed Asset Turnover Ratio

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

430665072.65 479040440.44 645304879.12 800548594 1814893244.18

291385306.1 303989731.1 310750348.6 319068420.1 324245719

1.47 1.57 2.07 2.50 5.5

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Chart 10

Fixed Asset Turnover Ratio


6 5 4 3 2 1 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Fixed Asset Turnover Ratio

INTERPRETATION: The effective utilization of fixed assets shows a higher ratio in the year 2010. The ratio is 5.5 which is highest in the study period of time and the least is in the 2006 which is 1.47. Higher the ratio indicates the better performance of the company.

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2. WORKING CAPITAL TURNOVER RATIO


This ratio reflects the turnover of the firms net working capital in the course of the year. A measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales. This ratio is calculated by dividing net annual sales by net working capital. Working capital Turnover Ratio = Sales / Net Working Capital

Table 11 Working capital Turnover Ratio Year


Sales

Net Working Capital

Working capital Turnover Ratio 1.71 2.01 2.33 2.50 4.84

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

430665072.65 479040440.44 645304879.12 800548594 1814893244.18

251083492.1 237733410.4 276183641 320043221.5 374814209.4

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Chart 11

Working capital Turnover Ratio


6 5

Working capital Turnover Ratio

0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

INTERPRETATION: The highest net working capital is favorable for the companys liquidity position. During the year 2006 working capital ratio is 1.71. In the next year 2007 it was increased to 2.01, in 2008 it also increased to 2.33, in 2009 it was increased to 2.50 and in 2010 it was increased to 4.84 respectively. The highest working capital ratio 4.84 in 2010 and lowest working capital ratio is 1.71 in 2006.

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3. INVENTORY TURNOVER RATIO


A ratio showing how many times a company's inventory is sold and replaced over a period. The inventory turnover ratio measures the number of times a company sells its inventory during the year. A high inventory turnover ratio indicated that the product is selling well. The inventory turnover ratio should be done by inventory categories or by individual product. Inventory turnover ratio is one of the Accounting Liquidity ratios. Its purpose is to measure the liquidity of the inventory. A popular variant of the Inventory turnover ratio is to convert it into average days to sell the inventory in terms of days It is the ratio of cost of goods sold to average stock. Inventory Turnover Ratio = Net sales/ Average stock

Average stock

Opening stock + closing stock 2 Table 12 Inventory Turnover Ratio

Year

Net Sales

Average stock

Inventory Turnover Ratio 7.76 7.23 10.45 11.36 26.71

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

430665072.65 479040440.44 645304879.12 800548594 1814893244.18

55493579.81 66208454.24 61693674.04 70424272.54 67930307.64

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Chart 13

Inventory Turnover Ratio


30 25 20 15 10 5 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Inventory Turnover Ratio

INTERPRETATION: A high inventory turnover implies a good inventory management. Inventory ratio expresses the relationship between sales and inventory. It denotes the efficiency in inventory management. A too high inventory turnover may be the result of a very low inventory because of the frequent stock outs. But Kerafed inventory turnover seems to be good.

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4. TOTAL ASSSET TURNOVER RATIO


A firms ability to produce a large volume of sales for a given amount of net assets is the most important of its operating performance. It shows the firms operating efficiency. This ratio shows the firms ability in generating sales from all financial resources committed to total assets. Asset turnover ratios indicate of how efficiently the firm utilizes its assets. They sometimes are referred to as efficiency ratios, asset utilization ratios, or asset management ratios..

Total asset turnover ratio =

Net sales Net total assets

Table 13 Total asset turnover ratio Year


2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Net Sales

Net total assets


870341727 905004361 971531677 1049568195 1187338382

Total asset turnover ratio 0.49 0.52 0.66 0.76 1.52

430665072.65 479040440.44 645304879.12 800548594 1814893244.18

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Chart 13

Total asset turnover ratio


1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Total asset turnover ratio

INTERPRETATION: This ratio implies the firms ability in generating sales from all financial resources committed to total assets. The highest total asset turnover ratio is shown in the year 2009-2010 and the lowest in the year 2005-2006.

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5. DEBTORS TURNOVER RATIO


Debtors turnover ratio indicates the number of times debtors turnover each year. It tells about the efficiency of the credit policy of the company. Higher the ratio indicates, more efficient in the management of credit. Debtors turnover ratio expresses the relationship between sales and debtors. It reflects the efficiency with which the debtors are turned over into cash. It refers to how fast the collection from customers is made. Debtors Turnover Ratio = Sales Sundry Debtors

Table 14 Debtors Turnover Ratio Year


Sales

Sundry Debtors

Debtors Turnover Ratio 7.69 10.002 12.71 12.96 13.22

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

430665072.65 479040440.44 645304879.12 800548594 1814893244.18

55942251.46 47893261.17 50739590.02 61760022.85 137223468.64

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Chart 14

Debtors Turnover Ratio


14 12 10 8 6 4 2 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Debtors Turnover Ratio

INTERPRETATION: It also measures the liquidity of the company. Higher the ratio lowers the average debtors to the credit sales.The debtors turnover ratio is varying over the study period. It is found from debtors ratio that the turnover from debtors shows fluctuations in each year. In the year 2009-2010, debtors turnover ratio has been increased to 13.22 from 7.69 during the year 2005-2006, due to decrease in debtors.

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6.

INVENTORY HOLDING PERIOD


Inventory holding period denotes life of inventory. It shares an inverse relationship

with inventory turnover ratio. For a firm, low inventory holding period is good because only a low inventory period shows the lesser time by which the product retain as an inventory. Inventory Holding Period = Inventory Sales x 360

Table 15 Inventory Holding Period Year Inventory


Sales

Inventory Holding Period 50.37 55.60 28.51 41.23 9.13

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

59437254.41 72979654.07 50407694.01 90440851.06 45419764.22

430665072.65 479040440.44 645304879.12 800548594 1814893244.18

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Chart 15

Inventory Holding Period


60 50 40 30 20 10 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Inventory Holding Period

INTERPRETATION: Inventory holding period denotes the idle time of inventory. Inventory holding period and inventory turnover ratio has an inverse relationship. A low inventory holding period indicates better utilization of inventory. A high inventory holding period indicates the inefficiency in inventory management.

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7. AVERAGE COLLECTION PERIOD


Average collection period indicates how fast the debtors of the firm are got collected. Shorter the average collection period, better will be the quality of the debtors. Average Collection Period = Sundry debtors Sales Table 16 Average Collection Period Year Sundry Debtors
Sales

x 360

Average Collection Period 47.41 36.49 28.69 28.15 27.59

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

55942251.46 47893261.17 50739590.02 61760022.85 137223468.64

430665072.65 479040440.44 645304879.12 800548594 1814893244.18

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Chart 16

Average Collection Period


50 45 40 35 30 25 20 15 10 5 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Average Collection Period

INTERPRETATION: The Debtors turnover ratio and average collection period is having inverse relationship. Higher the turnover ratio, lower will be the average collection period. Shorter collection period indicates prompt payment by the debtors. Kerafed has done a good work in the reduction of collection period..

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COMPARATIVE BALANCE SHEET OF KERAFED YEAR ENDED MARCH 2006 & 2007
PARTICULARS 2006 2007 INCREASE/DECREASE CHANGE IN %

Current Assets

582391840.2

604450049.7

22058209.5

3.78%

Fixed assets

291385306.1

308874389.6

17489083.5

6.002%

Total Assets

873777146.3

913324438.6

39547293

4.52%

Share Capital

287850000

287810000

-40000

-0.01%

Borrowings

258797800

258797800

Reserves & Surplus

25913805.5

35713705

9799899.5

37.81%

Current Liabilities

301215540.80

331002934.3

29787393.5

9.88%

Total Liabilities

873777146.3

913324438.6

39547293

4.52%

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COMPARATIVE BALANCE SHEET OF KERAFED YEAR ENDED MARCH 2007 & 2008
PARTICULARS 2007 2008 INCREASE/DECREASE CHANGE IN %

Current Assets

604450049.7

664216747.7

59766698

9.88%

Fixed assets

308874389.6

310750348.6

1875959

0.60%

Total Assets

913324438.6

974967096.3

61642657.7

6.74%

Share Capital

287810000

287820000

10000

3.47%

Borrowings

258797800

258797800

Reserves & Surplus

35713705

40316189.6

4602484.6

12.88%

Current Liabilities

331002934.3

388033106.7

57030172.4

17.22%

Total Liabilities

913324438.6

974967096.3

61642657.7

6.74%

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COMPARATIVE BALANCE SHEET OF KERAFED YEAR ENDED MARCH 2008 & 2009
PARTICULARS 2008 2009 INCREASE/DECREASE CHANGE IN %

Current Assets

664216747.7

733935193.9

69718446.2

10.49%

Fixed assets

310750348.6

319068420.1

8318071.5

2.67%

Total Assets

974967096.3

1053003614

78036517.7

8.004%

Share Capital

287820000

287820000

Borrowings

258797800

258797800

Reserves & Surplus

40316189.6

92493841.6

52177652

12.92%

Current Liabilities

388033106.7

413891972.4

25858865.7

6.66%

Total Liabilities

974967096.3

1053003614

78036517.7

8.004%

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COMPARATIVE BALANCE SHEET OF KERAFED YEAR ENDED MARCH 2009 & 2010

PARTICULARS

2009

2010

INCREASE/DECREASE

CHANGE IN %

Current Assets

733935193.9

866528081.9

132592888

18.06%

Fixed assets

319068420.1

324245719

5177298.9

1.62%

Total Assets

1053003614

1190773801

13770186.9

13.08%

Share Capital

287820000

287820000

Borrowings

258797800

258797800

Reserves & Surplus

92493841.6

152442128.5

59948286.9

64.81%

Current Liabilities

413891972.4

491713872.5

77821900.1

18.80%

Total Liabilities

1053003614

1190773801

13770186.9

13.08%

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CORRELATION CO-EFFICIENT The coefficient of correlation measures the degree of relationship between two casually related variables. The value of this coefficient can never be more than +1 or less than -1.Thus +1 and -1 are the limits of this coefficient. For a unit change in independent variable, if there happens to be a constant change in the dependent variable in the same direction, then the value of the coefficient will be +1, indicating the perfect positive correlation. But if such a change occurs in the opposite direction, the value the value of coefficient will be -1, indicating the perfect negative correlation. But if such a change occurs in the opposite direction, the value of the coefficient will be -1, indicating the perfect negative correlation. If the coefficient of correlation has a zero value then it means that there exists no correlation between the variable under study.

Formula used in Correlation co-efficient is as follows; N (xy ) - [( x)(y )] r= Nx2- (x) 2 * Ny2- (y) 2

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Coefficient of correlation through Karl Pearsons coefficient of correlation between Income and Profit

Year

Sales (X) (In crores)

Net profit (Y) (In crores)

x2 1855.02 2294.41 4164.12 6408 32934.99

y2 1816.46 1799.45 1510.87 1155.32 893.41

xy -1835.64 -2031.91 -2508.28 -2720.89 -5424.43

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

43.07 47.90 64.53 80.06 181.49

-42.62 -42.42 -38.87 -33.99 -29.89

x = 417.03 y = -187.79

x2= 47656.54 y2=7175.51

xy = -14521.15

N (xy ) - (x)(y ) r= N x2- (x) 2 x N y2- (y) 2

= = 0.909

5 x (-14521.15) - (417.03 x -187.79)

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Interpretation At Kerafed the coefficient of correlation is positive (0.909). When Net income increases, net profit also increases and vice versa.. Here the two variables are changing in the inverse direction.

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REGRESSION ANALYSIS Regression analysis means the estimation or prediction of the unknown value of one variable from the known value of the other variable. It is one of the very important statistical tools which are extensively used in almost all sciences natural, social and physical. It is specially used in business and economics to study the relationship cost functions, production and consumption function, etc. this can be used for prediction or estimation of future production, price, sales, income, profits etc which are of great importance to a business.

Formula used in Regression analysis is as follows;

To estimate the value of

for a given value of , we use the regression equation of is:

on

The equation of regression line of X Where,

(1)
Or

(2)

Regression equation of Y on X is:

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Or

(2)

CALCULATION OF REGRESSION

Year

Sales (X) (In crores)

Net profit (Y) (In crores)

x2 1855.02 2294.41 4164.12 6408 32934.99

y2 1816.46 1799.45 1510.87 1155.32 893.41

xy -1835.64 -2031.91 -2508.28 -2720.89 -5424.43

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

43.07 47.90 64.53 80.06 181.49

-42.62 -42.42 -38.87 -33.99 -29.89

x = 417.03 y = -187.79

x2= 47656.54 y2=7175.51

xy = -14521.15

Estimating the value of X (Income) on Y (Profit).

I.e. X

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Where,

(a)

9.32

Estimating the value of X (Income) on Y (Profit).

I.e. Where,

0.088

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Therefore,

Form an equation, by substituting the value for x; 1 Then, Form an equation, by substituting the value for Y;

2 On the basis of Equations derived. If the future profit of Kerafed is (208.54) then the Net income would be as following; Y = Net Income for the future period. X = 208.54 1) Y= 0.088 44.89

i.e., Y = 0.088 *208.54 44.89= -26.53 So, an increase of income from 181.49 (present) to 208.54(Future period). Then the Profit earned would be -26.53

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Income and Profit


200

150

100 Sales (X) Net profit (Y)

50

0 2005-2006 -50 2006-2007 2007-2008 2008-2009 2009-2010

-100

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FINDINGS
1) The main source of income of the company is the sale of coconut oil. 2) The current ratios for 5 years were 1.76, 1.64, 1.71, 1.77 and 1.76 respectively. But the standard norm is 2:1 so current ratios for the past 5 years were not satisfactory and it indicate inadequate working capital. 3) Quick ratios for the last 5 were satisfactory. Its proved that company can meet its short term liabilities from its quick assets. A higher ratio indicates sound financial position and vice-versa. 4) Debt Equity ratios for the last 3 year were 2.07, 2.17, 2.42 respectively. Acceptable norm for ratio is 2:1.for the first year was not satisfactory but in the after years was satisfactory. 5) Net profit it shows a declining trend due to high amount of loan. 6) Fixed assets management mechanism is unsatisfactory. The ratio is more than 100%, it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. 7) Liquidity ratio is above the standard norm of 1:1, the liquidity position of the company is sound. 8) A high inventory turnover implies a good inventory management 9) Debtors turnover ratio shows an increase and it indicates an increased efficiency of receivables management. 10) Low proprietary Ratio indicates greater risk to creditors It will affect the long term solvency of the firm

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SUGGESTIONS
1) Lower current ratio results over capitalization or over trading. Here the company needs to increase its short term financial position. 2) The company must increase the shareholders investment in the total assets of the company. 3) 4) The company has to increase production and sales to increase the profit. Company is providing high interest rate for long term loans. This reduces the earning capacity of the firm. So the firm should reduce dependency on loan. 5) More promotional activities should be put forward for the existing product and try to improve the sales volume 6) The debt equity ratio reveals that KERAFED has excess debt capital. So adequate measure should be taken to decrease the debt capital and increase the owners fund. 7) 8) 9) Sundry debtors should maintain efficiently and properly. The company needs to manage the funds more efficiently. The company has to improve its net profit by reducing loan and increase sales

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CONCLUSION
The study was undertaken in KERAFED Limited with a view to have insight into the financial performance of the firm. The main tool used in this study is ratio analysis. The company is moving to recovery stage in the business cycle Now there are number of competitors in the market. The analysis is mainly based on secondary data obtain from annual reports of the company, websites, circulars, company manuals etc. At present company running in profit due to convertion of its borrowings into sharecapital at the time of budget presentation in the year 2010. From the study revealed that financial position of company was not stable, with strict financial controls, the company will be able to reverse the declining trend to profit.

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BALANCE SHEET AS AT 31.03.2006


LIABILITIES Share Capital Government Of Kerala Co-operative socieities Borrowings NCDC Market Study Funds,Reserves & Provisions Grant & Subsidy Share Capital Assistance to PACS Current Liabilities Establishment & Contingencies Payable Interest on term loan Other current liabilities Due by the federation 4593227. 95 40596008. 91 295744035 878277.85 18231251.74 179600000 258797800 0.00 225530192.13 275585000 12265000 RS. Cash Cash in hand Cash at bank Share Capital To PACS Current assets Other current assets Sundry Debtors Equipments to PACS Advance due to Adjusting heads advance Plant work-inprogress Fixed assets Stock-in-trade Deficit Stock Deficit Stock Net loss 268452867.78 59437254.41 11687465.74 56762.07 426299419.28 19497019.07 75834825.44 5800750 55942251.46 3435419.36 118561.75 351943159.22 33315038 ASSETS RS.

TOTAL

1311820793.58

TOTAL

1311820793.58

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BALANCE SHEET AS AT 31.03.2007


LIABILITIES Share Capital Government Of Kerala Co-operative socieities Borrowings NCDC Market Study Funds,Reserves & Provisions Grant & Subsidy Share Capital Assistance to PACS Current Liabilities Establishment & Contingencies Payable Interest on term loan Other current liabilities Due by the federation 4497784.77 41228918. 41 319682832 1307104.20 18948674.74 179600000 258797800 0.00 232596698.31 12225000 275585000 RS. Cash Cash in hand Cash at bank Share Capital To PACS Current assets Other current assets Sundry Debtors Equipments to PACS Advance due to Adjusting heads advance Plant work-inprogress Fixed assets Stock-in-trade Deficit Stock Deficit Stock Net loss 269555814.78 72979654.07 11687465.74 56762.07 424285803.65 30998497.07 77644550.75 6339410 47893261.17 3435419.36 69940.24 366915820.53 32607413 ASSETS RS.

TOTAL

1344469812.43

TOTAL

1344469812.43

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BALANCE SHEET AS AT 31.03.2008


LIABILITIES Share Capital Government Of Kerala Co-operative socieities Borrowings NCDC Market Study Funds,Reserves & Provisions Grant & Subsidy Share Capital Assistance to PACS Current Liabilities Establishment & Contingencies Payable Interest on term loan Other current liabilities Due by the federation 544230.20 42527180. 41 343621629 1340067.10 23671520.74 179600000 258797800 0.00 237453827.31 12235000 275585000 RS. Cash Cash in hand Cash at bank Share Capital To PACS Current assets Other current assets Sundry Debtors Equipments to PACS Advance due to Adjusting heads advance Plant work-inprogress Fixed assets Stock-in-trade Deficit Stock Deficit Stock Net loss 273156126.28 50407694.01 11687465.74 56762.07 388664930.54 3458803.07 92818129.72 11413273 50739590.02 3435419.36 144888.13 428434564.82 30258610 ASSETS RS.

TOTAL

1375376254.76

TOTAL

1375376254.76

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BALANCE SHEET AS AT 31.03.2009


LIABILITIES Share Capital Government Of Kerala Co-operative socieities Borrowings NCDC Market Study Funds,Reserves & Provisions Grant & Subsidy Share Capital Assistance to PACS Current Liabilities Establishment & Contingencies Payable 941083.55 Interest on term loan Other current liabilities Due by the federation 586164.20 44804298.66 367560426 0 242793644 21673062.74 179600000 258797800 12235000 275585000 RS. Cash Cash in hand Cash at bank Share Capital To PACS Current assets Other current assets Sundry Debtors Equipments to PACS Advance due to Adjusting heads advance Plant work-inprogress Fixed assets Stock-in-trade Deficit Stock Deficit Stock Net loss 273618110.70 90440851.06 11687465.74 56762.07 339828637.45 83140866.97 42014890.07 14239579 61760022.85 3435419.36 60586.37 460378609.64 23914678.00 ASSETS RS.

TOTAL

1404576479.28

TOTAL

1404576479.28

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BALANCE SHEET AS AT 31.03.2010


LIABILITIES Share Capital Government Of Kerala Co-operative socieities Borrowings NCDC Market Study Funds,Reserves & Provisions Grant & Subsidy Share Capital Assistance to PACS Current Liabilities Establishment & Contingencies Payable 892841.05 Interest on term loan 391499223 Other current liabilities Due by the federation 738898.20 98582910.34 179600000 21673062.74 258797800 0 261801348.51 12235000 275585000 RS. Cash Cash in hand Cash at bank Share Capital To PACS Current assets Other current assets Sundry Debtors Equipments to PACS Advance due to Adjusting heads advance Plant work-inprogress Fixed assets Stock-in-trade Deficit Stock Deficit Stock Net loss 45241125.07 275569174.60 45419764.22 11687465.74 56762.07 298888054.98 92204127.12 22237498 137223468.64 3435419.36 46960.31 547115029.73 22281234 ASSETS RS.

TOTAL

1501406083.84

TOTAL

1501406083.84

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