Sie sind auf Seite 1von 69

Summer training report On Kohinoor Sanitations Pvt. Ltd.

Mandi Road , Jalandhar

SUBMITTED BY : RAGHAV GUPTA 10800259

LOVELY PROFESSIONAL UNIVERSITY

Acknowledgement No endeavor can be successful without the active cooperation of the people concerned with it ,which was forthcoming in full during this study . it is extremely difficult to find words ,which can do justice to this sort of cooperation that I got in planning and execution of my study . I owe a great deal of gratitude and sincere thanks to

Sh.

BHOLA NATH GUPTA ,Director of Kohinoor Sanitations Pvt. Ltd.


Jalandhar who allowed me to take training in the esteemed sanitation line and without whose cooperation and guidance my training would not have been possible. He gave me every opportunity to express my talent and providing me a path of success. I feel lucky myself to have worked under the able and competent guidance of whole the staff of the organization ,who helped me in one way or other at every stage of my work . I am greatly indebted to sir Mr. ANAND THAKUR all other respecting teachers for valuable guidance and encouragement for helping me to prepare this project.

RAGHAV GUPTA

PREFACE To know the real heat one has to put his hand in fire . that is why practical training is far better than classroom study . Because only in practical training ,one can get deep knowledge about it .During my summer training in Kohinoor Sanitations Pvt. Ltd, I also got opportunity to study sanitary line . what is its scope and how the organization works ? Kohinoor Sanitations Pvt. Ltd is an energetic performance driven organization with superior globally skilled management quality .the organization is rebranded to reflect its youthful service culture with the credo Believe in Best Quality . this organization invested significant recourses to build a India distribution of sales channels about 35 cities ,absorbed customer centric world class technology and created product superiority . today it serves near about 200 dealers . Kohinoor Sanitations Pvt. Ltd ,by its wide product range , tries its best to satisfy the customer needs . As a part of my summer training , I got an opportunity to work with Kohinoor Sanitations Pvt. Ltd and study its various aspects of financial and resources management.

Methodology of Study This study is carried out on the basis of various practical experiences and discussions with my senior and my supervisor and colleagues. Various primary and secondary sources are used for carrying out this project report . Primary sources:Carried out discussions and meetings with the directors , employees . a lot of information is taken from Mr. ANIL GUPTA (Depositor ) , and Mr. RAJAN GUPTA ( Depositor ) , by working under them . doing work directly under the accountant of the Kohinoor Sanitations Pvt. Ltd , Sh. Prakash chand Sharma , a great amount of the information is collected . balance sheets , daybooks, cash books . profit and loss account ,account statement etc . are the main sources of the information . Major portion of this project report is based on the practical work and experience during my training. Secondary sources:This project report is based on the desk research also. In that major portion of the information about the ratios analysis is studied from various books and their analysis is based on the information collected.

Limitations of study Any organization is not confined to a few aspects depicted in the financial statements and accounting books. It has very wide and elaborate concept. It has many aspects and many folds , which cannot be studied in only few weeks ,as it is basically a practical work and to study each and every aspect of financial and liquidity position of the organization ,one has to go through various other practical modes. There is a lot of work to learn and knowledge to gain. But due to lack of time resulting from short duration of stay in organization ,it was not possible for me to learn each and everything. However because of hearties cooperation and guidance provided by the management officers engaged in the field ,this training give me an inevitable and useful onto financial aspects of concern.

Objective of study The primary objective of the study is to have financial appraisal of Kohinoor Sanitations Pvt. Ltd with the help of ratios . The other objectives are:1) To know the companys ability to meet its current and short term obligations. 2) To know the companys efficiency in utilizing its assets. 3) To know the ability of the business to meet its long term obligations i.e. solvency positions of the business. 4) To know the profitability performance.

Contents 1. 2. 3. 4. 5. 6. 7. 8.

company profile introduction on ratio analysis liquidity test solvency analysis profitability ratio capital structure conclusion recommendations

Chapter

Company profile

Company profile Company at a glance Company Location Foundation Limited in COMMUNICATION Telephone Telefax Address 91 0181 2457555 91- 0181 - 2221600 91- 01812456093 KOHINOOR SANITATIONS PVT.LTD. MANDI ROAD , NEAR RAILWAY STATION JALANDHAR 144001 YEAR 1965 (AS KOHINOOR SANITATIONS ) YEAR 1985 ( AS KOHINOOR SANITATIONS PVT.LTD.)

KOHINOOR SANITATIONS PVT.LTD. Mandi road , near railway station , Jalandhar 144001

Companys motto KOHINOOR SANITATIONS PVT.LTD. shall continuously strive for excellence through its operations and suppliers . we are committed to continual quality improvement that emphasis the accountability of every employee to product and workplace quality. Our adherence exemplary quality particularly with regard to delivery to promise and our arm toward zero defects has helped us to maintain a competition edge.

BHOLA NATH GUPTA DIRECTOR KOHINOOR SANITATIONS PVT.LTD.

ESTABLISHMENT The organization was establishment in 1965-66 with the name KOHINOOR SANITATIONS ,as a private firm. But later on due its development in product field and in its organization the company become limited in 1985 as KOHINOOR SANITATIONS PVT.LTD. right from its expansion in the field of the sanitary goods ,the company has justify its name as a diamond i.e. Kohinoor sanitations, by specializing its products feature in the sanitary line e.g. valves ,cocks, connections pipes,sockets and other accessories. Organization The company is having a very sound and well-planned organizational structure.Separate department is there for having specialization in each field. Workshop Accounts department Human resource department Sales department The board of directors manages it. And had professional people in every sphere of its activities ,comprises of permanent as well as on contract basis too.

Key personnel Boards of directors SH. BHOLA NATH GUPTA SMT.URMILLA GUPTA SH. CHAMAN LAL GUPTA DIRECTOR DIRECTOR DIRECTOR

MANAGING COMMITTEE HEAD Human Resources development HEAD- Accounts HEAD- Typist HEAD - Workshop DEPOSITORS SH. BHOLA NATH GUPTA Mr. Prakash chand sharma Mr. S.S. Bajwa SH. Hoshiar Singh

SH. BHOLA NATH GUPTA SMT.URMILLA GUPTA SH. CHAMAN LAL GUPTA SH. ANIL KUMAR GUPTA Sh. RAJAN GUPTA AUDITOR Ashwani mittal

DEPOSITORS DEPOSITORS DEPOSITORS DEPOSITORS DEPOSITORS

Social contribution As in todays age ,a concerns motive should not only be profit motive. A concern should be socially desirable to have a good and sound goodwill. So the social contribution of the firm is also considered one of the main motive besides also contributes its best toward the social development programs and social welfare.the main contribution are:1. Manav Sehyog Society ;- this society maintains the hospitals ,schools ,teaching and coaching centers ,computers centers etc. for the poor and needy people. KOHINOOR SANITATIONS PVT.LTD provide the maximum help in the smooth functioning of this institution by providing the regular donations and guidance. 2. Temples :- temples plays an important role in the Indian culture and society. KOHINOOR SANITATIONS PVT.LTD provides a good amount of donations for the maintenance of many temples. The main contribution is provided to the reconstruction of Radhe Krishna Mandir ,mandi road ,jalandhar. 3. Helpline :- this institution is founded for the marriages of the poor girls and for the education of the poor children. KOHINOOR SANITATIONS PVT.LTD also gives his best contribution toward its development. And the firm handles many more social development programs ,which is a good sign for the firms functionality as it is the one of the main motive of every concern in todays age.

Chapter 2

INTRODUCTION OF RATIO ANALYSIS

Introduction of Ration Analysis


Analysis and interpretation of the financial statement can be done with the help of various methods such as comparative statement, trends analysis, common size statement, fund flow analysis and Cash Flow Analysis. It is the process of establishing and interpreting various ratios (quantitative relationship between figures and group of figures). It is with the help of ratios that the financial statement can be analyzed more clearly and decisions can be made from such analysis.

Meaning of Ratios
A ratio is a simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of mathematical expressions. According to KOHLET:A ratio is the relation of one amount a to another b, expressed as the ratio of a to b, a:b or a simple fraction, integer, decimal or percentage. A financial ratio is the relationship between two accounting figures expressed mathematically. A ratio can be expressed as percentage by simply multiplying the ratio by 100. Ratios provide clues to the financial position of the concern. These are the pointers or the indications of the financial strength, soundness, position or weaknesses of an enterprise. We can draw conclusion about the exalt, financial position of the concern with help of ratios.

Nature of Ratio Analysis


Ratio analysis is the process of establishing and interpretating various ratios for helping in making certain decisions. However Ratio Analysis is not an end itself. It is only a mean of better understating of financial strength and weakness of the firm. There are a number of ratios, which can be calculated from the information given in the financial statement, but the analyst has to select the appropriate date and calculate only, a few appropriate ratios from the same, keeping in mind the objective of analysis: (a)Selection of relevant data from the financial statement depending upon the objective of the analysis. (b)Calculate of appropriate ratios from the above data. (c) Comparisons of the calculated ratios, with the ratios of the same firm in the past or with the ratios of other firms. (d)Interpretation of the data.

Interpretation of Ratios
The interpretation of the ratio is an important factor. Though calculations of ratios are also important, but it is not only the clerical task whereas, interpretation needs skills, intelligence and foresightedness. A single ratio in itself does not convey much of the sense in itself. To make ratios helpful they have to be further interpreted. Interpretation can be done in following ways:-

1. Single Absolute Ratio


One cannot draw any meaningful conclusion when a single ratio is considered in isolation. But single ratios may be studied in relation to certain rules of thumb which are base upon well proven conventions as for example 2:1 is considered to be good ratio for current assets to liabilities.

2. Group of Ratios
Ratio may be interpretated by calculating group of related ratios. Single ratio supported by other related additional ratios become mere meaningful. For example Current ratio can be supported by the quick ratio in order to draw more dependable conclusions.

3. Historical Comparison
One if the easiest and popular ways of evaluating the performance of the firm is to compare its present ratio with past ratio called Comparison Overtime. This comparison gives an indication of the direction of change and reflects whether the firms performance has improved, deteriorated or remained constant over a period of time, but while doing this comparison one has to be careful about the changes, if any, in the firms policies and accounting procedures.

4. Projected Ratios
Ratios can be calculated for future standards based upon projected financial statements. These ratios may be taken as standards for comparisons and ratios calculated on actual financial statements can be compared with standard ratios to find our variances, if any. Such variances help in taking corrective actions for improvement in future.

5. Inter-term Comparisons
Ratios of one firm can also be compared with the ratios of other firms, in same industry at the same point of time. Such comparisons help in evaluating relative financial position and performance of the firm. But while one has to careful regarding the different accounting methods, polices and procedures adopted by different firms.

Guidelines for the Use of the Ratios


Calculation of ratios may not be a difficult task but their use is not easy. Following guidelines or factors may be kept in mind while interpreting various ratios:-

1. Accuracy of financial Statements:The ratios are calculated from the date available in financial statement. The reliability of ratios is linked to accuracy of information in these statements. Before calculating these ratios one should see whether proper concept and conventions have been used for preparing financial statements or not.

2. Purpose of Analysis:The type of ratios to be calculated will depend on the purpose for which these ratios are required. A Creditor, Banker, Investor and Shareholders, all have different objective of studying ratios. Thus, the purpose for which ratios are calculated should always be kept in mind for studying various ratios.

3. Selection of the Ratios:Another precautions that has to be taken are the proper selection of ratio. The ratios should match the purpose for which these are required. Calculations of large number of ratios without determining their need may confuse the things instead of solving them. Only, those ratios should which can throw proper lighten the matter to be discussed.

4. Use of Standards:The ratios will give an indication of financial position only when discussed with reference to certain standards. Unless otherwise these ratios are compared with certain standards one will be unable too reach at certain conclusions. These standards may be at rule of thumb as in case of Current Ratios (2:1) and Quick Ratios (1:1), may be budgeted or projected ratios.

5. Caliber of the Analyst:Ratios are only the tool of analyst and their interpretation will depend upon the caliber and competence of the analyst. A wrong interpretation may create have for the concern since wrong conclusions and may lead to wrong decisions. Thus the utility of the ratios linked to the expertise of analyst.

6. Ratios Provide only a Base:Ratios are the only guidelines for the analyst; he should not base his decision entirely on them. He should any other relevant information, situation in concern, general economic environment before reaching the final conclusion. Thus the interpreter should use the ratios as guide and may not to solicit any other relevant information, which helps la reaching a correct decision.

Use and Significance of Ratio Analysis


Ratio analysis is use as a device to analyze and interpret the financial health of an enterprise. Just like a doctor examine his patient by recording his body temperature, blood pressure etc., before making his conclusion regarding illness and before giving his treatment, a financial analyst analyses the financial statement with various tools of analysis before commenting upon financial health and weakness of an enterprise. A ratio is known, as a symptom like blood pressure. The pulse rate or temperature of an individual. There are different parties interested in ratios analysis for knowing the financial position of the firm for different purpose. The suppliers, banks, financial institutions, investors, shareholders and management, all make use of ratio analysis as a tool in evaluating financial position and performance of the firm for granting credit, providing loans or making investments in the firm.

(A)

Managerial User of Ratio Analysis:-

1. Help In Decision Making:The information provided in financial statements is not an end in itself and no meaningful conclusion can be drawn form these statements alone. This ratio analysis help in making decision from the information provided in these financial statement.

2. Help In Forecasting and Planning:Ration analysis is the much help in forecasting aid planning. Planning is looking ahead and ratios calculated the number of year work as a guide for the future meaningful conclusion can be drawn for future from these ratios.

3. Help In Communicating:The financial strength and weakness of a firm are communicated in a more easy and understandable manner by the use of ratios. Thus ratios help in communications and enhance the value of financial statement.

4. Help In Co-ordination:Ratios even help in co-ordination, which is of utmost importance in effective business management. Better communication of efficiency and weakness of enterprise result in better coordination in enterprises.

5. Help in Control:Ratio analysis even helps in effective control of business. Standard Ratios can be based upon pro-forma financial statement and variances if any, can be found by comparing the actual with standards so as to take corrective action at right time.

6. Other Uses:There are so many uses of financial analysis. It is an essential part of budgetary control and standard costing.

Moreover ratios are of immense use in analysis and interpretation of financial statement as they bring the strength and weakness of the firm.

(B) Utility to Shareholders:An investor in a company will like to assess financial position of the concern where he is going to invest. His first interest will be security of his investment and then a return in form of dividend interest. For the first purpose he will try to assess the value of fixed assets and long term solvency ratios, which help him in profit of the concern. Thus it help investor in making up his mind whether he make further investment or not.

(C) Utility to Creditors:Creditors extent short-term credit to the concern. They are interested in their timely payments. If current assets of the concern are sufficient to meet current liabilities then the creditors will not hesitate in extending credit facilities. Current and quick will give an idea about the current financial position of the concern.

(D) Utilities to Employees:The employees are also interested in the financial position of the concern, especially profitability. Their wage increases and the amount of fringe benefits are related to the volume of profits earned by the concern. And also the sense of job satisfaction is also developed doing job in prosperous concern. Thus employees also make use of information available in financial statements.

(E) Utility to Government:The government is also interested to know the overall strength of the industry. Various financial statements published by the industrial units are also used to calculate ratios for determining short terms, long tern and overall financial positions of the concern. Profitability indexes can also be prepared with the help of these ratios. The ratios may be used as indicators of overall financial strength of public as well as private sector. After having a brief introduction of Kohinoor Sanitations its activities as well as various programs undertaken by it, we have to evaluate its performance by analyzing the financial statements. First of all we will concentrate on the short- term financial position. It is known as test of liquidity.

Chapter 3

Test of liquidity

Test of liquidity

Analysis of the short term financial position is very much necessary because the short term creditors of the company like suppliers of the goods on credit and commercial banks providing short term loans are primarily interested in knowing the companys ability to meet its current or short term obligations as and when these become due.the short term obligations of a firm can be met only when there are sufficient liquid assets. Therefore a firm must assure that it doesnt suffer from lack of the liquidity or the capacity to pay its current obligations.if a firm fails to meet its current obligations due to lack of good liquidity positions its goodwill in the market is likely to effected beyond repair .even a high degree of liquidity is not good for the firm because such a situation represents unnecessarily excessive funds of the firm ,being tied up in the current assets. Thus it is very important to have a proper balance in regard to the liquidity of the firm.two types of the ratios can be calculated for measuring short term solvency of the firm. liquidity ratios current assets movement or efficiency ratios

(a) liquidity ratios:liquidity refers to the ability of a concern to meets its current obligations as and when these become due.the short term obligations are met by realizing amount from current assts floating or circulating assets .the current assets should be liquid or near liquidity . these should be convertible into case for paying obligation of short term nature .if current assets are sufficient to meet current liabilities ,then liquidity position will not be bad.bankers,suppliers of the goods and other short term creditors will extend credit only if they are sure that current assets are enough to pay out the obligations .to measure the liquidity of the firm the following ratios are calculated :1) current ratios 2) quick or acid test or liquid ratio 3) absolute liquid ratio 1) current ratio current ratio is also known as working capital ratio .it is a measure of general liquidity and is most widely used in making the comparisons and analysis of the short term financial position. Current ratio = current assets ------------------current liabilities current assets include cash and those assets which can be easily converted into cash within a short period of time ,generally one year . such as bills receivables

,debtors,inventories,marketable securities ,prepaid expenses should be included in the current assets because they represents the payments made in advance ,which will not have to be paid in the near future .current liabilities are those liabilities which are payable within a short period of one year and include creditors ,bills payable ,dividend payable etc. bank overdraft should also be included in the current liabilities because it represents short term arrangements with the bank ,it should be excluded. Current ratios of KOHINOOR SANITATIONS PVT.LTD 2003-04 2004-05 2005-06 2006-07 2007-08

4201580.36 4885132.13 __________ 2165361.48 3460249.12 = 1.94

3895626.63 __________ 1837605.40

5250914.21 __________ 3314074.52

3634391.56 _________ 2291249.20 _________

= 2.11

= 1.58

= 1.58

= 1.41

Interpretation High current ratio indicates the ability of a firm to pay its current obligation in time and when they become due. Where as low ratio shows that liquidity position of the firm is not able to pay its current liabilities in time .as a convention minimum of 2:1 is referred as a bankers rule of thumb. But it should not be blindly followed because firms having less then 2:1 ratio may be having a better liquidity position than those firms having more than 2:1 ratio. The current ratio was good and also very satisfactory in the past years. As it was as per the norms and standards. But in the recent year the ratio comes down which is not good sign for the future . so the company should be careful to maintain the ratio. Otherwise the position is good.

2)quick ratio :it is more rigorous test of liquidity than current ratio. It may be defined as the ratio between quick of liquid assets and current liabilities . an assets is said to be liquid if it can be converted into cash within a short period without less of value. Quick assets =liquid assets-inventories& prepaid expenses. Quick ratio = quick assets -------------current liabilities

quick ratio of KOHINOOR SANITATIONS PVT.LTD

2003-04

2004-05

2005-06

2006-07

2007-08

2592165.36 __________ 2165361.48 3460249.12 = 1.197

2574551.63 __________ 1837605.40

3724639.21 __________ 3314074.52

2336353.56 _________ 2291249.20

4181795 _________

= 1.40

= 1.12

= 1.01

= 1.20

Interpretation A high quick ratio indicates that a firm is liquid and has ability to meet its liabilities in time and low quick ratio represents that the firms liquidity position is not good .as a rule of thumb quick ratio of 1:1 us considered satisfactory but should not be used blindly and may differ from firm to firm industry to industry. This ratio of the quick ratio of KOHINOOR SANITATIONS PVT.LTD Is very satisfactory .as the ratio is more than the standard norm of 1:1 and also maintain this ratio in a good manner.

2) absolute liquid ratio :although receivables, debtors and bills receivables are generally more liquid than inventories yet there may be doubts regarding their realization into immediately or in time . hence some authorities are of the opinion that the liquid ratios should also be calculated together with current ratio and acid test ratio so as to excluded even receivables from current assets and find out absolute liquid assets. Absolute liquid assets= cash at bank and marketable securities Absolute liquid ratio = absolute liquid assets -----------------------current liabilities

Absolute liquid ratio KOHINOOR SANITATIONS PVT.LTD

2003-04

2004-05

2005-06

2006-07

2007-08

226936.02 __________ 2165361.48 3460249.12 = 0.10

214782.18 __________ 1837605.40

452384.11 __________ 3314074.52

473153.24 _________ 2291249.20

550883.65 _________

= 0.11

= 0.13

= 0.20

= 0.15

Interpretation Absolute liquid assets include cash in hand and bank and marketable securities or temporary investments .acceptable norms for this ratio 0.5 :1 But again it should not be blindly followed as it differs from firm to firm .the absolute liquid ratio is not satisfactory as per the norms . but the company has slowly improving the condition from past years . so it should take care of its absolute liquid ratio.

b) efficiency ratio or activity ratio funds are invested in various types of the businesses to make sales and earn profits. The efficiency with which assets are managed directly effects the volume of sales. The better the management of assets , larger is the amount of sales and profits . activity ratios are called turnover ratios because they indicate the speed with which assets are converted or turned over into sales. Depending upon the purpose ,number of ratios can be calculated such as inventory turnover ,debtor turnover etc. these ratios are :1) 2) 3) 4) inventory or stock turnover ratio debtor turnover ratio and average collection period creditors turnover ratio and average payment period working capital turnover ratio

it would indicate whether inventory has been efficiently used or not . the purpose is to see whether only the minimum finds have been locked up in inventory. Inventory turnover ratio indicates the number of times the stock has been turned over during the period and evaluate the efficiency with which a firm is able to manage its inventory ,but the ratio should neither be too high nor too low . high ratio means low level of inventories ,which may mean loss of business opportunities. Low ratio means high level of inventories,which means funds, is unnecessarily blocked , slow moving stock , outdated stock , etc. inventory turnover ratio = cost of goods sold ----------------------average stock

where average stock = opening stock + closing stock ------------------------------------2

2003-04

2004-05

2005-06

2006-07

2007-08

5492135.20 13955813.81 __________ 1678310 = 3.27

8126099.60 __________ 1461610 = 5.55

11298248.20 __________ 1418900 = 7.96

13952056.64 _________ 1395250 = 9.9 _________ 962950 = 14.49

Interpretation This ratio measures the velocity of conversion of stock into shares . usually a high inventory turnover indicates efficient management of inventory because more frequently the stocks are sold ,the lesser amount of money is required to finance the inventory . a low inventory turnover ratio indicates an efficient management of inventory . there are no rules of thumb for interpreting these ratios. The norms may be different for different firms depending upon the nature of good satisfactory level of

the stock conversion ratio . the ratio is good as company convert more than 2 times into sales . so the position of the concern is good.

2) debtors turnover ratio and average collection period a concern may sell goods on cash as well as on credit . following a liberal credit policy can increase the volume of sales , but the effect of liberal credit policy may result in typing up substantial funds of the firm in the trade debtors. Debtors are expected to be converted into cash with in a short period of the firm to pay its short term obligation in time depends upon the quality of the debtors . two kinds of ratios can be computed to evaluate the quality of dedtors . these are :a) debtor turnover ratio :this ratio indicates the velocity of debt collection of the firm . in simple words ,it indicates the number of times average debtors are turned over during a year.

debtor turnover ratio =

annual sales ------------------average debtors

debtor turnover ratio of KOHINOOR SANITATIONS PVT.LTD

2003-04

2004-05

2005-06

2006-07

2007-08

6487108.93 16408973.8 __________ 1840159.50 2747056.16 = 3.56

9565172.56 __________ 2367046.39

13262468.94 __________ 2816012.27

16395815.71 _________ 2567727.71 _________

= 4.04

= 4.70

= 6.38

= 5.97

Interpretation Debtors turnover ratio indicates the number of times the debtors are turned over a during a period . generally higher the ratio more effectively the management of debtors . similarly low ratio implies inefficient management of debtors or less liquid

debtors , but a very high ratio may mean firms inability ,due to lack of resources to sell on credit thus, losing sales and profits . there is no rule of thumb . the debtors turnover ratio may be different from firm to firm depending upon the nature of business.

b) average collection period :this ratio represents the average number of days for which a firm has to wait before its receivables are converted into cash. Average collection period = 12 months ---------------debtors turnover ratio

average collection period of KOHINOOR SANITATIONS PVT.LTD

2003-04

2004-05

2005-06

2006-07

2007-08

12 __________ 3.56 = 3.37

12 __________ 4.04 = 2.97

12 __________ 4.70 = 2.55

12 _________ 6.38 = 1.88

12 _________ 5.973 = 2

Interpretation This measure the quality of debtors . generally shorter the period ,the better is the quality of debtors, as short collection period quick payment of debtors. A high ratio means

inefficient collection performance ,which in turn adversely affects the liquidity or short term paying capacity of the firm out of its current assets . however the longer the collection period ,larger are the chances of bad debts. Like all other ratio , there is no standard norm for the average collection period also. 3)working capital turnover ratios:working capital of the firm is directly related to sales . working capital is excess of the current assets over the current liabilities . working capital turnover indicates the velocity of utilization of net working capital. This ratio indicates the number of times working capital is being used by the firm over a period of time. A higher ratio indicates the effective utilization of the working capital and a low ratio indicates otherwise . but a very high working capital turnover is not a good situation for any firm and so care must be taken while interpretation of this ratio.this can be best utilized by making a comparative trend analysis for different firms in the same industry and for various periods. Working capital turnover = cost of goods sold ---------------------average working capital

Working capital turnover of KOHINOOR SANITATIONS PVT.LTD 2003-04 2004-05 2005-06 2006-07 2007-08

5492135.20 __________ 2036218.88 1424883.01 = 2.70

8126099.6 __________ 2058021.23

11298248.20 __________ 1936839.69

13952056.64 _________ 1343142.36

13955813.8 _________

= 3.94

= 5.83

= 10.38

= 9.79

Interpretation

The company has a good ratio of the cost of goods sold and average working capital and also make it stable from last past 5 years . but the company should make continuous effort to improve it even more and utilize its working capital more efficiently. The company has a good satisfactory level of the stock conversion ratio . the ratio is good as company convert more than 2 times into sales . so the position of the concern is good.

Chapter 4 Solvency Analysis

Analysis of Long Term Financial Position Test of Solvency


Solvency term refers to the ability of a concern to meet its long-term obligations. N the long-term indebtedness of a firm includes debentures holders, financial institutions providing medium and long-term loans and other creditors selling goods on installment basis. The primarily interest on the long term creditors is to know the firms ability to pay regularly interest on their long term borrowings, repayment of the principal amount at maturity and also they are interested in knowing about the security of their loans. Similarly the longterm solvency ratios indicate a firms ability to meet the fixed interest and costs and repayment schedules associated with its long-term borrowings. The followings ratios serve the purpose of determining the solvency of the concern:

1. Debt- Equity Ratio


The debt equity ratio is calculated to measure the extent to which debt financing has been used in a business. The ratio indicates the proportionate claims of the owner and the outsides against the firms assets. The purpose is the get an idea of the cushion available to outsider on the liquidation of the firm. The powers want to do the business with the maximum outsiders funds in order to take lesser risk of there Investment and increase their earnings. The outsides on the other hand want that shareholders should invest and risk their share of proportionate investments.

Outsiders Fund Debt Equity Ratio = --------------------------Insiders Fund

2003-04

2004-05

2005-06

2006-07

2007-08

1895360.74 1220743.74 __________ 181953.14 = 10.41

1928590.74 __________ 210614.49 = 9.15

1875186.74 __________ 188303.95 = 9.95

1199042.74 _________ 256810.62 = 4.6 _________ 310148.27 = 3.93

Interpretation:The interpretation of this ratio is depends primarily upon the financial policies of the firms. A ratio of 1:1 may be usually considered as favorable from the long-term creditors point of view because high proportion of the owners funds provide larger margin of safety for them. The Kohinoor Sanitation is using a great deal of the outsiders fund as compared to the insiders. It is relying on more of the outsiders than the insiders funds.

2. Funded Debt to Total Capitalization:The ratio establishes a link between long term funds raised from outsider and total long-term funds available in the business. Funded debt is that part of total capitalization which is financed by outsiders. Funded Debt x100 Funded Debt to Total Capitalization = --------------------------Total Capitalization

2003-04

2004-05

2005-06

2006-07

2007-08

1895360.74 1220743.74 __________ 2077313.88 1530892.01 = 91.24

1928590.74 __________ 2139205.23

1875186.74 __________ 2063490.69

1199042.74 _________ 1455853.36 _________

= 90.15

= 90.87

= 82.36

= 79.74

Interpretation:There is no rule of thumb in this case. But still a lesser reliance on outsiders is better for the company because lesser debt will mean more profit margin for share holders as lesser interest will have to be paid on the long term debts. But in the Kohinoor Sanitations the company is relying more on the outsiders fund and has a great portion of the

outsiders deposits in the total capitalization. As the company is taking full advantage of the capital gearing.

3. Ratio of Long Term Debt to Shareholders Funds


This ratio indicates that to what extent of shareholders funds, long term financing has been used. Ratio of long Term Debt to Shareholders Funds= Long Term Debts ------------------------Share Holders Funds

2003-04

2004-05

2005-06

2006-07

2007-08

1895360.74 1220743.74 __________ 181953.14 = 10.41

1928590.74 __________ 210614.49 = 9.15

1875186.74 __________ 188303.95 = 9.95

1199042.74 _________ 256810.62 = 4.6 _________ 310148.27 = 3.93

Interpretation:An equal contribution of both debt and owners funds can be regarded as o.k. But if debt financial is less than shareholders funds it will provide a cushion to the outsiders so it will be good for a company. As the Kohinoor Sanitation has a stable equity capital but a change in the reserves and surplus so there is also a very little change in this ratio also. The company is in the high gear as using the more of the outsiders funds as compare to the insiders funds.

5. Solvency Ratio
This ratio is a small variant of equity ratio and can be calculated as 100-equity ratio. The ratio indicates the relationship between the total liabilities to the outsiders to total assets of a firm and can be calculated as:Liabilities to Outsiders ----------------------------------------Total Assets

Solvency Ratio=

2003-04

2004-05

2005-06

2006-07

2007-08

4060722.22 4686692.86 __________ 4242675.36 = 0.96

3775696.14 __________ 3986310.63 = 0.947

5196361.26 __________ 5384665.21 = 0.965

3392091.94 _________ 3754502.56 = 0.903 _________ 4996841.13 = 0.937

Interpretation:The lower is the ratio of total liabilities to total assets, more satisfactory and stable is the position of long-term solvency of the firm. In Kohinoor Sanitations the company has a stable pattern of the solvency picture. The outsiders liabilities are almost cover by the total assets of the company and can be said as quite satisfactory.

6. Fixed Assets to Net worth Ratio


The ratio establishes the relationship between the fixed assets and shareholders funds. The ratio can be calculated as:Fixed Assets Fixed Assets to net worth Ratio = ------------------------------Shareholders Funds

2003-04

2004-05

2005-06

2006-07

2007-08

41095 __________ 181953.14 = 0.22

90684 __________ 210614.49 = 0.430

133751 __________ 188303.95 = 0.710

120111 _________ 256810.62 = 0.467

111709 _________ 310148.27 = 0.360

Interpretation:This ratio indicates the extent to which shareholders funds are sunk into fixed assets. If the ratio is less than 100% it implies that owners funds are more than total fixed assets and the shareholders provide a part of the working capital. 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. In the case of the Kohinoor Sanitations, we see that in the years that share capital are enough to finance the fixed assets of the firm. The fixed assets are fully financed by the fully financed by the owners funds, part of the owners fund are also utilized for financing the working capital. So we can say that the companys position is quite satisfactory.

7. Fixed Assets Ratio


This ratio indicates the extent to which the total fixed assets are financed by long term funds to the company. Fixed Assets Fixed Assets Ratio= ----------------------------------Total Long Term Funds

2003-04

2004-05

2005-06

2006-07

2007-08

41095 __________ 2077313.88 1530892.01 = 0.019

90684 __________ 2139205.23

133751 __________ 2063490.69

120111 _________ 1455853.36

111709 _________

= 0.042

=0.064

= 0.08

= 0.07

Interpretation:Generally, the total fixed assets should be equal to the total of the long- term funds or say, the ratio should be 100%. But in case the fixed assets exceed the total of the long term funds, it implies that the firm has financed a part of the fixed assets out of the current assets funds or the working capital, which is not a good financial policy. And if the total long-term funds are more than fixed assets, it means a part of the working capital requirements are met out of the long-term funds of the company. Here is the situation of the later one.

8. Ratio of Current Assets to Proprietors Funds:This ratio indicates the extent to which proprietors funds are invested in the current assets. Current Assets Current Assets to Proprietors Funds= -----------------------Proprietors Fund

2003-04

2004-05

2005-06

2006-07

2007-08

4201580.36 4885132.13 __________ 181953.14 = 23.09

3895626.63 __________ 210614.49 = 18.49

5250914.21 __________ 188303.95 = 27.88

3634391.56 _________ 256810.62 = 14.15 _________ 310148.27 = 15.75

Interpretation:There is no rule of the thumb for this ratio and depending upon the nature of the business there may be different ratios for the different firms. But the ratios of this firm is looking quite satisfactory as it depicts that the current assets are financed by the proprietors funds and having a good solvency.

9. Proprietary Ratio of Equity Ratio:This ratio establishes the relationship between shareholders funds and total assets of the firms. It is the important ratio for determining long-term solvency of a firm can be calculated as under:Shareholders Funds Proprietary Ratio = -------------------------------------Total Assets

2003-04 181953.14 __________ 4242675.36 = 0.04

2004-05 210614.49 __________ 3986310.63 = 0.052

2005-06 188303.95 __________ 5384665.21 = 0.034

2006-07 256810.62 _________ 3754502.56 = 0.068

2007-08 310148.27 _________ 4996841.13 = 0.062

Interpretation:As equity ratio represents the relationship of owners funds to total assets, higher the ratio of the share of the share holders funds in the total capital of company better is the long term solvency position of the company. This ratio indicates the extent to which the assets of the company can be lost without affecting the interest of the company. As the company is in the high gear so the ratio shows that the total assets of the company is not financed by the share holders funds and which result in the danger in the solvency position of the concern.

CHAPTER

PROFITABILITY RATIO

ANALYSIS OF PROFITABILITY OR PROFITABILITY RATIOS

The primary objective of the business is to earn profit. The business needs profit not only for existence but also for expansion and diversification . the investors want an adequate return on their investments ,workers want higher wages and creditors want higher interest and so on profits are therefore a useful measure of overall efficiency of a business profit of the management are the test of efficiency and a measure of control to owner , a measure of worth to their investment to creditors ,margin of safety to employees ,a source of fringe benefits to the government , a measure of tax paying capacity and the bases of legislative action. The various profitability ratios are:(A) General profitability ratio 1} gross profit ratio --------------------it measure the relationship of gross profit to net sales . it is calculated by dividing the gross profit by sales. Gross profit ratio = gross profit --------------net sales * 100

Gross profit ratio of KOHINOOR SANITATIONS PVT.LTD

2003-04 994973.73 __________*100 *100 6487108.93 = 15.34%

2004-05 1439072.96 __________ *100 9565172.56 = 15.07%

2005-06 1964220.74 __________ *100 13262468.94 = 14.81%

2006-07 2443759.07 ________ 16395815.71 = 14.90%

2007-08 2453159.99 __________ * 100 16408973.80

= 14.95%

Interpretation The gross profit indicates the extent to which selling prices of goods per unit may decline without resulting in losses on operation of a firm . it reflects the efficiency with which a firm produces its products. There is no standard norm for this ratio and it may vary from business to business but gross profit must be adequate to cover the operating expenses and to provide for fixed charges etc. a low gross profit ratio indicates higher cost of goods sold due to unfavorable purchasing policy, lesser sales, lower selling ,excessive competition etc. a comparison of the gross profit over time is a good measure of profitability.

The companys gross profit ratio is normal,but it should take care of its gross profit and also to reduce its cost of goods sold to ensure a better profitability position.

2) net profit ratio this ratio establish the relationship between net profit and sales and indicates the efficiency of management in manufacturing selling, administration and other activities of the firm. It indicates the firms capacity to face adverse economic condition such as prime competition ,low demand etc. higher the ratio ,the better is the profitability and vice versa. Net profit ratio = net profit -----------net sales * 100

net profit ratio of KOHINOOR SANITATIONS PVT.LTD

2003-04 17354.52 __________*100 *100 6487108.93 = 0.26%

2004-05 28661.35 __________ *100 9565172.56 = 0.29%

2005-06 -- 22310.54 __________ *100 13262468.94 = - 0.16%

2006-07 68506.67 ________ 16395815.71 = 0.41%

2007-08 51637.65 __________ * 100 16408973.80

= 0.31%

Interpretation The net profit of KOHINOOR SANITATIONS PVT.LTD is quite low . it start improving but still is not satisfactory . this may be due to high operating expenses. The company must check its wasteful expenditure and try to improve its net profits in the future, as the current profits are seem to be unsatisfactory. B) overall profitability ratios the following are the important overall profitability ratios:1) return on shareholders investment or net worth :this ratio is properly known as the return on investment and is the relationship between net profits and the proprietors funds. Return on investments = net profits ---------------- * 100 shareholders fund

Return on investments of KOHINOOR SANITATIONS PVT.LTD

2003-04

2004-05

2005-06

2006-07

17354.52 __________*100 *100

28661.35 __________ *100

-- 22310.54 __________ *100

68506.67 ________

181953.14 = 9.53% =

210614.49 13.60%

188303.95 = - 11.84%

256810.62 = 26.67%

2007-08 51637.65 __________ * 100 310148.27

= 16.64%

Interpretation This ratio is of great importance to the present and prospective shareholders as well as to the management of the company ,as this ratio revels how well the resources of the firm are being used .higher the ratio the better is the results. The ratio should be compared with other similar firms of the same industry. The inter firm comparison of this ratio ,determine the whether investment in the firm is attractive or not as the investors would like to invest only where the investments are higher . this ratio also that the companys position in the early years was not so good . but as the years passed there is a good change in the return on the investment. So it is now quite satisfactory.

return on equity capital the ordinary shareholders are more interested in the profitability of a company and the performance of the company should be judged on the bases of the return on the equity capital of the company . return on equity capital is the relationship between profits of a company and its equity capital. Return on equity capital = net profit ------------equity share capital (paid up )

Return on equity share capital of KOHINOOR SANITATIONS PVT.LTD

2003-04

2004-05

2005-06

2006-07

17354.52 __________*100 *100 105600 = 16.43%

28661.35 __________ *100 105600 = 27.14%

-- 22310.54 __________ *100 105600 = - 21.12%

68506.67 ________ 105600 = 64.87%

2007-08 51637.65 __________ * 100 105600

= 48.89%

Interpretation The ratio of Kohinoor sanitations is quite satisfactory almost in all the years . in early years the return was quite low but then it starts improving . -------------------

2) earning per share earning per share is a small variation of the return on equity and is calculated by dividing the net profit by the total number of the equity shares

earning per share =

net profit -------------no. of equity shares

earning per share of KOHINOOR SANITATIONS PVT.LTD

2003-04 17354.52 __________ 1056

2004-05 28661.35 __________ 1056

2005-06 -- 22310.54 __________ 1056

2006-07 68506.67 _________ 1056

2007-08 51637.65 _________ 1056

= 16.4

= 27.14

= - 21.12

= 64.48

= 48.89

Interpretation The earning per share is good measure of the profitability and when compared with earning per share of the similar other companies , it gives a view of the comparative earnings of the earning power of a firm . in early years ,it was low , but in recent years the E.P.S. gets a high jump , which shows the satisfactory results. Company improving its E.P.S. year after year.

Chapter 6 Analysis of Capital Structure

Analysis of Capital Structure


The term Capital Structure refers to the relationship between various long-term forms of financing such as the debentures, preference share capital and equity share capital including reserves and surplus. Financing the firms capital is very crucial problem in every business and as a general rule there should be a proper mix of debt and equity capital in financing the firms assets. Leverage or capital structure ratios are calculated to test the long-term financial position of the firm. Following ratio are generally calculated to analyze capital structure of the firm. The ratios are:-

1. Capital Gearing Ratio


The term capital gearing is used to describe the relationship between equity share capital including reserves and surplus to preference share capital and other fixed interest bearing loans. If preference share capital and other fixed interestbearing loans exceed the equity share capital including reserves, the firm is said to be highly geared. The firm is said to be in low gear if preference share and other fixed interest bearing loans are less than equity capital and reserves.

Equity Share Capital+ Reserves & Surplus Capital Gearing Ratio= ----------------------------------------------------------Preference Capital+ Long Term Debt

2003-04 181953.14 __________ 1895360.74 1220743.74 = 0.09

2004-05 210614.49 __________ 1928590.74

2005-06 188303.95 __________ 1875186.74

2006-07 256810.62 _________ 1199042.74

2007-08 310148.27 _________

= 0.10

= 0.1004

= 0.214

= 0.254

Interpretation:-

In Kohinoor Sanitation al amounts in the 5 years are not financed by the equity shareholders funds. So we can say that the company is in the high gear. It means the company is using debt financing and outsiders fund at a good extent along with insiders funds to have a full advantage of the capital gearing. The composition of the inside and outside funds is almost the same and there are not any high fluctuations, which show an optimal utilization of the sources.

2. Total Investment to Long Term Liabilities


This ratio is calculated by dividing the total long-term funds by long-term liabilities. Total Investment to Long Term Liabilities= Shareholders Funds+ Long Term Liabilities ------------------------------------------------------------Long -Term Liabilities
2003-04 2004-05 2005-06 2006-07 2007-08

2077313.88 1530892.01 __________ 1895360.74 1220743.74 = 1.09

2139205.23 __________ 1928590.74

2063490.69 __________ 1875186.74

1455853.36 _________ 1199042.74 _________

= 1.109

= 1.10

= 1.214

= 1.254

Interpretation:As a general rule the proportion of Long-Term liabilities should not be very high but it should not be very low also. In Kohinoor Sanitations we can see that amount of long-term liabilities almost equal to the shareholders funds, and there is not at all any high fluctuation in the ratio. So the position of the concern is quite satisfactory. It is varying between 1.09 to 1.10 in 4 years that is from 1999-00 to 2003-04. Which shows a very negligence change in the ratio. And hence we can say that the company is in the good situation.

Chapter 7 Conclusion

CONCLUSION
Profitability of the company is increasing with the increasing sales. Companys liquidity position is good. Company is able to pay its short term as well as long-term obligation in time. Debt collection period is good, inventory rates are improving. But the working capital turnover ratio and creditors payment period is not in the interest of the company. Sort-term financial position can be considered on a good sound base. The main source of the company is funds for operations and main application are purchase of fixed assets and payment of dividend, which is in the interest of the company. So, overall working capital position on the basis of the ratio analysis proves that the company is having a good sound base and is in good position. But the company should make efficient use of the working capital.

Chapter 8 Recommendation

Recommendations
1. In liquidity ration, its find that the current and quick ratio is quite good and as per norms, Absolute Liquid Ratio of the company is quite low even as per norms. So it is recommended that the holding of the cash in hand should be improved and must be retained at least up to standard norms i.e. 0.5:1 2. In Debt- Equity Raito, it shows that the company is doing the trading on equity on a very large scale it is a good sign, but it should also employ its own sources to a good extent, to have a long-term good solvency position. 3. In total capitalization the company having a great share of the funded debt, which do not have a good effect on the security of the creditors. So it should be improved. 4. The company is having a quite satisfactory Solvency Ratio, but it can improve more. 5. The long-term funds are used for financing the inventories or the working capital to a large extent than the Fixed Assets. But generally the ratio of he fixed assets and the long term should be 100%. So the attention should also be given here for the optimal utilization of the long term funds.

Das könnte Ihnen auch gefallen