PROJECT REPORT

ON
RATIO ANALYSIS
SUBMITTED BY:STELLA BALASUBRAMANIAM
ROLL NO: - 46
MASTER OF COMMERCE (PART-II)
ADVANCED FINANCIAL MANAGEMENT

(SEM-III)
2015-2016
PROJECT GUIDE:PROF.NEELAM SHAIKH
K.G JOSHI COLLEGE OF ARTS & N.G.BEDEKAR COLLEGE
OF COMMERCE.

VIDYA PRASARAK MANDAL, THANE

K. G. JOSHI COLLEGE OF ARTS &
N. G. BEDEKAR COLLEGE OF COMMERCE
CERTIFICATE
OF
PROJECT WORK
This is certify that Mr. / Ms. STELLA BALASUBRAMANIAM Of
M.Com. (Advanced Accountancy) Part.: II, Semester: 3rd Roll No. : 46, has
undertaken & completed the project work titled RATIO ANALYSIS. During the
academic year 2014-2015.
Under the guidance of Mr. / Ms. Prof.NEELAM
Prof.NEELAM SHAIKH.
Submitted on _____________ to this college in fulfillment of the curriculum
of MASTER OF COMMERCE ( ADVANCED ACCOUNTANCY )
UNIVERSITY OF MUMBAI.
This is a bonafide project work & the information presented is True &
original to the best of our knowledge and belief .

PROJECT GUIDE

EXTERNAL EXAMINER

DECLARATION:I Ms. STELLA BALASUBRAMANIAM student of K.G. JOSHI COLLEGE

OF ARTS & N.G.BEDEKAR COLLEGE OF COMMERCE. (SEM-III,) HERE
BY DECLARE THAT I HAVE COMPLETED THIS PROJECT ON RATIO
ANALYSIS in the academic year 2015-2016.

The information submitted is true and original to the best of my knowledge.

DATE:-

Student signature
STELLA BALASUBRAMANIAM

PLACE: - THANE

ACKNOWLEDGEMENT:I express my grateful thanks to project guide Prof. NEELAM SHAIKH

For her timely guidance and help rendered at every stage of the project work.
I would also like to thank my friends who were also a great support while
working on the project.
I also wish to express my regards to the librarian for her co-operation in
providing me with necessary reference materials.
I also express my thanks to faculty members and for co-operation and
help given in completing this project.

INDEX:Sr.
Number

Particulars

Executive Summary

Overview of Indian Paint Industry

Company profile

Need for the study

Objective of study

Research Methodology

Introduction to Ratio Analysis

Data collection and Interpretation

Findings

10

Suggestions and Conclusion

11

Limitations

Page
Number

Bibliography

COMPANY PROFILE:-

ABOUT KANSAI NEROLAC PAINTS LTD. (KNPL):Kansai Nerolac Paints ltd is Indias second largest paint company with group turnover of
about Rs.1170/- crore per annum. It is market leader in industrial coating business in India
and second largest in the Decorative Paints market. KNP Co. Ltd of Japan holds 69.27%
equity of KNPL. Kansai Paint is one of the top ten companies in the world. The company has
technical tie ups with reputed foreign collaborations such as Oshima Kogyo,E.I. Du Pont,
NTT, Nihon Parkerizing and Ameron in the field of speciality & High performance coatings.
Kansai Nerolac Paints Ltd. has the reputation in being innovative, creating value, delivering
quality and service.
KNPL has manufacturing locations at Lote in Maharashtra, Perungudi in Tamil Nadu,

Jainpur in Uttar Pradesh, Bawal in Haryana and Hosur in Tamil Nadu. The corporate office
is situated at Lower Parel in Mumbai.
The total strength of the employees is about 2000 spread over in corporate office,
manufacturing plant, zonal, regional, and area offices.
Nerolac is well established brand in Decorative Coatings. It has widespread distribution/
marketing network with over 11000 dealers and 65 depots. Product ranges of Decorative
Coatings include exterior and interior finishes, wood finishes, auto refinishes, and certain
speciality products. The product range in automotive coating includes Pre-treatment
Chemicals, Electro Deposition Primers, PVC sealers, Mono coats & Metallics finishes, Clear
Coatings etc.
KNPL has very good research and development set up. It engages over 175 paint
technologists for continuous developing superior products. KNPL is a professionally
managed company with young and vibrant team with an average age of 37 years.

HISTORY:-

Kansai Nerolac is one of the largest paints companies in India having a significant presence
in industrial as well as decorative sectors.
Kansai Nerolac embarked their journey in 1920 as Gahagan Paints and Varnish Co. Ltd. at
Lower Parel in Bombay.
In 1930, three British companies merged to formulate Lead Industries Group Ltd.
In 1933, Lead Industries Group Ltd. acquired entire share capital of Gahagan Paints in 1933
and thus, Goodlass Wall (India) Ltd. was born.
Subsequently, by 1946, Goodlass Wall (India) Ltd. was known as Goodlass Wall Pvt. Ltd.
In 1957, Goodlass Wall Pvt. Ltd. grew popular as Goodlass Nerolac Paints (Pvt.) Ltd. Also, it
went public in the same year and established itself as Goodlass Nerolac Paints Ltd.
In 1976, Goodlass Nerolac Paints Ltd. became a part of the Tata Forbes Group on acquisition
of

part

of

the

foreign

shareholdings

by

Forbes

Gokak.

In 1983, Goodlass Nerolac Paints Ltd. strengthened itself by entering in technical

collaboration agreements with Kansai Paint Co. Ltd., Japan and Nihon Tokushu Toryo
Co.Ltd.Japan.
In 1986, Goodlass Nerolac Paints Ltd. turned into a joint venture of the Tata Forbes and the
Kansai Paint Co. Ltd., with the latter acquiring 36% of its share capital.
In 2000, Kansai Paint Company Ltd., Japan took over the entire stake of Tata Forbes group
and thus GNP became a wholly owned subsidiary of Kansai Paint Company Ltd.
In 2006, on the 11th of July, Goodlass Nerolac Paints Ltd. name has been changed to Kansai
Nerolac Paints Ltd.
Vision of KNPL:

KNPL its unique vision to leverage global technology for servicing customer with superior
coating system built on innovative and superior product and world class solution to
strengthen its leadership in industrial coating and propel for leadership in architectural
coating all to the delight of its stake holder.
Management:
Being the second largest paint company in India, it spread over the country with employee
strength of around 2000. An efficient management provides the conducive work atmosphere
to develop and grow.
Customers of Kansai Nerolac Paints ltd.:
I. Bajaj Auto Ltd.
II. Maruti Udyog Ltd.
III. Godrej & Boyce
IV. Mahindra & Mahindra
V. Samsung
VI. Ashok Leyland
VII. Toyota Kirloskar Motors Ltd.
VIII. Aditya Birla Group
IX. Hero Honda

AWARD & RECOGNITION:-

Golden Peacock Environment Management Award 2009- Winner

Symbiosis centre for management Lean and six sigma

-As a participant
Greentech Environment Excellence Award 2008 in chemical sector- Awarded by

Greentech foundation, New Delhi.

ECS Manufacturing Excellence Level 2 Certificate in April 2008
Goodlass Nerolac Paint Ltd C2E- Commitment to Excellence in May 2006

excellence

Lote has achieved recognition to their outstanding performance in commitment for

excellence in Human Resource Care in May 2006

FUNCTIONS OF FINANCE & ACCOUNTS DEPARTMENT:Accounting function is necessary is a necessary input into the finance function
i.e. accounting is a sub-function of finance. Accounting generates information \ data relating
9

to operations/ activities of the firm. The end product of accounting constitutes financial
statements such as Balance sheet, The Income Statement and The Statement of changes in
Financial position/ sources and uses of funds statement/ Cash flow statement. The
information contained in these statements and reports assists Financial Managers in assessing
the past performance & future direction of the firm and meeting the legal obligation, such as
payment of taxes and so on. Thus Accounting and Finance are functionally closely related.
Various Sections in Accounts Department
1.

Financial:
Funds are arranged from head office for the payment of expenses, engineering

bills, transportation bills etc. Reports are maintained related to operating expenses that means
total expenses during the month like, salary, wages, freight, welfare etc.
2. Excise:
Accounts of modvat received and payment of the central excise duty on the
finished goods dispatches.
3.

Sales Tax:
Accounts of vat received on purchase and payment of vat on finished goods

dispatches.
The various duties and responsibilities of Accounts department in KNPL Lote plant:

1.

Recording day-to-day operating expenses

2.

Excise duty analysis

3.

Transportation bill passing

4.

Engineering bill passing

5.

Powder coating bill passing

6.

Day-to-day cash transactions

7.

MIS Activities

NEED FOR THE STUDY:10

The study has great significance and provides benefits to various parties whom
directly or indirectly interact with the company.

It is beneficial to management of the company by providing crystal clear picture

regarding important aspects like liquidity, leverage, activity and profitability.

The study is also beneficial to employees and offers motivation by showing how
actively they are contributing for companys growth.

The investors who are interested in investing in the companys shares will also get
benefited by going through the study and can easily take a decision whether to invest
or not to invest in the companys shares.

OBJECTIVES OF STUDY:11

The major objectives of the resent study are to know about financial strengths and weakness
of KANSAI NEROLAC PAINTS LIMITED through FINANCIAL RATIO ANALYSIS.
The main objectives of resent study aimed as:

To evaluate the performance of the company by using ratios as a yardstick to measure

the efficiency of the company.

To understand the liquidity, profitability and efficiency positions of the company

during the study period.

To evaluate and analyze various facts of the financial performance of the company. To
make comparisons between the ratios during different periods.

Secondary Objectives:

To study the present financial system at KANSAI NEROLAC PAINTS LIMITED.

To determine the Profitability, Liquidity Ratios.

To simplifies and summarizes a long array of accounting data and makes them
understandable.

RESEARCH METHODOLOGY

12

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. So, the
research methodology not only talks about the research methods but also considers the logic
behind the method used in the context of the research study.
Research Design:
Descriptive research is used in this study because it will ensure the minimization of
bias and maximization of reliability of data collected. The researcher had to use fact and
information already available through financial statements of earlier years and analyze these
to make critical evaluation of the available material. Hence by making the type of the
research conducted to be both Descriptive and Analytical in nature.
From the study, the type of data to be collected and the procedure to be used for this
purpose were decided.
Data Collection:
The required data for the study are basically secondary in nature and the data are
collected from the audited reports of the company.
Primary Data:
Primary data are those data, which is originally collected afresh.
In this project, Questionnaire Method and Interview Method has been used for
gathering required information.
Sources of Data:
The sources of data are from the annual reports of the company from the year 20072008 to 2009-2010.

Methods of Data Analysis:

13

The data collected were edited, classified and tabulated for analysis. The analytical
tools used in this study.
Analytical Tools Applied:
The study employs the following analytical tools:

Comparative statement.
Common Size Statement.
Trend Percentage.
Ratio Analysis.

RATIO ANALYSIS:-

14

Financial analysis is the process of identifying the financial strengths and

weaknesses of the firm and establishing relationship between the items of the balance sheet
and profit & loss account.
Financial ratio analysis is the calculation and comparison of ratios, which are
derived from the information in a companys financial statements. The level and historical
trends of these ratios can be used to make inferences about a companys financial condition,
its operations and attractiveness as an investment. The information in the statements is used
by

Trade creditors, to identify the firms ability to meet their claims i.e. liquidity position
of the company.

Investors, to know about the present and future profitability of the company and its
financial structure.

Management, in every aspect of the financial analysis. It is the responsibility of the

management to maintain sound financial condition in the company.

Ratio Analysis:
The term Ratio refers to the numerical and quantitative relationship between
two items or variables. This relationship can be exposed as

Percentages

Fractions

Proportion of numbers
Ratio analysis is defined as the systematic use of the ratio to interpret the

financial statements. So that the strengths and weaknesses of a firm, as well as its historical
performance and current financial condition can be determined. Ratio reflects a quantitative
relationship helps to form a quantitative judgment.
Ratios Are Useful For Several Parties Such As:
1) Investors, both present as well as potential investors.
15

2) Financial analyst.
3) Mutual funds.
4) Stock broker and stock exchange authorities.
5) Government.
6) Tax department.
7) Competitors.
8) Research analysts and students.
9) Companys management.
10) Creditors and Suppliers
11) Lending Institutions Banks and Financial Institutions
12)

Financial Manager

13) Other Interested parties like credit rating agencies etc.

Nature of Ratio Analysis:

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. It is only a means of understanding of financial strengths and
weaknesses of a firm. There are a number of ratios which can be calculated from the
information given in the financial statements, but the analyst has to select the appropriate data
and calculate only a few appropriate ratios. The following are the four steps involved in the
ratio analysis.

Selection of relevant data from the financial statements depending upon the objective
of the analysis.

Calculation of appropriate ratios from the above data.

Comparison of the calculated ratios with the ratios of the same firm in the past, or the
ratios developed from projected financial statements or the ratios of some other firms
or the comparison with ratios of the industry to which the firm belongs.

16

Classification of Ratios:
A) Liquidity Ratios
It is also known as liquidity ratios. it includes the following
1) Measures ability of a company to meet its current obligations.
2) Indicates short term financial stability of a company.
3) Indicates present cash solvency and ability to remain solvent in times of adversities.
To measure the liquidity of a firm the following ratios can be calculated

Current ratio

Quick (or) Acid-test (or) Liquid ratio

(a) Current Ratio:

Current ratio is useful to find out solvency of the company. High current ratio
indicates that company will be able to pay its debt maturity within a year. Low current ratio
indicates that company will not be able to meet its short term debts.
Minimum standard current ratio is 2:1.
Current Assets
Current Ratio=
Current Liabilities

(b) Quick Ratio:

Quick ratio is also known as acid test ratio. It indicates immediate ability of
a company to pay off its current obligations. And also shows the solvency and financial
soundness of the business. Greater the ratio stronger the financial position of the
company.
The standard quick ratio should be 1:1
Quick Assets
17

Quick Ratio=
Quick Liabilities

B) Profitability Ratios:
The primary objectives of business undertaking are to earn profits. Because
profit is the engine, that drives the business enterprise.
It measures the overall efficiency of the business. It indicates whether
utilization of business assets and funds are done efficiently and best way or not , so as to
generate adequate profits or returns.
Profitability ratios fall in two categories:
a) Related To Sales:
1) Gross Profit Ratio:
It shows the operating efficiency of the business. It measures the efficiency of
production as well as pricing. Decrease in the ratio indicates reduction in selling price or
increase in the cost of production or decline in the business activity. Increase in the ratio
indicates increase in the selling price or reduction in the cost of production.
Gross Profit
Gross Profit Ratio =

X 100
Sales

2) Operating Profit Ratio:

It indicates profitability of entire business after meeting all operating cost
including direct and indirect cost of administrative and distribution expenses.
Operating Profit
Operating Profit Ratio:

100

Sales

18

3) Net Profit Ratio:

It shows the overall efficiency of the business. Higher the ratio indicates
higher efficiency of business and better utilization of total resources. In addition it indicates
efficiency of financing operations as well as tax management.
Net profit after tax
Net Profit Ratio:

X 100
Sales

b) Related To Investment Of Capital Employed:

1) Return On Investment:
It measures the overall performance of the company that is utilization of total resources and
funds available with the company. Higher the ratio better utilization of funds. It indicates
earning capacity of the business. It measures the management performance.

EBT But AT
Return on Investment:

X 100
Total Assets/ Liability

2) Return On Net Worth Or Proprietors Funds:

It measures the productivity of shareholders funds. Higher the ratio indicates better utilization
of shareholders funds or higher productivity of owners funds. It helps to investor to compare
the earning capacity of company with that of other companies.
Net Profit after Tax
Return on Net Worth:

X 100
19

Equity Shareholder Fund

C) Turnover RatioIt measures how efficiently the assets are employed. These ratios are
expressed in number of times the assets is used during the period.
1) Inventory Turnover Ratio:
It indicates number of times the replacement of inventory during the given
period usually a year. Higher the ratio more efficient is the management of inventory. But
higher inventory turnover ratio is not always good if it is lower level of inventory because it
invites problem of frequency stock outs and loss of sales and customer or goodwill.

Cost of Goods Sold

Inventory Turnover Ratio:
Average Stock in Hand

2) Average Collection Period:

It indicates credit and collection policy and also indicates efficiency in
management of debtors. Smaller no. of dates, higher will be the efficiency of the collection
department.
Avg. collection period should not exceed 1.5 times the credit period allowed.
Receivable (Debtors)
Avg. Collection Period:
Average Sales per Day.

20

3) Receivable Turnover Ratio:

The ratio indicates average credit period enjoyed by debtors.
Debtors + Bills Receivable
Receivable Turnover Ratio:

X 100
Total Credit Sales

4) Fixed Asset Turnover Ratio:

It indicates efficiency in the utilization of fixed assets like plant and machinery by
management.
Net Sales
Fixed Assets Turnover Ratio =
Fixed Assets

5) Total Asset Turnover Ratio =

It indicates how efficiently the assets are employed overall. It indicates
relationships between the amount invested in the assets and the result accrues in terms of
sales.
Net Sales
Total Asset Turnover Ratio =
Total Assets

6) Creditors Turnover Ratio:

21

It indicates the how the credit period enjoyed by the creditors.

Net Credit Purchases

Creditors Turnover Ratio=
Average Creditors
D) Financial Ratio
1) Capital Gearing Ratio:
This ratio indicates the relationship between preferential capital, debenture.
Term loan and capital which does not carry fixed rate of interest or dividend.
When the ratio is more than one then the capital is said to be highly geared that means low
equity share capital and greater amount of preference share capital, debenture, long term loan.
When the ratio is less than one then the capital is said to be very lowly geared
that means low earning per share. Equity shareholder will control the company. It results in
over capitalization.
Preferential Capital + Debenture + Term Loan
Capital Gearing Ratio:
Equity Share Capital + Reserve and Surplus

2) Proprietary Ratio:
It measures the relationship between funds invested in business by the owners
with the total funds invested in business. It indicates long run solvency of the business. High
ratio means company is less dependent on outside funds and company is quite solvent. Low
ratio indicates company is more dependent on outside funds solvency and solvency may be
danger.

22

Proprietary Fund
Proprietary Ratio:
Total Assets

3) Stock Working Capital Ratio:

It indicates weightage of stock in the current assets or in the working funds. It
indicates strength and weaknesses of working capital; high ratio indicates slow movement in
stock and also reflects better management of inventory as well as working capital.
Stock
Stock Working Capital Ratio:
Working Capital

E) Financial Leverage Ratio:

It indicates financial structure of the organization that is proportion of debts as
compare to owners fund.
1) Debt Equity Ratio:
Higher the ratio less secured is the creditors, lower the ratio creditors enjoy
higher degree of safety.

Debt
Debt Equity Ratio:
Equity

23

2) Debt Asset Ratio:

It indicates the percentage of the total asset created by the company through
short term and long term debt. Higher the ratio less safe is the creditors and vice versa.
Debt
Debt Asset Ratio:
Total Assets

3) Long Term Debt to Total Capitalization:

It explains the relationship between long term debts borrowed from
outsiders with owners contribution. Lower the ratio better is the solvency of the business
and safer is the creditor so far as his repayment.
Long Term Debt
Long Term Debt to Total Capitalization:
Total Capital Employed

4) Interest Coverage Ratio:

This indicates earning capacity of the business to pay its interest burden.
Higher the ratio business can easily pay the interest.
Earnings before Interest and Tax
Interest Coverage Ratio:
Interest

F) Dividend Ratio:
24

These ratios for a particular company are relevant for an investor for
making an investment decision as to whether he should invest in the share of the company.
1) Earnings per Share:
This ratio indicates weather over a given period their have been change in
the wealth per share holder. Other the ratio increases the possibility for the higher dividends
and increase in the market price of the shares.
Earnings after Tax Preference Dividend
Earnings per Share:
No. Of Shares Paid Up

2) Price Earnings Ratio:

It indicates relationship between market price of the share and the current
earnings per share. It helps to determine the future price of the share.
Market Price per Share
Price Earnings Ratio:
Earning Per Equity Share

3) Payout Ratio:
It indicates how much proportion of the earning per share is retaining for
plaguing back and portion distributed as dividend to the share holder.
Dividend per Equity Shares
Payout Ratio:

25

Earnings per Share

4) Dividend Yield Ratio:

It indicates the ultimate current return which investor will get as a
percentage of is investment. It indicates the feature like the profitability and dividend policy
of the company. When dividend yield is lower than the expected return, market price for the
share may fall in future or vice versa.

Equity Dividend
Dividend per Share:
No. Of Equity Shares

Dividend per Share

Dividend Yield
Market Price per Share
Interpretation of the Ratios:
The Interpretation of ratios is an important factor. The inherent limitations of ratio analysis
should be kept in mind while interpreting them. The impact of factors such as price level
changes, change in accounting policies, window dressing etc.

Guidelines or Precautions for Use of Ratios:

The 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 is

Accuracy of financial statements

26

Objective or purpose of analysis

Selection of ratios

Use of standards should also be kept in mind when attempting to interpret ratios.

8. DATA ANALYSIS AND INTERPRETATION

8.1 Financial stability Ratios:
To measure the liquidity of a firm the following ratios can be calculate the following
ratios,
a) CURRENT RATIO:
Current Asset
Current Ratio:
Current Liabilities
Table 8.1.a:
27

(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Current Assets
48468.47
51764.02
49807.77

Current Liabilities
21582.46
27739.78
32808.36

Ratio
2.2:1
1.8:1
1.5:1

ANALYSIS AND INTERPRETATION:

The current ratio of the firm measures the short term solvency. It indicates the
rupees of current asset available for each rupee of current liabilities.
The above chart shows that decline trend from the F.Y. 2007 to F.Y. 2009. This
is mainly due to increasing creditors from F.Y. 2007 to F.Y. 2009. In the F.Y. 2007-08 it
shows 2.2:1 which was higher than the standard ratio i.e. 2:1. There was continuous decline
in the current ratio which is not good sign for the company.
b) QUICK RATIO:
Quick Asset
Quick Ratio:
Quick Liabilities

28

Table 8.1.b:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Quick Asset
23199.99
27062.4
28573.68

Quick Liabilities
21582.46
27739.78
32808.36

Ratio
1.07:1
0.975:1
0.870:1

ANALYSIS AND INTERPRETATION:

The above chart indicates the decline trend from the F.Y. 2007 to F.Y. 2009. In the
F.Y. 2008 and F.Y. 2009 the quick ratio of the company was below standard that means large
part of current asset of the firm is tie up in slow moving and unsellable investment of Finish
goods and also slow moving of debts, but, the overall trend shows declining which is not a
positive sign for KNPL.

29

8.2. PROFITABILITY RATIO

A) RELATED TO SALES
a) Operating Profit Ratio:
Earnings before Interest Taxes
Operating Profit Ratio:

X 100
Sales

Table 8.2.A.a:
(Rupees in lakhs)

Earning Before

Year

Interest Taxes
15542.89
16759.11
14272.70

31-3-07
31-3-08
31-3-09

Sales

Ratio

129345.66
139992.48
139639.94

12.02 %
11.97 %
10.22 %

ANALYSIS AND INTERPRETATION:

The above chart shows that there was a continuous decreased in the ratio. That
means the ratio was decreased from 12.02% in FY 2007-08 to 10.22% in FY 2009-10. This is
due to increases in the expenditure of the company.
b) Net Profit Ratio:
Net Profit
Net Profit Ratio:

X 100
Sales

Table 8.2.A.b:
30

(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Net Profit
10202.8
11702.72
10136.19

Sales
129345.66
139992.48
139639.94

Ratio
7.88 %
8.35 %
7.25 %

ANALYSIS AND INTERPRETATION:

The above chart indicates the Net Profit Ratio in 2007-08 was 7.88 % which
further increases to 8.35% in FY 2008-09. Further it had fallen to 7.25% in FY 2009-10. That
means company suffers the losses after the FY 2008-09. In FY 2008-09 the net profit was
high to increase in the sales of the company.

(B) RELATED TO CAPITAL EMPLOYED

a) Return on investment:
Earnings before interest but after tax
Return on investment:

X 100
Total asset / liability

Table 8.2.B.a:
(Rupees in lakhs)

Year

Earnings Before

Total Asset /

Ratio
31

Interest But After

31-3-07
31-3-08
31-3-09

Liability

Tax
10378.39
11929.75
10257.99

65912.12
73746.32
75662.49

15.74 %
16.17 %
13.55 %

ANALYSIS AND INTERPRETATION

It can be found that the return on investment ratio of KNPL was slightly
increased in first two years. Further it was decreased by 0.13% which implies an ineffective
decisions made by the managers.
(b) Return on Net Worth or Proprietors Funds:
Net Profit after Tax
Return on net worth:

X 100
Equity shareholder fund

Table 8.2.B.b:
(Rupees in lakhs)

Year

Net Profit after Tax

31-3-07
31-3-08
31-3-09

10202.8
11702.72
10136.19

Equity shareholder
fund
51721.18
59875.12
66299.87

Ratio
19.72 %
19.54 %
15.28 %

32

ANALYSIS AND INTERPRETATION:

This ratio indicates how well the firm has used the resources of owner. The
earning of a satisfactory result is the most desirable objective of the business. This ratio is
important to present as well as prospective shareholders and also of great concern to
management.
The above chart shows that the ratio was almost constant in first two years.
Further it declined to 15.28% this is due to increased in the reserve and surplus of the
company.
Higher the ratio indicates better utilization of recourses but in KNPL It shows
decreasing trend which is not good.

8.3. TURNOVER RATIOS:

a) Inventory turnover ratio:
Net Sales
Inventory turnover ratio:
Closing Stock
Table 8.3.a:
(Rupees in lakhs)
Year
31-3-07

Net Sales
129345.66

Closing Stock
19996.18

Ratio
6.46 times
33

31-3-08
31-3-09

139992.48
139639.94

19926.90
17063.39

7.02 times
8.18 times

ANALYSIS AND INTERPRETATION:

The above chart shows that the stock gets converted into cash was 6.46 times,
7.02 times and 8.18 times in the FY 2007 to 2009 respectively.
If we compared the figures of sales and inventory of first two years, the level
of inventory is almost same, but in the FY 2008 and09 the sales was increased with low cost
of inventory which implies the management is successful to reduce the cost involved for
management of inventory.
b) Average Collection Period:
Receivable (Drs)
Average collection period:
Average sales per day

Table 8.3.b:
(Rupees in lakhs)

Year

Receivable (Drs)

31-3-07
31-3-08
31-3-09

20994.41
23637.37
20957.29

Average sales per

day
129345.66
139992.48
139639.94

Ratio
59.24days
61.62 days
54.77 days

34

ANALYSIS AND INTERPRETATION:

The above chart shows that the collection period was high in FY 2008-09 i.e. 62 days. This
means, a very long collection period would imply either for credit selection or an inadequate
collection. The average collection period short in FY 2009-10 which means that better is a
credit management and prompt payment on the part of debtors.

c) Receivable turnover ratio:

Credit sales
Receivable turnover ratio:
Average debtors

Table 8.3.c:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Credit sales
129345.66
139992.48
139639.94

Average debtors
20994.41
23637.37
20957.29

Ratio
6.1times
5.9 times
6.6 times

35

ANALYSIS AND INTERPRETATION:

This ratio indicates the average credit period enjoyed by debtors. The above
chart shows that the customers to whom the credit sales are made pay 6.1times, 5.9 times &
6.6 times in the FY 2007 to respectively. In the FY 2008-09 THE DEBTORS TURNOVER
RATIO was low which indicates the absence of a strict credit policy and also point out that
there were delayed to recover the revenue from sales. This point out into the huge block up of
working capital in book debt.
It was high in FY 2009-10 i.e. 6.6 times which indicate prompt payment on the
part of debtors. Overall debtors turnover ratio was good.
d) Fixed Asset Turnover Ratio:
Net sales
Fixed asset turnover ratio:
Fixed assets

Table 8.3.d:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Net sales
129345.66
139992.48
139639.94

Fixed assets
22538.61
24140.44
23861.99

Ratio
5.73 times
5.79 times
5.85 times

36

ANALYSIS AND INTERPRETATION:

It indicates efficiency in the utilization of fixed assets like plant and machinery
by management.
From the above chart the fixed asset turnover ratio of KNPL slowly increases
over period of time. From this we can say that a company has been successful to manage and
utilized its assets. Also a company has been more effective in using the investment in fixed
assts to generate revenue.
e) Total Asset Turnover Ratio:
Net sales
Total asset turnover ratio:
Total asset
Table 8.3.e:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Net sales
129345.66
139992.48
139639.94

Total asset
65912.12
73746.32
75662.49

Ratio
1.962 times
1.898 times
1.845 times

37

ANALYSIS AND INTERPRETATION:

The total asset turnover ratio indicates the firms ability to generate sales from all financial
resources.
From the above chart the total asset turnover ratio was decreased from 1.9 times in FY 200708 to 1.8 in FY 2009-10. The total asset turnover of the company was 1.8 times implies that
KNPL generate a sell of Rs. 1.8 for one rupee investment in fixed and current asset together.
f) Creditors Turnover Ratio:
Net credit purchases
Creditors turnover ratio:
Average creditors
Table 8.3.f:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Net credit
purchases
84723.95
89136.85
92418.41

Average creditors

Ratio

15906.86
18430.47
23007.12

5.3 times
4.8 times
4.0 times

38

ANALYSIS AND INTERPRETATION:

The above chart dips from 5.3 times to 4.0 times from the FY 2007-08 to FY 2009-10. From
this we can interpret that KNPL has successful to manage its creditors because, over the years
trend is declining.

8.4 Financial ratio

a) Proprietary ratio:
Proprietary Fund
Proprietary ratio:

X 100
Total assets

Table 8.4.a
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Proprietary fund
51721.18
59875.12
66299.62

Total assets
65912.12
73746.32
75662.49

Ratio
78.46 %
81.19 %
87.62 %

ANALYSIS AND INTERPRETATION:

From the above chart the ratio was consistently increased in three years. The
ratio was high in the FY 2009-10 i.e. 0.87%. It indicates the company is quite solvent.
b) Stock working capital ratio:
Stock
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Stock working capital ratio:

Working capital
Table 8.4.b:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Stock
19996.18
19926.90
17063.39

Working capital
26886.01
24024.24
16999.41

Ratio
74.37%
82.94%
100.37%

ANALYSIS AND INTERPRETATION:

The above chart shows the continuous increase in the trend of the ratio. The
weightage of stock in the current assets is high in the FY 2009 FY 2010 as compare to other
FY. That means there was a slow movement of stock.
8.5 Financial Leverage Ratio:
It indicates financial structure of the organization that is proportion of debts as compare to
owners fund.
a) Debt Equity Ratio:
Debt
Debt equity ratio:
Equity
Table 8.5.a:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Debt
12657.80
12480.40
9362.62

Equity
51721.18
59875.12
66299.62

Ratio
24.47%
20.84%
14.12%

40

ANALYSIS AND INTERPRETATION:

This ratio is useful to judge long term financial solvency of a firm. This ratio
reflects the relative claim of creditor and shareholder against the assets of the firm.
From the above chart the debt equity ratio of the KNPL was consistently
declined from 24.47% in FY 2007-08 to 14.12% in FY 2009-10.The low debt equity ratio in
FY 2009-10 indicates the firm had less claims from outsiders as compared to those of owner.
b) Debt Asset Ratio:
Debt
Debt asset ratio:
Total assets
Table 8.5.b:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Debt
12657.80
12480.40
9362.62

Total assets
65912.12
73746.32
75662.49

Ratio
19.20%
16.92%
12.37%

41

ANALYSIS AND INTERPRETATION:

From the above chart the debt asset ratio was consistently decreased from
19.20% in FY 2007-08 to 12.37% in FY 2009-10. That means at beginning creditors of
KNPL bear the high risk than the other years.
c) Long Term Debt to Total Capitalization:
Long term debt
Long term debt to total capitalization:
Total capital employed
Table 8.5.c:
(Rupees in lakhs)

Year

Long Term Debt

31-3-07
31-3-08
31-3-09

4660.29
4603.14
1608.29

Total Capital
Employed
65912.12
73746.32
75662.49

Ratio
7.07%
6.24%
2.12%

ANALYSIS AND INTERPRETATION:

42

The above chart indicates that the ratio was consistently decreased from 7.07%
in FY 2007-08 to 2.12% in FY 2009-10, means that KNPL is successful to manage its long
term debt which further implies that the KNPL is in better position in terms of solvency.
d) Interest Coverage Ratio:
Earning before interest and tax
Interest coverage ratio:
Interest
Table 8.5.d:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Earnings Before
Interest And Tax
15718.48
16986.14
14505.05

Interest

Ratio

175.59
227.03
212.8

89.51times
74.91 Times
68.16 Times

ANALYSIS AND INTERPRETATION:

From the above chart the trend of the ratio was decreased from 89.51 times in
FY 2007-08 to 68.16 times in FY 2009-10. From this, it indicates that KNPL is trying to
reduce its interest burden which is good sign for both i.e. there creditors and shareholders.
8.6 Dividend Ratio:
These ratios for a particular company are relevant for an investor for making an investment
decision as to whether he should invest in the share of the company.

a) Earnings per Share:

Earning after tax preference dividend

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Earning per share:

No. of shares paid up

Table 8.6.a:
(Rupees in lakhs)

Earnings After Tax

Year
31-3-07
31-3-08
31-3-09

Preference
Dividend
10202.08
11702.72
10136.19

No. Of Shares Paid

Up
255.07666
269.45986
269.45986

Ratio
39.99
43.43
37.61

ANALYSIS AND INTERPRETATION:

From the above chart the EARNING PER SHARE of the company was high
in FY 2008-09 i.e. Rs.43.43. This means that as compare to the other FY there has been
increase in wealth per shareholder.
b) Payout Ratio:
Dividend per equity share
Payout ratio:

X 100
Earnings per share

Table 8.6.b:
44

(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Dividend per

Earning per equity

equity share
12.14
12.00
12.00

share
39.99
43.43
37.61

Ratio
30.35%
27.63%
31.90%

ANALYSIS AND INTERPRETATION:

It indicates how much proportion of the earning per share is retaining for
plugging back and portion distributed as dividend to the share holder.
The above chart indicates that the pay out ratio was high in FY 2009-10 i.e.
31.90%. If the divided pay out ratio is subtracted from 100, retention ratio is obtained. Means
that in KNPL the retention ratio from FY 2007 to FY 2009 was 69.65%, 72.37%, 68.1%
respectively and KNPL is ploughed back its maximum percentage of its profit.
c) Dividend per shares ratio:
Equity dividend
Dividend per share:
No. of equity shares
Table 8.6.c:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Equity Dividend
309879000
323352000
323352000

No. Of Equity
Shares
25507666
26945986
26945986

Ratio
Rs. 12.14
Rs. 12.00
Rs. 12.00

45

ANALYSIS AND INTERPRETATION:

The dividend per share ratio of the KNPL was almost same i.e. Rs. 12 in the
FY 2007 to FY 2009.But if we compared earning per share with Dividend per share it shows
that Earning per share is more than Dividend per share. In this case of Earning per share,
adjustment of bonus or right issue should be made while calculating Dividend per share over
the year.

CONCLUSION:Finance is the life blood of every business. Without effective financial

management a company cannot in this competitive world. A Prudent financial Manager has to
measure the working capital policy followed by the company.
On a whole Kansai Nerolac Paints Limited has once again demonstrated its
potential to ride through the difficult times. Despite the slowdown in its growth, it has
determined to grab numerous opportunities that are facing Indian Paint Industry.

46

So from this we can conclude that there is a better opportunities for investors
to invest in this company.

BIBLIOGRAPHY:

Financial Management: M Y KHAN AND P K JAIN Fifth Edition

FINANCIAL MANAGEMENT - I. M. PANDEY

Financial Management (BMS): MR. Kale.

Kansai Nerolac Paints magazines, brochures etc.

Annual Reports of the Kansai Nerolac Paints Ltd.

o 88th annual report 2007-08
o 89th annual report 2008-09

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www.nerolac.com

Search Engine : www.google.com

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