Project Report On Ratio Analysis of Kamal Solvent Extractions PVT Ltd.

Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd.
Chapter – 1
• Introduction of Ratio analysis

• Project title
• Objectives of the project
• Methodology
R.C.E.T, Bhilai M.B.A – 09 -11

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INTRODUCTION OF RATIO ANALYSIS
Ratio analysis – A ratio is a mathematical relationship between two related items expressed
in quantitative form. When this definition of ratio is explain with reference to the item shown in
financial statements, than it is called accounting or financial ratio. So in this way the analysis of
the financial statements of the company is known as ratio analysis.
Ratio may be expressed in either of the following ways –
1. In proportion – In this form of amount of the two items are being expressed in a
common denominator. The example of this form of expression is relationship between
current assets and current liabilities as 2: 1.
2. In rate or times or coefficient – In this form quotient obtained by dividing one

item by another item is taken as unit of expression. The example of this form is sales
divided by stock (say it comes 4); thus 4 times is the ratio between sales and stock.
3. In percentage – In this form, a quotient obtained by dividing one item by another is

multiplied by one hundred and it becomes the “percentage” form of expression. For
example between gross profit and sales may be expressed by 32 %.

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PROJECT TITLE
A Project report on Ratio Analysis of Financial Statements on KAMAL SOLVENT

EXTRACTIONS PVT. LTD, RAJNANDGAON, CHHATTISGARH.
OBJECTIVES OF THE PROJECT
➢ To interpret the analysis and the trend of the financial results.
➢ To use various activity ratios and liquidity ratios to find out the liquidity and solvency
position of the industry.

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METHODOLOGY
Data Collection
Primary Source
➢ Audit reports (Balance sheet & profit and loss a/c) provide by the industry.
➢ Respondents and finance department of KAMAL SOLVENT EXTRACTIONS

PVT.LTD.
Secondary Source
➢ Published collections of data.
➢ Financial sites on the internet.
➢ Official web site of the company.
Data Presentation: Graphical and tabular representation of the collected data has been done
to show the financial position of the industry.
Data Analysis & Interpretation: Here an analysis of the annual reports of the last three
fiscal years (2006-07 to 2008-09) has been done. Various ratios have been calculated to find out
the profitability and leverage of the firm. Various working capital ratios have been calculated to
observe the working capital changes and comparisons have been made of the last three years.
With the help of this various ratio we can easily find out the financial activities of the industry.

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Chapter – 2
• Literature review
○ The rice bran oil industry in India
○ Manufactures of rice bran oil in India
Literature review

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The Rice Bran Oil industry in India
Rice Bran Oil is a unique vegetable oil produced from the outer brown layer of rice
which is removed in the form of rice bran during the polishing process of the rice milling
industry. Besides having an ideally balanced fatty acid profile, it is rich in natural anti-oxidants
and unique nutrient. A number of scientific studies conducted in India & abroad have well
documented the better cholesterol lowering properties of rice bran oil as compared to other
conventional vegetable oils. All these studies have attributed these properties of the oil to the
presence of unique nutrient in this oil known as Oryzanol & tocotrienolss. Rice Bran Oil is
extensively used in Japan, Korea, China, Taiwan and Thailand as premium edible oil. It is the
conventional & the most favorite cooking medium of the Japanese and is popularly known as
"Heart Oil" in Japan. It has acquired the status of a "Functional Food" or a "Health Food" in
Western Countries.
India is the second largest producer of paddy in the world after China contributing about
23% to the total world production of paddy. It has a potential to produce over one million tons of
this nutritious oil. Rice Bran Oil extraction started in India about 40 years back. It was in the
middle of 60's that a beginning was made in India for the extraction of oil from rice bran with
the help of solvent extraction process wherein food grade hexane is used to extract oil from rice
bran. Initially the entire quantities of rice bran oil produced in India were used as raw material
for the soaps & detergent industry as the free fatty acid content of the oil was very high.
In the early eighties, the Government of India introduced money credit scheme to
encourage the use of rice bran oil as a product mix in vanaspati (hydrogenated fat) wherein
substantial rebate from the payment of excise duty on vanaspati was given for use of rice bran oil
in the manufacture of vanaspati. In this way government of India encouraged for grooming up
the rice bran industries in India.
Manufacturers of Rice bran oil in India: Here the following table contains the
information about the name of the some of the big manufacturers of rice bran oil in India -

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Name of the company City

Hemraj Industries pvt. Ltd West Bengal
Jindal oil & fats ltd. Rajasthan
Shree Sita Agro Foods pvt. ltd Durg
Gujrat Ambuja Exports ltd. Ahemdabad
Kumar Metal Industries pvt. Ltd. Mumbai
Kamal solvent Extractions pvt. Ltd Rajnandgaon
Ganpati solvent Rajnandgaon
Jai lakshmi solvent Pvt. Ltd Uttar pradesh

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Chapter – 3
• Company profile
Company profile
KAMAL SOLVENT EXTRACTIONS PVT LTD

INTRODUCTION: Kamal Solvent Extractions Pvt. Ltd. is Rice Bran oil producing company
established on 1990 focused on specialized, high-value products and services. The company’s
principal activities are extracting oil from the rice bran and refining the extracted oil and
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marketing the edible oil to the potential market. Company also sells crude oil (non-refined oil) to
big companies like I.T.C and PEPSICO in India. This development process of converting the by-
product into finished goods underpins various processes, which the company executes with full
dedication and concentration with the help of various expertises. The company’s head office is at
Rajnandgaon with subsidiary offices in Durg and Raipur in India. Within short period of time
earned an unmatched success and reputation in the region and also in various parts of the
country. Kamal Solvent Extractions Pvt. Ltd. is engaged in the industry as the trusted
manufacturing unit for edible oil viz; Refined Rice Bran Oil and Triple Refined Rice Bran Oil
under the registered brand name “KAMAL” and “RAJKAMAL, NILKAMAL and RSOYEE
respectively. Kamal Solvent Extractions Pvt. Ltd.is rated as a smoke and pollution free industry
in the Chhattisgarh state of India. Water Filter Plant of this industry takes care of pollution free
extraction of Water used in Industrial Production works. The Industry is surrounded with green
trees.
MISSION & VISION: "At Kamal Solvent Extractions Pvt. Ltd., we have always dreamed big.
It is our vision that has taken us from a pioneer that spear-headed the rice bran revolution to the
recent position. We have been a leading light in the field of Rice bran oil for the past years. We
strive to look beyond the boundaries of competition by being quality centric in our
manufacturing practices. Our vision is to be a world class organization that is a benchmark for
other organizations in the country, setting standards for excellence, and leading the thrust in
adopting environment friendly policies."
R.B.O: Rice Bran Oil, which is commonly known as “HEART OIL” in Japan, is unique
cooking oil produced from the brown layer of rice paddy, which is removed in the form of rice
bran for producing white rice. The paddy that comes from the fields has a hard outer covering
called the husk. During the de-husking process, this husk is removed from the paddy and what
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remains is brown rice. The rice so obtained is brown in colour since it has an oily brown
covering called the Bran. The polished rice which we generally consume is obtained after
removing this bran from the rice. It is important to understand that bran and husk are not same.
The bran which is left behind after the polishing process undergoes the solvent extraction process
in order to obtain crude rice bran oil. This crude oil is further refined in order to obtain rice bran
oil.
In other word, Rice bran is a by-product of the rice milling industry from which rice bran oil is
extracted. Typically rice bran accounts for 7 –8 % of the rice produced and the recovery of rice
bran oil from rice bran is usually 15%. Rice bran oil is used for human consumption. Anti-
oxidants of Vitamin E group are naturally occurring in rice bran oil. Appearance of rice bran oil
ranges from cloudy to clear depending on the degree of de-waxing and winterization process
applied. It also has several industrial uses. After oil extraction, the by-product obtained is de-
oiled rice bran.
PRODUCTS OF KAMAL SOLVENT - The products of Kamal solvent is divided in

four different brands. The brands which are shown below in diagram are mostly preferable in
Chhattisgarh, Maharashtra, and Madhya Pradesh and Andhra Pradesh. Sometimes the produced
non refined oil of the company is also supplied in bulky quantity to the multinational companies
also like – PepsiCo, ITC.
PACKAGING OF THE BRANDS - The brands of Kamal solvent comes in different types of
packaging, quantity and price which can be shown with the help of following table –
Types of packaging quantity Per pack price in Rs.
pouch 500ml 21.50
pouch 1 liter 42.50
Can(plastic) 5 liter 107
Can(plastic) 15 liter 690
Tin can 15 k.g 740

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Tin can 15 liter 635
Note – Prices of the various products of the company which is shown in the above table are
always fluctuating as according to the market condition.
Features of Kamal solvent products –

The tag line of the company is – “KAMAL ka kaamal, shakti swaad bemisal”. These
tag lines express the quality of the kamal products inspite of this we can discuss about the
features of the kamal products by following ways –
• Premium quality – Kamal produced in world class specially developed process

under highly hygienic condition to give better taste and natural flavor to good health.
• Nutritionally superior – Kamal contains about 18% saturated,45% monosaturated
and 35% polyunsaturated fatty acid which is close to American heart association
recommendation.
• Rich micronutrients & natural antioxidants – Kamal contains oryzanol,
Tocotrienol and Squalene which provides many benefits for human health.
• Cheaper and popular – Kamal refined rice bran oil is the highly selling product in
all over central India.
In spite of all the above features some more features of the kamal products are –
• Longer shelf life.

• Anti – viral capacity
• Oil is less sticky so its saves soap.
• More stable at high temperature.
• Heart food for every happy home.
• Frying takes less time, saves energy.
• Gives better taste & flavor to food items.
• Economical – 15% less absorption of oil during frying.
• Available in small packs also (5 liter, 1 liter pack).

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• Easily reachable available in all general stores.
Chapter – 4
• Ratio analysis
• The use of financial ratio
• Significance of using ratio
• Managerial uses of ratio analysis
• Users of ratio analysis
• Limitation of ratio analysis
• Financial highlight of the company
• Analysis of short term financial position or test of liquidity

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RATIO ANALYSIS: - A ratio is a simple arithmetical expression one number to another.

The technique of ratio analysis can be employed for measuring short-term liquidity or working
capital position of a firm.
THE USE OF FINANCIAL RATIOS:

• Financial Ratio is used as a relative measure that facilitates the evaluation of efficiency or
condition of a particular aspect of a firm's operations and status.
• Ratio Analysis involves methods of calculating and interpreting financial ratios in order
to assess a firm's performance and status.
• Assessment of the firm’s past, present and future financial conditions.
• Done to find firm’s financial strengths and weaknesses.
• It is a type of primary tools for the company.
• For the analysis of the Financial Statements.
• Comparison of financial ratios to past, industry, sector and all firms

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SIGNIFICANCE OF USING RATIOS:

The significance of a ratio can only truly be appreciated when:
• It is compared with other ratios in the same set of financial statements.

• It is compared with the same ratio in previous financial statements (trend analysis).
• It is compared with a standard of performance (industry average). Such a standard may
be either the ratio which represents the typical performance of the trade or industry, or the
ratio which represents the target set by management as desirable for the business.
MANAGERIAL USES OF RATIO ANALYSIS : The following are the important

managerial uses of ratio analysis helps in financial forecasting : Ratio analysis is very helpful in
financial forecasting. Ratios relating to past sales, profits and financial positions from the basis
for setting future trends.
• Helps in Comparison: With the help of ratio analysis, ideal ratios can be composed and
they can be used for comparing a firm’s progress and performance. Inter firm comparison
or comparison with industry averages is made possible by ratio analysis.
• Financial Solvency of the Firm: Ratio analysis indicates the trends in financial solvency
of the firm. Solvency has two dimensions long term solvency and short term solvency.
Long term solvency refers to the financial viability of a firm and it is closely related with
the existing financial structure. On the other hand, short term solvency is the liquidity
position of the firm. With the help of ratio analysis conclusion can be drawn regarding
the firm’s liquidity and long term solvency position.
• Evaluation of Operating Efficiency : Ratio analysis throws light on the degree of

efficiency in the management and utilization of its assets and resources. Various activity
ratios measure this kind of operational efficiency and indicate the guidelines for economy
in costs, operations and time.

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• Communication Value: Different financial ratios communicate the strength and

financial standing of the firms to the internal and external parties. They indicate the
overall profitability and capital gearing etc. of the firm.
• Other Uses: Financial ratios are very helpful in the diagnosis of financial health of a
firm. They highlight liquidity then, solvency, profitability and capital gearing etc. of the
firm.
TYPES OF RATIO ANALYSIS
Mainly the financial ratios are divided in four major parts we can describe that ratios by
following ways –
1. Profitability Ratios – following are the various ratios which comes under
profitability ratios :
a. Gross profit ratio
b. Net profit ratio
c. Operating ratio
d. Expenses ratio
1. Turnover or Activity Ratios – following are the various ratios which comes under
turnover or activity ratios :
a. Debtors turnover ratio
b. Creditors turnover ratio
c. Average collection period
d. Average payment period
e. Inventory turnover ratio
f. Total assets turnover ratio
g. Fixed assets turnover ratio
h. Proprietary turnover ratio

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1. Liquidity Ratios – following are the various ratios which comes under liquidity ratios
with the help of this ratios we can easy analyze the liquidity position of the company.
a. Current ratio
b. Quick ratio
c. Super quick ratio
d. Cash ratio
1. Various solvency Ratios

a. Debt equity ratio
b. Solvency ratio

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USERS OF RATIO ANALYSIS:
• TRADE CREDITORS: They are interested in firm’s ability to meet their claims over a
very short period of time. Their analysis will therefore, confine to the evaluation of the
firm’s liquidity position.
• SUPPLIERS OF LONG TERM DEBT: Suppliers on the other hand, are concerned
with the firm’s long term solvency and survival. They analyses the firm’s profitability
over time, it’s ability to generate cash to be able to pay interest and repay principal and
the relationship between various sources of funds (capital structure relationships).
• INVESTORS: who have invested their money in the firm’s shares, are most concerned
about the firm’s earnings. They restore more confidence in those firms that show steady
growth in earnings. As such, they concentrate on the analysis of the firm’s present and
future profitability. They are also interested in the firm’s financial structure to the extent
it influences the firm’s earnings ability and risk.
• MANAGEMENT: of the firm would be interested in every aspect of the financial

analysis. It is their overall responsibility to see that the resources of the firm are used
most effectively and efficiently, and the firm’s financial condition is sound.
LIMITATIONS OF RATIO ANALYSIS -
• A firm’s industry category is often difficult to identify.
• Published industry averages are only guidelines.
• Accounting practices differ across firms.
• Sometimes difficult to interpret deviations in ratios.
• Industry ratios may not be desirable targets.
• Seasonality affects ratios.

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FINANCIAL HIGHLIGHT OF THE COMPANY
NET SALES
Gross sales for a period after cash discounts, returns, and freight expenses have been deducted.
Gross sales includes both credit and cash sales of the company.
YEAR SALES(IN RS CRORE)

2006-07 49.95
2007-08 59.43
2008-09 82.46
Interpretation: The sales figures are encouraging as there is a positive trend and the rate of
increase is considerably high. The net sales went up from Rs 49.95 crore in year 2006-07 to Rs
82.46 crore in years 2008-09. Net sales of the company increase because of its various
demandable brands & its shows that company getting good business from its customer’s. In this
way the percentage increase of sales of the industry is 65.09% from 2006-07 to 2008-09.
Profit Before Tax –PBT
A profitability measure that looks at a company's profits before the company has to pay
corporate income tax. This measure deducts all expenses from revenue including interest
expenses and operating expenses, but it leaves out the payment of tax. This measure combines all
of the company's profits before tax, including operating, non-operating, continuing operations
and non-continuing operations. PBT exists because tax expense is constantly changing and
taking it out helps to give an investor a good idea of changes in a company's profits or earnings
from year to year.

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YEAR PROFIT BEFORE TAX (IN RS. CRORE)
2006-07 0.99.
2007-08 1.24
2008-09 1.51
Interpretation: The profit before tax is rising in a consistent rate showing a very positive
trend from Rs. 0.99 crore in years 2006-07 to Rs. 1.51 crore in 2008-09.
Profit after tax (PAT)

It the net profit earned by the company after deducting all expenses like interest, depreciation
and tax. PAT can be fully retained by a company to be used in the business. However dividend is
paid to the share holders from this residue.
YEAR SALES(IN RS CRORE)

2006-07 0.83
2007-08 0.81
2008-09 1.07
Interpretation: The profit after tax is rising in a consistent rate showing a very positive
trend from Rs. 0.83 Crore in the year 2006-07 to Rs. 1.07 crore in 2008-09.Company paid
dividend to its shareholder’s from this residual amount.

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ANALYSIS OF SHORT – TERM FINANCIAL POSITION
OR TEST OF LIQUIDITY
The short –term creditors of a company such as suppliers of goods of credit and
commercial banks short-term loans are primarily interested to know the ability of a firm to meet
its obligations in time. The short term obligations of a firm can be met in time only when it is
having sufficient liquid assets. So to with the confidence of investors, creditors, the smooth
functioning of the firm and the efficient use of fixed assets the liquid position of the firm must be
strong. But a very high degree of liquidity of the firm being tied – up in current assets. Therefore,
it is important proper balance in regard to the liquidity of the firm.
FINANCIAL STATISTICS OF KAMAL SOLVENT
Year 2006-07 2007-08 2008-09

(In Rs. crore) (In (In Rs.
Rs.crore) crore)
NET SALES 49.95 59.43 82.46
PAT(profit 0.834 0.806 1.075
after tax)
PBT(profit 0.995 1.24 1.51
before tax)
DEBT 1.86 3.50 4.14
FIXED 5.29 4.80 4.52
ASSETS
CURRENT 6.02 9.98 10.81
ASSESTS
CURRENT 1.890 2.533 3.6045
LIABILITES
RESERVE 1.604 2.49 3.566
AND
SURPLUS
CAPITAL 9.58 12.40 11.912
EMPLOYED

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LIQUIDITY RATIOS
LIQUIDITY RATIOS -
Liquidity refers to the ability of a firm to meet its short-term financial obligations when
and as they fall due. The main concern of liquidity ratio is to measure the ability of the firms to
meet their short-term maturing obligations. Failure to do this will result in the total failure of the
business, as it would be forced into liquidation.
In this way we can say that Liquidity refers to the ability of a firm to meet its current
obligations as and when these become due. The short-term obligations are met by realizing
amounts from current, floating or circulating assets. The current assets should either be liquid or
near about liquidity. These should be convertible in cash for paying obligations of short-term
nature. The sufficiency or insufficiency of current assets should be assessed by comparing them
with short-term liabilities. If current assets can pay off the current liabilities then the liquidity
position is satisfactory. On the other hand, if the current liabilities cannot be met out of the
current assets then the liquidity position are bad Common liquidity ratios including the current
ratio, the quick ratio and the operating cash flow ratio.

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1. Current Ratio -
The current ratio is a popular financial ratio used to test a company's liquidity (also
referred to as its current or working capital position) by deriving the proportion of current assets
available to cover current liabilities.
The concept behind this ratio is to ascertain whether a company's short-term assets (cash,
cash equivalents, marketable securities, receivables and inventory) are readily available to pay
off its short-term liabilities (notes payable, current portion of term debt, payables, accrued
expenses and taxes). In theory, the higher the current ratio, than the liquidity position of the
company is also better to fulfill its short-term liabilities obligations.
Rule of thumb -
1. Relatively high ratio values mean that the business is liquid, but cash is not working.
2. If the current ratio is greater than 1.0, the business is liquid.
3. If the current ratio is less than 1.0, the business is illiquid.
Formula for calculating current ratio is -

Current ratio = Total current assets / Total current liabilities
Current assets = Cash + Marketable securities + Bill receivables + Sundry debtors +
Inventories.
Current liabilities = Outstanding expenses + Bill payable + Dividend payable etc.
YEAR CURRENT ASSETS CURRENT CURRENT

(in Rs. crore) LIABILITIES (in Rs. RATIO
crore)
2006-07 6.02 1.89 3.18
2007-08 9.98 2.53 3.94
2008-09 10.81 3.60 3.00

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Interpretation: As we know that ideal current ratio for any firm is 2:1. If we see the current
ratio of the company for last three financial years it has increased from 2006-07 to 2007-08 but
decrease in the year 2008-09 in spite of this it is more than 1.0 it means the business is liquid
and in all the years’ current ratio of company is more than the ideal ratio. This depicts that
company’s liquidity position is sound and the current assets of the company is sufficient to fulfill
its short-term liabilities obligation.
2. Quick ratio - The quick ratio -the quick assets ratio or the acid-test ratio -is a liquidity
indicator that further refines the current ratio by measuring the amount of the most liquid
current assets there are to cover current liabilities. The quick ratio is more conservative
than the current ratio because it excludes inventory and other current assets like prepaid
expenses, which are more difficult to turn into cash. Therefore, a higher ratio means a more
liquid current position.
Rule of thumb -
1. Relatively high ratio values mean that the business is liquid, but cash is not working.
2. If the current ratio is greater than 1.0, the business is liquid.
3. If the current ratio is less than 1.0, the business is illiquid.
Formula for calculating quick ratio is -

Quick ratio = Total current assets – Inventory- Prepaid expenses / Total current liabilities.
YEAR CURRENT PREPAID INVENTORIES( CURRENT QUICK

ASSETS(in EXPENSES(i in Rs. crore) LIABILITIES(i RATIO
Rs. crore) n Rs. crore) n Rs. crore)
2006-07 6.02 0.057 3.34 1.89 1.38
2007-08 9.98 0.118 5.12 2.53 1.87
2008-09 10.81 0.0718 4.24 3.60 1.80

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Interpretation: A quick ratio is an indication that the firm is liquid and has the ability to
meet its current liabilities in time. The ideal quick ratio is 1:1. Company’s quick ratio is more
than ideal ratio. This shows company has no liquidity problem and it can easily fulfill its short-
term obligations.
3. SUPER /ABSOLUTE QUICK RATIO -
Although receivables, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately or in time.
So absolute liquid ratio should be calculated together with current ratio and acid test ratio so as
to exclude even receivables from the current assets and find out the absolute liquid assets.
Absolute Liquid Assets includes:
Formula for calculating super quick ratio is -

Absolute liquid ratio = Absolute liquid assets / current liabilities
Absolute liquid assets = Cash & Bank balances + Investment in govt. securities.
YEAR CASH BAL + CURRENT SUPER

BANK BAL + LIABILITIES QUICK
INVESTMENT (in Rs. crore) RATIO
IN GOVT.
SECURITIES.
(in Rs. crore)
2006-07 0.43 1.89 0.22
2007-08 0.82 2.53 0.32
2008-09 1.31 3.60 0.36

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Interpretation: From the above calculated super quick ratio it is clear that company carries
some amount of cash to fulfill its short term liabilities obligation. And there is nothing to be
worried about the lack of cash because company has reserve, borrowing power & long term
investment.
4. CASH RATIO : This is the ratio in which we establish relationship between cash and
bank balance to current liabilities. With the help of this ratio we can find out the ratio of
cash & bank balance against the current liabilities of the company.
Formula for calculating cash ratio is -
YEAR CASH & CURRENT CASH Cash ratio = Cash + Bank

BANK BAL. LIABILITIES(i RATIO balance / Current liabilities
(in Rs. crore) n Rs. crore)
2006-07 0.43 1.89 0.22
2007-08 0.82 2.53 0.32
2008-09 1.31 3.60 0.36
Interpretation The cash ratio of the company increase from0.22 in the year 2006-07 up to
0.36 in the year 2007-08 and the calculated ratios shows that company have sufficient portion of
cash and bank balance against its current liabilities.
PROFITABILITY RATIOS : The main objective of any business concern is to earn maximum
profit and at the same time, it is the effort of every concern to earn maximum profit not only in
absolute terms but also in relative terms either profit should be maximum in relation to capital

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employed and entrepreneurial risks. An ability to earn maximum from the maximum use of
available resources by the business concerns is also known as profitability.
5. Gross profit ratio - This ratio expresses the relationship between gross profits and Net
sales, net sales means credit + cash sales – sales return. With the help of this ratio we can
find out that gross profit is how much percentage of the net sales.
The formula for computing this ratio is as under –
Gross profit ratio = Gross profit / sales × 100

Gross profit = Sales – Cost of goods sold
Cost of goods sold = Opening stock + Purchase + Direct exp. – Closing stock
YEAR Net COST OF GROSS GROSS

SALES GOODS PROFIT.(in PROFIT
.(in Rs. SOLD.(in Rs. crore) RATIO
crore) Rs. crore)
2006-07 49.95 44.29 5.66 11.33%
2007-08 59.43 55.40 4.03 6.79 %
2008-09 82.46 77.57 4.89 5.93 %
Interpretation: From the above graph it is clear that gross profit ratio of the firm decreases
from 11.33% in the year 2006-07 to 5.93% in the year 2008-09.
6. NET PROFIT RATIO It is also called as Net profit to sales ratio. It measures
relationship between Net operating profit and sales and as such is expressed as percentage
to sales. We can calculate net profit of the company after deducting various expenses like
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administrative expenses, financial expenses, sales expenses etc means here we consider
profit before taxation.
The formula for computing this ratio is as under –
Net profit ratio = Net profit × 100 / sales
YEAR NET PROFIT. SALES .(in Rs. NET PROFIT

(in Rs. crore) crore) RATIO
2006-07 0.99 49.95 1.99 %
2007-08 1.24 59.43 2.10 %
2008-09 1.51 82.46 1.83 %
Interpretation: Net profit ratio is an indicator of operational efficiency or inefficiency.

Higher the ratio of net profit to sales is, better is the operational efficiency of the concern. From
the above graph it is clear that net profit ratio is 1.99% in the year 2006-07 than it increases up to
2.10% in the year 2007-08 than decreases 1.83% in the year 2008-09 due to global recession.

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7. OPREATING RATIO –
This ratio establishes the relationship between total operating expenses and sales. Total
operating expenses include cost of goods sold, administrative expenses, financial expenses and
selling and distribution expenses and with the help of this ratio we can easily find out that
operating expenses are how much percentage of the total sales.
The ratio is calculated by the following formula –

Operating ratio = (cost of sales + other operating expenses)/sales × 100
Operating expenses = cost of goods sold + administrative expenses + financial expenses +

selling and distribution expenses.
YEAR COST OF OPREATING SALES .(in Rs. OPREATING

SALES .(in Rs. EXPENSES .(in crore) RATIO
crore) Rs. crore)
2006-07 44.29 1.92 49.95 92.51%
2007-08 55.40 2.46 59.43 97.35 %
2008-09 77.57 2.71 82.46 97.35 %
Interpretation : From the above diagram it is clear that operating ratio is 96.51% in the year
2006-07 and it is continuously same 97.35% in the year 2007-08 and 2008-09.

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8. Expenses ratio – With the help of expenses ratio we can easily find out that expenses
like selling, administrative and financial are how much percentage of the net sales of the
company.
The formula for calculating expenses ratio is –
Expenses ratio = Expenses/sales × 100

YEAR EXPENSES.(in SALES .(in Rs. EXPENSES
Rs. crore) crore) RATIO
2006-07 1.92 49.95 3.84 %
2007-08 2.16 59.43 3.63%
2008-09 2.71 82.46 3.28 %
Interpretation: From the above graph it is clear that the expenses ratio is 3.84% of the sales
in the 2006-07, than its decrease and become 3.63% in the year 2007-08 and then again decrease
and became 3.28 % in the year 2008-09.
TURNOVER RATIO
9. RECEIVABLE/DEBTORS TURN OVER RATIO – With the help of this ratio
we can easily measure the predictable amount which is has to receive from the debtors. If
the debtors turnover ratio is more than this condition is good for our business because if the
ratio is more than it means company will receive the amount from debtors very quickly.
This ratio also provides help to reduce doubtful debt and on the second hand it provides
help to the firm for the creation of the various funds which is useful for the other
profitability activities of the company.
The formula for calculating receivable turnover ratio –
Receivable turnover ratio – Credit sales / Debtors + Bills receivable

Page 29
YEAR DEBTORS .(in CREDIT RATIO

Rs. crore) SALES .(in Rs.
crore)
2006-07 1.86 49.95 27
2007-08 3.50 59.43 17
2008-09 4.14 82.46 20
Interpretation: From the above graph it is clear that in the various different year the Debtors
turnover ratio is also different and with the help of this ratio company can easily measure
predictable receive amount from the debtors.
10. AVREAGE/DEBT COLLECTION PERIOD – With the help of this ratio we can
easily find out that in how many days the amount of credit sales will receive. Every
industry has set its own standard for the average collection period. If the calculated average
collection period is less than standard one than this situation is good for the company but if
it is more than this situation is not consider good for the company.
The formula for calculating average collection period is
Average collection period = Debtors + bills receivable / credit sales × 365

Page 30
YEAR DEBTORS .(in SALES.(in Rs. DAYS
Rs. crore) crore)
2006-07 1.86 49.95 14
2007-08 3.50 59.43 22
2008-09 4.14 82.46 18
Interpretation: So in this way with the help of this ratio we can easily find out that in how
many days the amount of credit sales will receive. Every industry has set its own standard for
average collection period. If the calculated average collection period is less than standard than it
is good for the industry but if it’s more than standard one than it is not consider good for the
industry.
11. CREDITORS/PAYMENT TURNOVER RATIO - This is ratio is just reverse

of the debtors turnover ratio the only difference is that with the help of this ratio we can
easily find out the condition or the level of the firm for the payment of the credit purchase.
The formula for calculating payment turnover ratio is
Payment
YEAR CREDITORS. CREDIT PAYMENT turnover ratio =
(in Rs. crore) PURCHASE.(in TURN OVER
Credit
Rs. crore) RATIO
purchase/Credit
2006-07 1.89 36.90 19.52
ors + Bills
2007-08 2.53 47.95 18.92
payable
2008-09 3.60 67.47 18.71

Page 31
Interpretation: So from the above graph we got different creditors turnover ratio in
different years and this ratios shows the company ability or level for the payment to its
creditor’s.
12. AVERAGE PAYMENT PERIOD - With the help of this ratio we can easily find out that
in how many days company will pay to its creditors.
The formula for calculating average payment period is
Average payment period = creditors + bills payable / credit purchase × 365

Page 32
YEAR CREDITORS. CREDIT PAYMENT
(in Rs. crore) PURCHASE.(in TURN OVER
Rs. crore) RATIO
2006-07 1.89 36.90 19
2007-08 2.53 47.95 19
2008-09 3.60 67.47 19
Interpretation: This ratio is similar with average collection period the only difference is
that with the help of this ratio we can find out that in how many days company will pay to its
creditor’s. This ratio is very important for the business from the creditor’s point of view.
13.Total Assets Turnover Ratio: This ratio is also known as the investment
turnover ratio. It is based on the relationship between the costs of goods sold or net sales
divided by total assets of a firm which is reflected in its earning power. Formula for
calculating this ratio is
Total assets turnover = Net sales / Total assets
YEAR TOTAL NET SALES.(in TOTAL

ASSETS.(in Rs. Rs. crore) ASSETS TURN
crore) OVER RATIO
2006-07 11.47 49.95 4.35
2007-08 14.73 59.43 4.03
2008-09 15.51 82.46 5.31

Page 33
Interpretation: From the graph it is clear that total assets turnover ratio is 4.35 in the year
2006-07 than it become 4.03 in the year 2007-08 and then it increases and become 5.31 in the
year 2008-09.
14. INVENTORY TURN OVER RATIO –
This is also called as stock turnover ratio or stock velocity. This ratio is calculated to consider the
adequacy of the quantum of capital and its justification for investing in stock or inventory.
Inventory turnover is the number of times obtained by dividing cost of sales by average stock.
The formula for calculating inventory turnover ratio is –

Inventory turnover ratio = Cost of goods sold / average stock
Formula for calculating average stock = opening stock + closing stock / 2
YEAR Cost of goods Average stock . Inventory turn

sold.(in Rs. over ratio
crore) (in Rs. crore)
2006-07 44.29 4.68 9.46
2007-08 55.40 4.23 13.09
2008-09 77.57 2.53 30.66

Page 34
Interpretation: This ratio is also known as merchandise turnover ratio. If inventory turnover
ratio of the company is more than it is clear that the working activities of the company will also
be good and company will work on lower profit rate also from the above graph it is clear that
inventory turnover ratio is increase with a high rate in the year 2008-09 .
15. Fixed Asset Turnover Ratio :

This ratio is a rough measure of the productivity of a company's fixed assets (property, plant
and equipment or PP&E) with respect to generating sales. For most companies, their investment
in fixed assets represents the single largest component of their total assets. This annual turnover
ratio is designed to reflect a company's efficiency in managing these significant assets. Simply
the higher the yearly turnover rate, the better.
It represents a multiplicity of management decisions on capital expenditures.
Fixed turnover ratio = net fixed assets / sales
YEAR NET FIXED NET SALES . FIXED

ASSETS.(in Rs. (in Rs. crore) ASSETS TURN
crore) OVER RATIO
2006-07 5.29 49.95 0.106
2007-08 4.80 59.43 0.080
2008-09 4.52 82.46 0.054
Interpretation: From the above graph it is clear that fixed assets turnover ratio is 0.106 in
the year 2006-07 and then it increases in the year 2007-08 and become 0.080 in this year and
then it again decreases in the 2008-09 and become 0.054.

Page 35
16. PROPRITEARY TURN OVER RATIO –
It is the ratio of proprietor’s fund or owner’s equity to total assets. It is also called net worth to
total assets ratio because proprietor’s fund is also known as net worth. It indicates the strength of
financial foundation of the concern and serves as a measure of ultimate or long term solvency.
The formula for calculating proprietary turnover ratio is –
Proprietary turnover ratio = owner’s equity / total assets
Owner’s equity = share capital + reserve & surplus

YEAR Share Reserve & Owner’s Total assets. Propriteary
capital .(in Surplus equity.(in Rs. turn over ratio
Rs. crore) crore) (in Rs. crore)
2006-07 1.67 1.604 3.27 11.47 0.28
2007-08 1.67 2.491 4.16 14.80 0.28
2008-09 1.67 3.566 5.23 15.51 0.33
Interpretation: If the proprietary ratio of the company is more than the payment capability of
the company is good and the creditors of the company are more secure and if the creditor’s of the
company are more secure than this condition is financially good for the company, from the above
graph it is clear that proprietary turnover ratio is same in the both first two financial year’s and it
Increase more in the year 2008-09.
VARIOUS SOLVENCY RATIO’S: With the help of the various solvency ratios
we can easily find out the payment capability of the firm against its short term or long term
liabilities. We can divide the various solvency ratios on the two bases –
1. Short- term solvency- With the help of this ratio’s we can easily test the company ability
for the payment of its short term liabilities in this we can say that in this ratio we can
Page 36
easily test the liquidity position of the company which we had already done earlier in the
project.
2. Long-term solvency – With the help of this ratio’s we can easily test the company ability
for the payment of its long term liabilities. This ratio is also known as Ratios of financial
position or Stability ratio’s.
1. Debt-Equity Ratio:
The debt-equity ratio is another leverage ratio that compares a company's total liabilities
to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors
and obligors have committed to the company versus what the shareholders have committed.
To a large degree, the debt equity ratio provides another vantage point on a company's leverage
position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets
in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using
less leverage and has a stronger equity position.
Debt equity ratio = external equities / internal equities
Internal equities / owner’s equities = Share capital + Reserve & surplus
External equities = Current liabilities + long term liabilities

Page 37
YEAR Share Reserve CURRENT Long EXTERNAL INTERNA DEBT
capital &
.(in Surplus LIABILITIE term EQUITIES. L EQUIT
Rs. S (in Rs. liabilite (in Rs. crore) EQUITIES Y
crore)
crore) s .(in Rs. RATIO
crore)
2006- 1.67 1.604 1.89 5.67 7.56 3.27 2.31
07
2007- 1.67 2.491 2.53 7.68 10.21 4.16 2.45
08
2008- 1.67 3.566 3.60 6.29 9.89 5.23 1.88
09
Interpretation: The financing of total assets of a business concern is done by internal equity
as well as by external equity. How much fund has been provided by the owner’s and how much
by outsiders in the acquisition of total assets is a very significant factor affecting the long term
solvency position of the concern. So from the above diagram it is clear that ideal relationship is
established between total assets, owners, equity and outside debts.

Page 38
2. SOLVENCY RATIO – With the help of this ratio we can easily find out that the
amount which is received from the sales is suitable for the payment of the external
liabilities or not. Formula for calculating solvency ratio is
Solvency ratio = Total outside liabilities / Total assets
Total outside liabilities = Current liabilities + long term liabilities
YEAR Total outside Total assets.(in Solvency ratio

liabilities .(in
Rs. crore) Rs. crore)
2006-07 7.56 11.47 0.65
2007-08 10.21 14.93 0.68
2008-09 9.89 15.61 0.63
Interpretation: From the above graph it is clear that solvency ratio is different in the different
years it is 0.65 in the year 2006-07 than it increased and become 0.68 in the year 2007-08 than
again decrease in the year 2008-09 and become 0.63.

Page 39
Chapter – 5
• Findings
FINDINGS

Page 40
1. The current ratio shows in fluctuating trends as 3.18 in the year 06-07, 3.94 in the year
07-08 and 3.00 during the year 08-09 .This shows continuous increases in both current
assets and current liabilities.
2. The quick ratio is also in a fluctuating trend throughout the period 06 – 07 to 08-09
resulting as 1.38, 1.87 and 1.80. This shows the company’s present liquidity position is
satisfactory.
3. The super quick ratio also shows increases fluctuating trend throughout the period 06-07
to 08-09 resulting as 022, 0.32 and 0.36. This shows that industries can easily change its
current assets in to the liquidity form.
4. The gross profit ratio of the industry has been decreased from 11.33% to 5.93% from the
year 06-07 to 08-09.
5. The net profit ratio is 1.99% in the year 06-07 than it increases and become 2.10% in the
year 07-08 and then again decreases and become 1.83% in the year 08-09.
6. The operating profit ratio is 92.51% in the year 06-07 and then it become constant
97.35% in both the financial year 07-08 and 08-09.
7. The expenses ratio of the industry has been decline from 3.84% to 3.28% from the year
06-07 to 08-09.
8. The debtor’s turnover ratio is 27 in the year 06-07 then it decline and become 17 in the
year 07-08 and then it become 20 in the year 08-09.
9. The debt collection period is 14 days in the year 06-07 and then it increases and become
22 days in the year 07-08 and then again decreases and become 18 days in the year 08-09.
10. The payment turnover ratio is 19.52 in the year 06-07 and then it become 18.92 in the
year 07-08 and then it become 18.71 which is a little bit decline in the year 08-09.
11. The payment turnover ratio is 19 days which is constant for every financial year.
12. The total turnover ratio is increases from 4.35 to 5.31 from the year 06-07 to 08-09.
13. The inventory turnover ratio is 9.46 in the year 06-07 and then it increases and become
13.09 in the year 07-08 and then it increases more and become 30.66 in the financial year
08-09.
14. The fixed assets turnover is 0.106 in the year 06-07 and then it decline and become 0.080
in the year 07-08 and then again decline and become 0.054 in the financial year 08-09.
Page 41
15. The proprietary turnover ratio is 0.28 which is constant for both financial year 06-07 and
07-08 and then it increases and become 0.33 in the year 08-09.
16. The debt equity ratio shows a fluctuating trend it is 2.31 in the year 06-07 and then it
increases and become 2.45 in the year 07-08 and then again decline and become 1.88 in
the year 08-09.
17. The solvency ratio also shows a fluctuating trend it is 0.65 in the year 06-07 and then it
increases and become 0.68 in the year 07-08 and then again decline and become 0.63 in
the year 08-09.

Page 42
Chapter – 6
• Recommendations
Recommendations

Page 43
1. The net sales of the company in 2008-09 is Rs. 82.46 crore which is more than the
previous financial years 2007-08 & 2006-07 it shows that the productivity of the industry
increases day by day and industry should adopt new technologies to improve
productivity.
2. Industry produces four types of rice bran oil Kamal, Rajkamal, Nilkamal & Rasoyee.
Rosyee is the new packaging product which has to be promoted by the company in to its
market areas.
3. The ideal current ratio should be 2:1, and from calculating the current ratio’s of previous
three years financial year it is found that in each year it is always more than 1, it show
that firm have sufficient current assets to fulfill its current liabilities but industry should
maintain more funds also to fulfill its short term obligations .
4. The industry should adopt proper inventory management system to maintain its inventory
turnover ratio.
5. Profit after the tax of the company increases by 29 % so the company should adopt a
proper dividend policy for the shareholder’s.
6. Industry should adopt proper depreciation method for the right valuation of its fixed
assets .

Page 44
Chapter – 7
• Conclusion
Conclusion

Page 45
From the ratio analysis of the industry we come to know about the profitability and
obligations payment capability of the industry. Various liquidity and turn over ratios indicate the
liquidity capability and long term debts and its impact on overall financial position of the firm.
Liquidity ratios give idea how to maintain the liquid assets of the company to fulfill the short
term liabilities. From the analysis of the various financial ratios of KAMAL SOLVENT
EXTRACTIONS PVT LTD, we found that the company follows aggressive policy of managing
liquidity & company have sufficient liquidity assets to satisfy its short term liabilities. The
company is earning huge profits and is in good financial health.
The company is in sound financial health. This indicates the managerial efficiency of the
company. The company does not have unnecessary funds tied up in the form cash or any current
assets increasing the liquidity and thus decreasing the profitability of the company. As there is a
tradeoff between profitability and liquidity the firm maintains current assets up to the level
necessary for the smooth functioning of the business.

Page 46
Chapter – 8
• Sources and Bibliography
Sources and Bibliography
• Www. Kamalsol.com
• www.wikipedia.com
• Official records of the industry
• MANAGEMENT ACCOUNTING – Dr. S.P. Gupta

Page 47
• FINANCIAL MANAGEMENT - Dr. S.P. Gupta

Page 48

Project Report On Ratio Analysis of Kamal Solvent Extractions PVT Ltd.

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Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd.

• Introduction of Ratio analysis

R.C.E.T, Bhilai M.B.A – 09 -11

INTRODUCTION OF RATIO ANALYSIS

Ratio may be expressed in either of the following ways –

2. In rate or times or coefficient – In this form quotient obtained by dividing one

3. In percentage – In this form, a quotient obtained by dividing one item by another is

R.C.E.T, Bhilai M.B.A – 09 -11

A Project report on Ratio Analysis of Financial Statements on KAMAL SOLVENT

OBJECTIVES OF THE PROJECT

➢ To interpret the analysis and the trend of the financial results.

R.C.E.T, Bhilai M.B.A – 09 -11

➢ Respondents and finance department of KAMAL SOLVENT EXTRACTIONS

➢ Published collections of data.

➢ Financial sites on the internet.

➢ Official web site of the company.

R.C.E.T, Bhilai M.B.A – 09 -11

R.C.E.T, Bhilai M.B.A – 09 -11

R.C.E.T, Bhilai M.B.A – 09 -11

Name of the company City

R.C.E.T, Bhilai M.B.A – 09 -11

KAMAL SOLVENT EXTRACTIONS PVT LTD

PRODUCTS OF KAMAL SOLVENT - The products of Kamal solvent is divided in

R.C.E.T, Bhilai M.B.A – 09 -11

Features of Kamal solvent products –

• Premium quality – Kamal produced in world class specially developed process

• Longer shelf life.

R.C.E.T, Bhilai M.B.A – 09 -11

R.C.E.T, Bhilai M.B.A – 09 -11

RATIO ANALYSIS: - A ratio is a simple arithmetical expression one number to another.

THE USE OF FINANCIAL RATIOS:

• Assessment of the firm’s past, present and future financial conditions.

• Done to find firm’s financial strengths and weaknesses.

• It is a type of primary tools for the company.

• For the analysis of the Financial Statements.

• Comparison of financial ratios to past, industry, sector and all firms

R.C.E.T, Bhilai M.B.A – 09 -11

SIGNIFICANCE OF USING RATIOS:

• It is compared with other ratios in the same set of financial statements.

MANAGERIAL USES OF RATIO ANALYSIS : The following are the important

• Evaluation of Operating Efficiency : Ratio analysis throws light on the degree of

R.C.E.T, Bhilai M.B.A – 09 -11

• Communication Value: Different financial ratios communicate the strength and

TYPES OF RATIO ANALYSIS

a. Gross profit ratio

b. Net profit ratio

a. Debtors turnover ratio

b. Creditors turnover ratio

c. Average collection period

d. Average payment period

e. Inventory turnover ratio

f. Total assets turnover ratio

g. Fixed assets turnover ratio

h. Proprietary turnover ratio

R.C.E.T, Bhilai M.B.A – 09 -11

c. Super quick ratio

1. Various solvency Ratios

R.C.E.T, Bhilai M.B.A – 09 -11

USERS OF RATIO ANALYSIS:

• MANAGEMENT: of the firm would be interested in every aspect of the financial

LIMITATIONS OF RATIO ANALYSIS -

• A firm’s industry category is often difficult to identify.