my project

Equipment Leasing

Development Finance Institutions (DFIs)

Non-bankingfinancial companies (NBFCs)

Insurance companies

NBFIs

Primarydealers (PDs)

Mutual Funds

Hire Purchase Leasing

Loan Company

Investment Company

INDUSTRY PROFILE

NON-BANKING FINANCIAL INSTITUTIONS (NBFIs)

Non-Banking Financial Institutions (NBFIs) play an important role in the Indian financial

system given their unique position of providing complimentary and competitiveness to

banks. They score over the traditional banks by providing enhanced equity and risk-based

products.

The Hierarchy of NBFCs in India

New horizon college of engineering Page 1

NONBANKING FINANCIAL COMPANY (NBFC)

Non-Banking Financial Company (NBFC) is a company registered under the Companies

Act, 1956. It is engaged in the business of loans, securities, insurance, chit funds etc

They also provide products/services that includes margin funding, leasing and hire

purchase, corporate loans, investment in non-convertible debentures, IPO funding, small

ticket loans, venture capital etc.

As in the diagram, NBFCs are classified into four categories

1. Hire- Purchase Leasing

2. Loan Company

3. Investment Company

4. Equipment Leasing Company

Some of the prominent NBFCs in India are

Infrastructure Development Finance Corporation (IDFC)

Rural Electric Corporation ( REC)

Industrial Finance corporation of India (IFCI )

GE Capital

Till March 2009 there were 12,739 NBFCs out of which 336 NBFCs were permitted to

accept public deposits

NBFCs: Why are they required?

NBFCs are required as they have a greater reach to various markets and have great

efficiency in mobilizing funds. Generally banks to reduce their operational costs establish

NBFC. NBFC enjoys many liberal policies by RBI in comparison with the commercial

banks. However this scenario is changing. RBI now has strict measures for NBFCs also.

NON BANKING FINANCIAL COMPANY

Financial institutions in India mainly classified in to two.

1. Banking institutions

2. Non banking financial institutions


NON BANKING FINANCIAL COMPANIES

A nonbanking financial company (NBFC) can be defined as “any hire purchase,

housing, financial investment loan equipment leasing or mutual benefit financial

company but does not include insurance company or stock exchange or stock broking.

Some of the financial institutions have been notified as public financial institutions by the

government of India under the section 4A of the companies Act 1956. Today there are

large number of Non-banking companies in India, NBFC render financial services similar

to commercial banks and financial institutions in the country.

NBFC receives deposits from the public in various ways such as issue of debentures, unit

certificates, saving certificates, subscriptions etc. They advance loans to wholesale and

retail traders, small scale industries and self employee persons. There is no minimum

liquidity ratio or cash ratio and specific ratio between their owned funds and deposits in

the case of Non-banking companies.

In a broad sense unit trust of India, industrial development bank of India and

various other state financial corporations and state run chit funds represent NBFI in the

public sector. In the private sector loan companies, investment companies, hire purchase

companies, leasing companies, chit and fund companies etc come under the group of

NBFIs. Technically all financial institutions other than banks belong to the group of

NBFIs.

Kerala state financial enterprise called KSFE is also non banking financial

institution. They market their chitties and gave loans to the society for their welfare and

growth. The KSFE Ltd plays a very important role in the fulfillment and welfare of the

society. In exact meaning, they market their funds for their growth and development of

the society.


NON BANKING FINANCIAL COMPANIES AND BANKS

SIMILARITY BETWEEN NBFC AND BANKS

Bank and NBFCs essentially performs the functions of the financial

intermediation in the economy

Banks and public deposits accepting NBFCs are also competing for sources of

funds in certain schemes of the credit markets.

There regulatory design has serious implication for the efficiency of the financial

system, as well as the financial stability

DIFFERENCE BETWEEN NBFC’s AND BANKS

NBFCs cannot accept demand deposits ( Demand deposits are funds deposited in

an institution, that are payable immediately on demand e.g.: Savings account,

Current account etc)

A NBFC cannot issue cheques, to their customers and is not a part of the payment

and settlement system

Deposit insurance facility of Deposit Insurance Credit Guarantee Corporation

(DICGC) is not available for NBFC depositors

They are allowed to accept/renew public deposits for a minimum period of 12

months and maximum period of 60 months.

They cannot offer interest rates higher than the ceiling rate prescribed by RBI

from time to time. (Currently the ceiling rate is 12.5%)

They cannot offer gifts/incentives or any other additional benefit to the depositors.

They should have minimum investment grade credit rating, from the credit rating

agencies

CLASSIFICATION OF NBFC’s ACCORDING TO RBI(i) NBFC accepting deposits from customers

(ii) NBFC which does not take deposits from customers


NBFCs taking deposits from public are referred to as NBFC-D and those who

dont take public deposits are referred to as NBFC- ND

Those NBFCs NBFCs-ND with an asset size of Rs.100 crore and above (as per

the last audited balance sheet) are designated as systemically important NBFCs-

ND (NBFCs-ND-SI)

NBFCs-ND-SI are advised to attain minimum CRAR of 12 per cent by March 31,

2010 and 15 per cent by March 31, 2011

REGULATIONS ON NBFC’s TAKING DEPOSITS

All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a

valid certificate of registration with authorization to accept public deposits can

accept/hold public deposits

New NBFCs are not allowed to raise public deposits for period of two years from

the date of registration. After completion of two years, detailed review is taken of

the company by the regulator

The NBFCs are allowed to accept/renew public deposits for a minimum period of

12 months and maximum period of 60 months. They cannot accept deposits

repayable on demand

NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI

from time to time. The present ceiling is 12.5 per cent per annum. The interest

may be paid or compounded at rests not shorter than monthly rests.

NBFCs cannot accept deposits from NRI except deposits by debit to NRO account

of NRI provided such amount do not represent inward remittance or transfer from

NRE/FCNR account.

NBFCs with net owned fund (NOF) of less than Rs. 25 lakhs (with or without

credit rating) are not entitled to accept public deposits

Evaluation of the quality of management in respect of the promoters/directors is

taken into consideration while giving allowance for taking public deposits


COMPANY PROFILE

THE KERAL STATE FINANCIAL ENTERPRISES LTD

The Kerala state financial enterprises limited popularly known as KSFE Ltd

It is a profit making institution in Kerala, especially in chit and loan business

It was created by the Govt of Kerala for the purpose of providing an alternative to

the private and unorganized chit operators or make a control on chit fund business

and save the public from the hands of cut-throat chit fund operators

It is a non banking financial company

Another important is that, funds raised by the KSFE Ltd through chitty and

deposits are used by the public in Kerala and not to other state

It provides dividend and other charges to government of Kerala .so it is a major

source of fund and profit to the government

Contribute immensely towards the economy

HISTORY OF KSFE LTD

We have a number of financial companies operating in Kerala. But KSFE marked it’s

longed in golden letters due to it’s success. It’s history is very powerful support to any

other financial enterprises. KSFE starts it’s golden journey from 1969 as a miscellaneous

Non Banking Financial Company owned by the Government. It’s main objective was to

provide an alternative to private chit fund operators with a view to bring a control over

chit fund business. Thus the company can save the public from the hands of cut throat

chit operators.

The KSFE had started it’s success with a humble manner with a paid up capital of

Rs.2 lakhs, 10 branches, and 40 employees. But now, it is showing like a huge tree with

more than 4500 employees, directly with a network of 300 branches. Since it’s inspection,

the institution has been registering attractive profit every year. Today KSFE is the number

one in chit fund business in India. That company has been on a fast track, as far as the

growth of business is concerned. It has been able to register an average annual growth of

3% over the past many years.


Thus the legend of the growth of the KSFE Ltd started from a small company. The

company conduct chitties for different sections of the festivals. That is KSFE start new

chittes at the time of festival like onam under the name of “Ponnona Chitty”. It also

provide loans and advances small traders for working capital needs and to acquire house

hold durables motor vehicles and equipments. Thus chitty happens to been the main

business of the company and it does a yearly chitty business of over 1000 crores in 2007-

2008.

STARTING OF KSFE LTD

The KSFE Ltd started on 6th November 1969 by the government of Kerala

The working capital was Rs.2 lakh.

The head office of KSFE Ltd is placed in Chembukavu at Thrissur.

The total number of workers in KSFE was 45.

The total number of branches of KSFE at the beginning was 10.

PRESENT SCENARIO OF KSFE LTD

Up to the month of july 2008,the following trends are maintained by KSFE Ltd.

The working capital is Rs.15 crores

Total number of employees is more than 4500.

The number of branches is nearly 300.

The number of customers is more than 20 lakhs

Annual business is Rs.5000 crores

Loans and chitty, are the main business of the company and presently does a

monthly business of curries and loans are over 200 crores, and 135 crores respectively.

The company introduced a tie up with “western union” for money transferred from

abroad serving it’s customers through the branches spread over Kerala. The company

also make a tie up with LIC for marketing their life insurance products. The company has

also entered into a tie up with National Insurance Company Ltd. The company has also

entered into a tie up with Bajaj Allianz Insurance Company by a name ‘Santhwanam’ for

the company’s chitty prized subscribers as well as loans to cover their future liability.


The company offers attractive interest rates for their deposits and also charge

reasonable interest on their advances. The deposits are under the guarantee and

ownership of Gvt of Kerala.

The company has it’s own offices for their business. It has separate “loan unit” at

Thrissur. It handles all loans under the unit. It also provides locker facilities at nominal

charges. The company has it’s own building at Thrissur, Kollam and Trivandrum. The

corporate office is at Thrissur under the name called “Bhadratha”.

THE MISSION OF KSFE LTD

The mission of KSFE Ltd is the wellbeing of the public by it’s different products like

chitties, loans, deposits etc. for the welfare of the society. The chitties are came under the

Kerala Chitties Act 1975, which brought into force with effect from 25th august 1975. The

act is to give adequacy and safety to the funds of the society and gave good returns to

them. It also ensures lesser rate of interest for their loans and advances.

THE VISION OF KSFE LTD

Providing the whole range of quality services and products to the society.

Retaining the superior role in chitty business.

Spreading our wings beyond the boarder of Kerala, in international level.

Adopting technology and bench mark standards in customer service and

performance.

Sustaining commitment to the weaker sections of society, as the neighborhood

institutions for support, trust and security.

THE QUALITY POLICY OF KSFE

The Quality policy of KSFE is of providing Quick and Better service and their by

achieving Customer Satisfaction.


PRODUCTS AND SERVICE PROFILE

The important products introduced by KSFE Ltd are

1. Chitty

2. Loans and advances

Chitty passbook loan

New chitty loan

Golden loan scheme

Reliable customization

Consumer vehicle loan

New housing finance scheme

Trade finance scheme

Flexi trade loan

Fixed deposit loan

Tax planning loan

3. Deposit scheme

Fixed deposit and short term deposit

Sugama security deposit

Chitty deposit in trust

Chitty security deposit in trust

4. Fee based activities

Western union money transfer

Life insurance as a corporate agent of LIC

General Insurance as a corporate agent of NIC

Safe Locker facility


CHITTY

Chitty is the main product of KSFE. It is a unique financial product, which blends the advantages of both investment and advance. It is a risk free safe haven for the public as KSFE conducts only chitties fully governed by the provisions of Kerala Chitties Act, 1975. The installment per month for chitties range from Rs. 500 to Rs. 1, 00,000 and the usual duration of chitties are 30 months, 40 months, 50 months, 60 months and 100 months.

Other Schemes Offered is given below:

1. Loans & Advances

Although Chitty is in essence a loan/advance scheme, for subscribers whose chitties are not getting prized and, at the same time they are in need of money, relief has been provided by two loan schemes built within the chitty scheme, viz. Chitty Pass Book Loan and New Chitty Loan.

KSFE offers other loan/advance schemes, comparable to those given by banks and other financial institutions, and the same includes: Gold Loan Scheme, Reliable Customer Loan, Consumer/Vehicle Loan, Special Car Loan, New Housing Finance Scheme, Flexy Trade Loan, Tax Planning Loan Scheme, Fixed Deposit Loan Scheme and Sugama (Akshya) Overdraft Scheme.

2.Deposit schemes

Fixed Deposit, Short Term Deposit, Sugama Deposit (which is similar to the savings deposit in Banks), Chitty Security Deposit-in-Trust and Sugama Security Account.

3.Fee Based Activities of KSFE

Western Union Money Transfer - as sub agent of Paul Merchants Ltd, Life Insurance as a corporate agent of LIC, and General Insurance as a corporate agent of NIC.

4. Securities: From chitty subscribers and customers who avail loans/advances of KSFE, KSFE accepts various types of securities which include:Fixed Deposits with KSFE or approved Banks, Bank Guarantee, NRI Deposits, LIC Policies, National Savings Certificate (NSC), Kisan Vikas Patra (KVP), Chitty Pass Book of Non-prized Chitties, Gold Security, Post-dated Cheques, Personal surety and Property Security.


THE GROWTH OF BUSINESS OVER YEARS:

Business 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Chitty

Turnover1451.15 1595.21 1646.98 1691.07 1786.80 1992.97 2570.49

3641.

87

Advances 539.99 510.17 479.54 557.89 648.00 850.56 1025.60 1284.1

Total

Deposit1217.64 1429.68 1432.24 1304.01 1566.12 1696.83 1866.27 2239.75

Aggregate

Business3208.78 3535.06 3558.76 3552.76 4000.92 4540.36 5462.36 7165.72

AREA OF OPERATION

KSFE is the biggest non banking organization in kerala. The Corporate Office of KSFE is

at Thrissur. It has seven Regional Offices at;

i) Thiruvananthapuram

ii) Kollam

iii) Kottayam

iv) Ernakulam

v) Thrissur

vi) Kozhikode and

vii) Kannur

for coordinating and controlling the branches, KSFE spreads its business in every districts

of Kerala. and it has a number of branches in every district.

NO DISTRICT NUMBER OF BRANCHES


1 Thiruvananthapuram 53

2 Kollam 40

3 Pathanamthitta 14

4 Alappuzha 25

5 Kottayam 31

6 Edukki 7

7 Eranakulam 39

8 Thirissur 21

9 Palakkad 21

10 Malappuram 19

11 Kazhikode 24

12 Vayanad 6

13 Kannur 17

14 Kasargode 5

MANAGEMENT OF THE COMPANY

KSFE Ltd has a well management in their operations and functions. The management of

the company is vested in the hands of board of directors constituted by the governor from

time to time. The number of directors shall not be less than two and not more than nine.

The directors shall hold office during the pleasure of the governor. The governor may

from time to time appoint two directors other than the MD as the chairman and vice

chairman of the board. The first board was constituted as per the Govt. order, G.O(RE)

4876/93 financial dated 1969.The MD is appointed by the governor on such term

Director Board Members of KSFE


CHAIRMAN

Sri. Mani Vithayathil(0487)2332329 (0484)2670624 9447792000

VICE CHAIRMAN

Smt. B.SREEDEVI

(Addl. Secretary (Taxes))

(0471) 2330273

(0471) 2518484

0471 2381980 9447799900

DIRECTORS

Sri. A.K. RAMAKRISHNAN

(I.G. of Registration)

(0471) 2462608 (0471)22571119447799500

9895768608

Sri.V.RAJAPPAN

(Joint Secretary (Finance)) (0471) 2518193 (0471) 2403993 9447799600

COMPETITOR’S INFORMATION

KSFE is the biggest non banking financial company in India. They are ruling the chitty

business for the past several years. It is full owned by the government of Kerala. There is

no other chitty business existing in public sector except KSFE. But now a days they are

facing competition from some private sector chitty businesses. And private agencies

providing attractive offers to the customers. But the trust and believe of customers

towards the government made KSFE, the number one chitty business in India. Some of

the competitors are;

1. SREE GOKULAM CHITS

2.SIXAM CHITS PVT Ltd

3.MUTHOOT .M.GEORGE CHITS

4.K L M CHITS SYNDICATE

INFRASTRUCTURAL FACILITIES


Door collection agent

Advertisement agencies

Water facility

Seating Arrangement

Fire safety

Security guard

Locker system

ACHIEVEMENTS AND AWARDS

KSFE is the number one non banking financial company in Kerala. KSFE bags

“PRAVASI BHARATHI (KERALA) SHREYAS AWARD” for the year 2010. KSFE is

selected for the award on the basis of overall performance of the company during the last

year.

The Kerala State Financial Enterprises is on a path to progress and modernization. The

chit collection of KSFE in 2005-06 recorded at Rs.158 crore has been increased to Rs.

187 crore in 2006-07. In 2007-08, it has crossed Rs 260 crore. The Ponnona chits

introduced during last Onam and the golden jubilee chits introduced last year exceeded

their target. In the last financial year chit business exceeded Rs. 110 crore which is a

remarkable achievement of KSFE in its history. This is the result of the joint efforts of the

employees, management and the government. The additional target decided for the

Pravasibandhu chits was Rs.15 crore, this has reached a record of Rs.44 crore.


WORK FLOW MODEL

This is the work flow adopted by the KSFE at the time of receiving the deposits or

lending loans to their customers.

Customers: Customers approaches the KSFE with the intentions of depositing the

amount and get returns out of it .the customers also approaching KSFE for getting loans

like vehicle loan, passbook loan etc . So the customer will be looking for business plan

which pays highest rate of return or lowest rate of interest. Different options are providing

by KSFE to the customers like chitty, sugama deposit, fixed deposit etc.

Lending money& Accepting Deposits: as like banks KSFE also providing money to the

customers by the way of different loans like chitty loan, gold loan, passbook loan, trade

financing, flexi trade loan etc. the returns are comparatively higher and because the

effective returns are really higher than the published interest rates, because of monthly

payment of interest (in the case of all other institutions, the interest is paid quarterly).

KSFE accepting deposits from customers by the way of chitty, sugama deposit, fixed

deposit etc. the customer can introduced either by any existing customer or an employee

of the KSFE, the customer has to necessary documents and furnishes Ration card or any

license for address, age, and income proof.

Application review and documentation: Once the customer fills all the necessary

documents, the manager reviews the applications; KSFE tries to verify the authenticity of

the document furnished.

Decision Making: After verifying the documents the manager takes his decision on the

customer whether they have to provide loans or accept deposits.

Deposit Completed or Loan Sanctioned: The final stage of the process money

deposited will be in the account of customers. The annual interest rate in case of deposits

from the public is 7% per annum . Interest for chitty prize money deposits is 8% per

annum. Due to the monthly payment of interest, the effective rate will be higher than this

rate. Senior citizen will get 7.25% for fresh deposits and 8% for prize money deposits.

Normally 75% of the fixed deposit amount can be availed as loan.

This facility is called Fixed Deposit Loan.


AIMS AND OBJECTIVES OF KSFE LTD

The aims and objects of the company as started in memorandum of association of

the company are given below. These will give guidelines those, who study the

objectives of the company. They are,

To start, conduct, promote, manage and carry on the business of general and

miscellaneous increase of any kind in India or elsewhere.

To advance money on the security gold and other valuable securities.

To start, promote, conduct and manage the business of dealers, agents vehicle,

machinery goods, industrial and commodity use and consumption as a business of

the company or as agents of state or central government or anybody of the

organization there under or of any other company

Incidental to mail objectives such as to advance deposits with or land money securities

property or deposit from the banks, government or governmental organizations or others


Customers

Accepting Deposits & Lending Money

Decision Making

Application Review and

Deposit Completed & Loan Sanctioned

FUTURE GROWTH AND PROSPECTUS

KSFE has some future plans upon which now they are functioning in order to make the company more dynamic and profit making. The future plans of KSFE are explained below.

Making KSFE a fully computerized Company.

Opening more and more new branches, including chitty units to establish its presence in

all major centers and backward areas, aiming at effective rural penetration.

3. Introducing value additions in chitty schemes - for coping with the fierce competition

in the financial market, for more popularity and widening our customer base.

Acting as the collection agent for KSEB, KWA, etc., throughout the state.

To construct a multi-storeyed building in KSFE's own premises in Kakkanad, Cochin and

to house among others a Staff Training College for itself.

Introduction of new schemes like, Educational Loan, Agricultural Overdraft and

Cumulative Deposit Scheme.

Expanding its door collection facility to loan accounts and deposit schemes suitably,

which is expected to create considerable employment opportunities as part of its social

objective.

Introduction of chitties with simultaneous draw and auction which can be offered as an

incentive to regular customers for whom it will be a great attraction, particularly for those

with saving attitude.

Introduction of Daily/Weekly draw/auction chitties, which is expected to have a wide

scope among traders, will raise the Company's market share considerably.

Enter the arena of Credit/Debit Card business - immediately after branch networking the

Company plans to launch the 'Debit Card' business.


Starting of Virtual Branch through net worked computer systems for the benefit of NRIs

particularly Malayalees in the Gulf & other countries is on the anvil. This will obviate the

need for "brick and mortar branches" and will enable customers who have internet access,

to transact with the Company through virtual branches.

KSFE today is synonymous with chit funds and is presently the biggest chit promoter in

India. KSFE's vision is to become a 'financial supermarket', a 'One stop Shoppe' for all

financial services.

MCKENSY’S 7’ S FRAME WORK

The organization is not just the structure; rather it is made up of seven elements, shown

above. These are divided into two types: Hard and Soft. Hard elements are easy to

identify and feasible. They can be found in strategy elements, corporate plans,

organizational structures and other documentations. The soft elements are hard to

describe. They are sort of intangible. Hence it is more difficult to plan or influence these

elements. Effective organizations achieve a fit between all these seven elements. If one

element changes then this will affect all the others.

For example, a change in HR-systems like internal career plans and management training

will have an impact on organizational culture (management style) and thus will affect

structures, processes, and finally characteristic competences of the organization.

7S model is an effective tool in initiating change process in the organization. One should

look at the current status of these seven elements in the organization and compare with

the ideal state. Then make and plan and implement them. Let us describe these elements

one by one


The functioning of Kerala State Financial Enterprise Ltd can be better understood with

the help of following 7s

1. Structure

2. Skill

3. Style

4. Strategy

5. Staff

6. System

7. Shared values

1.STRATEGY

Strategy is the plan of action an organization prepares in response to, or anticipation of,

changes in its external environment. Strategy is differentiated by tactics or operational

actions by its nature of being premeditated, well thought through and often practically


rehearsed. It deals with essentially three questions 1) where the organization is at this

moment in time, 2) where the organisation wants to be in a particular length of time and

3) how to get there. Thus, strategy is designed to transform the firm from the present

position to the new position described by objectives, subject to constraints of the

capabilities or the potential

KSFE offers attractive interest rates for their deposits and also charge reasonable interest

on their advances. The deposits are under the guarantee and ownership of Gvt of Kerala.

It’s main objective was to provide an alternative to private chit fund operators with a view

to bring a control over chit fund business. Thus the company can save the public from the

hands of cut throat chit operators. It provide loans and advances small traders for

working capital needs and to acquire house hold durables motor vehicles and equipments.

Thus chitty happens to been the main business of the company and it does a yearly chitty

business of over 1000 crores in 2007-2008.

2.STRUCTURE

Business needs to be organized in a specific form of shape that is generally referred to as

organizational structure. Organizations are structured in a variety of ways, dependent on

their objectives and culture. Traditionally, the businesses have been structured in a

hierarchical way with several divisions and departments, each responsible for a specific

task such as human resources management, production or marketing. KSFE has 300

branches spread across in Kerala. Each branch will be headed by a branch manager who

has the responsibility of overall administration of his or her branch

The Head office hosts various functional departments that are instrumental in policy

formulations and monitoring of performances of the regions and branches


Chairman

Vice chairman

Directors

Join Secretary

General manager

Deputy general manager

Chief General Manager

AGMs

At the Head Office Level

Chief Manager

Managers

Assistant Managers

Officers

Clerks

Subordinates

AGMs

Chief Manager

Assistant Managers

Clerks

Subordinates


At the Head Office Level

managers

officers

3.3.SYSTEMS

Every organization has some systems or internal processes to support and implement the

strategy and run day-to-day affairs. For example, a company may follow a particular

process for recruitment. These processes are normally strictly followed and are designed

to achieve maximum effectiveness. Traditionally the organizations have been following a

bureaucratic-style process model where most decisions are taken at the higher

management level and there are various and sometimes unnecessary requirements for a

specific decision (e.g. procurement of daily use goods) to be taken.

KSFE adopted participative leadership style in their organization. Superior subordinate

relationships are too participative. a participative leader enables the employees to play a

major part in any decision-making process, which is needed to make the employee

performance better. Therefore, instead of the leader just throwing direct, stringent orders

to the employees, he acts like a guide and mentor for the employees in achieving their

goals. So it is like 'let us do it' rather than 'I want you to do... '. And the interfere of

government and trade unions are very helpful to make the relation more participative.

4.SKILL

Distinctive capabilities of personnel or of the organization as a whole.

KSFE has taken several steps to shift its focus of capacity building initiatives from

training to learning

Training policies and programmes are suitably designed modified and updated on

continuous basis in order to keep track of changing industry trend

KSFE continues to lay emphasis on the training and development of its human

resource through house training and external training

Separate sessions are conducted for newly posted managers and officers with due

emphasis in functional areas like chitties, loan schemes etc.

KSFE has embarked on giving training I leadership development, motivation and

negotiating skills to middle and senior level officers

Senior and top executives of KSFE are nominated to various programmes,

seminars in reputed management institutes both in Kerala and India.


http://www.buzzle.com/articles/employee-performance/

http://www.buzzle.com/articles/employee-performance/

5.STYLE

It’s one of the seven levers which top management can use to bring about change

in organization

According to McKINSEY’S Framework, becomes evident through the patterns of

actions taken by the members of top management team over a period of time.

KSFE follows a top to down style of management.

It works in participative style, the decision is taken by the top management

concerning matters related to the organization, and the decision relating to

department is taken by departmental heads.

KSFE follows a democratic leadership style which allows the employees to take

part in the decision making process

The employees are free to give any idea, suggestions etc., for the betterment of the

organization.

Any decisions taken by the top management will be with active consultation with

the employees

6.STAFF

KSFE has very efficient and multi skilled employees has following strengths

Complete knowledge about non banking activities and flexibility to work with

different departments.

Good communicative and coordinating skill.

Creative.

The HR policy of KSFE is focused towards developing employee satisfaction and utilizing the full potentiality of the human resources.

There are almost 4500 employees are working KSFE . and number of branches is nearly 300 tha is spread across in all districts of Kerala state. The main staffs of KSFE ltd are as follows


including managing director, general manager, regional managers, deputy general

managers, assistant general managers, liaison officer etc

Top Officials of KSFE

Officers & their designations Office Tel. No.Residence Tel.

No.Mobile. No.

P.C.PILLAI

Managing Director(0487) 2332222 - 9447793000

P. RAJENDRAN

General Manager (Business)(0487) 2332259 (0487) 2383820 9447795000

S. SARATH CHANDRAN

General Manager (Finance)(0487) 2332400 (0484) 2307366 9447794000

S.K. SANIL

Deputy General Manager

(P & HR)

(0487) 2332255 - 9447122226

M. SAJEETH


(Internal Audit & Vigilance)

(0487) 2332255 - 9447122225

V.P. SUBRAMANIAN


(Business & Operations)

(0487) 2332255 (0494) 2607938 9447796000

A.B.NISHA

Asst. Gen. Manager (IT)(0487) 2332255 - -

A.PRAMODAN

Asst. Gen. Manager (Legal)(0487) 2332255 - 9447545678

K. SUDHAKARAN NAIR

Asst. Gen. Manager - In Charge

(Planning & Business)

(0487) 2337972 (0471) 2355298 9447798000

SREEKALA R SARMA

Chief Manager

(Central Accounts)

(0487) 2332255 (0487) 2323566 9447798001

K. JAYADEVAN

Law Officer(0487) 2332255 (0487) 2380923 9447798006

M.T. SUJATHA

Chief Manager (IT Dept.)(0487) 2332255 (0484) 2441525 9447798004

M. SASIDHARAN

Chief Manager (Business)(0487) 2332255 (0487) 2363173 9447798008

JAIN.K.J. (0487) 2332255 (0474) 2748272 9447798005


Senior Manager (Business)

K.M VIJAYARAGHAVAN

Senior Manager (General

Administration)

(0487) 2332255 (0487) 2200958 9447797000

P.P. JAYACHANDRAN

Senior Manager

(Revenue Recovery)

(0487) 2332255 (0487) 2361661 9447798003

A.N. SOMANATHAN

Senior Manager (PA to MD)

Addl. Charge (Planning)

(0487) 2332255 (0487) 2382766 9447798009

J.KUMARADAS

Senior Manager(Tax Planning)(0487) 2337988 (0487) 2337988 9447798002

V.R. MANOJ KUMAR

Company Secretary(0487) 2332255 (0487) 2201103 9447794400

LIAISON OFFICER

M. ABDUL SALAM

Chief Manager, Regional Office,

Thiruvananthapuram.

(0471) 2476289 (0471) 2391544 9447799876

7.SHARED VALUES:

The core of above 6S is the ground rules of the shared values Values are those which are shared by the group working together for a common goal Shared values of KSFE acts a guiding concept and fuel ideas around which a business is built.

KSFE are giving more importance to quality of products, customer care and customer relationship. They are very strict in adopting quality in every product. They have a separate department for checking the quality of products. It was created by the Govt of Kerala for the purpose of providing an alternative to the private and unorganized chit operators or make a control on chit fund business and save the public from the hands of cut-throat chit fund operators

By providing better quality products, they can maintain better relationship with customer. They are also giving importance to the completion of work within the specific period. All these helps them to keep a good relationship with customer. For keeping or maintaining


the quality of their products, they are providing after sale services to all their clients. All the features mentioned above helps the firm to create reputation or a good image in the mind of customer or people.

SWOT ANALYSIS:

STRENGTHS:

Proven products and brand image.

High brand loyalty of customer.

High market shares in few of the products categories.

Skilled work force.

Government company.

WEAKNESSES:

Limited product range.

Inadequacy of working capital.

Aberrance of MIS.

Confined to only one state.

Poor marketing plans.

OPPORTUNITIES:

NRI funds

Diversification into related areas where ever synergy exists.

THREATS:

Dwindling market for some of the products.

Competition from private banks .

A threat from other NBFC’s.

Shrinking resources of traditional customers due to recession.


The above analysis indicates ample scope and prospects for the company subject to

corrective steps being taken early.

LEARNING EXPERIENCE

The experience in the company was out of my imagination. It was a great and wonderful

experience that I got from the organization. The help and support that I got from the

management, staff, and employees were excellent and I am indeed thanking to all of them

who are directly and indirectly helped me in completing my project work successfully.

This study made me familiar with the practical knowledge about the overall functioning

of the organization. It has given me opportunities to study the human behavior and how to

face those difficulties that arises when we step into an organization for the first time in

future. Each member in the organization supported me in gaining sufficient knowledge

about the company and industry this helped me complete the project successfully. The

project was informative & educative. It was a practically exposure to me.

ANALYSIS AND INTERPRETATION OF DATA


STATEMENT OF THE PROBLEM

The research is not based on any problem in the Kerala State Financial Enterprise LTD. It is made on my own interest for the assessment of financial position and performance of Kerala State Financial Enterprise. This study makes an attempt to critically evaluate the financial performance of the KSFE.

NEED AND IMPORTANCE OF THE STUDY

Financial analysts depend primarily on financial statements to diagnose financial performance. It appears that there are three principal reasons

1. Meaningful inferences can be drawn by examining trends in raw data and in financial ratios.

2. Since similar biases characterize various firms in the same industry, inter – firm comparisons are useful.

3. Experience seems to suggest that financial analysis works if one is aware of accounting biases and makes adjustments for the same.

Properly analyzed and interpreted financial statements can provide valuable insights into a firm’s performance. Analysis of financial statements is of interest of lenders, investors, security analysts, managers, and all other stakeholders of the company. Financial statement analysis may be done for a variety of purposes. It is helpful in assessing corporate excellence, judging creditworthiness, forecasting bond ratings, predicting bankruptcy, and assessing market risk.

Objectives of the Research:

1. To examine whether the creditors and investors are satisfied from the performance and financial position of the company.

2. To study profitability of the company

3. To study the short-term Liquidity position of the company,

4. To study the long-term liquidity position and solvency position of the company,

5. To offer remedial measures and suggestions wherever found necessary.

RESEARCH METHODOLOGY

a) Introduction:


The quality of the project work depends on the methodology adopted for the study.

Methodology, in turn, depends on the nature of the project work. The use of project

methodology is an essential part of any research. In order to conduct the study

scientifically, suitable methods & measures are to be followed.

b) Research Design:

The type of research used for the collection & analysis of the data is “Historical

Research Method”.

The main source of data for this study is the past records prepared by the firm. The

focus of the study is to determine the performance of the firm since its inception & to

identify the ways in which the performance especially the financial performance of

“KSFE. The data regarding firm history & profile are collected through the study of

secondary sources and discussions with individuals.

c) Data Collection Method.

Data has been collected from both primary & secondary sources.

Primary Data.

Discussions were held with different department managers & officers of the firm

to get general information about the firm & its activities.

Having face to face discussions with the firm officials.

By taking guidance from firm guide & departmental guide.

Secondary Data

Collection of data through firm annual reports, firm manuals and other relevant

documents.

By text books & journals.

Collection of data through the literature provided by the firm.

At first literature survey was done to understand various aspects of financial condition of

the organization. The title ‘financial performance analysis’ was chosen as it is used as a


devise to analyze and interpret financial health of the enterprise and to draw a conclusion

whether the performance of the firm is improving or deteriorating.

In order to do the study, secondary data regarding the financial aspects of the

organization, was extracted. The source for secondary data from the organization was past

annual reports, profit and loss accounts, and balance sheets.

Using the available data, different ratios were calculated and compared over the three

year period (2005-06 to 2008-09). Conclusion was drawn based on the analysis and

comparison.

d. SOFTWARE or tool USED FOR DATA ANALYSIS

The software used for the data analysis is Microsoft Office Excel 2007 and Microsoft

Word.

Micro Office Excel is a powerful tool used to create and format spreadsheets,

analyze and share information to make more informed decisions. With the new

results- oriented interface, rich data visualization and Pivot Table views,

professional looking charts are easier to create and use and also makes powerful

productivity tools easily accessible.

Microsoft Word is a powerful authoring program that gives you the ability to

create and share documents by combining a comprehensive set of writing tools

with an easy-to-use interface.

LIMITATIONS OF THE STUDY

Few of the financial figures were withheld by the organization due to its confidentiality

The study is only based on annual reports. The study is entirely based on the book values specified in position and income

statements. Market values are ignored. Changes in accounting procedure by the firm may be misleading. Time was a constraint since the research was done in 9 weeks

RATIO ANALYSIS


The financial statements, Balance Sheet and Income statement depicts the picture what

has actually happened to earnings during a specified period and presents a summary of

financial position of the company at a given point of time. Ratio analysis is a very

powerful tool useful for measuring performance of an organization. The ratio analysis

concentrates on the inter-relationship among the figures appearing in the financial

statements. The ratio analysis helps the management to analyze the past performance of

the firm and to make further projections. Ratio analysis allows interested parties like

shareholders, investors, creditors, government, and analysis to make an evaluation of

certain aspects of a firm’s performance. Ratio analysis is a process of comparison of one

figure against another, which make a ratio, and the appraisal of the ratios to make proper

analysis about the strengths and weaknesses of the firm’s operations. The calculation of

ratios is a relatively easy and simple task but the proper analysis and interpretation of the

ratios can be made only by the skilled analyst. Ratios normally pinpoint a business

strengths and weakness in two ways:

Ratios provide an easy way to compare present performance with past.

Ratios depict the areas in which a particular business is competitively advantage

or disadvantaged through comparing ratios to those of other businesses of the

same size within the same industry.

1. STEPS INVOLVED IN THE RATIO ANALYSIS:

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

2. Calculation of appropriate ratios from the above data

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

4. Interpretation of ratios.

2. CLASSIFICATION OF RATIOS:

There are different parties interested in the ratio analysis for knowing the financial

position of a firm for different purposes. In view of various users of ratios, there are many


types of ratios which can be calculated from the information given in the financial

statements. The particulars purpose of the user determines the particular ratios that might

be used for financial analysis.

3.VARIOUS ACCOUNTING RATIOS CAN BE CLASSIFIED AS FOLLOWS:

a. Functional classification or classification according to the tests:

In view of the financial management according to the tests satisfied, various

ratios have been classified as below.

i. Liquidity ratios:

These are the ratios which measure the short term solvency or financial position of

a firm. These ratios are calculated to comment upon the short-term paying capacity of a

concern or the firm’s ability to meet its current obligations. The various liquidity ratios

are current ratio, liquid ratio and absolute liquid ratio. Further to see the efficiency with

which the liquid resources have been employed by a firm, debtors turnover and creditors

turnover ratios are calculated.

ii. Long-term solvency and liquidity ratios:

Long term solvency ratios convey a firm’s ability to meet the interest cost and

repayment schedules of its long term obligations e.g. debt equity ratio and interest

coverage ratio. Leverage ratios show the proportions of debt and equity in financing of

the firm. These ratios measure the contribution of financing by owners as compared to

financing by outsiders.

iii. Activity ratios: Activity ratios are calculated to measure the efficiency with which the

resources of a firm have been employed. These ratios are also called turnover ratios

because they indicate the speed with which assets are being turned over into sales, e.g.,

debtors turn over ratio.

iv. Profitability ratios:


These ratios measure the results of business operations or overall performance and

effectiveness of the firm, e.g., gross profit ratio, operating profit ratio or return on capital

employed.

b. Classification according to significance or importance:

Some ratios are more important than others and firm may classify them as primary

and secondary ratios. The British Institute of Management has recommended the

classification of ratios according to importance for inter-firm comparisons. For inter-firm

comparisons, the ratios may be classified as primary ratios and secondary ratios. The

primary ratio is one which is of the prime importance to a concern; thus return on capital

employed is named as primary ratio. The other ratios which support or explain the

primary ratio are called as secondary ratios, e.g., the relationship of operating profit to

sales or the relationship of sales to total assets of the firm

Analysis Of Short-Term Financial Position Or Test Of Liquidity:

The short term creditors of a company like suppliers of goods of credit and

commercial banks providing short-term loans are primarily interested in knowing the

company’s 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 ensure that it does not suffer from lack of liquidity or the

capacity to pay its current obligations. If a firm fails to meet such current obligations due

to lack of good liquidity position, its goodwill in the market is likely to be affected

beyond repair.

Therefore, it is very important to have a proper balance in regard to the liquidity

of the firm. Two types of ratios can be calculated for measuring short-term financial

position or short-term solvency of a firm.

I. Liquidity ratios.

II. Efficiency or Activity ratios.

Liquidity ratios :


Liquidity refers to the ability of a concern 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 be liquid or near to liquidity.

These should be convertible into cash for paying obligations of short-term nature. The

sufficiency or insufficiency of current assets should be assessed by comparing them with

short-term current liabilities. If current assets can pay off current liabilities, then liquidity

position will be satisfactory. On the other hand, if current liabilities may not be met easily

met out of current assets then liquidity position will be \bad. The bankers, suppliers of

goods and other short-term creditors are interested in the liquidity of the concern. They

will extend credit only if they are sure that current assets are enough to pay out the

obligations.

To measure the liquidity of a firm, the

following ratios can be calculated:

i Current ratio

ii Quick or Acid test or Liquid ratio

iii Absolute liquid ratio or Cash position ratio

i Current ratio:

Current ratio may be defined as the relationship between current assets and current

liabilities. This ratio is a measure of general liquidity and is most widely used to make the

analysis of a short-term financial position or liquidity of a firm. It is calculated by

dividing the total of current assets by total of the current liabilities.

Current assets include cash and those assets which can be converted into cash within a

short period of time generally, one year, such as marketable securities, sundry

receivables, bills receivables inventories, work in progress, etc. Prepaid expenses should

also be included in current assets because they represent payment made in advance which

will not have to be paid in near future. Current liabilities are those obligations which are

payable within a short period of generally one year and include outstanding expenses,

bills payable, sundry debtors, income tax payable, dividend payable etc. bank overdraft


Current assets

Current ratio= -----------------------

Current liabilities

should also generally be included in current liabilities because it represents short-term

arrangement with the bank and is payable within a short period.

An increase in the current ratio represents improvement in the liquidity position of a firm

while a decrease in the current ratio indicates that there has been deterioration in the

liquidity position of the firm. As a convention the minimum of ‘two to one’ is referred

banker’s rule of thumb or arbitrary standard of liquidity of a firm. A ratio equal or near to

the rule of thumb of 2:1 i.e. current assets double the current liabilities are considered to

be satisfactory.

ii Quick or Acid test or Liquid test ratio:

Quick ratio, also known as Acid test or Liquid test ratio, is a more rigorous test of

liquidity than the current ratio. The term liquidity means firm’s ability to pay its short-

term obligations as and when they become due. Quick ratio may be defined as the

relationship between quick/liquid assets and current or liquid liabilities. An asset is said to

be liquid if it can be converted into cash within a short period without loss of value.

In that sense, cash in hand and cash at bank are the most liquid assets. The other assets

which can be included in liquid assets are bills receivables, sundry debtors, marketable

securities and short-term or temporary investments. Inventories and prepaid expenses are

excluded from the quick assets because they are not expected to be converted into cash

immediately. The quick ratio can be calculated by dividing the total of the quick assets

by total current liabilities. Thus,

Usually, a high acid test ratio is an indication that the firm is liquid and has the

ability to meet its current or liquid liabilities in time and on the other hand a low quick

ratio represents that the firm’s liquidity position is not good. As a rule of thumb or as a

convention quick ratio of 1:1 is considered satisfactory.


Quick/liquid assets

Quick/liquid ratio= -------------------------------

Current liabilities

iii Absolute liquid ratio:

Absolute liquid assets include cash in hand and bank and marketable securities or

temporary investments. The acceptable norm for this ratio is 50% or 0.5:1 or 1:2 i.e. Re 1

worth absolute liquid assets are considered adequate to pay Rs 2 worth current liabilities

in time as all the creditors are not expected to demand cash at the same time and then cash

may also be realized from debtors and inventories. The absolute liquid ratio can be

calculated by dividing absolute liquid assets by current liabilities. Thus,

II Efficiency or Activity ratios:

Funds are invested in various assets in business to make sales and earn profits. The

efficiency with which assets are managed directly affects the volume of sales. The better

the management of assets, the larger is the amount of sales and the profits. Activity ratios

measure the efficiency or effectiveness with which a firm manages its resources or assets.

These ratios are also called turnover ratios because they indicate the speed with which

assets are converted or turned over into sales. Depending upon the purpose, a number of

turnover ratios can be calculated, as debtors’ turnover ratio, stock turnover ratio, capital

turn over ratio etc.

i Inventory turnover ratio or Stock turnover ratio:

Inventory turnover ratio also known as stock velocity is normally calculated as

sales/average inventory or cost of goods sold/average inventory. It would indicate

whether inventory has been efficiently used or not. The purpose is to see whether only the

required minimum funds have been locked up in inventory. Inventory turnover ratio

indicates the number of times the stock has been turned over during the period and

evaluates the efficiency with which a firm is able to manage its inventory. The ratio is

calculated by dividing the cost of goods sold by the amount of average inventory at cost.


Absolute liquid assets

Absolute liquid ratio= -------------------------------

Current liabilities

Average inventory is calculated by adding the stock in the beginning and at the end of the

period and dividing it by two. In case of monthly balance of stocks, all the monthly

balances are added and the total is divided by the number of months for which the

average is calculated.

Inventory turnover ratio measures the velocity of conversion of stock into sales. Usually,

a high inventory turnover/stock velocity 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 inefficient management

of inventory.

ii Debtors or receivable turnover ratio and average collection period:

Debtor’s turnover ratio includes two kinds of ratios which are helpful to evaluate the

quality of debtors.

a.Debtors/ Receivables turnover or debtors velocity

Debtor’s turnover ratio indicates the velocity of debt collection of firm. In simple

words, it indicates the number of times average debtors are turned over during a year, thus:

Trade debtors= sundry debtors+ bills receivables and account receivables


Cost of goods sold

Inventory turnover ratio= --------------------------------------

Average inventory at cost

Net annual credit sales

Debtors turnover/ velocity= ---------------------------------

Average trade debtors

Debtors’ velocity indicates the number of times the debtors are turned over during the

year. Generally, the higher the value of debtors turnover the more efficient is the

management of debtors/ sales or more liquid are debtors. Similarly, low debtors turnover

implies inefficient management of debtors/ sales and less liquid debtors. There is no ‘rule

of thumb’ which may be used as a norm to interpret the ratio as it may be different from

firm to firm, depending upon the nature of the business.

b. Average collection period ratio:

The average collection period represents the average number of days for which a firm has

to wait before its receivables are converted into cash. The ratios can be calculated as

follows:

The average collection period ratio represents the average number of days for which a

firm has to wait before its receivables are converted into cash. It measures the quality of

debtors. Generally, the shorter the average collection period, the better is quality of

debtors as a short collection period implies quick payment by debtors. Similarly, higher

average collection period implies as inefficient collection performance which in turn

adversely affects the liquidity or short- term paying capacity of the firm out of its

resources.

iii Creditors/ Payables turnover ratio:


Opening trade Drs + closing trade Drs

Average trade debtors= ------------------------------------------------------------

2

365

Average collection period= -----------------------------------------

Debtors Turnover Ratio

The analysis for creditors’ turnover is basically the same as of debtor’s turnover

ratio except that in place of trade debtors, the trades creditors are taken as one of the

components of the ratio and in the place of average daily sales, average daily purchases

are taken as the other component of the ratio. Same as debtor’s turnover ratio, creditor’s

turnover ratio can be calculated as follows:

The average payment period ratio represents the average number of days taken by the

firm to pay its creditors. Generally, lower the ratio, the better is the liquidity position of

the firm and higher the ratio, less liquid is the position of the firm.

iv Working capital turnover ratio:

Working capital of a concern is directly related to sales. The current assets like

debtors, bills receivables, cash, stock etc change the increase or decrease in sales. The

working capital is taken as

Working capital = current assets – current liabilities

Working capital turnover ration indicates the velocity of the utilization of net

working capital. This ratio indicates the number of times the working capital is turned

over in the course of a year.

This ratio measures the efficiency with which working capital is being used by a firm. A

higher ratio indicates efficient utilization of working capital and a low ratio indicates


Net annual credit purchases

Creditors/ Payable turnover ratio= -----------------------------------------------

Average trade creditors (Cr + B/P)

sales

Working capital turnover ratio= ---------------------------------

Net working capital

otherwise. This ratio can be at best be used by making of comparative and trend analysis

for different firms in the same industry and for various periods.

Analysis of Long-Term Financial Position or Tests of Solvency:

The term ‘solvency’ refers to the ability of a concern to meet its long-term obligations.

The long-term indebtedness of a firm includes debenture holder, financial institutions

providing medium and long-term loans and other creditors selling goods on installment

basis. The long-term creditors of a firm are primarily interested in knowing the firm’s

ability to pay regularly interest on long-term borrowings, repayment of the principal

amount at the maturity and the security of their loans. Accordingly, long-term solvency

ratios indicate a firm’s ability to meet the fixed interest and costs and repayment

schedules associated with its long-term borrowings. The following ratios serve the

purpose of determining the solvency of the concern.

i. Debt- Equity ratio:

Debt-equity ratio is also known as ‘external-internal equity’ ratio is calculated to measure

the relative claims of outsiders and the owners (shareholders) against the firm’s assets.

This ratio indicates the relationship between external equities or the outsider’s funds and

the internal equities or the shareholders funds, thus

The outsiders’ funds include all the debt/liabilities to outsiders, whether long-term or

short-term or whether in the form of debenture bonds, mortgages or bills. The

shareholders’ funds consist of equity share capital, preference share capital, capital

reserves, revenue reserves and reserves representing accumulated profits and surpluses

like reserves for contingencies, sinking fund, etc. The accumulated losses and deferred

expenses should be deducted from the total to find out shareholders’ funds.


Long term Debts

Debt-equity ratio= -----------------------------------

Shareholder’ funds

A ratio of 1:1 may be considered to be a satisfactory ratio although there cannot be a ‘rule

of thumb’ or standard norm for all types of business.

ii. Proprietary ratio:

A variant to debt-equity ratio is the proprietary ratio which is also known as

‘equity ratio’ or ‘net worth to total assets ratio’. This ratio establishes the relationship

between shareholders’ funds to total assets of the firm. The ratio of proprietor’s funds to

total funds is an important ratio for determining long-term solvency of a firm. The ratio

can be calculated as under,

As equity represents the relationship of owner’s funds to total assets, higher the ratio or

the share of the shareholders in the total capital of the 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 creditors of the company.

iii. Solvency ratio:

This ratio is a small variant of equity ratio and can be simply calculated as 100-

equity ratio. The ratio indicates the relationship between the total liabilities to outsiders to

total assets of a firm and can be calculated as follows.


Shareholders’ funds

Proprietary ratio= ------------------------------------

Total Tangible assets

Total liabilities to outsiders

Solvency ratio = -----------------------------------

Total assets

Generally, lower the ratio of total liabilities to total assets, more satisfactory or stable is the long-term solvency position of a firm.

iv. Fixed assets to net worth ratio:

The ratio establishes the relationship between fixed assets and shareholder’s funds, i.e., share capital plus reserves, surpluses and retained earnings. The ratio can be calculated as follows:

There is no ‘rule of thumb’ to interpret this ratio but 60% to 65% is considered to be

satisfactory ratio in case of industrial undertaking. If the ratio is less than 100%, it implies

that owner’s funds are more than total fixed assets and a part of the working capital is

provided by the shareholders. When the ratio is more than 100%, it implies that owners’

funds are not sufficient to finance the fixed assets and the firm has to depend upon

outsiders to finance the fixed assets.

v. Fixed assets ratio:

A variant to the ratio of fixed assets to net worth is the ratio of fixed assets to long term funds which is calculated as:

This ratio indicates the extent to which the totals of fixed assets are financed by long-term funds of the firm.

vi. Ratio of current assets to proprietors’ funds:

This ratio is calculated by dividing the total of current assets by the

amount of shareholder’s funds. The ratio of current assets to proprietor’s funds in terms

of percentage would be


Fixed assets (after

depreciation)

Fixed assets to net worth ratio = ------------------------------------------------

Fixed assets (after depreciation)

Fixed assets ratio = ------------------------------------------------

Total long-term funds

The ratio indicates the extent to which proprietors’ funds are invested in

current assets. There is no ‘ rule of thumb’ for this ratio and depending upon the nature of

the business there may be different ratio for different firms.

vii. Interest coverage ratio:

This ratio is calculated by dividing the net profit before interest and taxes by fixed interest charges. Interest coverage ratio indicates the number of times interest is covered by the profits available to pay the interest charges. Generally, higher the ratio, safer is the long-term creditors because even if earnings of the firm fall, the firm shall be able to meet its commitment of fixed interest charges.

PROFITABILITY RATIOS:

The primary objective of a business undertaking is to earn profits. Profit earning is considered essential for the survival of the business. Generally, profitability ratios are calculated either in relation to sales or in relation to investments. The various operating ratios are as follows.

i.Gross profit ratio.

This ratio expresses relationship between Gross Profit and Sales. It is expressed as

Gross Profit

Gross Profit Ratio = --------------------- X 100

Net Sales


Current assets

Current assets to proprietors funds = ---------------------------------

Shareholders’ funds

Net profit (before interest taxes)

Interest coverage ratio = -------------------------------------------

Fixed interest charges

Gross Profit = Sales (Cash Sales + Credit Sales – Returns) - Cost of Goods Sold

ii. Operating ratio.

This ratio established relationship between operating cost (i.e. cost of goods sold + operating expenses) and sales. This ratio is usually expressed as a percentage. It is calculated as:

Operating Cost

Operating Ratio = -------------------------- X 100

Net Sales

iii. Operating profit ratio.

This ratio establishes relationship between operating profit and sales. It is expressed

as:

Operating Profit

Operating Profit Ratio = -------------------------- X 100

Net Sales

Operating Profit Ratio = 100 – Operating Ratio

Operating Profit = Net Sales – Operating Cost

Operating Profit =Net Sales – (Cost of Goods sold + Administrative and

Office Expenses + Selling and Distribution Expenses)

Operating Profit = Net Profit + Non Operating Expenses – Non Operating Income

Expenses ratio.

These ratios are calculated to establish relationship between the various expenses incurred by a business enterprise for its sales. These ratios supplement the information provided by operating ratio.

Hence, they are also called as supporting ratios to operating ratio. The important expenses ratios are:

Cost of Goods Sold


Cost of Goods sold Ratio = ---------------------------- X 100

Net Sales

Administrative & Office Expenses

Administrative & Office Expenses Ratio= --------------------------------------------- X 100

Net Sales

Selling and Distribution Expenses

Selling & Distribution Expenses Ratio = -------------------------------------------- X 100

Net Sales

Utility of Expenses Ratio: These Ratios indicate the economy and efficiency with which the various expenses are incurred to attain the goal of maximizing profits and minimizing costs.

i. Net profit ratio.

The ratio establishes relationship between net profit and sales and is generally expressed as a percentage. It is calculated as:

Net Profit

Net Profit Ratio = ------------------- X 100

Net Sales

Utility of Profit Ratio: It indicates operational efficiency for inefficiency of an

enterprise. High Net Profit Ratio is the index of better operational efficiency for

inefficiency of an enterprise. High Net Profit Ratio is the index of better Operation

efficiency.

Return on investment / net worth ratio

This ratio is also known as “Net Worth” ratio or “Return on Shareholders’ Funds. ROI

establishes relationship between Net Profit after Tax and Shareholders funds. It is

expressed as:


Net Profit after Tax

Return on Investment = --------------------------------- X 100

Share Holders Funds

Significance of Return on Investment: is very significant in measuring. The overall

profitability or operational efficiency of a Company, it enables the management’s to

know whether the basic objectives of the business maximization of profits is achieved or

not and the shareholders to decide whether their investments is safe and remunerative or

otherwise. The growth or otherwise of a company can also be measured by means of a

trend ratios calculated several numbers of years.

ii. Return on equity capital.

Equity Shareholders are the true owners of a company. They bear more risk. They are

entitled to get their share of dividend only after the payment of risk. They are entitled to

get their share of dividend only after the payment of fixed dividend to equity Share

holders varies depending upon the quantum of profits available to them. High return on

equity capital attracts more investments. It is calculated to establish relationship between

net profits available to equity shareholders and equity share capital it is expressed as:

Net Profit after Tax – Preference Dividend

Return on Equity Capital = ---------------------------------------------------------- X 100

Paid up Equity Share Capital

Return on capital employed. The “Return on Capital Employed” is the ratio calculated

to establish relationship between profits actually earned and the capital actually employed

in the business capital employed the term “Capital Employed” refers to the total

investment made in the business.

It is defined in many ways as stated below:

Gross Capital Employed = Fixed Assets + Current Assets

Net Capital Employed = Fixed Assets + Current Assets – Current Liabilities


Opening Capital + Closing Capital

Average Capital Employed = -----------------------------------------------

2

Net Profit (Adjusted)

Return on Gross Capital Employed = -------------------------------- X 100

Gross Capital Employed


Return on Net Capital Employed= ----------------------------- X 100

Net Capital Employed


Return on Average Capital Employed= ----------------------------------- X 100

Average Capital Employed

Earnings per share.

Earning per Share is calculated by dividing Net Profit after Tax (NPAT) less preference dividend by the total number of equity shares held.

Net profit after Tax – Preference Dividend

Earning Per Share = -----------------------------------------------------

Number of Equity shares

It is very useful to know whether the earning capacity of the company is improved or

declined by facilitation comparisons of EPS of a company with similar other companies.

It is a small variant of return of Equity Capital.

BENEFITS OF RATIO ANALYSIS:

1. Helps in communication:


Ratios help in communication and enhance the value of the financial management. The

financial strengths and weakness of a firm are communicated in a more easy and

understandable manner by the use of ratios.

2. Helps in financial forecasting and planning:

Ratio analysis is much help in financial forecasting and planning. Planning is

looking ahead and the ratios calculated for a number of years work as a guide for the

future. Meaningful conclusions can be drawn for future from these ratios.

3. Helps in co-ordination:

Ratios even help in co-ordination which is of utmost importance in effective

business management.

4. Helps in decision-making:

Financial statements are prepared primarily for decision-making. But the information

provided in financial statements is not an end in itself and no meaningful conclusions can

be drawn from these statements alone. Ratio analysis helps in making decisions from the

information provided in these financial statements.

LIMITATIONS OF RATIO ANALYSIS::

The study is restricted to corporate office .

The information is availed from the statements, annual reports and records of the

company.

The study conducted had time factor, as one of the constraint that is the duration

of the project was very short.

As it is Government sector undertaking certain data and information were not

revealed which were needed for the study.


Certain financial functions were carried outside the office.

The fluctuations in the asset or liabilities that may be occurs between the period of

any two balance sheet may have their implication on the cash management.

The finding of the study cannot be generalized.

PROFITABILITY RATIOS:

1.Operating profit ratio:

It is computed by dividing operating income i.e. gross profit – selling expenses and general expenses and administration expenses excluding interest by sales.

Operating profit ratio = Operating profit X 100

Net sale

Year Operating profit Net sales Ratio(times)

2004-2005 16305.14 26488.65 .62

2005-2006 15458.38 26832.69 .58

2006-2007 17505.35 29461.95 .59

2007-2008 15614.57 34840.30 .45

(in Lakhs)

2004-2005 2005-2006 2006-2007 2007-20080

0.1

0.2

0.3

0.4

0.5

0.6

0.7


Interpretation

This ratio indicates the proportion that the costs of sales bear to sales. Cost of sales

includes direct cost of goods sold as well as other operating expenses which have

matching relationship with sales and excludes income and expenses which have no

bearing on production and sales. Lower the ratio, the better it is. Higher the ratio, the less

favorable it is because it would have smaller margin of operating profit for the payment

of dividends and the creation of reserves.

It is inferred from the above table, operating profit of KSFE Ltd which was .62 in 2004-

05 has decreased to .58 in 2005-06 but increased in sales. In 2006-07 operating profit

again slightly increased to .59. There is an decrease of operating profit from .59 to .45 in

2007-2008.so the lower ratio is better for the company.

2 Net profit ratio

This ratio establishes the relationship between net profit and sales

Net profit ratio = Net profit X 100

Net sales

(in lakhs)

Year Net profit Net sales Ratio(times)

2004-2005 1946.66 26488.65 .073

2005-2006 2386.67 26832.69 .089

2006-2007 1313.41 29461.95 .045

2007-2008 543.85 34840.30 .0156


2004-2005 2005-2006 2006-2007 2007-20080

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.1

Interpretation

This ratio explains per rupee profit generation capacity of sales. If lower the net profit

per sales, lower will be the sales efficiency. This ratio is very useful to the proprietors and

prospective investors because it reveals the overall profitability of the concern. Higher the

ratio, the better it is because it gives idea of improving efficiency of the concern.

The net profit margin of KSFE Ltd that was .073 in the year 2004-05, but slightly

increased to .089 in the year 2005-06 and it declined to .045% in 2006-07.again the net

profit declined from .045 to .0156 in the year 2007-2008. But there was increase of sales

from 2004-05 to 2007-2008.

3.Current ratio

This is the most widely used ratio. It is the ratio of current assets to current liabilities. It

shows a firm’s ability to cover liabilities with its current assets. The current ratio is a

measure of the firm’s short – term solvency. It incates the availability of current assets in

rupees for every one rupee of currentliability.A ratio greater than one means that the firm

has more current assets than current claim against them.

Current ratio = Current asset


Current liabilities

(in lakhs)

Year Current asset Current liability Ratio(times)

2004-2005 75305.29 162751.40 .46

2005-2006 88441.84 171485.69 .52

2006-2007 81730.91 143467.23 .57

2007-2008 90884.92 196227.62 .46

2004-2005 2005-2006 2006-2007 2007-20080

0.1

0.2

0.3

0.4

0.5

0.6

Interpretation

An increase in the current ratio represents improvement in the liquidity position of a firm

while a decrease in the current ratio indicates that there has been deterioration in the

liquidity position of the firm. A ratio equal or near to the rule of thumb of 2:1 i.e. current

assets double the current liabilities are considered to be satisfactory. The company didnt

achieve that position from 2004 to 2007. In the year 2007-2008 also the company didn’t

reach 2.00 . so the company’s liquidity position is not good up to last year..


4.Quick ratio

Quick ratio = quick asset

Current liability

(in lakhs)

Year Quick asset Current liability Ratio(times)

2004-2005 75305.29 75305.29 .46

2005-2006 88441.84 88441.84 .52

2006-2007 81730.91 81730.91 .57

2007-2008 90884.92 90884.92 .46

2004-2005 2005-2006 2006-2007 2007-20080

0.1

0.2

0.3

0.4

0.5

0.6

Interpretation

A high acid test ratio is an indication that the firm is liquid and has the ability to meet its

current or liquid liabilities in time and on the other hand a low quick ratio represents that

the firm’s liquidity position is not good. As a rule of thumb or as a convention quick ratio


of 1:1 is considered satisfactory. but in this case the ratio is below one. so it is not

satisfactory from 2004 to 2009.

5.absolute liquid ratio

Absolute liquidity ratio is represented by cash and near cash items. It is a ratio of absolute liquid assets to current liabilities. In the computation of this ratio only the absolute liquid assets are compared with the liquid liabilities. The absolute liquid assets are cash, bank and marketable securities. It is to be observed that receivables (debtors/accounts receivables and bills receivables) are eliminated from the list of liquid assets in order to obtain absolute4 liquid assets since there may be some doubt in their liquidity.

This ratio gains much significance only when it is used in conjunction with the current and liquid ratios. A standard of 0.5 : 1 absolute liquidity ratio is considered an acceptable norm.

Absolute liquid ratio = absolute liquid asset

Current liability

(in lakhs)

Year Absolute liquid

Asset

Current liability Ratio(times)

2004-2005 72589.30 75305.29 .96

2005-2006 85765.52 88441.84 .97

2006-2007 80059.68 81730.91 .97

2007-2008 89449.68 90884.92 .98


2004-2005 2005-2006 2006-2007 2007-20080.95

0.955

0.96

0.965

0.97

0.975

0.98

0.985

Interpretation

A standard of 0.5 : 1 absolute liquidity ratio is considered an acceptable norm. in 2004-05 absolute liquid ratio was .96. but in 2005-06 there is slight increase in ratio from .96 to .97. in 2007 there is no change for the ratio. It remains the same in that year. in 2007-08 there is again a slight change occurred , the ratio changes from .97 to .98. the ratio didn’t have too much changes for the last 4 years. And it satisfied the acceptable norm 0.5:1.

Market ratios

6.Price earning ratio

Price earnings ratio (P/E ratio) is the ratio between market price per equity share and earning per share. Generally, higher the price earning ratio the better it is. If the P/E ratio falls, the management should look into the causes that have resulted into the fall of this ratio.

Price earning ratio = current market price

Earnings per share

Year Current market price

Earnings per share Ratio(times)

2004-2005 100 194.67 .51

2005-2006 100 238.67 .42

2006-2007 100 131.34 .76

2007-2008 100 54.39 1.82


2004-2005 2005-2006 2006-2007 2007-20080

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Interpretation

Price earnings ratio helps the investor in deciding whether to buy or not to buy the shares

of a particular company at a particular market price. Generally, higher the price earning

ratio the better it is. If the P/E ratio falls, the management should look into the causes that

have resulted into the fall of this ratio.

In 2004-2005 the P/E ratio of KSFE ltd is .51 and it is slightly declines to .42 in the year

2005-2006.but in 2006-07 p/e ratio increases from .42 to .76 and again increased to 1.82

in 2008. so company is in high better position on the basis of price earning ratio.

Long term solvency ratios

7.Dividend coverage ratio

The dividend cover ratio tells us how easily a business can pay its dividend from profits.

A high dividend cover means that the company can easily afford to pay the dividend and

a low value means that the business might have difficulty paying a dividend. A coverage

ratio that measures a company's ability to pay off its required preferred dividend

payments. A healthy company will have a high coverage ratio, indicating that it has little

difficulty in paying off its preferred dividend requirements.


Dividend coverage ratio = profit after tax

Proposed dividend

(in lakhs)

Year Profit after tax Proposed dividend Ratio(times)

2004-2005 1946.66 200 9.73

2005-2006 2386.67 200 11.93

2006-2007 1313.41 200 6.57

2007-2008 543.85 200 2.72

2004-2005 2005-2006 2006-2007 2007-20080

2

4

6

8

10

12

14

Interpretation

In the year 2004-2005 the dividend coverage ratio of KSFE ltd was 9.73. it has increased

to 11.93 in the year 2005-06.but in 2006-07 the ratio is decreased to 6.57 from 11.93. in

2007-2008 the ratio again decreased to 2.72. This continuous decrease of dividend

coverage ratio shows that that the business might have difficulty paying a dividend. So

they should try to increase the ratio by increasing the profit.

8.Shareholders equity


Shareholders' equity represents the amount by which a company is financed through

common and preferred shares. It is also also known as "share capital", "net worth"

Shareholders' equity comes from two main sources. The first and original source is the

money that was originally invested in the company, along with any additional

investments made thereafter. The second comes from retained earnings which the

company is able to accumulate over time through its operations.

Share holders equity = shareholders equity

Total asset

(in lakhs)

Year Shareholders

equity

Total asset Ratio(%)

2004-2005 120278.20 286798.59 .42

2005-2006 129080.58 302996.58 .43

2006-2007 125623.68 317679.36 .39

2007-2008 199026.98 396948.21 .50


2004-2005 2005-2006 2006-2007 2007-20080

0.1

0.2

0.3

0.4

0.5

0.6

Interpretation

A ratio used to help determine how much shareholders would receive in the event of a

company-wide liquidation. The ratio, expressed as a percentage, is calculated by dividing

total shareholders' equity by total assets of the firm. In 2004-05 ksfe had 42%

shareholders equity ,but it is slightly increased to 43% in the year 2005-06.in 2006-07 the

ratio just changed to 39%. there is no big changes for shareholders equity till 2006-08.but

2007-08 the ratio is increased to 50% from 39%.

9.Proprietory ratio

This ratio establishes the relationship between partners fund and total assets financed by them. This ratio establishes the relationship between shareholder’s fund and total assets financed by partners. As this ratio represents a relationship between the owner’s fund to the total assets, higher the ratio or the shareholder in the total capital of the company, better is the long term solvency position of the company.

Proprietory Ratio = Equity share holders fund

Total Asset


Proprietary ratio measures the extent to which a company’s invested capital or net worth is tied-up in non-liquid, permanent and depreciable assets. Indirectly it measures the amount of capital remains for investment in other more fluid assets. High proprietary ratio indicates sound financial position and low ratio indicates the unsound financial positions. As the company’s proprietary ratio is increasing over the years it’s said to be satisfactory

(in lakhs)

Year Equity shareholders

fund

Total asset Ratio(times)

2004-2005 7871.24 286798.59 .027

2005-2006 10028.32 302996.58 .033

2006-2007 11113.69 317679.36 .035

2007-2008 11429.48 396948.21 .029

2004-2005 2005-2006 2006-2007 2007-20080

0.005

0.01

0.015

0.02

0.025

0.03

0.035

0.04

Interpretation

High proprietary ratio indicates sound financial position and low ratio indicates the

unsound financial position. As the company’s proprietary ratio is increasing over the

years it is said to be satisfactory.

In 2004-05 the proprietary ratio of KSFE ltd is .027 and it is increased to .033 in the year

2005-06. in 2006-07 it is again slightly increased to .035.but in 2007-08 proprietary ration

start declining from .035 to .029. this is not a good sign


10.Return on capital employed

Return on investment analysis provides a strong incentive for optimal utilization of the

assets of the company. In selecting amongst alternative long-term investment proposals,

ROI provides a suitable measure for assessment of profitability of each proposal.

ROC = net profit before interest and tax X 100

Capital Employed

(in lakhs)

Year Operating profit Capital employed Ratio(times)

2004-2005 4370.19 7871.24 .55

2005-2006 4411.90 10028.32 .44

2006-2007 3908.65 11113.69 .35

2007-2008 1503.18 11429.48 .13

2004-2005 2005-2006 2006-2007 2007-20080

0.05

0.1

0.15

0.2

0.25

0.3

Interpretation


This ratio is an indicator of the earning capacity employed in the business. This ratio is

considered to be the most important ratio because it reflects the overall efficiency with

which capital is used. This ratio is a helpful tool for making capital budgeting decision.

The KSFE ltd had a return of .55 times in the year 2004-05. In 2005-06 it declined to .44

times and in 2006-07 again declined to .35 times. Again it is declined to .13 times. The

return on the capital employed has been reducing drastically. This is not a good sign.

11.Earnings per share

The portion of a company's profit allocated to each outstanding share of common

stock. Earnings per share serves as an indicator of a company's profitability.

When calculating, it is more accurate to use a weighted average number of shares

outstanding over the reporting term, because the number of shares outstanding can change

over time. However, data sources sometimes simplify the calculation by using the number

of shares outstanding at the end of the period.

Earnings per share = profit available to equity shareholders

Number of equity shares

(in lakhs)

Year Profit available to

shareholders

No of equity shares EPS(Rs)

2004-2005 1946.66 10 194.67

2005-2006 2386.68 10 238.67

2006-2007 1313.41 10 131.34

2007-2008 543.85 10 54.38


2004-2005 2005-2006 2006-2007 2007-20080

50

100

150

200

250

300

Interpretation

The Earning per share of KSFE is 194.67 in 2004-2005. In 2005-2006 it is increased from

194.67 to 238.67. But from 2006 onwards it starting declines, from 238.67 it decreased to

131.34 and again in 2007-08 it is again dramatically declines to 54.38. there is a

decreasing trend showing in this ratio. so the shareholders are getting less returns for their

investment.

12.Return on assets

This ratio shows the relationship between net profit after taxes and total assets. It reveals the rate of return on total assets. This is also known as “Net Profit to Total assets”. The formula for this ratio is as follows:

Return on Total Asset = net profit after tax x 100

Average total asset

The higher the ratio represents the better performance of the firm and lower the ratio lower the performance of the company.

(in lakhs)

YEAR Net profit after tax Total asset Ratio(times)

2006-2007 1946.66 286798.59 .68

2007-2008 2386.67 302996.58 .79


2008-2009 1313.41 317679.36 .41

2009-2010 543.85 396948.21 .14

2006-2007 2007-2008 2008-20090

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Interpretation

The higher the ratio represents the better performance of the firm and lower the ratio lowers the

performance of the firm. From the above table, .68 in the year 2004-05. But in the year 2005-06

it increased to .79 .but in 2006-07 it is decreased to .41 . in 2008-2009 it is again decreased

to .14.so the firm does not perform well because the ratio shows a decreasing trend in the last 4

years.

13. Return on equity share holders’ funds

This ratio expresses the net profit in terms of the equity shareholders funds. This ratio is

an important yardstick of performance for equity shareholders since it indicates the return

on the funds employed by them. This ratio is a measure of the percentage if net profit to

equity shareholders’ funds. Equity shareholders’ funds include, equity share capital,

capital reserve, revenue reserves, balance of profit and loss account.

Return on equity share holders funds = Net Profit after Interest and Tax X 100

Equity share holder’s funds (networth)


(in lakhs)

Year NP after interest

and tax

Equity

shareholders fund

Ratio(times)

2004-2005 1946.66 7871.24 .25

2005-2006 2386.67 10028.32 .24

2006-2007 1313.41 11113.69 .12

2007-2008 543.85 11429.48 .048

2006-2007 2007-2008 2008-2009 2009-20100

0.05

0.1

0.15

0.2

0.25

0.3

Interpretation

The KSFE Ltd has attained .25% of return on the equity shareholders in the year 2004-05.

In 2005-06 it slightly decreased to .24% and it again declined to .12% in the year 2006-

07. In 2007-2008 it again decreased to .048%. The return had decreased to which means

there is a need to increase the profits.

Turnover ratios:

14.Capital turnover ratio:

Capital turnover ratio = sales


Capital employed

These ratios are very important for the company to judge how well facilities at the disposal of the concern are being used or to measure the effectiveness with which a company used its resources at its disposal. Higher the ratio , higher the profits.

(in lakhs)

Year sales Capital employed Ratio(times)

2004-2005 26488.65 7871.24 3.36

2005-2006 26832.69 10028.32 2.68

2006-2007 29461.95 11113.69 2.65

2007-2008 34840.30 11429.48 3.05

2004-2005 2005-2006 2006-2007 2007-20080.36

0.38

0.4

0.42

0.44

0.46

0.48

0.5

Interpretation

From the above table it can be seen that KSFE Ltd’s capital turn over ratio has decreased

from 3.36 times in the year 2004-05 to 2.68 times in the year 2005-06 and has slightly

again decreased to 2.61 times in the year 2006-07. In 2007-08 it started increasing ,it

increases to 3.05 from 2.65. if it is higher the ratio, higher will be the profits.so the last

year it showing profits for the KSFE ltd.


15.Total Assets Turnover Ratio

The ratio is calculated by dividing the net sales by the value of the total assets. The ratio

shows the firm’s ability in generating sales from all financial resources committed to total

assets. A high ratio is an indicator of over trading of total assets while a low ratio reveals

idle capacity

Total assets turnover ratio = sales

Total Asset

(in lakhs)

YEAR Sales Total asset Ratio(times)

2004-2005 26488.65 286798.59 .092

2005-2006 26832.69 302996.58 .089

2006-2007 29461.95 317679.36 .093

2007-2008 34840.30 396948.21 .088

.

2004-2005 2005-2006 2006-2007 2007-20080.085

0.086

0.087

0.088

0.089

0.09

0.091

0.092

0.093

0.094

Interpretation


The KSFE Ltd had assets turnover ratio on the year 2004-05 of .092 then the ratio

gradually decreased to .089 in the year 2005-06.and it is slightly increased to .093 in

2006-07 and it is decreased to .088 in 2007-08 due to the increase in sales.

16.Fixed asset turnover ratio

Fixed asset turnover ratio = sales

Fixed Assets

(in lakhs)

YEAR Sales Fixed asset Ratio(times)

2004-2005 26488.65 537.85 49.25

2005-2006 26832.69 528.40 50.78

2006-2007 29461.95 945.02 31.18

2007-2008 34840.30 888.59 39.24

2004-2005 2005-2006 2006-2007 2007-20080

10

20

30

40

50

60

Interpretation

The ratio is calculated by dividing the net sales by the value of the Fixed assets. A high ratio is an indicator of over trading of taotal assets while a low ratio reveals idle capacity.


The KSFE Ltd had fixed assets turnover ratio on the year 2004-05 of 49.25 then the ratio

again increased to 50.78 in the year 2005-06. But in 2006-2007 it decreased to 31.18 in

2006-07 due to the decrease in sales and fixed asset. In 2007-2008 it again increased to

39.24

17.Current Assets Turnover Ratio

Current Assets Turnover Ratio = sales

Current Assets

(in lakhs)

YEAR sales Current asset Ratio(times)

2004-2005 26488.65 286260.74 .092

2005-2006 26832.69 302468.17 .089

2006-2007 29461.95 316734.34 .093

2007-2008 34840.30 396059.62 .087

2004-2005 2005-2006 2006-2007 2007-20080.082

0.084

0.086

0.088

0.09

0.092

0.094


Interpretation

Current assets turnover ratio of KSFE in the year 2004-05 was .092 times and it has been

decreased to .089 in the year 2005-06. It is an indication of under utilization of current

assets and in the year 2005-06. It has been increased again from .089 to .093 times in

2006-07 due to percentage increase in current assets is more than the percentage increase

in net sales.im 2007-2008 it is decreased from .093 to .087.

18.Working Capital Turnover Ratio

Working capital Turnover ratio = Sales

Working capital

YEAR Sales Working capital Ratio(times)

2004-2005 26488.65 119740.35 .22

2005-2006 26832.69 128552.17 .21

2006-2007 29461.95 124678.65 .24

2007-2008 34840.30 199026.97 .18

2004-2005 2005-2006 2006-2007 2007-20080

0.05

0.1

0.15

0.2

0.25

0.3


Interpretation

A higher working capital ratio indicates efficient utilization of working capital and a low

ratio indicates otherwise.

In 2004-05 the working capital turn over ratio of company KSFE was .22. In 2005-06 it

slightly decreases to .21. In 2006-07 it’s again increased to .24. but in 2007-2008 it

decreases to .18.


FINDINGS, SUGGESTIONS AND CONCLUSIONS

FINDINGS

As a rule of thumb or as a convention quick ratio of 1:1 is considered

satisfactory,but in this case the ratio is below one. so it is not satisfactory from

2004 to 2008.

The net profit ratio of the company has been declining .

The last two year proprietary ratio showing increasing trend this means the

company reserve allocating is increasing.

The company utilization of assets were unsatisfactory but last year showed up

trend.

The net profit margin of KSFE Ltd that was .073 in the year 2004-05, but slightly

increased to .089 in the year 2005-06 and it declined to .045% in 2006-07.again

the net profit declined from .045 to .0156 in the year 2007-2008.

KSFE is only successful Chitty fund business in Kerala.

The policies of the State Government towards KSFE are liberal.

SUGGESTIONS

The current ratio of the company is poorer than what they required ,this must be

increased.

The previous years performance indicating the company needs more attention to

strengthening their performance except the last year.

The bank has to increase the earning per share by generating more income.

The company has to find out more profitable investment avenue for generating

more income.

To elaborate the professional support base to the successful operation of the

company.

To create awareness regarding Chit Funds among the people.


The present social activities of Bank like charitable trust, micro finance, financial

aid to the poor people is appreciateble but this need further elaboration to increase

the goodwill of the firm.

Conclusion:-

The analysis of financial statements of the company KSFE from the financial year 2005

to 2009 reveals that this organization is achieving sustainable performance. This shows

KSFE is the only successful Non banking Institution in Kerala. When we compare this to

other Banks; its performance is delightful. KSFE ensures equitable distribution of wealth

and reduces the impact of interest in the economy like inflation and instability in the

economy. KSFE is also a boon to the State Government as it helps to raise lot of fund to

the Government Treasury.It is the only financial institution which provides huge sum of

money to any individual when he enters into a Chitty. There is now stability in the capital

of organization which is due to liberalized government policies

BIBLIOGRAPHY

For the purpose of the study, the following books have been referred:

S.L

NO

Authors Title of Books Publishers Edition

1 I.M Pandey

Professor, IIM

Ahmedabad

Financial

Management

Vikas Publishing

House pvt ltd

2002

2 Prasanna Chandra,

IIM Bangalore

Financial

Management

Tata McGraw

Hill Publishing

Co. ltd, New

2002


Theory and Practice Delhi

3 M.Khan & p k Jain Financial

Management

Tata McGraw

Hill Publishing

Co. ltd, New

Delhi

2002

4 B.S Raman Management

Accountancy

United Publishers

Mangalore

2000

5 Reddy and

Appannaih

Business Finance Himalaya

Publication

House, Mumbai

2001

6 R.S.N Pillai

Bagavathi

Management

Accounting

S. Chandra &

company ltd

2002

7 P.K Sharma &

Shashi K.Gupta

Management

Accounting

Kalyani

Publishers

2000

KSFE official website www.ksfe.com

The annual reports of ksfe from 2004-2005

The annual reports of ksfe 2005-2006

The annual reports of ksfe 2006-2007

The annual report of ksfe 2007-2008

Article from wikipedia about NBFC


http://www.ksfe.com/

my project

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