project report on ratio analysis of kamal solvent extractions pvt ltd.

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

Chapter – 1

Introduction of Ratio analysis

Project title

Objectives of the project

Methodology

R.C.E.T, Bhilai M.B.A – 09 -11 Page 1


INTRODUCTION OF RATIO ANALYSIS

Ratio analysis – A ratio is a mathematical relationship between two related items expressed

in quantitative form. When this definition of ratio is explain with reference to the item shown in

financial statements, than it is called accounting or financial ratio. So in this way the analysis of

the financial statements of the company is known as ratio analysis.

Ratio may be expressed in either of the following ways –

1. In proportion – In this form of amount of the two items are being expressed in a

common denominator. The example of this form of expression is relationship between

current assets and current liabilities as 2: 1.

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

item by another item is taken as unit of expression. The example of this form is sales

divided by stock (say it comes 4); thus 4 times is the ratio between sales and stock.

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

multiplied by one hundred and it becomes the “percentage” form of expression. For

example between gross profit and sales may be expressed by 32 %.



PROJECT TITLE

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

EXTRACTIONS PVT. LTD, RAJNANDGAON, CHHATTISGARH.

OBJECTIVES OF THE PROJECT

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

To use various activity ratios and liquidity ratios to find out the liquidity and solvency

position of the industry.



METHODOLOGY

Data Collection

Primary Source

Audit reports (Balance sheet & profit and loss a/c) provide by the industry.

Respondents and finance department of KAMAL SOLVENT EXTRACTIONS

PVT.LTD.

Secondary Source

Published collections of data.

Financial sites on the internet.

Official web site of the company.

Data Presentation: Graphical and tabular representation of the collected data has been done

to show the financial position of the industry.

Data Analysis & Interpretation: Here an analysis of the annual reports of the last three

fiscal years (2006-07 to 2008-09) has been done. Various ratios have been calculated to find out

the profitability and leverage of the firm. Various working capital ratios have been calculated to

observe the working capital changes and comparisons have been made of the last three years.

With the help of this various ratio we can easily find out the financial activities of the industry.



Chapter – 2

Literature review

o The rice bran oil industry in India

o Manufactures of rice bran oil in India



Literature review

The Rice Bran Oil industry in India

Rice Bran Oil is a unique vegetable oil produced from the outer brown layer of rice

which is removed in the form of rice bran during the polishing process of the rice milling

industry. Besides having an ideally balanced fatty acid profile, it is rich in natural anti-oxidants

and unique nutrient. A number of scientific studies conducted in India & abroad have well

documented the better cholesterol lowering properties of rice bran oil as compared to other

conventional vegetable oils. All these studies have attributed these properties of the oil to the

presence of unique nutrient in this oil known as Oryzanol & tocotrienolss. Rice Bran Oil is

extensively used in Japan, Korea, China, Taiwan and Thailand as premium edible oil. It is the

conventional & the most favorite cooking medium of the Japanese and is popularly known as

"Heart Oil" in Japan. It has acquired the status of a "Functional Food" or a "Health Food" in

Western Countries.

India is the second largest producer of paddy in the world after China contributing about

23% to the total world production of paddy. It has a potential to produce over one million tons of

this nutritious oil. Rice Bran Oil extraction started in India about 40 years back. It was in the

middle of 60's that a beginning was made in India for the extraction of oil from rice bran with

the help of solvent extraction process wherein food grade hexane is used to extract oil from rice

bran. Initially the entire quantities of rice bran oil produced in India were used as raw material

for the soaps & detergent industry as the free fatty acid content of the oil was very high.

In the early eighties, the Government of India introduced money credit scheme to

encourage the use of rice bran oil as a product mix in vanaspati (hydrogenated fat) wherein

substantial rebate from the payment of excise duty on vanaspati was given for use of rice bran oil

in the manufacture of vanaspati. In this way government of India encouraged for grooming up

the rice bran industries in India.



Manufacturers of Rice bran oil in India: Here the following table contains the

information about the name of the some of the big manufacturers of rice bran oil in India -

Name of the company City

Hemraj Industries pvt. Ltd West Bengal

Jindal oil & fats ltd. Rajasthan

Shree Sita Agro Foods pvt. ltd Durg

Gujrat Ambuja Exports ltd. Ahemdabad

Kumar Metal Industries pvt. Ltd. Mumbai

Kamal solvent Extractions pvt. Ltd Rajnandgaon

Ganpati solvent Rajnandgaon

Jai lakshmi solvent Pvt. Ltd Uttar pradesh



Chapter – 3

Company profile



Company profile

KAMAL SOLVENT EXTRACTIONS PVT LTD

INTRODUCTION: Kamal Solvent Extractions Pvt. Ltd. is Rice Bran oil producing company

established on 1990 focused on specialized, high-value products and services. The company’s

principal activities are extracting oil from the rice bran and refining the extracted oil and

marketing the edible oil to the potential market. Company also sells crude oil (non-refined oil) to

big companies like I.T.C and PEPSICO in India. This development process of converting the by-

product into finished goods underpins various processes, which the company executes with full

dedication and concentration with the help of various expertises. The company’s head office is at

Rajnandgaon with subsidiary offices in Durg and Raipur in India. Within short period of time

earned an unmatched success and reputation in the region and also in various parts of the

country. Kamal Solvent Extractions Pvt. Ltd. is engaged in the industry as the trusted

manufacturing unit for edible oil viz; Refined Rice Bran Oil and Triple Refined Rice Bran Oil

under the registered brand name “KAMAL” and “RAJKAMAL, NILKAMAL and RSOYEE

respectively. Kamal Solvent Extractions Pvt. Ltd.is rated as a smoke and pollution free industry

in the Chhattisgarh state of India. Water Filter Plant of this industry takes care of pollution free

extraction of Water used in Industrial Production works. The Industry is surrounded with green

trees.



MISSION & VISION: "At Kamal Solvent Extractions Pvt. Ltd., we have always dreamed big.

It is our vision that has taken us from a pioneer that spear-headed the rice bran revolution to the

recent position. We have been a leading light in the field of Rice bran oil for the past years. We

strive to look beyond the boundaries of competition by being quality centric in our

manufacturing practices. Our vision is to be a world class organization that is a benchmark for

other organizations in the country, setting standards for excellence, and leading the thrust in

adopting environment friendly policies."

R.B.O: Rice Bran Oil, which is commonly known as “HEART OIL” in Japan, is unique

cooking oil produced from the brown layer of rice paddy, which is removed in the form of rice

bran for producing white rice. The paddy that comes from the fields has a hard outer covering

called the husk. During the de-husking process, this husk is removed from the paddy and what

remains is brown rice. The rice so obtained is brown in colour since it has an oily brown

covering called the Bran. The polished rice which we generally consume is obtained after

removing this bran from the rice. It is important to understand that bran and husk are not same.

The bran which is left behind after the polishing process undergoes the solvent extraction process

in order to obtain crude rice bran oil. This crude oil is further refined in order to obtain rice bran

oil.

In other word, Rice bran is a by-product of the rice milling industry from which rice bran oil is

extracted. Typically rice bran accounts for 7 –8 % of the rice produced and the recovery of rice

bran oil from rice bran is usually 15%. Rice bran oil is used for human consumption. Anti-

oxidants of Vitamin E group are naturally occurring in rice bran oil. Appearance of rice bran oil

ranges from cloudy to clear depending on the degree of de-waxing and winterization process

applied. It also has several industrial uses. After oil extraction, the by-product obtained is de-

oiled rice bran.



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

four different brands. The brands which are shown below in diagram are mostly preferable in

Chhattisgarh, Maharashtra, and Madhya Pradesh and Andhra Pradesh. Sometimes the produced

non refined oil of the company is also supplied in bulky quantity to the multinational companies

also like – PepsiCo, ITC.

PACKAGING OF THE BRANDS - The brands of Kamal solvent comes in different types of

packaging, quantity and price which can be shown with the help of following table –

Types of packaging quantity Per pack price in Rs.

pouch 500ml 21.50

pouch 1 liter 42.50

Can(plastic) 5 liter 107

Can(plastic) 15 liter 690

Tin can 15 k.g 740

Tin can 15 liter 635

Note – Prices of the various products of the company which is shown in the above table are

always fluctuating as according to the market condition.


PRODUCT BRANDS

KAMAL

RAJKAMAL

NILKAMAL

RASOYEE


Features of Kamal solvent products –

The tag line of the company is – “KAMAL ka kaamal, shakti swaad bemisal”. These

tag lines express the quality of the kamal products inspite of this we can discuss about the

features of the kamal products by following ways –

Premium quality – Kamal produced in world class specially developed process

under highly hygienic condition to give better taste and natural flavor to good health.

Nutritionally superior – Kamal contains about 18% saturated,45% monosaturated

and 35% polyunsaturated fatty acid which is close to American heart association

recommendation.

Rich micronutrients & natural antioxidants – Kamal contains oryzanol,

Tocotrienol and Squalene which provides many benefits for human health.

Cheaper and popular – Kamal refined rice bran oil is the highly selling product in

all over central India.

In spite of all the above features some more features of the kamal products are –

Longer shelf life.

Anti – viral capacity

Oil is less sticky so its saves soap.

More stable at high temperature.

Heart food for every happy home.

Frying takes less time, saves energy.

Gives better taste & flavor to food items.

Economical – 15% less absorption of oil during frying.

Available in small packs also (5 liter, 1 liter pack).

Easily reachable available in all general stores.



Chapter – 4 Ratio analysis

The use of financial ratio

Significance of using ratio

Managerial uses of ratio analysis

Users of ratio analysis

Limitation of ratio analysis

Financial highlight of the company

Analysis of short term financial position or test of liquidity



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

The technique of ratio analysis can be employed for measuring short-term liquidity or working

capital position of a firm.

THE USE OF FINANCIAL RATIOS:

Financial Ratio is used as a relative measure that facilitates the evaluation of efficiency or

condition of a particular aspect of a firm's operations and status.

Ratio Analysis involves methods of calculating and interpreting financial ratios in order

to assess a firm's performance and status.

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

Done to find firm’s financial strengths and weaknesses.

It is a type of primary tools for the company.

For the analysis of the Financial Statements.

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



SIGNIFICANCE OF USING RATIOS: The significance of a ratio can only truly be appreciated when:

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

It is compared with the same ratio in previous financial statements (trend analysis).

It is compared with a standard of performance (industry average). Such a standard may

be either the ratio which represents the typical performance of the trade or industry, or the

ratio which represents the target set by management as desirable for the business.

MANAGERIAL USES OF RATIO ANALYSIS : The following are the important

managerial uses of ratio analysis helps in financial forecasting : Ratio analysis is very helpful in

financial forecasting. Ratios relating to past sales, profits and financial positions from the basis

for setting future trends.

Helps in Comparison : With the help of ratio analysis, ideal ratios can be composed and

they can be used for comparing a firm’s progress and performance. Inter firm comparison

or comparison with industry averages is made possible by ratio analysis.

Financial Solvency of the Firm : Ratio analysis indicates the trends in financial solvency

of the firm. Solvency has two dimensions long term solvency and short term solvency.

Long term solvency refers to the financial viability of a firm and it is closely related with

the existing financial structure. On the other hand, short term solvency is the liquidity

position of the firm. With the help of ratio analysis conclusion can be drawn regarding

the firm’s liquidity and long term solvency position.

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

efficiency in the management and utilization of its assets and resources. Various activity

ratios measure this kind of operational efficiency and indicate the guidelines for economy

in costs, operations and time.



Communication Value : Different financial ratios communicate the strength and

financial standing of the firms to the internal and external parties. They indicate the

overall profitability and capital gearing etc. of the firm.

Other Uses : Financial ratios are very helpful in the diagnosis of financial health of a

firm. They highlight liquidity then, solvency, profitability and capital gearing etc. of the

firm.

TYPES OF RATIO ANALYSIS

Mainly the financial ratios are divided in four major parts we can describe that ratios by

following ways –

1. Profitability Ratios – following are the various ratios which comes under

profitability ratios :

a. Gross profit ratio

b. Net profit ratio

c. Operating ratio

d. Expenses ratio

2. Turnover or Activity Ratios – following are the various ratios which comes under

turnover or activity ratios :

a. Debtors turnover ratio

b. Creditors turnover ratio

c. Average collection period

d. Average payment period

e. Inventory turnover ratio

f. Total assets turnover ratio

g. Fixed assets turnover ratio

h. Proprietary turnover ratio



3. Liquidity Ratios – following are the various ratios which comes under liquidity ratios

with the help of this ratios we can easy analyze the liquidity position of the company.

a. Current ratio

b. Quick ratio

c. Super quick ratio

d. Cash ratio

4. Various solvency Ratios

a. Debt equity ratio

b. Solvency ratio



USERS OF RATIO ANALYSIS:

TRADE CREDITORS: They are interested in firm’s ability to meet their claims over a

very short period of time. Their analysis will therefore, confine to the evaluation of the

firm’s liquidity position.

SUPPLIERS OF LONG TERM DEBT: Suppliers on the other hand, are concerned

with the firm’s long term solvency and survival. They analyses the firm’s profitability

over time, it’s ability to generate cash to be able to pay interest and repay principal and

the relationship between various sources of funds (capital structure relationships).

INVESTORS: who have invested their money in the firm’s shares, are most concerned

about the firm’s earnings. They restore more confidence in those firms that show steady

growth in earnings. As such, they concentrate on the analysis of the firm’s present and

future profitability. They are also interested in the firm’s financial structure to the extent

it influences the firm’s earnings ability and risk.

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

analysis. It is their overall responsibility to see that the resources of the firm are used

most effectively and efficiently, and the firm’s financial condition is sound.

LIMITATIONS OF RATIO ANALYSIS -

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

Published industry averages are only guidelines.

Accounting practices differ across firms.

Sometimes difficult to interpret deviations in ratios.

Industry ratios may not be desirable targets.

Seasonality affects ratios.



FINANCIAL HIGHLIGHT OF THE COMPANY

NET SALES

Gross sales for a period after cash discounts, returns, and freight expenses have been deducted.

Gross sales includes both credit and cash sales of the company.

YEAR SALES(IN RS CRORE)

2006-07 49.95

2007-08 59.43

2008-09 82.46

2006-07 2007-08 2008-090

10

20

30

40

50

60

70

80

90

49.95

59.43

82.46

SALES (IN RS. CRORE)

Interpretation: The sales figures are encouraging as there is a positive trend and the rate of

increase is considerably high. The net sales went up from Rs 49.95 crore in year 2006-07 to Rs

82.46 crore in years 2008-09. Net sales of the company increase because of its various

demandable brands & its shows that company getting good business from its customer’s. In this

way the percentage increase of sales of the industry is 65.09% from 2006-07 to 2008-09.



Profit Before Tax –PBT

A profitability measure that looks at a company's profits before the company has to pay

corporate income tax. This measure deducts all expenses from revenue including interest

expenses and operating expenses, but it leaves out the payment of tax. This measure combines all

of the company's profits before tax, including operating, non-operating, continuing operations

and non-continuing operations. PBT exists because tax expense is constantly changing and

taking it out helps to give an investor a good idea of changes in a company's profits or earnings

from year to year.

YEAR PROFIT BEFORE TAX (IN RS. CRORE)

2006-07 0.99.

2007-08 1.24

2008-09 1.51

2006-07 2007-08 2008-090

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

0.99

1.24

1.51

PBT (IN RS CRORE)

PBT (IN RS CRORE)

Interpretation: The profit before tax is rising in a consistent rate showing a very positive

trend from Rs. 0.99 crore in years 2006-07 to Rs. 1.51 crore in 2008-09.



Profit after tax (PAT)

It the net profit earned by the company after deducting all expenses like interest, depreciation

and tax. PAT can be fully retained by a company to be used in the business. However dividend is

paid to the share holders from this residue.

YEAR SALES(IN RS CRORE)

2006-07 0.83

2007-08 0.81

2008-09 1.07

2006-07 2007-08 2008-090

0.2

0.4

0.6

0.8

1

1.2

0.830000000000001 0.81

1.07

PAT (IN RS CRORE)

PAT (IN RS CRORE)

Interpretation: The profit after tax is rising in a consistent rate showing a very positive

trend from Rs. 0.83 Crore in the year 2006-07 to Rs. 1.07 crore in 2008-09.Company paid

dividend to its shareholder’s from this residual amount.

ANALYSIS OF SHORT – TERM FINANCIAL POSITION


Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd.OR TEST OF LIQUIDITY

The short –term creditors of a company such as suppliers of goods of credit and

commercial banks short-term loans are primarily interested to know the ability of a firm to meet

its obligations in time. The short term obligations of a firm can be met in time only when it is

having sufficient liquid assets. So to with the confidence of investors, creditors, the smooth

functioning of the firm and the efficient use of fixed assets the liquid position of the firm must be

strong. But a very high degree of liquidity of the firm being tied – up in current assets. Therefore,

it is important proper balance in regard to the liquidity of the firm.

FINANCIAL STATISTICS OF KAMAL SOLVENT


Year 2006-07 (In Rs. crore)

2007-08(In Rs.crore)

2008-09(In Rs. crore)

NET SALES 49.95 59.43 82.46

PAT(profit

after tax)

0.834 0.806 1.075

PBT(profit

before tax)

0.995 1.24 1.51

DEBT 1.86 3.50 4.14

FIXED

ASSETS

5.29 4.80 4.52

CURRENT

ASSESTS

6.02 9.98 10.81

CURRENT

LIABILITES

1.890 2.533 3.6045

RESERVE

AND

SURPLUS

1.604 2.49 3.566

CAPITAL

EMPLOYED

9.58 12.40 11.912

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

LIQUIDITY RATIOS -

Liquidity refers to the ability of a firm to meet its short-term financial obligations when

and as they fall due. The main concern of liquidity ratio is to measure the ability of the firms to

meet their short-term maturing obligations. Failure to do this will result in the total failure of the

business, as it would be forced into liquidation.

In this way we can say that Liquidity refers to the ability of a firm to meet its current

obligations as and when these become due. The short-term obligations are met by realizing

amounts from current, floating or circulating assets. The current assets should either be liquid or

near about liquidity. These should be convertible in cash for paying obligations of short-term

nature. The sufficiency or insufficiency of current assets should be assessed by comparing them

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

position is satisfactory. On the other hand, if the current liabilities cannot be met out of the

current assets then the liquidity position are bad Common liquidity ratios including the current

ratio, the quick ratio and the operating cash flow ratio.

1. Current Ratio -

The current ratio is a popular financial ratio used to test a company's liquidity (also

referred to as its current or working capital position) by deriving the proportion of current assets

available to cover current liabilities.

The concept behind this ratio is to ascertain whether a company's short-term assets (cash,

cash equivalents, marketable securities, receivables and inventory) are readily available to pay

off its short-term liabilities (notes payable, current portion of term debt, payables, accrued

expenses and taxes). In theory, the higher the current ratio, than the liquidity position of the

company is also better to fulfill its short-term liabilities obligations.

Rule of thumb -

1. Relatively high ratio values mean that the business is liquid, but cash is not working.

2. If the current ratio is greater than 1.0, the business is liquid.

3. If the current ratio is less than 1.0, the business is illiquid.


Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd.Formula for calculating current ratio is -

Current ratio = Total current assets / Total current liabilities

Current assets = Cash + Marketable securities + Bill receivables + Sundry debtors +

Inventories.

Current liabilities = Outstanding expenses + Bill payable + Dividend payable etc.

YEAR CURRENT ASSETS

(in Rs. crore)

CURRENT

LIABILITIES (in Rs.

crore)

CURRENT

RATIO

2006-07 6.02 1.89 3.18

2007-08 9.98 2.53 3.94

2008-09 10.81 3.60 3.00

2006-07 2007-08 2008-090

0.5

1

1.5

2

2.5

3

3.5

4

4.5

3.18

3.94

3

CURRENT RATIO

CURRENT RATIO

Interpretation: As we know that ideal current ratio for any firm is 2:1. If we see the current

ratio of the company for last three financial years it has increased from 2006-07 to 2007-08 but

decrease in the year 2008-09 in spite of this it is more than 1.0 it means the business is liquid

and in all the years’ current ratio of company is more than the ideal ratio. This depicts that

company’s liquidity position is sound and the current assets of the company is sufficient to fulfill

its short-term liabilities obligation.



2. Quick ratio - The quick ratio -the quick assets ratio or the acid-test ratio -is a liquidity

indicator that further refines the current ratio by measuring the amount of the most liquid

current assets there are to cover current liabilities. The quick ratio is more conservative

than the current ratio because it excludes inventory and other current assets like prepaid

expenses, which are more difficult to turn into cash. Therefore, a higher ratio means a more

liquid current position.

Rule of thumb -

1. Relatively high ratio values mean that the business is liquid, but cash is not working.

2. If the current ratio is greater than 1.0, the business is liquid.

3. If the current ratio is less than 1.0, the business is illiquid.

Formula for calculating quick ratio is -

Quick ratio = Total current assets – Inventory- Prepaid expenses / Total current liabilities.

YEAR CURRENT

ASSETS(in

Rs. crore)

PREPAID

EXPENSES(in

Rs. crore)

INVENTORIES(in

Rs. crore)

CURRENT

LIABILITIES(in

Rs. crore)

QUICK

RATIO

2006-07 6.02 0.057 3.34 1.89 1.38

2007-08 9.98 0.118 5.12 2.53 1.87

2008-09 10.81 0.0718 4.24 3.60 1.80



2006-07 2007-08 2008-090

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

1.38

1.871.8

QUICK RATIO

QUICK RATIO

Interpretation: A quick ratio is an indication that the firm is liquid and has the ability to

meet its current liabilities in time. The ideal quick ratio is 1:1. Company’s quick ratio is more

than ideal ratio. This shows company has no liquidity problem and it can easily fulfill its short-

term obligations.

3. SUPER /ABSOLUTE QUICK RATIO -

Although receivables, debtors and bills receivable are generally more liquid than

inventories, yet there may be doubts regarding their realization into cash immediately or in time.

So absolute liquid ratio should be calculated together with current ratio and acid test ratio so as

to exclude even receivables from the current assets and find out the absolute liquid assets.

Absolute Liquid Assets includes:

Formula for calculating super quick ratio is -

Absolute liquid ratio = Absolute liquid assets / current liabilities

Absolute liquid assets = Cash & Bank balances + Investment in govt. securities.



YEAR CASH BAL +

BANK BAL +

INVESTMENT

IN GOVT.

SECURITIES.

(in Rs. crore)

CURRENT

LIABILITIES (in

Rs. crore)

SUPER

QUICK

RATIO

2006-07 0.43 1.89 0.22

2007-08 0.82 2.53 0.32

2008-09 1.31 3.60 0.36

2006-07 2007-08 2008-090

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.22

0.320000000000007

0.36

SUPER QUICK RATIO

SUPER QUICK RATIO

Interpretation: From the above calculated super quick ratio it is clear that company carries

some amount of cash to fulfill its short term liabilities obligation. And there is nothing to be

worried about the lack of cash because company has reserve, borrowing power & long term

investment.



4. CASH RATIO : This is the ratio in which we establish relationship between cash and

bank balance to current liabilities. With the help of this ratio we can find out the ratio of

cash & bank balance against the current liabilities of the company.

Formula for calculating cash ratio is -

Cash ratio = Cash + Bank balance / Current liabilities

2006-07 2007-08 2008-090

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.22

0.320000000000007

0.36

CASH RATIO

CASH RATIO


YEAR CASH &

BANK BAL.

(in Rs. crore)

CURRENT

LIABILITIE

S(in Rs. crore)

CASH

RATIO

2006-07 0.43 1.89 0.22

2007-08 0.82 2.53 0.32

2008-09 1.31 3.60 0.36


Interpretation The cash ratio of the company increase from0.22 in the year 2006-07 up to

0.36 in the year 2007-08 and the calculated ratios shows that company have sufficient portion of

cash and bank balance against its current liabilities.

PROFITABILITY RATIOS : The main objective of any business concern is to earn maximum

profit and at the same time, it is the effort of every concern to earn maximum profit not only in

absolute terms but also in relative terms either profit should be maximum in relation to capital

employed and entrepreneurial risks. An ability to earn maximum from the maximum use of

available resources by the business concerns is also known as profitability.

5. Gross profit ratio - This ratio expresses the relationship between gross profits and Net

sales, net sales means credit + cash sales – sales return. With the help of this ratio we can

find out that gross profit is how much percentage of the net sales.

The formula for computing this ratio is as under –

Gross profit ratio = Gross profit / sales × 100

Gross profit = Sales – Cost of goods sold

Cost of goods sold = Opening stock + Purchase + Direct exp. – Closing stock


YEAR Net

SALES .

(in Rs.

crore)

COST OF

GOODS

SOLD.(in

Rs. crore)

GROSS

PROFIT.(in

Rs. crore)

GROSS

PROFIT

RATIO

2006-07 49.95 44.29 5.66 11.33%

2007-08 59.43 55.40 4.03 6.79 %

2008-09 82.46 77.57 4.89 5.93 %


2006-07 2007-08 2008-090

2

4

6

8

10

12 11.33

6.795.93

GROSS PROFIT RATIO

GROSS PROFIT RATIO

Interpretation: From the above graph it is clear that gross profit ratio of the firm decreases

from 11.33% in the year 2006-07 to 5.93% in the year 2008-09.

6. NET PROFIT RATIO It is also called as Net profit to sales ratio. It measures

relationship between Net operating profit and sales and as such is expressed as percentage

to sales. We can calculate net profit of the company after deducting various expenses like

administrative expenses, financial expenses, sales expenses etc means here we consider

profit before taxation.

The formula for computing this ratio is as under –

Net profit ratio = Net profit × 100 / sales



2006-07 2007-08 2008-091.65

1.7

1.75

1.8

1.85

1.9

1.95

2

2.05

2.1

2.15

1.99000000000003

2.1

1.83

NET PROFIT RATIO

NET PROFIT RATIO

Interpretation: Net profit ratio is an indicator of operational efficiency or inefficiency.

Higher the ratio of net profit to sales is, better is the operational efficiency of the concern. From

the above graph it is clear that net profit ratio is 1.99% in the year 2006-07 than it increases up to

2.10% in the year 2007-08 than decreases 1.83% in the year 2008-09 due to global recession.


YEAR NET PROFIT.

(in Rs. crore)

SALES .(in Rs.

crore)

NET PROFIT

RATIO

2006-07 0.99 49.95 1.99 %

2007-08 1.24 59.43 2.10 %

2008-09 1.51 82.46 1.83 %


7. OPREATING RATIO –

This ratio establishes the relationship between total operating expenses and sales. Total

operating expenses include cost of goods sold, administrative expenses, financial expenses and

selling and distribution expenses and with the help of this ratio we can easily find out that

operating expenses are how much percentage of the total sales.

The ratio is calculated by the following formula –

Operating ratio = (cost of sales + other operating expenses)/sales × 100

Operating expenses = cost of goods sold + administrative expenses + financial expenses +

selling and distribution expenses.

YEAR COST OF

SALES .(in Rs.

crore)

OPREATING

EXPENSES .(in

Rs. crore)

SALES .(in Rs.

crore)

OPREATING

RATIO

2006-07 44.29 1.92 49.95 92.51%

2007-08 55.40 2.46 59.43 97.35 %

2008-09 77.57 2.71 82.46 97.35 %



2006-07 2007-08 2008-0990

91

92

93

94

95

96

97

98

92.51

97.35 97.35

OPREATING RATIO

OPREATING RATIO

Interpretation : From the above diagram it is clear that operating ratio is 96.51% in the year

2006-07 and it is continuously same 97.35% in the year 2007-08 and 2008-09.

8. Expenses ratio – With the help of expenses ratio we can easily find out that expenses

like selling, administrative and financial are how much percentage of the net sales of the

company.

The formula for calculating expenses ratio is –

Expenses ratio = Expenses/sales × 100


YEAR EXPENSES.(in

Rs. crore)

SALES .(in Rs.

crore)

EXPENSES

RATIO

2006-07 1.92 49.95 3.84 %

2007-08 2.16 59.43 3.63%

2008-09 2.71 82.46 3.28 %


2006-07 2007-08 2008-090

1

2

3

4

5

6

7

3.84

6.63

3.28

EXPENSES RATIO

EXPENSES RATIO

Interpretation: From the above graph it is clear that the expenses ratio is 3.84% of the sales

in the 2006-07, than its decrease and become 3.63% in the year 2007-08 and then again decrease

and became 3.28 % in the year 2008-09.

TURNOVER RATIO

9. RECEIVABLE/DEBTORS TURN OVER RATIO – With the help of this ratio we can

easily measure the predictable amount which is has to receive from the debtors. If the debtors

turnover ratio is more than this condition is good for our business because if the ratio is more

than it means company will receive the amount from debtors very quickly. This ratio also

provides help to reduce doubtful debt and on the second hand it provides help to the firm for the

creation of the various funds which is useful for the other profitability activities of the company.

The formula for calculating receivable turnover ratio –

Receivable turnover ratio – Credit sales / Debtors + Bills receivable



2006-07 2007-08 2008-090

5

10

15

20

25

3027

17

20

RECEIVABLE TURN OVER RATIO

RECEIVABLE TURN OVER RATIO

Interpretation: From the above graph it is clear that in the various different year the Debtors

turnover ratio is also different and with the help of this ratio company can easily measure

predictable receive amount from the debtors.


YEAR DEBTORS .(in

Rs. crore)

CREDIT

SALES .(in Rs.

crore)

RATIO

2006-07 1.86 49.95 27

2007-08 3.50 59.43 17

2008-09 4.14 82.46 20


10.AVREAGE/DEBT COLLECTION PERIOD – With the help of this ratio we can

easily find out that in how many days the amount of credit sales will receive. Every

industry has set its own standard for the average collection period. If the calculated average

collection period is less than standard one than this situation is good for the company but if

it is more than this situation is not consider good for the company.

The formula for calculating average collection period is

Average collection period = Debtors + bills receivable / credit sales × 365

2006-07 2007-08 2008-090

5

10

15

20

25

14

22

18

AVERAGE COLLECTION PERIOD

AVERAGE COLLECTION PERIOD


YEAR DEBTORS .(in

Rs. crore)

SALES.(in Rs.

crore)

DAYS

2006-07 1.86 49.95 14

2007-08 3.50 59.43 22

2008-09 4.14 82.46 18


Interpretation: So in this way with the help of this ratio we can easily find out that in how

many days the amount of credit sales will receive. Every industry has set its own standard for

average collection period. If the calculated average collection period is less than standard than it

is good for the industry but if it’s more than standard one than it is not consider good for the

industry.

11.CREDITORS/PAYMENT TURNOVER RATIO - This is ratio is just reverse

of the debtors turnover ratio the only difference is that with the help of this ratio we can

easily find out the condition or the level of the firm for the payment of the credit purchase.

The formula for calculating payment turnover ratio is

Payment turnover ratio = Credit purchase/Creditors + Bills payable


YEAR CREDITORS.(in

Rs. crore)

CREDIT

PURCHASE.(in

Rs. crore)

PAYMENT

TURN OVER

RATIO

2006-07 1.89 36.90 19.52

2007-08 2.53 47.95 18.92

2008-09 3.60 67.47 18.71


2006-07 2007-08 2008-0918.2

18.4

18.6

18.8

19

19.2

19.4

19.6 19.52

18.92

18.72

PAYMENT TURN OVER RATIO

PAYMENT TURN OVER RATIO

Interpretation: So from the above graph we got different creditors turnover ratio in

different years and this ratios shows the company ability or level for the payment to its

creditor’s.

12.AVERAGE PAYMENT PERIOD - With the help of this ratio we can easily find out that

in how many days company will pay to its creditors.

The formula for calculating average payment period is

Average payment period = creditors + bills payable / credit purchase × 365



2006-07 2007-08 2008-090

2

4

6

8

10

12

14

16

18

20

AVERAGE PAYMENT PERIOD

AVERAGE PAYMENT PERIOD

Interpretation: This ratio is similar with average collection period the only difference is

that with the help of this ratio we can find out that in how many days company will pay to its

creditor’s. This ratio is very important for the business from the creditor’s point of view.


YEAR CREDITORS.(in

Rs. crore)

CREDIT

PURCHASE.(in

Rs. crore)

PAYMENT

TURN OVER

RATIO

2006-07 1.89 36.90 19

2007-08 2.53 47.95 19

2008-09 3.60 67.47 19


13.Total Assets Turnover Ratio : This ratio is also known as the investment

turnover ratio. It is based on the relationship between the costs of goods sold or net sales

divided by total assets of a firm which is reflected in its earning power. Formula for

calculating this ratio is

Total assets turnover = Net sales / Total assets

2006-07 2007-08 2008-090

1

2

3

4

5

6

4.354.03

5.31

TOTAL ASSETS TURN OVER RATIO

TOTAL ASSETS TURN OVER RATIO


YEAR TOTAL

ASSETS.(in Rs.

crore)

NET SALES.(in

Rs. crore)

TOTAL ASSETS

TURN OVER

RATIO

2006-07 11.47 49.95 4.35

2007-08 14.73 59.43 4.03

2008-09 15.51 82.46 5.31


Interpretation: From the graph it is clear that total assets turnover ratio is 4.35 in the year

2006-07 than it become 4.03 in the year 2007-08 and then it increases and become 5.31 in the

year 2008-09.

14. INVENTORY TURN OVER RATIO –

This is also called as stock turnover ratio or stock velocity. This ratio is calculated to consider the

adequacy of the quantum of capital and its justification for investing in stock or inventory.

Inventory turnover is the number of times obtained by dividing cost of sales by average stock.

The formula for calculating inventory turnover ratio is –

Inventory turnover ratio = Cost of goods sold / average stock

Formula for calculating average stock = opening stock + closing stock / 2


YEAR Cost of goods sold.(in Rs. crore)

Average stock .

(in Rs. crore)

Inventory turn over ratio

2006-07 44.29 4.68 9.46

2007-08 55.40 4.23 13.09

2008-09 77.57 2.53 30.66


2006-07 2007-08 2008-090

5

10

15

20

25

30

35

9.46

13.09

30.66

INVENTORY TURN OVER RATIO

INVENTORY TURN OVER RATIO

Interpretation: This ratio is also known as merchandise turnover ratio. If inventory turnover

ratio of the company is more than it is clear that the working activities of the company will also

be good and company will work on lower profit rate also from the above graph it is clear that

inventory turnover ratio is increase with a high rate in the year 2008-09 .

15. Fixed Asset Turnover Ratio :

This ratio is a rough measure of the productivity of a company's fixed assets (property, plant

and equipment or PP&E) with respect to generating sales. For most companies, their investment

in fixed assets represents the single largest component of their total assets. This annual turnover

ratio is designed to reflect a company's efficiency in managing these significant assets. Simply

the higher the yearly turnover rate, the better.

It represents a multiplicity of management decisions on capital expenditures.



Fixed turnover ratio = net fixed assets / sales

2006-07 2007-08 2008-090

0.02

0.04

0.06

0.08

0.1

0.120.106

0.08

0.054

FIXED ASSETS TURN OVER RATIO

FIXED ASSETS TURN OVER RATIO

Interpretation: From the above graph it is clear that fixed assets turnover ratio is 0.106 in

the year 2006-07 and then it increases in the year 2007-08 and become 0.080 in this year and

then it again decreases in the 2008-09 and become 0.054.


YEAR NET FIXED

ASSETS.(in Rs.

crore)

NET SALES .(in

Rs. crore)

FIXED ASSETS

TURN OVER

RATIO

2006-07 5.29 49.95 0.106

2007-08 4.80 59.43 0.080

2008-09 4.52 82.46 0.054


16.PROPRITEARY TURN OVER RATIO –

It is the ratio of proprietor’s fund or owner’s equity to total assets. It is also called net worth to

total assets ratio because proprietor’s fund is also known as net worth. It indicates the strength of

financial foundation of the concern and serves as a measure of ultimate or long term solvency.

The formula for calculating proprietary turnover ratio is –

Proprietary turnover ratio = owner’s equity / total assets

Owner’s equity = share capital + reserve & surplus

YEAR Share capital .(in Rs. crore)

Reserve & Surplus

Owner’s equity.(in Rs. crore)

Total assets.

(in Rs. crore)

Propriteary turn over ratio

2006-07 1.67 1.604 3.27 11.47 0.28

2007-08 1.67 2.491 4.16 14.80 0.28

2008-09 1.67 3.566 5.23 15.51 0.33

2006-07 2007-08 2008-090.25

0.26

0.27

0.28

0.29

0.3

0.31

0.32

0.33

0.34

0.28 0.28

0.330000000000006

PROPRITEARY TURN OVER RATIO

PROPRITEARY TURN OVER RATIO


Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd.Interpretation: If the proprietary ratio of the company is more than the payment capability of

the company is good and the creditors of the company are more secure and if the creditor’s of the

company are more secure than this condition is financially good for the company, from the above

graph it is clear that proprietary turnover ratio is same in the both first two financial year’s and it

Increase more in the year 2008-09.

VARIOUS SOLVENCY RATIO’S: With the help of the various solvency ratios

we can easily find out the payment capability of the firm against its short term or long term

liabilities. We can divide the various solvency ratios on the two bases –

1. Short- term solvency- With the help of this ratio’s we can easily test the company ability

for the payment of its short term liabilities in this we can say that in this ratio we can

easily test the liquidity position of the company which we had already done earlier in the

project.

2. Long-term solvency – With the help of this ratio’s we can easily test the company ability

for the payment of its long term liabilities. This ratio is also known as Ratios of financial

position or Stability ratio’s.

17.Debt-Equity Ratio:

The debt-equity ratio is another leverage ratio that compares a company's total liabilities

to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors

and obligors have committed to the company versus what the shareholders have committed.

To a large degree, the debt equity ratio provides another vantage point on a company's leverage

position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets

in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using

less leverage and has a stronger equity position.


Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd.Debt equity ratio = external equities / internal equities

Internal equities / owner’s equities = Share capital + Reserve & surplus

External equities = Current liabilities + long term liabilities

YEAR Share capital .(in Rs. crore)

Reserve & Surplus

CURRENT

LIABILITIE

S (in Rs.

crore)

Long

term

liabilites

EXTERNAL

EQUITIES.

(in Rs. crore)

INTERNAL

EQUITIES

.(in Rs.

crore)

DEBT

EQUITY

RATIO

2006-

07

1.67 1.604 1.89 5.67 7.56 3.27 2.31

2007-

08

1.67 2.491 2.53 7.68 10.21 4.16 2.45

2008-

09

1.67 3.566 3.60 6.29 9.89 5.23 1.88



2006-07 2007-08 2008-090

0.5

1

1.5

2

2.5

3

DEBT EQUITY RATIO

DEBT EQUITY RATIO

Interpretation: The financing of total assets of a business concern is done by internal equity

as well as by external equity. How much fund has been provided by the owner’s and how much

by outsiders in the acquisition of total assets is a very significant factor affecting the long term

solvency position of the concern. So from the above diagram it is clear that ideal relationship is

established between total assets, owners, equity and outside debts.

18. SOLVENCY RATIO – With the help of this ratio we can easily find out that the

amount which is received from the sales is suitable for the payment of the external

liabilities or not. Formula for calculating solvency ratio is

Solvency ratio = Total outside liabilities / Total assets

Total outside liabilities = Current liabilities + long term liabilities



2006-07 2007-08 2008-090.6

0.61

0.62

0.63

0.64

0.65

0.66

0.67

0.68

0.69

SOLVENCY RATIO

SOLVENCY RATIO

Interpretation: From the above graph it is clear that solvency ratio is different in the different

years it is 0.65 in the year 2006-07 than it increased and become 0.68 in the year 2007-08 than

again decrease in the year 2008-09 and become 0.63.


YEAR Total outside liabilities .(in Rs. crore)

Total assets.(in

Rs. crore)

Solvency ratio

2006-07 7.56 11.47 0.65

2007-08 10.21 14.93 0.68

2008-09 9.89 15.61 0.63


Chapter – 5 Findings

FINDINGS



1. The current ratio shows in fluctuating trends as 3.18 in the year 06-07, 3.94 in the year

07-08 and 3.00 during the year 08-09 .This shows continuous increases in both current

assets and current liabilities.

2. The quick ratio is also in a fluctuating trend throughout the period 06 – 07 to 08-09

resulting as 1.38, 1.87 and 1.80. This shows the company’s present liquidity position is

satisfactory.

3. The super quick ratio also shows increases fluctuating trend throughout the period 06-07

to 08-09 resulting as 022, 0.32 and 0.36. This shows that industries can easily change its

current assets in to the liquidity form.

4. The gross profit ratio of the industry has been decreased from 11.33% to 5.93% from the

year 06-07 to 08-09.

5. The net profit ratio is 1.99% in the year 06-07 than it increases and become 2.10% in the

year 07-08 and then again decreases and become 1.83% in the year 08-09.

6. The operating profit ratio is 92.51% in the year 06-07 and then it become constant

97.35% in both the financial year 07-08 and 08-09.

7. The expenses ratio of the industry has been decline from 3.84% to 3.28% from the year

06-07 to 08-09.

8. The debtor’s turnover ratio is 27 in the year 06-07 then it decline and become 17 in the

year 07-08 and then it become 20 in the year 08-09.

9. The debt collection period is 14 days in the year 06-07 and then it increases and become

22 days in the year 07-08 and then again decreases and become 18 days in the year 08-09.

10. The payment turnover ratio is 19.52 in the year 06-07 and then it become 18.92 in the

year 07-08 and then it become 18.71 which is a little bit decline in the year 08-09.

11. The payment turnover ratio is 19 days which is constant for every financial year.

12. The total turnover ratio is increases from 4.35 to 5.31 from the year 06-07 to 08-09.

13. The inventory turnover ratio is 9.46 in the year 06-07 and then it increases and become

13.09 in the year 07-08 and then it increases more and become 30.66 in the financial year

08-09.


Ratio analysis of financial statements on Kamal solvent Extractions Pvt. Ltd.14. The fixed assets turnover is 0.106 in the year 06-07 and then it decline and become 0.080

in the year 07-08 and then again decline and become 0.054 in the financial year 08-09.

15. The proprietary turnover ratio is 0.28 which is constant for both financial year 06-07 and

07-08 and then it increases and become 0.33 in the year 08-09.

16. The debt equity ratio shows a fluctuating trend it is 2.31 in the year 06-07 and then it

increases and become 2.45 in the year 07-08 and then again decline and become 1.88 in

the year 08-09.

17. The solvency ratio also shows a fluctuating trend it is 0.65 in the year 06-07 and then it

increases and become 0.68 in the year 07-08 and then again decline and become 0.63 in

the year 08-09.



Chapter – 6 Recommendations



Recommendations

1. The net sales of the company in 2008-09 is Rs. 82.46 crore which is more than the

previous financial years 2007-08 & 2006-07 it shows that the productivity of the industry

increases day by day and industry should adopt new technologies to improve

productivity.

2. Industry produces four types of rice bran oil Kamal, Rajkamal, Nilkamal & Rasoyee.

Rosyee is the new packaging product which has to be promoted by the company in to its

market areas.

3. The ideal current ratio should be 2:1, and from calculating the current ratio’s of previous

three years financial year it is found that in each year it is always more than 1, it show

that firm have sufficient current assets to fulfill its current liabilities but industry should

maintain more funds also to fulfill its short term obligations .

4. The industry should adopt proper inventory management system to maintain its inventory

turnover ratio.

5. Profit after the tax of the company increases by 29 % so the company should adopt a

proper dividend policy for the shareholder’s.

6. Industry should adopt proper depreciation method for the right valuation of its fixed

assets .



Chapter – 7 Conclusion



Conclusion

From the ratio analysis of the industry we come to know about the profitability and

obligations payment capability of the industry. Various liquidity and turn over ratios indicate the

liquidity capability and long term debts and its impact on overall financial position of the firm.

Liquidity ratios give idea how to maintain the liquid assets of the company to fulfill the short

term liabilities. From the analysis of the various financial ratios of KAMAL SOLVENT

EXTRACTIONS PVT LTD, we found that the company follows aggressive policy of managing

liquidity & company have sufficient liquidity assets to satisfy its short term liabilities. The

company is earning huge profits and is in good financial health.

The company is in sound financial health. This indicates the managerial efficiency of the

company. The company does not have unnecessary funds tied up in the form cash or any current

assets increasing the liquidity and thus decreasing the profitability of the company. As there is a

tradeoff between profitability and liquidity the firm maintains current assets up to the level

necessary for the smooth functioning of the business.



Chapter – 8 Sources and Bibliography



Sources and Bibliography

Www. Kamalsol.com

www.wikipedia.com

Official records of the industry

MANAGEMENT ACCOUNTING – Dr. S.P. Gupta

FINANCIAL MANAGEMENT - Dr. S.P. Gupta


http://www.wikipedia.com/

project report on ratio analysis of kamal solvent extractions pvt ltd.

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