Case Study on

Financial Analysis of Kilburn Chemicals

Submitted By: Group No. 5

Nishtha Chauhan. Dwirang Dhandhukiya. Khushbu Doshi. Kuntika Kotadiya. Shraddha Mehta.

11 19 21 41 51

Class:

F.Y.MBA (1st Semester)-(1st Shift- 1B)

Submitted To: Mr. Jimmy kapadia

Ratio Analysis: A) Liquidity Ratios:(1) Current Ratio:-

Current Asset = Cash & bank balance+ stock + debtors+ B/R+ Prepaid expenses + Investment Readily Convertible into cash + loan & advance. Current Liabilities = Creditors + B/P + Bank O/D + Unclaimed Dividend + Provision for Taxation + Proposed Dividend.

Statement Showing Current Ratio:

Year Assets 2004 2005 2006 24.83 24.01 28.29 Current Current Liability 6.92 7.37 9.17 ratio 3.59 : 1 3.26 : 1 3.09 : 1 Current

Interpretation:
Current ratio is used to measures firms ability to meet short term obligations. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they become due. The idle current ratio is 2:1 or 1.5:1. In above data of current ratio for 2006, we can see that the current ratio of company decreases by 13.92% from 2004 to 2006. The companys current assets are continuously increasing from 2004 to 2006. But the rate of change is different. So, all above calculated current ratios for three years, there is no any single ratio, which matches with standard current ratio of 2:1 or 1.5:1. It may be because of credit periods availed from suppliers is less or credit periods allowed to the customers is more or any other. So, companys current ratio is good.

(2)

Acid Test Ratio:-

Quick Assets = Liquid Assets Debtors

Statement Showing Quick Ratio:

Year 2004 2005 2006 Quick Assets 24.83-4.31 24.01-6.11 28.29-6.24 Liquid Liability 6.92 7.37 9.17 Quick Ratio 2.95 : 1 2.43 : 1 2.40 : 1

Interpretation:
Here, in above quick ratios, no one is matching with standard i.e.1:1. The company is having a quick ratio of more than one may not be meeting its short term obligation in time. Companys quick ratios are high in whole time period of three years (2004-06). There is overall reduction in the quick ratio in 2006 over 2004. There is 18.64% reduction in the quick ratio in 2011 over the three years. So, companys current assets are already more than current liabilities and companys quick or liquid assets are also very high. So, the companys quick ratio is high in 2004.

(3)

Debtors Turnover Ratio:-

Statement Showing Debtor turnover Ratio:

Year Bill R. 2004 2005 2006 3.22 4.71 10.28 43.68 56.56 61.9 26.91 days 26.9 days 61.28 days Debtor + Credit sales Debtor ratio

Assumption:
As there is no credit sale, we took net sales as credit sales.

Interpretation:
It helps to know the credit period allowed to customers on credit sales how fast a company realizes its outstanding dues and amounts. By analyzing the given data of collection period allowed to customers for the period of three years (2004-06), we can see that there is increase in the collection period in 2006 by 127.76% as compared to 2004. So, companys collection period allowed to customers is increased and it is unfavourable to the company. As now company have to suffer for more no of days for its outstanding dues.

(4)

Inventory holding period:-

Statement Showing
Year 2004 2005 2006 4.41 6.11 6.24 26 34 37

:
61.91 days 61.59 days 61.56 days

Interpretation:
It helps to understand how fast a company is able to convert its inventory in to cash so as to be able to study its liquidity. By analyzing the given data of Inventory holding period for three years (2004-06), we can see that there is little decrease of 0.57%.which is a good sign but overall these ratios are too high and unfavourable to the company.

Liquidity position of the firm:

Firms credit periods availed from suppliers is less or credit periods allowed to the customers is more or any other. So, companys current ratio is good.

Firms current assets are already more than current liabilities and its quick or liquid assets are also very high. So, the firms quick ratio is more than enough.

Firms collection period allowed to customers is increased and it is unfavourable to the firm. As now firm have to suffer for more no of days for its outstanding dues.

Firms inventory holding period is increased, which is a good sign but overall these ratios are too high and its unfavourable to the firm. The overall liquidity position of the firm is optimum.

B) Profitability Ratio:(1) Gross Profit Ratio:-

Statement Showing Gross Profit Ratio:

Year 2004 2005 2006 Gross Profit 18 22 26 Sales 43.68 56.56 61.9 Gross Profit Ratio 41.21% 38.89% 42%

Interpretation:
This ratio indicates an average gross margin earned on a sales of Rs. 100, the limit beyond which the fall in sales prices will definitely result in losses, and what portion of sales is left to cover operating expenses, and non-operating expenses etc... Here there is overall increase in the gross profit ratio over the time period of 200406. There is increase in G.P. ratio is 1.92%. This increment in the gross profit ratio is good for the company. And it helps us to know whether this gross profit is sufficient to pay the other operating expenses. And its useful for the share holders to know that there is any profit is remaining for their dividend. But this increment is not at high rate.

(2)

Net Profit Ratio:-

Statement Showing Net Profit Ratio:

Year 2004 2005 2006 Net Profit 2 3 8 Net Sales 43.68 56.56 61.9 Net profit ratio 4.58% 5.30% 12.92%

Interpretation:
The companys Profit after tax is measured by the net profit Ratio. This ratio indicates (a) an average net margin earned on a sale of rs.100 (b) what proportion of sales is left to pay dividend and to create reserve and (c) firms capacity to withstand adverse. Here, the companys PAT is not good. But The Companys Net profit is continuously increasing; its increases by 182.1%. So, we can say that during 2004-06, the company has achieved many targets and it has grown, because of which its net profit ratio is increased. Thus, there is great improvement in the companys net profit ratio. It means that the companys sale is also grown, effective utilization of resources and especially cost economies are achieved by company. Though PAT ratio is not so high, but it is not also too low. It is good because the capacity of the company to withstand adverse economic conditions is increases. The companys PAT or NP ratio is favourable.

(3)

Earnings per Share:-

Statement Showing Return on Shareholders Fund Ratio:

Year 2004 2005 2006
Net Profit After Tax No. of Equity Share Pref. div. E.P.S. Ratio

2-0 3-0 8-0

0.74 0.74 0.74

2.7 rs. 4.05 rs. 10.81 rs.

Interpretation:
By analyzing above EPS data for three years i.e. 2004-06. It is improved by 300.37%. So, it is increased over a period of time. This is why companys PAT is also continuously increasing. So, it is excellent. So, overall companys EPS is very good in 2006. This shows companys growth in sales and effective asset utilization. Companys cost of borrowing is low and company have cost economies and hence, companys profit as well as EPS both increases.

(4)

Return on Shareholders Fund or Net Worth Ratio:-

Share holders Fund = Share capital + Reserve & Surplus

Statement Showing Return on Shareholders Fund Ratio:

Year 2004 2005 2006
Net Profit After Tax Shareholders Fund R.S.F. Ratio

2 3 8

19.59 21.07 27.34

10.21% 14.24% 29.26%

Interpretation:
This ratio indicates that firms ability of generating profit per rupee of equity share holders funds. Here, by analyzing the RONW for three years i.e. 2004-06, we can see that, companys RONW is continuously increases. So, we can say that, it is improved over 2004 by 186.58%. Though companys sales and net worth both are continuously increasing, but at the different rate. It is a good sign, because companys sales and net worth are continuously increasing. So the company can enjoy the efficient management and efficient utilization of funds.

(5)

Cash earnings per share:-

Statement Showing CEPS:

Year PAT + noncash No of equity share CEPS

charges 2004 2005 2006 2+2 3+2 8+2 0.74 0.74 0.74 5.41 rs 6.76 rs 13.51rs

Interpretation:
This ratio assumes significance, particularly in case of long gestation, budget and start up cases, where through the company might report a loss it may still be able to serve its obligations towards its lenders and meet its operating expenses. By analyzing above CEPS data for three years, i.e. 2004-06. It is improved by 149.72%. So, it is increased over a period of time. It is excellent. So, overall companys CEPS are very good in 2006.

Profitability position of firm:

There is increase in Gross Profit ratio, which is good for the company. So we can say that gross profit is sufficient to pay the other operating expenses.

There is great improvement in the firms Net profit ratio. It means that the firms sale is also grown, effective utilization of resources and especially cost economies are

achieved by firm. It is a good sign because the capacity of the firm to withstand adverse economic conditions is increases. The companys PAT or Net Profit ratio is favourable.

Firms cost of borrowing is low and it has cost economies and hence, firms profit as well as EPS both increases.

Firms sales and net worth both are continuously increasing, but at the different rate. It is a good sign, because firms sales and net worth are continuously increasing. So the firm can enjoy the efficient management and efficient utilization of funds.

Cash earnings per share is increased over a period of time, which is excellent. So, overall companys CEPS is good. The overall profitability position of the firm is optimum.

C) Activity Ratio:(1) Fixed Assets Turnover ratio:-

Statement Showing Fixed Asset Turnover Ratio:

Year Sales Fixed Assets Fixed assets turnover ratio 2004 2005 2006 43.68 56.56 61.9 27.17 26.45 39.93 1.65 2.14 1.55

Interpretation:
This ratio measures how well the fixed assets are used in the business and the efficiency their utilization. Higher fixed asset turnover ratio is preferable by the company. Here, by analyzing the fixed asset turnover ratio, we can analyze that it was very low, it was decreased in 2006 by 6.06% .Which is not so good, so we can say that the company has not utilized its assts effectively.

(2) Net Worth Turnover Ratio:-

Statement Showing Net Worth turnover Ratio:

Year Sales Net worth turnover ratio 2004 2005 2006 43.68 56.56 61.9 19.59 21.07 27.34 2.23 times 2.68 times 2.26 times

Interpretation:
It helps in measuring the extent of turnover or gross volume of income or total sales generated by the companys net worth. Here the companys capital turnover ratio was highest in 2005 (2.68) and then its reduced to 2.26 in 2006. So, there is reduction in companys net worth turnover ratio. But overall there is very less improvement in 2006. It is too low. It is not at good position. Companys net worth turnover is so worriable. So we can say that the company generates low sales in relation to capital employed.

Activity position of the firm:

Fixed asset turnover ratio is decreased, which is not so good. So we can say that the firm has not utilized its assts effectively.

There is reduction in firms net worth turnover ratio. But overall there is very less improvement, which is too low and It is not at good position. So we can say that the firm generates low sales in relation to capital employed Here we can say that the activity position of the firm is not up to the optimum level.

D) Leverage Ratio:-

(1) Debt Equity Ratio:-

Statement Showing Debt Equity Ratio:

Year Long Term Liabilities 2004 2005 2006 25.51 22.02 31.79 19.59 21.07 27.34 1.30 1.05 1.16 Shareholder Fund Debt Equity Ratio

Interpretation:
Generally, the debt-equity ratio of 2:1 to 2.3:1 is an ideal. But in above data of debt equity ratio of company, we cant found a standard debt equity ratio of 2:1. It is fluctuating. There is overall decrease in 2006 by 10.77%. It shows that the companys long term debt is quite less than its shareholders fund. Both, long term debt and net worth of a company are increasing but with different rate. This is the main reason of reduction in debt-equity ratio. So, the company has very less long term debt. The companys debt-equity ratio is too low in comparison to the standard ratio. The company has the capacity to further raise funds with the existing resources available. The company has very high possibility of further growth.

(2)

Net Assets Value:-

Statement Showing NAV:

Year 2004 2005 2006 19.59 21.07 27.34 0.74 0.74 0.74 26.47 rs. 28.47 rs. 36.95 rs.

Interpretation:
This ratio indicates the efficiency of the company management in the building up a back up of reserves and surpluses to fall back upon. Higher the ratio, higher is the capacity of accompany to raise further capital borrowed as well as equity. There is overall increase in 2006 by 39.59%, which is good for the company. There is an increment in equity share holders fund which leads to increase in NAV.

(3)

Interest coverage Ratio:-

Statement Showing NAV:

Year

2004 2005 2006

2+3+2=7 3+2+2=7 8+1+2=11

3 2 1

2.33 times 3.5 times 11 times

Interpretation:
This ratio helps in assessing whether a company is comfortably placed to service its interest obligations out of revenues it is generating. Higher the ratio, greater the ability of a company to service interest, lesser the financial risk of default and higher the comfort level of the lenders. There is overall increase in 2006 by 372.10%, which is good for the company. As there is a increment in PAT and with it decrease in interest on long term debts.

Solvency position of the firm:

The firms debt-equity ratio is too low in comparison to the standard ratio. The firm has the capacity to further raise funds with the existing resources available. The firm has very high possibility of further growth.

There is overall increase in Net Assets Value, which is good for the firm. There is an increment in equity share holders fund which leads to increase in NAV.

There is overall increase in Interest Coverage Ratio, which is good for the firm. As there is a increment in PAT and with it decrease in interest on long term debts. Here we can say that the solvency position of the firm is not up to the optimum level.

Multi step & Common size Income Statement:

Particulars
Gross sales Less: Excise duty Net sales Cost of goods sold (COGS) Gross profit (GP) Administrative, Selling & Other expenses (+) Other income (operating) Profit before Depreciation, interest & tax (PBDIT) Depreciation Operating profit (PBIT) Interest & finance charges Profit before tax (PBT) Provision for tax Profit after tax (PAT)

2004

2005

2006
% 100.00 0.00 100.00 59.77 40.23

Amount % Amount 43.68 100.00 56.56 0 0.00 0 43.68 100.00 26 17.68 59.52 40.48 56.56 34 22.56

% Amount 100.00 61.9 0.00 0 100.00 60.11 39.89 61.9 37 24.9

9 0.13 8.81 2 6.81 3 3.81 3

20.60 0.30 20.17 4.58 15.59 6.87 8.72 6.87

11 0.06 11.62 2 9.62 2 7.62 4

19.45 0.11 20.54 3.54 17.01 3.54 13.47 7.07

13 0.54 12.44 2 10.44 1 9.44 1

21.00 0.87 20.10 3.23 16.87 1.62 15.25 1.62

0.81 1.8544

3.62 6.40028

8.44 13.6349

Interpretation of Multi Step Analysis

From Multi-Step Analysis we found that the firms sales have been constantly increasing from year 2004-06 around 41.71%. And also the incomes from the services for the firm have been increasing year by year. So it increasing the Profitability of the firm from 2004-06. The firm has PBIT increasing around 147.72% and the firms profit after tax has been increasing around 941.98% from year 2004-06. Its good for the Equity share holder point of view. It saws the higher chances of the getting good return because the finally the PAT has been distributed among them.