INDEX Sr.No Particulars Preface Acknowledgement 1. 2. 3. 4. 5. 6. 7.

Brief history of the company Mission Introduction to Ratio analysis (1)Advantages (2) Limitations Liquidity Ratios
1. Current ratio 2. Liquid ratio

Leverage Ratios
1. Debt-equity ratio 2. Capital employed to net worth ACTIVITY RATIO 1. Fixed Assets Turnover 2. Total Assets Turnover PROFITABILITY RATIO 1. Gross profit ratio 2. Net Profit Ratio 3. Return On Equity 4. Return On Capital Employed FINDING OF THE STUDY

8. 9. 10. 11. 12.

Profit and loss a/c Balance sheet Conclusion Bibliography

PREFACE
In present fast moving global world, only theoretical knowledge is not sufficient for an individual to perform efficiently and fill up the gap between theory and practical. The students must undertake a Research project work, so that they come in contact with the different types of people as they are going to be the future managers and managers are required to communicate a lot and maintain cordial relationship. Every limited company has to declare its annual report at the end of every year. It is compulsory for each and every limited company to do so as per companys law. The annual report of the company gives financial position to the insiders and outsiders of the company. This project report gives practical knowledge of financial ratio analysis, which is prepared by me on financial ratio analysis of Kemrock Industries and Exports Limited for three years with interpretation.

Acknowledgement

- AMI THAKKAR T.Y. BBA M.S.U.

INTRODUCTION

Kemrock
Brief History
Kemrock Industries and Exports Ltd. is one of Indias leading manufacturers of high performance reinforce polymer companies. Kemrock is a technology - driven ISO 9001-2000 company offering composite products of global standard. The manufacturing capabilities are one of the most comprehensive in the industry covering various process like pultrasion, RTM, compressing, molding, VRTM etc. Kemrock products are well accepted in USA, Europe, Africa, Canada, Australia, and Middle East and far East. Kemrock entered into the field of composites in early 1980s with a small manufacturing facility at Vadodara, Gujarat. Today over 1, 45,000 Sq.ft. of production facility on a land over 8, 00,000 Sq.ft. Kemrock has spear-headed Indias FRP revolution. This state of the art production facility located at Asoj, 20 kms from Vadodara, includes sophisticated quality control and testing facility and an extention product development center. A fully equipped design studio enables Kemrock to take up even the most straightened challenges in developing composite products for various applications. Looking at the present future development, Kemrock has gone for backward integration with specialized division to manufacture hi-tech phenolic resins for the composites industry. proven world class technology has been acquired from M/s Georgia pacific resins, inc. USA to manufacture polymer, Georgia pacific resins inc. is global leader in a variety of building products, paper products, industrial and specially chemicals. 2009: As the growth of the composites industry globally has been dramatic, Kemrock has strategically capitalized on this long term boom, creating global composite village. 2008: One of the largest and most integrated GRP composite manufacturing facilities in the world.

2007: KIEL and BNC (Bulk Molding Compounds) productions to its capability. Commercial Production of filament would pipe, up to1.4 meters (55 inches) in diameter.

Offering complete composite solutions to strategic partners around the world, making it one of the largest a most integrated composite manufacturing facilities in the world.

2006: Georgia pacific a KIEL formed Georgia pacific Kemrock international private limited to manufacturer and supply thermo setting resins to the Indian sub-continent and the GCC countries of the middle East. KIEL invested in the worlds most advanced multi-axial fabric machine. KIEL signed a license agreement with top glass s.p.a in Italy to manufacturer centrifugally cast composite poles. 2005: KIEL began production of unsaturated polyester and vinyesters -Commenced production and sale of all types of resins. 2004: Obtained ISO 9000-2001 certification 2003: Kemrock Industries and Exports Ltd moved from its limiting city location to a new site at Asoj village, north east of baroda. 2002: KIEL manufactured the cable racking on Behalf of Fiber grate mc. there by beginning their relationship. 1996: The first global Tie-up creative pultrasion period. 1995: Manufactured wind mill Nacelle covers for Suzlon Energy Ltd. 1981: Kemrock Industries and Exports Ltd. began the manufacturing of moulded composites products in 1981.

Mission Statement

The Kemrock mission is to Establish a Global Composite Village, with the objective of servicing our Global partners. We promote an environment that allows growth through innovation that challenges conventional practices and thoughts. To be the best manufacturer of Reinforced Polymer composites of the world. This will be accomplished through innovation, honesty, hard work and dedication in an environment of Trust and Enjoyment.

FINANCIAL RATIO ANALYSIS

INTRODUCTION
The accounting ratio indicates a quantitative relationship which is used for analysis and decision making. It provides basis for inter firm as well as intra firm comparison. The ratio will be effective only when they are compared with standards with the industry ratios. The financial statements viz. Income statements and balance sheet report what has actually happened to earnings during a specified period and present a summary of financial position of the company at a given point of time. A ratio is a quotient of two numbers on the relation expressed between two accounting figures is known as accounting ratio. Ratio analysis is a very powerful analysis tool useful for measuring performance of an organization. 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 & analysists to make an evaluation of certain aspects of a firms performance. Ratio analysis is a process of a comparison of one figure against another, which makes a ratio; Ratio analysis is extremely useful in providing valuable insight into a companys financial picture. Ratio normally pinpoints business strengths weakness in two ways. 1) 2) Ratio provides an easy way to compare present performance with past. Ratios depict the areas in which a particular business is competitively advantaged or disadvantaged through comparing ratio to those of other business of the same size within the same industry.

The financial ratios are classified into the following four important categories. Liquidity Ratios Average Ratios Activity Ratios Profitability Ratios

IMPORTANCE OF RATIO ANALYSIS

The major benefits are very powerful analysis is as follows: Ratio analysis is a very powerful analytical tool useful for measuring performance of an organization. Ratio analysis concentrates on the inter relationship among the figures appearing in the financial statements. Ratio analysis helps the management to analyze the past performance of the firm and to make further projections. Ratio analysis allows interested parties to make evaluation of certain aspects of the firms performance as given below. a) Shareholders and prospective investors will analyze ratios for taking investment and disinvestment division. b) Bankers who provide working capital will analyze ratios for appraising the creditworthiness of the firm. c) The financial institutions who provide long-term debt will analyze ratios for project appraisal and debt servicing capacity of the firm. d) The financial analysts will analyze ratios for making comparisons and recommending to the investing public. e) The credit rating agencies will analyze ratio of a firm to given the credit rating to the firm.

LIMITATIONS OF RATIO ANALYSIS

The following limitations must be taken into account. Ratios are calculated from financial statements which are affected by the financial bases and policies adopted on such matters as depreciation and the valuation of stocks. Financial Statements do not represent a complete picture of the business, but merely a collection of facts which can be expressed in monetary terms. These may not refer to other factors which affect performance. Over use of ratio as controls on managers could be dangerous, in that management might concentrate more on simply improving the ratio than on dealing with the significant issues. For example, the return on capital employed assets rather than increasing profits. A ratio is a comparison of two figures, a number and a denominator in comparing ratio it may be difficult to determine whether differences are due to changes in the numerator, or in the denominator or in both. Ratios are inter-connected. They should not be treated in isolation. The effective use of ratios, therefore, depends on being aware of all these limitations and ensuring that, following comparing analysis, they are used as a trigger point for investigation and corrective action rather than being treated as meaning in themselves. The analysis of ratios clarifies trends and weakness in performance as a guide to action as long as proper comparisons are made and the reasons for adverse trends or deviations from the norm investigated thoroughly.

LIQUIDITY RATIOS

The liquidity ratios measure the liquidity of the firm and its ability to meet its maturing short-term obligations liquidity is defined as the ability to realize value in money the most liquid of assets. It refers to pay in cash the obligation that is due. Excess Liquidity, though a guarantor of solvency, would reflect lower profitability deterioration in managerial efficiency, increased speculation and unjustified expansion, extension of too liberal credit and dividend policies. Too little liquidity then may reduce rate of return, missingof profitable business opportunities and weakening of morale. The most common ratios are:

CURRENT RATIO
This ratio measures the solvency of the company in the short-term; Current assets are those assets which can be converted into cash within a year. Current liabilities and provisions are those liabilities that are payable within a year. Current Ratio = Current Assets, Loans & Advances Current Liabilities & Provisions

Current assets = Cash & bank balance + stock+ debtors+ bills receivables+ Prepaid expense +loan & advances Current liabilities = Creditors +bills payable +bank o/d+provisions for tax

Regarding Kemrock : 06-07 Current assests : Inventories -630774110

Sundry debtors 731902665 Cash and bank balance- 75292374 Loans and advances- 219405400 06-07 Current liabilities and provisions : 540220757 07-08 Current assests : Inventories-1387578927 Sundry debtors-951881093 Cash and bank balance-445418605 Loans and advances- 312903993 07-08 Current liabilities and provisions-730582077 08-09 Current assets : Inventories-1965085337 Sundry debtors-2629092520 Cash and bank balance-868740358 Loans and advances- 142821558 08-09 Current liabilities and provisions-1035776899

A current ratio of 2:1 indicates a highly solvent position, i.e. 2 is the standard for current assets for each unit of current liabilities. A very high current ratio will have adverse impact on the profitability of the organization. A high current ratio may be due to the pilling up of inventory, in efficiency in collection of debtors high balances in cash & bank accounts without proper investment etc. Here I have collected data of Kemrock Industries And Exports Limited for calculate Current Ratio. For this Current Asset, loans & Advances, Current liabilities and provisions are required. 06-07 = = 07-08 = 1657374549 540220757 3.06:1 3097782617 730582077

= 08-09 = =

4.27:1 5605739773 1035776899 5.41:1

INTERPRETATION
Current Ratio indicates the companys ability to pay off the current liabilities to compare to its current assets. The ideal ratio is 2:1.

CURRENT RATIO

In above graph indicates that in year 2006 to 2009 the company has maintained good liquidity but it is fluctuating from 4.27 to 5.41. The firm is liquid and has the ability to pay off its liabilities.

LIQUID RATIO
A variant of current ratio is liquid ratio or quick ratio which shows the amount of cash available to meet immediate payment. It is obtained by dividing liquid assets by liquid liabilities. Liquid assets are obtained by deducting stock in trade from current assets. Liquid liabilities are obtained by deducting bank overdraft from current liabilities. Liquid Ratio = Liquid Assets Liquid Liabilities

Regarding Kemrock : 06-07 = = 1593600439 540220751 2.94:1

07-08

= =

1710203690 730582077 2.34:1 3640654436 1035776899 3.51:1

08-09

= =

INTERPRETATION
Liquid ratio represents the liquid condition. In an ideal situation it should be 1:1, but the liquid ratio is increasing in the past years and has increased from 2.94:1 in 2006-07 to 3.51:1in the years 2008-09.

LIQUID RATIO

LEVERAGE RATIOS
The long term financial stability of the fund may be considered as dependent upon its ability to meet all its liabilities, including those not currently payable. The ratio which is important in measuring the financial leverage of the company is as follows.

DEBT EQUITY RATIO

This ratio indicates the relationship between long term funds and net worth of the company, which is known as gearing. If the proportion of debt to equity is low, a company is said to be low-geared, and vice-versa. A debt equity ratio of 2:1 is the norm accepted by financial institution for financing of projects. Higher debt equity ratio of 3:1 may be permitted for highly capital intensive industries like petro -chemicals, fertilizer, power etc. The higher the gearing, the more volatile the return to the shareholders. Debt Equity Ratio = Total Debt Owners fund

Debt = short term debt + long term debt \ Owners fund = debt + equity Regarding Kemrock : 06-07 Total Debt : Secured loan-1978919576 Unsecured loan-10177463 06-07 Owners fund: 582225089 07-08 Total Debt : Secured loan-2643543967 Unsecured loan-7709942 07-08 Owners fund: 1942484625 08-09 Total Debt : Secured loan-6177914178 Unsecured loan-5896743 08-09 Owners fund: 2572336399 The use of debt capital has direct implication for the profit accruing to the ordinary shareholders, and expansion is often financed in this manner with the objective of increasing the shareholders rate of return. This objective is achieved only if the rate earned on the additional funds raised exceeds that payable to the providers of the loan. The shareholders of a highly company reap disproportionate benefits when earnings before interest and tax increase. Usually in calculating the ratio, the preference share capital is excluded from debt, but if the ratio is to show effect of use of fixed interest sources on earnings available to the shareholders then it

is to be included. On the other hand, if the ratio is to examine financial solvency, then preference share shall form part of the capital. Here, I have collected data of Kemrock Industries And Exports Limited for calculation of Debt Equity Ratio. For this long term funds and shareholders funds are required. 06-07 = = 07-08 = = 08-09 = = 1989097039 582225089 3.41:1 2651253909 1942484625 1.36:1 6183810921 2572336399 2.40:1

INTERPRETATION
Debt equity ratio indicates average. The ratio shows the proportion of debt fund in relation to equity. This ratio is also referred to capital structure decision.

DEBT EQUITY RATIO

In above graph, there is an increase in the debt equity ratio from 1.36 in 2007-08 to 2.40 in 2008-09. It shows company is intending to use more debt rather than owners fund.

CAPITAL EMPLOYED TO NETWORTH RATIO

This ratio is helpful in understanding the utilization of capital invested in creating the business wealth. It shows the value of business in proportion to capital invested initially. It can also help in understanding the degree of capitalization. CE TO NW Ratio = Capital Employed Net worth

Capital employed = Debt + Equity Net worth = Share Capital + Reserves & Surplus Regarding Kemrock : 06-07: Capital employed-2569240239 06-07: Networth Share capital-75500000 Reserves and surplus-8185092 07-08: Capital employed-4551273538 07-08: Networth Share capital-101300000 Reserves and surplus-1841544625 08-09: Capital employed-72011544299 08-09: Networth Share capital -110149980 Reserves and surplus-2462186419

Here we have collected data of Kemrock Industries And Exports Limited to calculate capital employed to Net worth Ratio. For this we required capital employed and Net worth. 2006-07 = = 2569240239 582225089 4.41:1

2007-08

= =

4551273538 1942844625 2.34:1 72011544299 2572336399 2.80:1

2008-09

= =

INTERPRETATION
An analysis of the behavior of this ratio shows that there is gradual ups and down in the last three years but has increased this year compared to 2007-08 which indicates that there has been an improvement in the efficiency of utilizing the capital investment in creating business wealth.

CAPITAL EMPLOYED TO NETWORTH RATIO

ACTIVITY RATIOS
These ratio measure how effectively the firm employees its resources. These ratios are called asset management or turn over ratios which involve comparison between the level of sales and investment in various accounts investments debtors, fixed assets etc. Asset management ratios are needed to measure the speed with which various amounts are converted into sales or cash. The following asset management ratios are calculated below.

Fixed Assets Turn Over Ratio

This ratio will be analysed further with ratios for each main category of asset. This is a difficult set of ratios to interpret as asset values are based in historic cost. An increase in the fixed asset figure may result from the replacement of an asset at an increase price or the purchase of an additional asset intended to increase production capacity. Fixed Assets Turnover ratio = Sales Fixed Assets

The ratio of the accumulated depreciation provision to the total of fixed assets at cost might be used as an indicator of the average age of the assets, particularly when depreciation rates are in the accounts. The ratio of sales value per square foot of floor space occupied is particularly significant for trading concerns, such as a wholesale warehouse or a departmental store.

Here I have collected data of Kemrock industries and Exports limited to calculate fixed assets turnover ratio for this we require fixed assets and sales.

06-07

= =

1476403381 1458247998 1.01 2311453491 2241491411 1.03 3790546900 2814587115 1.35

07-08

= =

08-09

= =

INTERPRETATION

Fixed assets Turnover ratio shows the relationship between sales and fixed Assets i.e. how many times assets are utilized during the year. The above graph indicates that here there is a efficient utilization of the assets as compared to last year as the ratio is 1.35 this year as compared to 1.03 last year. The company efficiently utilizes the assets in production to boost sales.

TOTAL ASSETS TURNOVER RATIO

The amount invested in the business are invested in all assets jointly are affected through them to each profit so in order to find out relation between total assets to sales the following formula is used. Total assets turnover ratio = Sales Total Assets

This ratio is important to know the over all efficiency of the business. The higher this ratio, it shows that with less amount of investment in total assets, the business has capacity to sell and as such its profitability is also more.

Here I have collected data of Kemrock Industries and Exports Limited to calculated total Assets Turnover ratio for this we require Total Assets and Sales. 06-07 = = 07-08 = = 08-09 = = 1476403381 3132018627 0.47:1 2311453491 5360037608 0.42:1 3790546900 8440422768 0.33:1

INTERPRETATION
Total Assets Turnover Ratio shows the relationship between Sales and total assets i.e. how many times the total assets are utilized during the year.

The above graph indicates that the total assets are utilized rationally but there is a great fall in the turnover ratio in the year it is 0.33 which is the lowest compared to the past 2 years which shows decrease in overall efficiency of the business.

Profitability Ratios
The purpose of study and analysis of profitability ratio are to help assessing the adequacy of profits earned by the company and also to discover whether profitability is increasing or declining. The profitability of the firm is the net result of a large member of policies and decisions. The profitability ratio shows the combined effect of liquidity; asset management and debt management on operating results. Profitability ratios are measured with reference to sale, capital employed, total assets employed, share holders funds etc. major profitability rates are as follows.

Gross Profit Ratio

It is the ratio expressing relationship between gross profit earned to net sales. It is a useful indication of the profitability of the business. The ratio is usually expressed as percentage. Gross Profit Ratio = Gross Profit X 100 Sales

Here I have collected data of Kemrock Industries and Exports Limited to collect gross profit ratio. For this we require gross profit and net sales. 06-07 = = 07-08 = = 08-09 = = 202117640 X 100 1476403381 13.69% 330671220 X 100 2311453491 14.30% 436937379 X 100 3790546900 11.53%

Interpretation
The companys gross profit ratio was highest in the year 2007-08 i.e. 14.30% the company made a tremendous performance after that the ratio declined and never bounced back. It has decreased to 11.53%. It is necessary for the company to take appropriate measure to arrest such decline.

Net Profit Ratio

This ratio is useful for ascertaining the overall profitability of business and shows the efficiency or otherwise of operating the business it is the reverse of operating ratio. The ratio is computed on the basis of net profit earned from the business. Net profit ratio = Net Profit X 100 Sales

Here I have collected data of Kemrock Industries and Exports Limited to calculate net profit ratio for this we require net profit and net sales. 06-07 = = 07-08 = = 08-09 = = 186439401 X 100 1476403381 12.62% 250070506 X 100 2311453491 10.81% 318216539 X 100 379054690 8.395%

Interpretation
The net profit is also showing a declining trend in the year 2007-08 it was 10.81 % which started to decline to 8.4 % in 2008-09. There is an urgent need to control the gradual fall of net profit of the company. Company requires take some firm steps to increase the profit of the company.

Return on Equity
This ratio refers to the rate of return to the holder on the basis of face value of share it is calculated on the basic of amount available for distribution to the share holders. Return in equity = Profit after Tax X 100 Net worth

Net worth =share capital + reserves & surplus Regarding Kemrock : 06-07: share capital -75500000 Reserves and surplus-506725089 07-08 :share capital -101300000 Reserves and surplus-1841544625 08-09: share capital -110149980 Reserves and surplus -2462186419

Here I have collected information of Kemrock Industries and Exports limited to calculate return on equity . For this we require PAT and Net Worth

06-07:

= 189288897 X 100 582225089

= 07-08:

32.51 %

= 279069339 X 100 1942844625 = 14.36%

08-09:

= 324415470 X 100 2572336399 = 12.62 %

INTERPRETATION
The return on equity was 32.51% in the year 2006-07 which started declining to 14.36% in the year 2007-08 followed by 12.62% in 2008-09. The graph shows a decreasing trend or negative trend. This can be due to decrease in profitability in recent years because of inefficient utilization of resources.

Return on capital employed

It is an index of profitability of business and is obtained by comparing net profit with capital employed in percentage. The term capital employed includes share capital, resources and surplus and long term loan such as debenture. Here the net profit before deducting tax Return on capital = Net profit X 100 Capital employed

The success or otherwise of the enterprise is judged with the help of this ratio it is perhaps the most important ratio from the management point of view. Here I have selected data of Kemrock industries and exports limited to calculate return on capital employed for this we require Net Profit and Capital employed. 06-07: = 202117640 X 100 2569240239 = 7.87 % 07-08: = 330671220 X 100 4551273538 = 7.26 % 08-09: = 436937379 X 100 7201154299 = 6.07 %

Interpretation
The return on capital employed in the year 2006-07 was 7.87 % which shows an optimum utilization of capital but after which it started declining to 7.26 % in the year 2007-08 forward by a further decrease to 6.07 % in the year 200809 which shows an inefficient utilization of capital.

Finding of the study

The company is progressing but the profitability is going down seeing the turnover it has just doubled from 1476403381 cores in year 2007 to 3790546900 in the year 2009 i.e. nearing to double but the Net Profit earned during the same period was 186439401 and 318216539 respectively. As against increase in sales turnover the profit has been increase and went upto 31816539 crores in year 2009. It would be advisable to concentrate on the cash flow monitoring of muentory is much essential to release the blocked funds. The EOQ level may be revised. The detail study may be carried out on the inventory of the company. If the obsolete items are there then or any surplus or long back unused items are there may be disposed off immediately. It is observed that the return on capital employed is diminishing so it is advisable to evaluate the marketing strategies of the company. The SWOT analysis may be carried out. Though the company has a good liquidity to discharge its liability the excess available funds may be invested for generation of the income.

FIXED ASSETS TURNOVER RATIO

TOTAL ASSETS TURNOVER RATIO

GROSS PROFIT RATIO

NET PROFIT RATIO

RETURN ON EQUITY RATIO

RETURN ON CAPITAL EMPLOYED

BIBILIOGRAPHY 1. Financial Management and practice by Prasana Chandra 2. Financial Management by I.M. Pandey

3. Financial Management and policy by James C. van Horne. Website referred : www.kemrock.com

P &L

BALANCESHEET