project on analysis of financial performance (knsb ltd)
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Department of Management Studies, Kumaun University, Bhimtal (Nainital )| 1
DECLARATION
I CHAMAN KUMAR hereby declare that I have undergone training
at KURMANCHAL NAGAR SAHKARI BANK LIMITED,
NAINITAL of a period of 7 week from 1-August-2011 to 14-Sep-
2011
This report is being submitted in partial fulfillment of
requirement of Master of business Administration (MBA) degree
course of Kumaun University.
The information in this report is based on the data collected by
me. It is my original work. I have neither copied from meant for any
degree/diploma course nor have submitted for award of any
degree/diploma or similar program elsewhere.
DATE: CHAMAN KUMAR
PLACE:
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ACKNOWLEDGEMENT
I am very much obliged and indebted to Mr. Atul Shah,
Branch Manager of KURMANCHAL NAGAR SAHKARI BANK
LIMITED, NAINITAL for his approval and valuable suggestions to
take up the project.
I also extend my gratitude to Mr. Sanjay Shah, Personnel
Manager at Head office for his approval and valuable suggestions to
take up the project at KURMANCHAL NAGAR SAHKARI BANKLIMITED, NAINITAL.
I am also thankful to Mr. Sanjeev Rana, Manager Account for
his support and suggestions during the project.
DATE: CHAMAN KUMAR
PLACE:
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PREFACE
A professional course like two year Management program demand
both conceptual and practical theory of knowledge. Hence there is a
provision of project. By this the student learns through his or her own
experience, real situation of corporate world, and its protocol and to
put his/her theoretical knowledge into practice. This experience is
very valuable for the student and plays a leading as well as vital role
in the professional life of the management student
The report on KURMANCHAL NAGAR SAHKARI BANK
LIMITED was a complete experience in itself, which has provided me
with the understanding, which has become an inspirable part of my
knowledge of management being learned in Management program.
An opening experience to the concept that are applied for managing
financial resources in the organization.
Implementing & learning the concepts of Finance in a work place
provides an opportunity to learn practically. I got a chance to apply
the theory & acquaint myself with the functioning of financial
methodology. Real learning places its worth only when it gives sweet
fruits in future. Project report is one way to learn work. I enjoyed theinteresting experience & every part of it.
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CONTENTS
CHAPTER I:
Company Profile
CHAPTER II:
Research & Methodology
Need for study
ObjectivesMethodology
Limitation
CHAPTER III:
Introduction Of Financial Management
Ratio Analysis
Steps in ratio AnalysisBasis or Standards of Comparison
Nature of Ratio Analysis
Guidelines or Precautions for the use of Ratio Analysis
Importance of Ratio Analysis
CHAPTER IV:
Classification of Ratios
CHAPTER V:
Data Analysis and InterpretationFindings, Summaries & Conclusion
APPENDIX
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Chapter 1
COMPANY PROFILE
The Kurmanchal Nagar Sahkari Bank Ltd., situated in Nainital in
Uttarakhand State started banking operations with effect from 1st
January 1983, after receiving RBI license No DBOD (UBD)/UP 318-
P dated 06th October 1982 Over the years the bank has acquired the
status of a leading Urban Cooperative Bank not only in the State of
Uttarakhand but in the whole of Northern India as well. This has
become possible due to customer friendly approach, product
innovation, delivery system and technology up gradation of its retail-
banking network spread over 23 centres. This has been the core
strength of the bank. The financials of the bank are strong and the
bank has registered remarkable growth with the financial sector
reforms introduced in the country in the nineties.
A ringside view of Banks retail operations are as under: (Rs. in Lacs)
31.03.2009 31.03.2010 31.03.2011
Paid up share capital 619.12 858.88 1516.63
Reserve funds and other
reserves4605.23 5356.76 6834.28
Net worth 5224.34 6215.64 8351.02
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Deposits 48663.90 64946.62 82271.32
Investments (including
term deposits with otherbanks)
21815.85 28220.87 34555.91
Loans & Advances 33466.72 49892.51 67958.39
Net Profit 621.95 781.49 1119.53
Gross NPA 165.67 189.48 158.34
Net NPA Nil Nil Nil
Management
The affairs of the bank are managed by an elected board of directors. There are
total 13 directors on the banks board including three professional directors, one
being a retired DGM of State Bank of India and two Chartered Accountant with
adequate bank audit experience. The board has constituted seven sub committees
viz Loan Committee, Investment Committee, Audit Committee, Executive
Committee, Staff Committee, ALM Committee and Premises Committee. The
board has formulated loan policy and investment policy in conformity with RBI
instructions. Expenditure policy and recruitment policy have also been formulated
by the board.
The banks 23 branches are supervised and controlled directly by the Head Office.
Of the 23 branches, all have already been in CBS. In addition to the statutory audit
and inspection by RBI the bank has its own inspection system. All the branches
are inspected once in a year. Inspection reports and compliance thereof are put up
to the audit committee. The bank has also prescribed adequate number of control
returns for watching the performance of the branches. Position of over
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dues/growth in deposits and advances are reviewed by the board in every meeting
resulting in minimum NPAs.
Organizational Structure
The bank follows need based recruitment policy and appointments are made in
proportion to the volume of business. Recruitment is done through open
competition to get quality staff. All officers and clerical staff are either graduate
or postgraduate in various disciplines. With the changing demand of the bankingindustry, the bank has started appointing personnel excelled in MBA, MCA and
BCA.
All the officers and clerical staff had been provided training either at CAB
Pune/RBSC Chennai and in-house training with faculty assistance from Indira
Gandhi Institute of Cooperative Management, Lucknow and Institute of
Cooperative Management, Dehradun. The bank has also provided training to its
staff by participation in training sessions conducted by NAFCUB.
Systems and Control
The bank prepares annual business plan and budget for the ensuing year and
communicates the same to the all concerned well in advance. The branchfunctionaries are delegated adequate administrative and financial powers to
achieve the targets fixed. Business plan prepared are pragmatic, achievable and
consistent but at the same time they have an element of challenge, as it is essential
for motivation and growth with consistency.
The bank has prescribed adequate number of control returns and introduced the
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system of concurrent audit, internal inspection and branch visits by HO officials to
keep control over the branches. Achievements under the various head vis a vis the
targets fixed are reviewed by the board/top management periodically. Control
returns are received regularly and subjected to proper scrutiny. To ensure good
housekeeping balancing of books is done regularly by persons other than the ones
maintaining the same. Inter branch reconciliation is centralized at Head Office and
is maintained up-to-date. The bank adheres to prudential norms relating to income
recognition, asset classification and provisioning. All the branches of the bank are
inspected once in a year.
In its coveted endeavor to provide its esteemed customers new and competitive
financial products and services the bank for this purpose has tied up with various
insurance companies. Details of arrangement and products offered are given
below:
[A]LIFEINSURANCE
1.For Life Insurance products, we have entered into a tie-up with ING Vyasya
Life Insurance Company Limited.
2.For providing insurance insurance cover to its depositors aged between
18years to 54 years we have tied up with Life Insurance Corporation of India
to offer Life Insurance Coverage to our depositors of Rs 100,000.00 at an
unbelievably low premium of Rs. 384 per annum under our Nanda Kavach
Yojana. Under this scheme we are providing free insurance coverage of Rs
25,000.00 to all Savings Bank account holders who opt for this scheme and
maintain a minimum balance of Rs 5,000.00 throughout the year.
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[B] NON-LIFE INURANCE:
For Non-Life Insurance we have a tie-up with UNITED INDIA General
Insurance Co Ltd.
Other:
The objective of the bank remains to be a preferred provider of
banking services for retail customer segments. The Bank is paying
higher interest to its customers on their deposits. The deposits are
insured by DICGC.
The Bank has an efficient mechanism for NPA management and it has
managed to keep net NPA at zero percent of net bank credit. Know
Your Customer (KYC)/ Anti Money Laundering norms are followed
in accordance to the regulatory norms. The bank gives high priority to
customer feedback and complaints to strengthen its resolve to be a
preferred provider of retail banking services.
Business Description:
Kurmanchal Bank offers wide variety of deposit plans to choose from
depending on the term period, nature of deposit and its unique saving
and withdrawal features.
Apart from competitive interest rates and convenient withdrawal
options, our deposit plans offer other features such as overdraft
facility, outstation cheque collections, safe deposit lockers.
Different Types of Deposits:
Saving Bank Deposit
Current Account
Term Deposit Scheme
Daily Deposit (PIGMY) scheme
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Loan Scheme:
Home Loan Loan / Advances for
Traders
For purchase of new
Flat/Bungalow, construction of
own house, for purchase of
land for construction of house.
Traders both wholesalers &
retailers of goods and
commodities which are not
prohibited by Govt/RBI.
Borrowers may be individual/
sole proprietorship/ partnership
firms/ HUF/ Joint stock
companies.
Professional Loan Schemes Loan against NSC / KVP /
LIC Policy
KNSB Ltd. extends assistance to
self-employed persons, firms and
joint ventures of such professional
persons engaged in various
professions.
Any Business / personal
purpose other than for
speculative ones.
Transport / Vehicle Loan Educational Loan
For purchase of new vehicle for
personal/ commercial use. Also
for purchase of pre-owned
vehicle which is not more than
5 years old . The term vehicle
includes Car, Van and Jeep,
Multi Utility Vehicle (MUVs).
To provide financial support to
deserving students for
pursuing higher professional or
technical education in India
and abroad.
http://kurmanchalbank.com/index.php/Loans/home-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/home-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-advances-for-traders.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-advances-for-traders.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-advances-for-traders.htmlhttp://kurmanchalbank.com/index.php/Loans/professional-loan-schemes.htmlhttp://kurmanchalbank.com/index.php/Loans/professional-loan-schemes.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-against-nsc-kvp-lic-policy.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-against-nsc-kvp-lic-policy.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-against-nsc-kvp-lic-policy.htmlhttp://kurmanchalbank.com/index.php/Loans/transport-vehicle-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/transport-vehicle-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/educational-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/educational-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/educational-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/transport-vehicle-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-against-nsc-kvp-lic-policy.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-against-nsc-kvp-lic-policy.htmlhttp://kurmanchalbank.com/index.php/Loans/professional-loan-schemes.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-advances-for-traders.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-advances-for-traders.htmlhttp://kurmanchalbank.com/index.php/Loans/home-loan.html -
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Loan for SSI (Small Scale
Industries) Loan for Salaried Person
For financing of manufacturingunits.
For financing of personalrequirements of salaried
persons.
Consumption Loan Special (Festive) Loan
Financing for purchase of
consumer durables, furniture,
Home appliances and financing
of marriages etc.
Financing for purchase of
commodities during festival
like Diwali.
The Banks first ATM has become operational and Banks customers
will now be able to enjoy ATM facilities at nearly about 7500 outlets
of the 26 banks which are members of the BANCS network. These
banks include Axis Bank, Bank of India & IDBI bank among others.
The use of internet banking facilities among Banks customers is
gradually increasing. We are hopeful that more and more of them will
adopt this mode of banking in the years to come.
In view ofBanks performance the Reserve Bank of India has
approved 8 more licenses for the Bank and arrangements are under
way to utilize all of these in the current fiscal year.
The number of branches should thus increase to 31 by March 2012.
http://kurmanchalbank.com/index.php/Loans/loan-for-ssi-small-scale-industries.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-ssi-small-scale-industries.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-ssi-small-scale-industries.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-salaried-person.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-salaried-person.htmlhttp://kurmanchalbank.com/index.php/Loans/consumption-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/consumption-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/special-festive-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/special-festive-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/special-festive-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/consumption-loan.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-salaried-person.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-ssi-small-scale-industries.htmlhttp://kurmanchalbank.com/index.php/Loans/loan-for-ssi-small-scale-industries.html -
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Board of Directors
The members of the board are:
Chairman Vice-Chairman
Mr. Aloke Sah Mr.Kishan Chandra Pant
Mr. Ghanshyam Bisth Director
Mr. Prakash Sah Director
Mr. Devendra Lal Director
Mr. Deepu Bhotia Director
Mrs. Bharti Chaudhary Director
Mr. Manoj Saluja Director
Mr. Girish Pathak Director
Mr. Neeraj Sharda (Chartered Accounted) Director
Mr. Radha Raman Director
Mr. Suresh Jain Director
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Chapter 2
RESEARCH & METHODOLOGY
Need for Study
1.The study has great significance and provides benefits to various
parties whom directly or indirectly interact with the company.
2. It is beneficial to management of the company by providing
crystal clear picture regarding important aspects liquidity,leverage, activity and profitability.
3.The study is also beneficial to employees and offers motivation
by showing how actively they are contributing for companys
growth.
4.The investors who are interested in investing in the companys
shares will also get benefited by going through the study and
can easily take a decision whether to invest or not to invest inthe companys shares.
Objectives
The major objectives of the resent study are to know about financial
strengths and weakness of KURMANCHAL BANK through
FINANCIAL RATIO ANALYSIS.The main objectives of resent study aimed as:
To evaluate the performance of the company by using ratio as a
yardstick to measure the efficiency of the company. To understand the
liquidity, profitability and efficiency positions of the company during
the study period. To evaluate and analyze various facts of the
financial performance of the company. To make comparisons between
the ratios during different periods.
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1.To study the present financial system at KURMANCHAL
BANK.
2.To determine the profitability, Liquidity Ratios
3.To analyze the capital structure of the company with the help ofLeverage ratio.
METHODOLOGY
The information is collected through secondary sources during the
project. That information was utilized for calculating performance
evaluation and based on that, interpretations were made.
Sources of secondary data:
1. Most of the calculations are made on the financial statements of the
company provided statements.
2. Referring standard texts and referred books collected some of the
information regarding theoretical aspects.
3. Method- to assess the performance of he company method of
observation of the work in finance department in followed.
LIMITATIONS
1. The study provides an insight into the financial and other aspects of
KURMANCHAL NAGAR SAHKARI BANK LIMITED. Every
study will be bound with certain limitations.
2. The below mentioned are the constraints under which the study is
carried out.
3. One of the factors of the study was lack of availability of sample
information. Most of the information has been kept confidential and
as such as not assed as art of policy of company.
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Time is an important limitation. The whole study was
conducted in a period of 45 days, which is not sufficient to carry out
proper interpretation and analysis.
Tools and Techniques
As no study could be successfully completed without proper tools and
techniques, same with my project. For the better presentation and
right explanation I used tools of statistics and computer very
frequently. And I am very thankful to all those tools for helping me a
lot. Basic tools which I used for project from statistics are-
- Bar Charts
- Pie charts
- Tables
Bar charts and pie charts are really useful tools for every research to
show the result in a well clear, ease and simple way. Because I used
bar charts and pie charts in project for showing data in a systematic
way, so it need not necessary for any observer to read all the
theoretical detail, simple on seeing the charts anybody could know
that what is being said.
Technological Tools
Ms- Excel
Ms-Access
Ms-Word
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Chapter 3
Introduction to Financial Management
Financial Management is the specific area of finance dealing with
the financial decision corporations make, and the tools and analysis
used to make the decisions. The discipline as a whole may be divided
between long- term and short-term decisions and techniques. Both
share the same goal of enhancing firm value by ensuring that return
on capital exceeds cost of capital, without taking excessive financial
risks.
Capital investment decisions comprise the long-term choice about
which projects receive investment, whether to finance that investment
with equity or debts, and when or whether to pay dividends to
shareholders. Short-term corporate finance decisions are called
working capital management and deal with balance of current assetsand current liabilities by managing cash, inventories and short-term
borrowing and lending (e.g., the credit term extended to customers).
Corporate finance is closely related to managerial finance, which is
slightly broader in scope, describing the financial techniques available
to all forms of business enterprise, corporate or not.
Role of Financial Managers
The role of financial manager can be discussed under the following
heads:
1. Nature of work
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2. Working conditions
3. Employment
4. Training, Other qualifications and Advancement
5. Job outlook
6. Earning
7. Related occupations
Let us discussed each of these in a detailed manner.
1. Nature of work:
Almost every firm, government agency and organizations has one or
more financial managers who oversee the preparation of financial
reports, direct investment activities, and implement cash management
strategies. As computers are increasingly used to record and organize
data, many financial managers are spending more time developingstrategies and implementing the long-term goals f their organization.
The duties of financial managers vary with their specific titles,
which include controller, treasurer or finance officer, credit manager,
cash manager, and risk and insurance manager.
2. Working conditions
Financial managers work in comfortable offices, often close to
top managers and to departments that develop the financial data these
managers need. They typically have direct access to state-of-the-art
computer systems and information services. Financial managers
commonly work long hours, often up to 50 or 60 per week. They
generally are required to attend meetings of financial and economic
associations and may travel to visit subsidiary firms or to meet
customers.
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3. Employment
While the vast majority is employed in private industry, nearly 1 in 10
works for the different branches of government. In addition, although
they can be found in every industry, approximately 1 out of 4 are
employed by insurance and finance establishments, such as banks,
savings institutions, finance companies, credit unions, and securities
dealers.
4. Training, Other qualifications and Advancement
A bachelors degree in finance, accounting, economics, or businessadministration is the minimum academic preparation for financial
managers. However, many employers now seek graduates with a
masters degree, preferably in business administration, economics,finance, or risk management. These academic programs develop
analytical skills and provide knowledge of the latest financial analysis
methods and technology. Experience may be more important than
formal education for some financial manager positionsnotably,
branch managers in banks. Banks typically fill branch managerpositions by promoting experienced loan officers and other
professionals who excel at their jobs. Other financial managers may
enter the profession through formal management training programs
offered by the company
5. Job outlook
Some companies may hire financial managers on a temporary basis,to see the organization through a short-term crisis or to offer
suggestions for boosting profits. Other companies may contract out all
accounting and financial operations. Even in these cases, however,
financial managers may be needed to oversee the contracts.
Computer technology has reduced the time and staff required to
produce financial reports. As a result, forecasting earnings, profits,
and costs, and generating ideas and creative ways to increase
profitability will become a major role of corporate financial managers
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over the next decade. Financial managers who are familiar with
computer software that can assist them in this role will be needed.
6. Earnings
Large organizations often pay more than small ones, and salary
levels also can depend on the type of industry and location. Many
financial managers in both public and private industry receive
additional compensation in the form of bonuses, which also vary
substantially by size of firm. Deferred compensation in the form of
stock options is becoming more common, especially for senior level
executives.
7. Related occupations
Financial managers combine formal education with experience in one
or more areas of finance, such as asset management, lending, credit
operations, securities investment, or insurance risk and loss control.
Workers in other occupations requiring similar training and skills
include accountants and auditors; budget analysts; financial analysts
and personal financial advisors; insurance underwriters; loancounselors and officers; securities, commodities, and financial
services sales agents; and real estate brokers and sales agents.
RATIO ANALYSIS
Ratio analysis is the method or process by which the relationship ofitems or group of items in the financial statement are computed,
determined and presented.
Ratio analysis is an attempt to derive quantitative measure or guides
concerning the financial health and profitability of business
enterprises. Ratio analysis can be used both in trend and static
analysis.
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USERS OF FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths
and weakness of the firm by properly establishing relationshipsbetween the items of the balance sheet and the profit and loss account.
1. Trade creditors are interested in firms ability to meet their claims
over a very short period of time. Their analysis will, therefore,
confine to the evaluation of the firms liquidity position.
2. Suppliers of long-term debt, on the other hand, are concerned with
the firms long-term solvency and survival. They analysis the firmsprofitability over time, its ability to generate cash to be able to pay
interest and repay principal. Long term creditors do analysis the
historical financial statements and also put stress on the projected
financial statements.
3. Investors, who have invested their money in the firms shares, aremost concerned about the firms earnings. They focus on the analysis
ofthe firms present and future profitability. They are also interestedin firms financial structureto the extent it affects firms earning andrisk.
4.Management of the firm would be interested in every aspect of the
financial analysis. It is their responsibility to see that the funds are
used most effectively and efficiently, and the firms financialcondition is sound.
OBJECTIVES OF RATIOS
Ratio is work out to analyze the following aspects of business
organization-
A) Solvency-
1) Long term
2) Short term
3) Immediate
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B) Stability
C) Profitability
D) Operational efficiency
E) Credit standing
F) Structural analysis
G) Effective utilization of resources
H) Leverage or external financing
BASIS OR STANDARDS OF COMPARISON
Ratios are relative figures reflecting the relation between variables.
They enable analyst to draw conclusions regarding financial
operations. They use of ratios as a tool of financial analysis involvesthe comparison with related facts. This is the basis of ratio analysis.
The basis of ratio analysis is of four types.
Past ratios, calculated from past financial statements of the firm.
Competitors ratio, of the some most progressive and successfulcompetitor firm at the same point of time.
Industry ratio, the industry ratios to which the firm belongs to
Projected ratios, ratios of the future developed from theprojected or pro forma financial statements
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NATURE OF RATIO ANALYSIS
Ratio analysis is a technique of analysis and interpretation of financial
statements. It is the process of establishing and interpreting variousratios for helping in making certain decisions. It is only a means of
understanding of financial strengths and weaknesses of a firm. There
are a number of ratios which can be calculated from the information
given in the financial statements, but the analyst has to select the
appropriate data and calculate only a few appropriate ratios. The
following are the four steps involved in the ratio analysis.
Selection of relevant data from the financial statementsdepending upon the objective of the analysis.
Calculation of appropriate ratios from the above data.
Comparison of the calculated ratios with the ratios of the samefirm in the past, or the ratios developed from projected financial
statements or the ratios of some other firms or the comparison
with ratios of the industry to which the firm belongs.
GUIDELINES OR PRECAUTIONS FOR USE OF
RATIOSThe calculation of ratios may not be a difficult task but their use is not
easy. Following guidelines or factors may be kept in mind while
interpreting various ratios are
Accuracy of financial statements
Objective or purpose of analysis
Selection of ratios
Use of standards
Caliber of the analysis
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Chapter 4
CLASSIFICATION OF RATIO
CLASSIFICATION OF RATIO
Based on Financial Based on Function Based on
Statement Users
1. Balance Sheet 1.Liquidity Ratio 1.Ratios For
Ratio Short Term
Creditors.
2. Revenue Statement 2.Leverage Ratio 2.Ratio ForRatio Shareholders
3. Composite Ratio 3.Activity Ratio 3. Ratio For
Management
4. Profitability Ratio 4.Ratio ForLong Term
Creditors
5. Coverage ratio
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BASED ON FINANCIAL STATEMENT
Accounting ratios express the relationship between figures taken from
Financial statements. Figures may be taken from Balance Sheet, P&LA/C, or both. One-way of classification of ratios is based upon the
sources from which are taken.
1] Balance sheet ratio:If the ratios are based on the figures of balance sheet, they are called
Balance Sheet Ratios. E.g. ratio of current assets to current liabilities
or ratio of debt to equity. While calculating these ratios, there is no
need to refer to the Revenue statement. These ratios study therelationship between the assets & the liabilities, of the concern. These
ratio help to judge the liquidity, solvency & capital structure of the
concern. Balance sheet ratios are Current ratio, Liquid ratio, and
Proprietary ratio, Capital gearing ratio, Debt equity ratio, and Stock
working capital ratio.
2] Revenue ratio:
Ratio based on the figures from the revenue statement is calledrevenue statement ratios. These ratio study the relationship between
the profitability & the sales of the concern. Revenue ratios are Gross
profit ratio, Operating ratio, Expense ratio, Net profit ratio, Net
operating profit ratio, Stock turnover ratio.
3] Composite ratio:These ratios indicate the relationship between two items, of which one
is found in the balance sheet & other in revenue statement.There are two types of composite ratios
a)Some composite ratios study the relationship between the profits& the Investments of the concern. E.g. return on capital
employed, return on proprietors fund, return on equity capital
etc.
b)Other composite ratios e.g. debtors turnover ratios, creditorsturnover ratios, dividend payout ratios, & debt service ratios
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BASED ON FUNCTION:
Accounting ratios can also be classified according to their functions in
to liquidity ratios, leverage ratios, activity ratios, profitability ratios &turnover ratios.
1] Liquidity ratios:
It shows the relationship between the current assets & current
liabilities of the concern e.g. liquid ratios & current ratios.
2] Leverage ratios:It shows the relationship between proprietors funds & debts used in
financing the assets of the concern e.g. capital gearing ratios, debt
equity ratios, & Proprietary ratios.
3] Activity ratios:It shows relationship between the sales & the assets. It is also known
as Turnover ratios & productivity ratios e.g. stock turnover ratios,
debtors turnover ratios.
4] Profitability ratios:a) It shows the relationship between profits & sales e.g. operating
ratios, Gross profit ratios, operating net profit ratios, expenses ratios
b) It shows the relationship between profit & investment e.g. return on
investment, return on equity capital.
5] Coverage ratios:It shows the relationship between the profit on the one hand & the
claims of the outsiders to be paid out of such profit e.g. dividend
payout ratios & debt service ratios.
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BASED ON USER:
1] Ratios for short-term creditors:.
Current ratios, liquid ratios, stock working capital ratios
2] Ratios for the shareholders:Return on proprietors fund, return on equity capital
3] Ratios for management:Return on capital employed, turnover ratios, operating ratios,
expenses
ratios
4] Ratios for long-term creditors:Debt equity ratios, return on capital employed, proprietor ratios.
LIQUIDITY RATIO: -Liquidity refers to the ability of a firm to meet its short-term (usually
up to 1 year) obligations. The ratios, which indicate the liquidity of a
company, are Current ratio, Quick/Acid-Test ratio, and Cash ratio.
These ratios are discussed below
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CURRENT RATIO
Meaning:This ratio compares the current assets with the current liabilities. It is
also known as working capital ratio or solvency ratio. It isexpressed in the form of pure ratio. E.g. 2:1
Formula:
Current assets
Current ratio =
Current liabilities
The current assets of a firm represents those assets which can be, in
the ordinary course of business, converted into cash within a short
period Time, normally not exceeding one year. The current liabilities
defined as liabilities which are short term maturing obligations to be
met, as originally contemplated, within a year.
Current ratio (CR) is the ratio of total current assets (CA) to total
current liabilities (CL). Current assets include cash and bank
balances; inventory of raw materials, semi-finished and finished
goods; marketable securities; debtors (net of provision for bad and
doubtful debts); bills receivable; and prepaid expenses. Current
liabilities consist of trade creditors, bills payable, bank credit,
provision for taxation, dividends payable and outstanding expenses.
This ratio measures the liquidity of the current assets and the ability
of a company to meet its short term debt obligation. CR measures the
ability of the company to meet its CL, i.e., CA gets converted into
cash in the operating cycle of the firm and provides the funds needed
to pay for CL. The higher the current ratio, the greater the short-termsolvency. This compares assets, which will become liquid within
approximately twelve months with liabilities, which will be due for
payment in the same period and is intended to indicate whether there
are sufficient short-term assets to meet the short- term liabilities.
Recommended current ratio is 2: 1. Any ratio below indicates that the
entity may face liquidity problem but also Ratio over 2: 1 as above
indicates over trading, that is the entity is under utilizing its current
assets.
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LIQUID RATIO:
Meaning:Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio
compare the quick assets with the quick liabilities. It is expressed in
the form of pure ratio. The term quick assets refer to current assets,
which can be converted into, cash immediately or at a short notice
without diminution of value.
Formula:
Quick assets
Liquid ratio =Quick liabilities
Quick Ratio (QR) is the ratio between quick current assets (QA) and
CL. QA refers to those current assets that can be converted into cash
immediately without any value strength. QA includes cash and bank
balances, short-term marketable securities, and sundry debtors.
Inventory and prepaid expenses are excluded since these cannot be
turned into cash as and when required.QR indicates the extent to which a company can pay its current
liabilities without relying on the sale of inventory. This is a fairly
stringent measure of liquidity because it is based on those current
assets, which are highly liquid. Inventories are excluded from the
numerator of this ratio because they are deemed the least liquid
component of current assets. Generally, a quick ratio of 1:1 is
considered good. One drawback of the quick ratio is that it ignores the
timing of receipts and payments.
CASH RATIO
Meaning:This is also called as super quick ratio. This ratio considers only the
absolute liquidity available with the firm.
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Formula:
Cash + Bank + Marketable securities
Cash ratio =
Total current liabilities
Since cash and bank balances and short term marketable securities are
the most liquid assets of a firm, financial analysts look at the cash
ratio. If the super liquid assets are too much in relation to the current
liabilities then it may affect the profitability of the firm.
INVESTMENT / SHAREHOLDER
EARNING PER SAHRE:-
Meaning:Earnings per Share are calculated to find out overall profitability of
the organization. An earnings per Share represents earning of the
company whether or not dividends are declared. If there is only one
class of shares, the earning per share are determined by dividing net
profit by the number of equity shares.
EPS measures the profits available to the equity shareholders on each
share held.
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Formula:
NPAT
Earnings per share =
Number of equity share
The higher EPS will attract more investors to acquire shares in the
company as it indicates that the business is more profitable enough to
pay the dividends in time. But remember not all profit earned is going
to be distributed as dividends the company also retains some profits
for the business
DIVIDEND PER SHARE:-
Meaning:DPS shows how much is paid as dividend to the shareholders on each
share held.
Formula:
Dividend Paid to Ordinary Shareholders
Dividend per Share =
Number of Ordinary Shares
DIVIDEND PAYOUT RATIO:-
Meaning: Dividend Pay-out Ratio shows the relationship between the
dividend paid to equity shareholders out of the profit available to the
equity shareholders.
Formula:Dividend per share
Dividend Pay out ratio = *100Earning per share
D/P ratio shows the percentage share of net profits after taxesand after preference dividend has been paid to the preference
equity holders.
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GEARING
CAPITAL GEARING RATIO:-
Meaning:Gearing means the process of increasing the equity shareholders
return through the use of debt. Equity shareholders earn more whenthe rate of the return on total capital is more than the rate of interest
on debts. This is also known as leverage or trading on equity. The
Capital-gearing ratio shows the relationship between two types of
capital viz: - equity capital & preference capital & long term
borrowings. It is expressed as a pure ratio.
Formula:
Preference capital+ secured loanCapital gearing ratio =
Equity capital & reserve & surplus
Capital gearing ratio indicates the proportion of debt & equity in the
financing of assets of a concern.
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PROFITABILITY
These ratios help measure the profitability of a firm. A firm, which
generates a substantial amount of profits per rupee of sales, can
comfortably meet its operating expenses and provide more returns to
its shareholders. The relationship between profit and sales is
measured by profitability ratios. There are two types of profitability
ratios: Gross Profit Margin and Net Profit Margin.
GROSS PROFIT RATIO:-
Meaning:This ratio measures the relationship between gross profit and sales. It
is defined as the excess of the net sales over cost of goods sold or
excess of revenue over cost. This ratio shows the profit that remains
after the manufacturing costs have been met. It measures the
efficiency of production as well as pricing. This ratio helps to judge
how efficient the concern is I managing its production, purchase,
selling & inventory, how good its control is over the direct cost, how
productive the concern , how much amount is left to meet otherexpenses & earn net profit.
Formula:
Gross profit
Gross profit ratio = * 100
Net sales
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NET PROFIT RATIO:-
Meaning:Net Profit ratio indicates the relationship between the net profit & the
sales it is usually expressed in the form of a percentage.
Formula:
NPAT
Net profit ratio = * 100
Net sales
This ratio shows the net earnings (to be distributed to both equity and
preference shareholders) as a percentage of net sales. It measures theoverall efficiency of production, administration, selling, financing,
pricing and tax management. Jointly considered, the gross and net
profit margin ratios provide an understanding of the cost and profit
structure of a firm.
RETURN ON CAPITAL EMPLOYED:-
Meaning:The profitability of the firm can also be analyzed from the point of
view of the total funds employed in the firm. The term fund employed
or the capital employed refers to the total long-term source of funds. It
means that the capital employed comprises of shareholder funds plus
long-term debts. Alternatively it can also be defined as fixed assets
plus net working capital.
Capital employed refers to the long-term funds invested by the
creditors and the owners of a firm. It is the sum of long-termliabilities and owner's equity. ROCE indicates the efficiency with
which the long-term funds of a firm are utilized.
Formula:
NPAT
Return on capital employed = *100
Capital employed
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FINANCIAL
These ratios determine how quickly certain current assets can be
converted into cash. They are also called efficiency ratios or asset
utilization ratios as they measure the efficiency of a firm in managing
assets. These ratios are based on the relationship between the level of
activity represented by sales or cost of goods sold and levels of
investment in various assets. The important turnover ratios are debtors
turnover ratio, average collection period, inventory/stock turnover
ratio, fixed assets turnover ratio, and total assets turnover ratio. These
are described below:
DEBTORS TURNOVER RATIO (DTO)
Meaning:DTO is calculated by dividing the net credit sales by average debtors
outstanding during the year. It measures the liquidity of a firm's debts.
Net credit sales are the gross credit sales minus returns, if any, from
customers. Average debtors are the average of debtors at thebeginning and at the end of the year. This ratio shows how rapidly
debts are collected. The higher the DTO, the better it is for the
organization.
Formula:
Credit sales
Debtors turnover ratio =
Average debtors
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INVENTORY OR STOCK TURNOVER RATIO (ITR)
Meaning:
ITR refers to the number of times the inventory is sold and replaced
during the accounting period.
Formula:
Cost Of Goods Sold
Stock Turnover Ratio =
Average stock
ITR reflects the efficiency of inventory management. The higher the
ratio, the more efficient is the management of inventories, and vice
versa. However, a high inventory turnover may also result from a low
level of inventory, which may lead to frequent stock outs and loss of
sales and customer goodwill. For calculating ITR, the average of
inventories at the beginning and the end of the year is taken. In
general, averages may be used when a flow figure (in this case, cost
of goods sold) is related to a stock figure (inventories).
FIXED ASSETS TURNOVER (FAT)
The FAT ratio measures the net sales per rupee of investment in fixed
assets.
Formula:
Net sales
Fixed assets turnover =
Net fixed assets
This ratio measures the efficiency with which fixed assets are
employed. A high ratio indicates a high degree of efficiency in asset
utilization while a low ratio reflects an inefficient use of assets.
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However, this ratio should be used with caution because when the
fixed assets of a firm are old and substantially depreciated, the fixed
assets turnover ratio tends to be high (because the denominator of the
ratio is very low).
PROPRIETORS RATIO:
Meaning:
Proprietary ratio is a test of financial & credit strength of the business.
It relates shareholders fund to total assets. This ratio determines the
long term or ultimate solvency of the company.
In other words, Proprietary ratio determines as to what extent theowners interest & expectations are fulfilled from the total investment
made in the business operation.
Proprietary ratio compares the proprietor fund with total liabilities. It
is usually expressed in the form of percentage. Total assets also know
it as net worth.
Formula:
Proprietary fundProprietary ratio = OR
Total fund
Shareholders fund
Proprietary ratio =
Fixed assets + current assets
STOCK WORKING CAPITAL RATIO:
Meaning:
This ratio shows the relationship between the closing stock & the
working capital. It helps to judge the quantum of inventories in
relation to the working capital of the business. The purpose of this
ratio is to show the extent to which working capital is blocked in
inventories. The ratio highlights the predominance of stocks in the
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current financial position of the company. It is expressed as a
percentage.
Formula:
Stock
Stock working capital ratio =
Working Capital
Stock working capital ratio is a liquidity ratio. It indicates the
composition & quality of the working capital. This ratio also helps to
study the solvency of a concern. It is a qualitative test of solvency. It
shows the extent of funds blocked in stock. If investment in stock is
higher it means that the amount of liquid assets is lower.
DEBT EQUITY RATIO:
MEANING:
This ratio compares the debts with shareholders fund. The
relationship between borrowed funds & owners capital is a popular
measure of the financial solvency of a firm. This relationship isshown by debt equity ratio. Alternatively, this ratio indicates the
relative proportion of debt & equity in financing the assets of the firm.
It is usually expressed as a pure ratio. E.g. 2:1
Formula:
External Equities
Debt equity ratio =
Internal Equities
Debt equity ratio is also called as leverage ratio. Leverage means the
process of the increasing the equity shareholders return through the
use of debt. Leverage is also known as gearing or trading on
equity. Debt equity ratio shows the margin of safety for long-term
creditors & the balance between debt & equity.
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RETURN ON PROPRIETOR FUND:
Meaning:
Return on proprietors fund is also known as return on proprietors
equity orreturn on shareholders investment or investment ratio.
This ratio indicates the relationship between net profit earned & total
proprietors funds. Return on proprietors fund is a profitability ratio,
which the relationship between profit & investment by the proprietors
in the concern. Its purpose is to measure the rate of return on the total
fund made available by the owners. This ratio helps to judge how
efficient the concern is in managing the owners fund at disposal. This
ratio is of practical importance to prospective investors &
shareholders.
Formula:
NPAT
Return on proprietors fund = * 100
Proprietors fund
CREDITORS TURNOVER RATIO:
It is same as debtors turnover ratio. It shows the speed at which
payments are made to the supplier for purchase made from them. It is
a relation between net credit purchase and average creditors
Net credit purchase
Credit turnover ratio =
Average creditors
Months in a year
Average age of accounts payable =
Credit turnover ratio
Both the ratios indicate promptness in payment of creditor purchases.
Higher creditors turnover ratio or a lower credit period enjoyed
signifies that the creditors are being paid promptly. It enhances credit
worthiness of the company. A very low ratio indicates that the
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company is not taking full benefit of the credit period allowed by the
creditors.
IMPORTANCE OF RATIO ANALYSIS:
As a tool of financial management, ratios are of crucial significance.
The importance of ratio analysis lies in the fact that it presents facts
on a comparative basis & enables the drawing of interference
regarding the performance of a firm. Ratio analysis is relevant in
assessing the performance of a firm in respect of the following
aspects:
1] Liquidity position,
2] Long-term solvency,
3] Operating efficiency,
4] Overall profitability,
5] Inter firm comparison
6] Trend analysis.
1] LIQUIDITY POSITION: -
With the help of Ratio analysis conclusion can be drawn regarding the
liquidity position of a firm. The liquidity position of a firm would be
satisfactory if it is able to meet its current obligation when they
become due. A firm can be said to have the ability to meet its short-
term liabilities if it has sufficient liquid funds to pay the interest on its
short maturing debt usually within a year as well as to repay the
principal. This ability is reflected in the liquidity ratio of a firm. The
liquidity ratio are particularly useful in credit analysis by bank &
other suppliers of short term loans.
2] LONG TERM SOLVENCY: -
Ratio analysis is equally useful for assessing the long-term financial
Ratio analysis reveals the strength & weaknesses of a firm in this
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respect. The leverage ratios, for instance, will indicate whether a firm
has a reasonable proportion of various sources of finance or if it is
heavily loaded with debt in which case its solvency is exposed to
serious strain. Similarly the various profitability ratios would reveal
whether or not the firm is able to offer adequate return to its owners
consistent with the risk involved.
3] OPERATING EFFICIENCY:
Yet another dimension of the useful of the ratio analysis, relevant
from the viewpoint of management, is that it throws light on the
degree of efficiency in management & utilization of its assets. The
various activity ratios measures this kind of operational efficiency. Infact, the solvency of a firm is, in the ultimate analysis, dependent
upon the sales revenues generated by the use of its assets- total as
well as its components.
4] OVERALL PROFITABILITY:
Unlike the outsides parties, which are interested in one aspect of the
financial position of a firm, the management is constantly concernedabout overall profitability of the enterprise. That is, they are
Concerned about the ability of the firm to meets its short term as well
as long term obligations to its creditors, to ensure a reasonable return
to its owners & secure optimum utilization of the assets of the firm.
This is possible if an integrated view is taken & all the ratios are
considered together.
5] INTERFIRM COMPARISON:
Ratio analysis not only throws light on the financial position of firm
but also serves as a stepping-stone to remedial measures. This is made
possible due to inter firm comparison & comparison with the industry
averages. A single figure of a particular ratio is meaningless unless it
is related to some standard or norm. one of the popular techniques is
to compare the ratios of a firm with the industry average. It should be
reasonably expected that the performance of a firm should be in broadconformity with that of the industry to which it belongs. An inter firm
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comparison would demonstrate the firms position vice-versa its
competitors. If the results are at variance either with the industry
average or with the those of the competitors, the firm can seek to
identify the probable reasons & in light, take remedial measures.
6] TREND ANALYSIS:
Finally, ratio analysis enables a firm to take the time dimension into
account. In other words, whether the financial position of a firm is
improving or deteriorating over the years. This is made possible by
the use of trend analysis. The significance of the trend analysis of
ratio lies in the fact that the analysts can know the direction of
movement, that is, whether the movement is favorable or unfavorable.For example, the ratio may be low as compared to the norm but the
trend may be upward. On the other hand, though the present level
may be satisfactory but the trend may be a declining one.
ADVANTAGES OF RATIO ANALYSIS
Financial ratios are essentially concerned with the identification of
significant accounting data relationships, which give the decision-
maker insights into the financial performance of a company. The
advantages of ratio analysis can be summarized as follows:
Ratios facilitate conducting trend analysis, which is importantfor decision making and forecasting.
Ratio analysis helps in the assessment of the liquidity, operatingefficiency, profitability and solvency of a firm.
Ratio analysis provides a basis for both intra-firm as well asinter-firm comparisons.
The comparison of actual ratios with base year ratios or standardratios helps the management analyze the financial performance
of the firm.
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LIMITATIONS OF RATIO ANALYSIS
Ratio analysis has its limitations. These limitations are described
below:
1] Information problemsRatios require quantitative information for analysis but it is not
decisive about analytical output.
The figures in a set of accounts are likely to be at least severalmonths out of date, and so might not give a proper indication of
the companys current financial position.
Where historical cost convention is used, asset valuations in thebalance sheet could be misleading. Ratios based on this
information will not be very useful for decision-making.
2] Comparison of performance over time
When comparing performance over time, there is need toconsider the changes in price. The movement in performance
should be in line with the changes in price.
When comparing performance over time, there is need toconsider the changes in technology. The movement in
performance should be in line with the changes in technology.
Changes in accounting policy may affect the comparison ofresults between different accounting years as misleading.
3] Inter-firm comparison
Companies may have different capital structures and to makecomparison of performance when one is all equity financed and
another is a geared company it may not be a good analysis.Selective application of government incentives to various
companies may also distort intercompany comparison.
comparing the performance of two enterprises may be
misleading.
Inter-firm comparison may not be useful unless the firmscompared are of the same size and age, and employ similar
production methods and accounting practices.
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Even within a company, comparisons can be distorted bychanges in the price level.
Ratios provide only quantitative information, not qualitativeinformation.
Ratios are calculated on the basis of past financial statements.They do not indicate future trends and they do not consider
economic conditions.
PURPOSE OF RATIO ANLYSIS:
1] To identify aspects of a businesses performance to aid decision
making
2] Quantitative processmay need to be supplemented by qualitative
Factors to get a complete picture.
3] 5 main areas:-
Liquiditythe ability of the firm to pay its wayInvestment/shareholdersinformation to enable decisions to
be made on the extent of the risk and the earning potential of a
business investment
Gearinginformation on the relationship between theexposure of the business to loans as opposed to share capital
Profitabilityhow effective the firm is at generating profitsgiven sales and or its capital assets
Financialthe rate at which the company sells its stock andthe efficiency with which it uses its assets
ROLE OF RATIO ANALYSIS:
It is true that the technique of ratio analysis is not a creative technique
in the sense that it uses the same figure & information, which is
already appearing in the financial statement. At the same time, it is
true that what can be achieved by the technique of ratio analysis
cannot be achieved by the mere preparation of financial statement.
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Ratio analysis helps to appraise the firm in terms of their profitability
& efficiency of performance, either individually or in relation to those
of other firms in the same industry. The process of this appraisal is
not complete until the ratio so computed can be compared with
something, as the ratio all by them do not mean anything. This
comparison may be in the form of intra firm comparison, inter firm
comparison or comparison with standard ratios. Thus proper
comparison of ratios may reveal where a firm is placed as compared
with earlier period or in comparison with the other firms in the same
industry.
Ratio analysis is one of the best possible techniques available to the
management to impart the basic functions like planning & control. As
the future is closely related to the immediate past, ratio calculated onthe basis of historical financial statements may be of good assistance
to predict the future. Ratio analysis also helps to locate & point out
the various areas, which need the management attention in order to
improve the situation.
As the ratio analysis is concerned with all the aspect of a firms
financial analysis i.e. liquidity, solvency, activity, profitability &
overall performance, it enables the interested persons to know the
financial & operational characteristics of an organization & take thesuitable decision.
Chapter 5
DATA ANALYSIS
1. CURRENT RATIO:
Year Current Assets Current Liabilities Ratios
2010 2140872026.53 3109596245.16 1.97:1
2011 4213929832.35 6640778554.88 2.14:1
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GRAPH SHOWING STATUS OF CURRENT ASSETS AND CURRENT
LIABILITIES:
GRAPH SHOWING CURRENT RATIO:
Interpretation:As a conventional rule, a current ratio of 2 to 1 or more is considered
satisfactory but here the company has maintained satisfactory current
ratio during the last 2 years. The main reason for that is the standard
working capital policy adopted by the company. Apart from fix
assets, major part of current assets was financed by the long term
funds. Overall, the company enjoys a standard liquidity.
0.00
1000000000.00
2000000000.00
3000000000.00
4000000000.00
5000000000.00
6000000000.00
7000000000.00
2010 2011
Current Labilities
Current Assets
1.80
1.90
2.00
2.10
2.20
2010
2011
Current Ratio
Current Ratio
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2. ABSOLUTE LIQUID RATIO:
Year Absolute Liquid
Assets
Liquid Liabilities Ratios
2010 411613973.42 3109596245.16 0.192:1
2011 608519031.00 6640778554.88 0.196:1
GRAPH SHOWING STATUS OF ABSOLUE LIQUID ASSETS AND
LIQUID LIABILITIES:
GRAPH SHOWING ABSOLUTE LIQUID RATIO:
0.00
500000000.00
1000000000.00
1500000000.00
2000000000.00
2500000000.00
3000000000.00
3500000000.00
2010 2011
Liquid Liabilities
Absolute Liquid Assets
0.19
0.191
0.192
0.193
0.194
0.195
0.196
2010
2011
Absolute Liquid ratio
Absolute Liquid ratio
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Interpretation:This ratio indicates the ability to discharge its short term liabilities
with the available cash on hand.
A ratio of 1:1 is considered to be a good ratio but a rate of 0.75:1
is also good. The above ratios stated above imply that the
company does not have enough cash on hand to meet all the
current liabilities.
3. DEBT EQUITY RATIO:
Year External Equities Internal Equities Ratios
2010 7777514186.50 621557705.92 12.51:1
2011 10208826010.77 835090904.24 12.22:1
GRAPH SHOWING STATUS OF EXTERNAL EQUITIES AND INTERNAL
EQUITIES:
0.00
2000000000.00
4000000000.00
6000000000.00
8000000000.00
10000000000.00
12000000000.00
2010 2011
External Equities
Internal Equities
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GRAPH SHOWING DEBT EQUITY RATIO:
Interpretation:From the debt-Equity ratio it is clear that the owners of kurmanchal
Nagar Sahkari Bank Ltd Finance ltd have contributed fewer funds
than its lenders in all the years.
It implies that the company has depended more on debt than equity.
This more reliance on debt allow the company from taking the
advantage of the tax shield and financial leverage but at the same timeit restrict the company from regular payment of interest and
obligations.
4. CURRENT ASSETS TO FIXED ASSETS RATIO
Year Current Assets Fixed Assets Ratios
2010 2140872026.53 40,759,814.07 103.38:1
2011 4213929832.35 40,622,601.86 163.47:1
12.05
12.10
12.15
12.20
12.25
12.30
12.35
12.40
12.45
12.50
12.55
2010
2011
Debt Equity Ratio
Debt Equity Ratio
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GRAPH SHOWING STATUS OF CURRENT ASSETS AND FIXED ASSETS:
GRAPH SHOWING CURRENT ASSETS TO FIXED ASSETS RATIO:
-
1,000,000,000.00
2,000,000,000.00
3,000,000,000.00
4,000,000,000.00
5,000,000,000.00
6,000,000,000.00
7,000,000,000.00
2010 2011
Fixed Assets
Current Assets
-
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
2010
2011
Current Assets to fixed Assets ratio
Current Assets to fixed Assets ratio
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Interpretation:
Current assets are increased and the net fixed assets of the firm are
decreased due to the charge of depreciation and there is no major
increment in the fixed assets.
The increment in current assets and the decrease in fixed assets
resulted an increase in the ratio compared with the previous year
5. SOLVENCY RATIO
Year Outside Liability Total Assets Ratios
2010 7,763,768,456.50 8,526,217,188.42 0.910:1
2011 10,189,963,212.77 11,113,745,650.01 0.917:1
GRAPH SHOWING STATUS OF OUTSIDE LIABILITY AND TOTAL
ASSETS:
-
2,000,000,000.00
4,000,000,000.00
6,000,000,000.00
8,000,000,000.00
10,000,000,000.00
12,000,000,000.00
2010 2011
Total Outside Liability
Total Assets
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GRAPH SHOWING SOLVENCY RATIO:
Interpretation:
Outside Liabilities are increased and there is not much more
increment in Total Assets which is resulted an increase in the ratio
compared with the previous year.
6. WORKING CAPITAL RATIO:
Year Working Capital Net Assets Ratios
2010 8390027339.78 8390027339.78 1:1
2011 11035028414.26 11035028414.26 1:1
0.907
0.908
0.909
0.91
0.911
0.912
0.913
0.914
0.915
0.916
0.917
2010
2011
Solvency Ratio
Solvency Ratio
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GRAPH SHOWING STATUS OF WORKING CAPITAL AND NET
ASSETS:
GRAPH SHOWING WORKING CAPITAL RATIO:
-
2,000,000,000.00
4,000,000,000.00
6,000,000,000.00
8,000,000,000.00
10,000,000,000.00
12,000,000,000.00
2010 2011
Working Capital
Net Assets
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
2010
2011
Working Capital Ratio
Working Capital Ratio
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Interpretation:Over the last 2 years the company has maintain the Working Capital
ratio at 1:1 which is reasonably good and indicates good liquidity of
the company. However the reason for maintaining the same ratio is
the % increase in the companys Working Capital and Net Assets.
Higher NWC ratio cannot be taken as high liquidity always because it
is the test of quantity not the quality. Liquidity also depends upon the
quality of current assets.
7. PROPRIETARY RATIO:
Year Shareholders Fund Total Funds Ratios
2010 621557705.92 6354801858.88 9.78%
2011 835090904.24 9750374800.04 8.56%
GRAPH SHOWING STATUS OF SHAREHOLDERS FUND AND
TOTAL FUND:
-
2,000,000,000.00
4,000,000,000.00
6,000,000,000.00
8,000,000,000.00
10,000,000,000.00
12,000,000,000.00
2010 2011
Net worth
Total Funds
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GRAPH SHOWING PROPRIETARY RATIO:
Interpretation:
This ratio establishes the relationship between the shareholders
funds and the total funds of the firm. It establishes the claims of
the shareholders on the firms assets. It indicates the extent to
which the shareholders funds have been invested in the assets of
the company. On examination of this ratio, it denotes that the
share holders funds have been moderately invested in the totalassets. The ratio decreased in the current year because of greaterly
increased in total funds of the company and lower increment in the
net worth.
8. RETURN ON SHAREHOLDERS EQUITY:
Year Net Profit After
Interest & Tax
ShareholdersEquity
Ratios
2010 78,144,260.62 621557705.92 12.57%
2011 111,952,521.55 835090904.24 13.41%
7.8
8
8.2
8.4
8.6
8.8
9
9.2
9.4
9.6
9.8
2010 2011
Proprietory Ratio
Proprietory Ratio
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GRAPH SHOWING STATUS OF NET PROFIT AFTER INTEREST
& TAX AND SHARELODERS EQUITY:
GRAPH SHOWING RETURN ON SHAREHOLDERS EQUITY:
-
100,000,000.00
200,000,000.00
300,000,000.00
400,000,000.00
500,000,000.00
600,000,000.00
700,000,000.00
800,000,000.00
900,000,000.00
2010 2011
Net Profit After interest and tax
Shareholders Equity
12.00
12.20
12.40
12.60
12.80
13.00
13.20
13.40
13.60
2010 2011
Return on Shareholder Equity
Return on Shareholder Equity
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Interpretation:This is the ratio between net profits and shareholders funds. The ratio is
generally calculated as percentage multiplying with 100.The net profit is
increased due to the increase in the income from services and the
shareholders funds are increased because of reserve & surplus. So, the
ratio is increased in the current year.
9. RESERVE & SURPLUS TO CAPITAL RATIO:
Year RESERVE & SURPLUS CAPITAL Ratios
2010 535669945.92 85,887,760.00 6.24
2011 683428064.24 151,662,840.00 4.51
GRAPH SHOWING STATUS OF RESERVE & SURPLUS AND CAPITAL:
0.00
100000000.00
200000000.00
300000000.00
400000000.00
500000000.00
600000000.00
700000000.00
800000000.00
2010 2011
RESERVE & SURPLUS
CAPITAL
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GRAPH SHOWING RESERVE & SURPLUS TO CAPITAL RATIO:
Interpretation:The ratio is used to reveal the policy pursued by the company a very
high ratio indicates a conservative dividend policy and vice-versa.
Higher the ratio better will be the position.
The capital is increased in the year 2011. So the decrease in the
reserve & surplus to capital ratio caused a greater increase in capitals
ratio compared with the older.
9. RETURN ON ASSETS:
Year Net Profit after Interest
& Tax
Net Assets Ratios
2010 78,144,260.62 8390027339.78 0.93%
2011 111,952,521.55 11035028414.26 1.01%
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
2010 2011
RESERVE & SURPLUS TO CAPITAL RATIO
RESERVE & SURPLUS TO CAPITAL
RATIO
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GRAPH SHOWING STATUS OF NET PROFIT AFTER INTEREST &
TAX AND NET ASSETS:
GRAPH SHOWING RETURN ON ASSETS:
-
2,000,000,000.00
4,000,000,000.00
6,000,000,000.00
8,000,000,000.00
10,000,000,000.00
12,000,000,000.00
2010 2011
Profit After Interest & Tax
Net Assets
0.88
0.9
0.92
0.94
0.96
0.98
1
1.02
2010 2011
Return on Assets
Return on Assets
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Interpretation:This is the ratio between net profit and net assets. The ratio indicates
the return on net assets in the form of profits.
The net profit is increased in the current year because of the
increment in the income from services. The fixed assets are reduced
due to the charge of depreciation and no major increments in fixed
assets but the current assets are increased that effects an increase in
the ratio compared with the last year i.e. 2010.
10. NET INTEREST MARGIN:
Year Interest Rate onCredits
Interest Rate OnDeposits
Net InterestMargin
2010 11.36% 5.67% 5.68%
2011 10.165 5.10% 5.06%
GRAPH SHOWING STATUS OF INTEREST RATE ON CREDITS AND
INTEREST RATE ON DEPOSITS:
-
2.00
4.00
6.00
8.00
10.00
12.00
2010 2011
Interest Rate on Loans
Interest Rate on Deposits
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GRAPH SHOWING NET INTEREST MARGIN:
Interpretation:This ratio determined the net margin bank yield through interest from
credits deducting by interest on deposits.
In the current year this ratio is decreased due to lower interest ratio(i.e. total interest earned/total credits) on credits compare to last year.
11. CREDIT - DEPOSIT RATIO:
Year Credits Deposits Ratio
2010 4989250995.53 6,494,662,360.76 76.82%
2011 6795838900.57 8,227,132,181.07 82.60%
4.70
4.80
4.90
5.00
5.10
5.20
5.30
5.40
5.50
5.60
5.70
2010 2011
Net Interest Margin
Net Interest Margin
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GRAPH SHOWING STATUS OF CREDITS AND DEPOSITS:
GRAPH SHOWING CREDIT DEPOSIT RATIO:
Interpretation:This is the ratio between credits and deposits. The ratio determines
the relationship between credits and deposits in the bank.
0.00
1000000000.00
2000000000.00
3000000000.00
4000000000.00
5000000000.00
6000000000.00
7000000000.00
8000000000.00
9000000000.00
2010 2011
Loans And Advances
Deposits
73.00
74.00
75.00
76.00
77.00
78.00
79.00
80.00
81.00
82.00
83.00
2010 2011
C-D Ratio
CD Ratio
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The credits is graterly increased in the current year and the deposits
are also increased that effects an increase in the ratio compared with
the last year i.e. 2010
12. PER EMPOYEE BUSINESS:
Year Deposits and
Advances
No. of Employees Per Employee
Business
2010 11483913356.29 193 59502141.74
2011 15022971081.64 189 79486619.48
GRAPH SHOWING PER EMPLOYEE BUSINESS:
Interpretation:This PEB determined the business (deposit and advances) doing by
employees of the bank. In the current year the PEB increased from the
last year because of increment in loans and deposits and decreased in
the number of employees.
-
10,000,000.00
20,000,000.00
30,000,000.00
40,000,000.00
50,000,000.00
60,000,000.00
70,000,000.00
80,000,000.00
2010 2011
Per Employee Business
Per Employee Business
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GRAPHICAL PRESENTATION OF IMPORTANT DATA
Saving A/c
24%
Current A/c
8%
Mini Deposit A/c
6%
FDRs
62%
Composition of deposits
140
145
150
155
160
165
170
175
180
185
190
2008-09 2009-10 2010-11
Non Performin Assets (NPAs) 165.67 189.49 158.34
Rupee
inL
cs
Non Performin Assets (NPAs)
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Composition wise yearly Growth of Deposits (Rs. In Lacks)
2010-11
2009-10
2008-09
0
10000
20000
30000
40000
50000
60000
Current
Accounts Saving Bank
Accounts Mini Deposit
AccountsFixed
deposits
Accounts
2010-11
2009-10
2008-09
60416.38
83900.28
110350.28
0
20000
40000
60000
80000
100000
120000
2008-09 2009-10 2010-11
Working Capital
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FINDINGS, SUMARRY & CONCLUSION
FINDINGS OF THE STUDY1. The current ratio has shown in a fluctuating trend as 1.97 and 2.14
during 2010 of which indicates a continuous increase in both current
assets and current liabilities.
2. The absolute liquid ratio has been increased from 0.192 to 0.195
from 201011
3. The proprietory ratio has shown a fluctuating trend. The
proprietory ratio is decreased compared with the last year.
4. The working capital increased from 8390027339.78 to
11035028414.26 in the year 2010-11.
5. The current assets to fixed assets ratio is increasing gradually from
2010-11 as 103.38 and 163.47. It shows that the current assets are
increased than fixed assets.
6. The debt equity ratio is decreased to 12.51 from 12.22 which shows
company reduced the part of debt capital and increased the owner
capital.
7. The solvency ratio has been increased from 0.910 to 0.917 from
2010-11
8.The Net NPA were 0% of net advances assets as of March 31,2011as against 0% respectively as of March 31,2010 reflecting the
disciplined credit risk management.
9.The return on shareholders equity is increased to 13.41% from
12.57% which indicate the growth in return on owners equity.
10. The return on assets (ROA) has been increased from 0.93% to
1.01% from 2010-11
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11. The Reserves and Surplus to Capital ratio is decreased to 4.51
from 6.24. The capital is greaterly increased, the reserves and surplus
is also increased in the current year but not as capital.
12. C-D ratio is increased in the current year which shows high
investment in credit, which is good for a bank because it enable bank
to earn high interest on it.
13. Net Interest Margin has a fluctuating trend, it decrease by 0.62 in
the current year.
14. Per Employee Business increased greaterly in the current year
which shows efficient working power of the bank.
SUMMARY
1) After the analysis of Financial Statements, the Bank status is better,
because the working capital of the Bank is highly increased from the
last years position.
2) The Bank profits are huge in the current year; it is better to declarethe dividend to shareholders.
3) The Bank is utilizing the fixed assets, which majorly hel
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