1. A REPORT
ON
“FINANCIAL ANALYSIS OF KAJARIA CERAMICS LTD”
A Project report submitted in the partial fulfillment of the requirement for the degree
Of
Master of Business Administration (MBA)
KAJARIA CERAMICS LTD.
Submitted To: Submitted By:
Mr. AMRENDRA TIWAREE SYED MOHD. ZIYA
Lecturer- MBA 3rd semester (Finance)
D.A.M.S. College Roll No. 0904870089
DAYANAND ACADEMY OF MANAGEMENT STUDIES
GOVIND NAGAR, KANPUR
(AFFILIATED TO G.B.T.U. LUCKNOW, U.P.)
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2. CERTIFICATE
This is certify that Mr. Syed Mohd Ziya worked during the period w.e.f.
15.07.2010 to 14.08.2010 on the development of the project “Financial analysis of
Kajaria Ceramics Limited”, in the partial fulfillment of the requirement for the
degree of MBA (Master of Business Administration) under my guidance &
supervision. To the best of my knowledge, the matter represented in this project is
a bonafide & genuine piece of work.
During her association with the project I found him to be sincere &
motivated individual. He has shown keen interest in this project & him conduct
was excellent.
I wish him all success in his career.
Place: Rajesh Sharma
ASST. GEN. MANAGER
Date: 25-8-2010 (P & A)
Kajaria Ceramics Ltd. Sikandrabad
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3. Guided by:
Mr. Rajesh Sharma
ASST. GEN. MANAGER
(P & A)
Kajaria Ceramics Ltd. Sikandrabad
DECLARATION
I, SYED MOHD ZIYA, S/O Mr. SYED SHAKEEL AHAMED is a bonafied
student of M.B.A. at DAYANAND ACADEMY OF MANAGEMENT STUDIES.
My enrollment number is 0904870089. I hereby declare that present summer
internship report titled Account of assets is my original work. I conducted this
study at KAJARIA CERAMICS LTD. SIKANDRABAD during 15july, 2010 to
14 Aug, 2010. This report has not been submitted earlier either with DAYANAND
ACADEMY OF MANAGEMENT STUDIES and any other educational
organization as an essential requirement for the award of any Diploma/ Degree.
Date- 17/Aug/2010 Signature: -
(SYED MOHD ZIYA)
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4. PREFACE
Someone has rightly said that practical knowledge is far better than
classroom teaching. During this project I fully realized this and I came to
know about how a retailer chooses among a varied range of products
available to him.
The subject of my study is Financial Analysis of Kajaria Ceramics
Ltd., which has slowly but steadily evolved from a beginner to a
corporate giant earning laurels and kudos throughout.
The report contains first of all brief introduction about the
company. Finally there comes data presentation and analysis in the end
of my project report. I also put forward some of my suggestion hoping
that they will help Kajaria Ceramics Ltd. Move a step forward to being
the very best.
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5. ACKNOWLEDGEMENT
I acknowledge my deep sense of gratitude for giving me this opportunity to
undergo my project with Kajaria Ceramics Ltd. At this moment of successful
completion of the project, I would like to express my sincere thankfulness and
indebtedness to all those who extended their kind help by spending their precious
time in explaining the various intricacies of the subject and suggesting the correct
approach to me.
To start with I would like to thank not once but twice Mr.Ashok Kajaria
(Chairman) and Mr. Rishi kajaria (M.D.) whose contribution to the project is
beyond my capacity of expression.
I would like to thank Mr. ARUN LATH (GM), Mr. ANIL PRABHAKAR
(AGM A/C), & Mr. Deepak Gupta (Dpt. MGR), who had been my project guide
for their understanding, gracious and constructive advice which played a major in
completion of this project.
At last but not least I would also like to thanks
Mr. AMRENDRA TIWAREE (Lecturer) Guide for providing insights about
performing our work. This Project has been a great learning outcome for me and
without his help it would not have possible for me to this project.
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6. CONTENTS
INTRODUCTION OF K.C.L
1. KCL - AN OVERVIEW
Company profile
Marketing pattern
Company‟s business mission & objectives
Board of directors
KCL contribution in India
Bankers
Major competitors
Technician collaborations
Internal control system
2. AWARDS WON
3. SWOT ANALYSIS OF KCL
4. POLICIES ADOPTED
Quality policy (ISO 9001:2000)
Environmental policy (ISO 14001)
Health & safety policy (OHSAS) ISO 18001
Social accountability policy
5. PRODUCT PROFILE OF KCL
6. MANUFACTURING PROCESS
7. RESEARCH & DEVELOPMENT
Methodology
Utility of the research
Extensive literature survey
Collection of data & analysis of data
8. PERFORMANCE OF THE COMPANY
9. FINANCE OVER VIEW
Organization Chart of Finance Department
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7. 10. KCL FINANCIAL REPORT
Balance Sheet
Profit & Loss
11. FINANCIAL ANALYSIS
Introduction
Objective of Study
Types of Financial Analysis
Utility of Financial Analysis
Financial Ratios & Utility
12. INTRODUCTION OF RATIO ANALYSIS
Introduction
Nature
Uses of Financial Statements of Different Parties
Advantages of Ratios
Role of Financial Ratios
Objective of the Study
13. CLASSIFICATION OF RATIOS
Traditional Classification
Functional Classification
Classification According To Nature
Classification According To Importance
14. CONCLUSTION
15. RECOMMENDATIONS
LIST OF CHARTS
Chart.1 Turnover (Sales)
Chart.2 Net Profit
Chart.3 Capacity
Chart.4 Production
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8. EXECUTIVE SUMMARY
Kajaria Ceramics Limited, FMCG with a turnover of Rs.766.75 crore
manufacturing and selling ceramic Floor & Wall Tiles under the brand name
"Kajaria". It is the first tile company in India accredited with ISO 9002
Certification and recipient of one of the Global Growth company award from the
"World Economics Forum". The company has its corporate office at New Delhi
and Regional offices at Ahmedabad, Bangalore, Calcutta, Mumbai and Chennai.
Today kajaria is a well established name in the corporate world. From a modest
beginning of 3,000 sq.mts per day, the company today produces over 33,000
sq.mts of tiles every day, clearly demonstrating Kajaria‟s growing strength over the
years and also indicating rising customer preference for the brand. Manufacturing,
standards, technology user trends, competitiveness, customer preference all have
played a vital role in shaping Kajaria success story. Besides this, the company
enjoys a reputation of rendering products that's at par with international standards.
Within 11 years of operation, Kajaria has moved very close to its vision of
becoming a leader worldwide. Kajaria Ceramics has grown at a breathtaking pace
during the last decade in turnover, profits and foreign earnings. With the new plant
at Bhiwadi, Rajasthan becoming fully operational, it has almost doubled its
capacity from 80,000 TPA 1, 50,000 TPA. The first plant in Sikandrabad U.P.
already has the distinction of always producing over 100% of its capacity.
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9. The company's dedicated Research and Development efforts have also
proved to be catalytic in its leadership position.
These include development of special effects floor tiles and development of
FLOOR BORDERS matching PEI_V Tiles having high abrasive resistance. In
house R & D has also enable Kajaria to imbibe innovations and technical methods
of production based on Monoporosa Technology.
Kajaria has always been alert to changing market trends and preferences, by
producing tiles in myriad designs and colours‟. Infect Malaria is the only tile
company in the country to have an impressive range of over 400 designs with a
many as 50 different variation in Group 5 category, demonstrating out commitment
towards customer satisfaction. Kajaria also continued to improve its
communication process with architects, Builders, masons and interior decorators
and designers in order to update their products information and provide them
convenient access to its diverse brands, designs, and colours. Using the effective
technique of sampling with frequent and regular communication through
pamphlets, products folders and catalogues helped to keep the Kajaria brand on the
top_of_mind scale among the priority target customers. In additional, the company
emphasis on participating in national and local exhibitions also enabled it to
enhance its visibility and reach on a continuous basis, throughout the year. This
also helped to inspire and influence product usage at a more rapid pace.
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10. Kajaria's dominating presence in the country has been further consolidated
by a uniquely engineered network of dealers. These highly visible retail outlets
have sprung up not only in all major cities and towns but even in the most strategic
market locations.
A huge force of sub dealers cover and breadth of the country. The
tremendous advantage from this marketing strength has been the easy access to and
availability of Kajaria's entire of the customers. In addition, the vast range and
choice enables customers to select their own designs and create their own
individual combinations in exclusive preferences and tastes.
With the tremendous spurt taking place in the realm of information
technology, Kajaria is reaping the benefits from the new medium, by hosting its
own website on the internet. The Kajaria website provides wealth of information
on its entire range of wall and floor tiles, borders including detailed information on
the various specifications. Exquisitily designed, the website contains the full range
of visually appealing graphics on designs, colours and size. With access to this
facility, customers can avail the tremendous benefits of e-commerce of Kajaria
tiles, and even place their orders for quick delivery.
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11. 10

12. COMPANY PROFILE & OVERVIEW
The company was incorporated in December, 1985 with an object of setting
up Ceramic Tile Plant with an initial capacity of 12,000 MT at Sikandrabad (U P)
in technical collaboration with Todagres SA, Spain. The company had started the
commercial production on 12th August, 1988. Since then, the company has
expanded its capacity at its existing location for floor tiles twice during 1990-91
and 91-92 by 14,000 MT each taking its floor tile capacity 40,000 TPA. In 1993-
94, the company added Wall Tile capacity of 20,000 TPA with Monoporosa
technology which was expanded to 40,000 TPA in 1995-96. The company set up a
green field Plant at Village Gailpur (Rajasthan) of 70,000 MT capacity for the
manufacture of Monocuttra Wall tiles in March, 1998. The company carried out
the modernization of its existing Plant at Sikandrabad in January, 99, which has
resulted increase in capacity from 80,000 MT to 90,000 MT and enhancing the life
of the Plant. The total present capacity of the company is 170,000 MT.
Both the Plants have adopted single firing technology (Monoporosa
technology), which is the most latest, cost efficient and more productive
technology. The company is marketing its products since inception under the
brand name of „Kajaria‟ which is a well-known brand within the industry in India
and abroad. The company has also been selected as one of the top performing
Global Growth Company from India by World Economic Forum in 1997. Kajaria
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13. is the first ceramic tile company in India and may be 5th in the world accredited
with ISO 9002 certification for its quality system. During the year the company
has also been accredited with the “ISO 14001” certification for the Environmental
Management System for manufacturing Ceramic Tiles. The company is the No. 1
preferred company for ceramic tiles in India. The company has also been given
OHSAS 18001 certificate by M/s. TUV Suddeutschland, Germany. The Certificate
has been given for the commitment of the company for fulfilling international
standards in Occupational Health and Safety Management System - Specification.
Kajaria Ceramics is the first ceramic tile company in the world to get this
certification.
Kajaria has an all India network of 600 dealers. Kajaria is selling 80% of its
products to the retail consumer and 20% to the projects. Since last year company
has franchised exclusive tile Shoppe & tile galleria on all India bases. It displays the
mock bathroom & kitchen with various combinations of tiles. It helps in selection of
the product/ design for the floor & walls. These also have customer support staff,
which advises on sizes, combinations & laying techniques.
The company has opened 11 retail European styled showrooms located in
various parts of the country. Kajaria Ceramics has also opened a showroom in
Melbourne, Australia.
The company is the largest exporter of ceramic tiles from India and accounts
for 40% of total exports of ceramic tiles from India. The Company‟s exports are
mainly to Australia, Sri Lanka, Bahrain, UAE, Saudi Arabia and Oman. The
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14. company has won 7 exports award including the National Export award given in
May 2000.
The company has closed the Financial Year 2009-10 with a turnover of Rs
7667.54 million as against the turnover of Rs 6911.99 million in the corresponding
financial year. The turnover is high mainly because of increase in demand in
domestic market, effective cost control measures, better cash management and
reduction in the interest rate. The company has closed the turnover of the 1st
quarter of 2009-10 is 1598.8 million which ends on 30th of June.
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15. MARKETING PATTERN
We have a manufacturing unit at Sikandrabad, Distt. Bulandshahar [U.P.]
and the other at Village- Gailput, Distt. Alwar (Raj.). We are manufacturing Floor
Tiles at Sikandrabad Plant & Wall Tiles at Gailpur Plant. We sell our goods
through dealers and also directly to Builders, Contractors and others. The prices
are charged as per price lists applicable for the particular area. On all the
clearances the Excise Duty is being paid under Section 4A on M.R.P. less
abatement. The goods are delivering at the Factory gate to the Buyer/ on behalf of
the Buyer to the transporter. The freight at actual is paid by the Dealer/Buyer
directly to the transporter at destination. In few cases, the freight at actual is paid
by us which is show separately in the Invoice and realized from the buyer/dealer.
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16. COMPANY‟S BUSINESS MISSION & OBJECTIVES
BUSINESS MISSION
***********************
To maintain a leading position as suppliers of Ceramic Wall & Floor Tiles
the company utilizes its capabilities and resources to expand the business into
allied areas and other priority sectors of the economy like housing projects etc…
BUSINESS OBJECTIVES
*****************************
GROWTH
Expectations to ensure a steady growth by enhancing the competitive edge
of Kajaria Ceramics Ltd.
PROFITABILITY
To provide a reasonable and adequate return on capital employed, primarily
through improvements in operational efficiency, capacity utilization, productivity
and generate adequate internal resources to finance the company‟s growth.
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17. CUSTOMER FOCUS
To build a high degree of customer confidence by providing increased value
for his money through international standards of product quality, performance and
superior services through dealer network.
PEOPLE – ORIENTATION
To enable each employee to achieve his potential, improve his capabilities,
perceive his role and responsibilities and participate and contribute positively to
the growth and success of the company. To invest in human resources continuously
and be alive to their needs.
TECHNOLOGY
Achieve technological excellence in operations by development of
indigenous technologies and efficient absorption and adaptations of imported
technologies to suit business need and priorities and provide the competitive
advantage to the company.
IMAGE
To fulfill and the comply the relevant legislation regulations and the
expectations which employees, customers and the country at large have from
Kajaria Ceramics Ltd.
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18. BOARD OF DIRECTOR
(As on 15.07.2010)
Mr. A. K. Kajaria : Chairman & Managing Director
Mr. D. D. Rishi : Jt. Managing Director
Mr. R. P. Goyal
Mr. D. P. Bagchi
Mr. R. K. Bhargava
Mr. R. R. Bagri
Mr. Chetan Kajaria
Mr. Rishi Kajaria
Mr. R. C. Rawat : V.P. (F&A) & Company Secretary
Is the Compliance Officer of the
Company.
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19. Committees of the Board
Audit Committee
Mr. R. P. Goyal : Chairman
Mr. R.K. Bhargava
Mr. R.R. Bagri
Share transfer and Investors
Grievance Committee
Mr. R.R. Bagri : Chairman
Mr. A. K. Kajaria
Mr. D. D. Rishi
Remuneration Committee
Mr. A. K. Kajaria : Chairman
Mr. D.P. Bagchi
Mr. R. K. Bhargava
Mr. R. R. Bagri
Project Management Committee
Mr. A.K. Kajaria : Chairman
Mr. D.D. rishi
Mr. Chetan Kajaria
Mr. Rishi Kajaria
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20. KCL CONTRIBUTION IN INDIA
CORPORATION OFFICE
J-1/B-1 (Extn.), Mohan Co-operative Industrial Estate,
(Opp. Badarpur Thermal Power Station), Mathura Road,
New Delhi – 110 044, India.
Phone: 26946409, Fax: 91-11-26946407, 26949544
Email: newdelhi@kajariaceramics.com
Website: http://www.kajariaceramics.com
REGIONAL OFFICE
MUMBAI : No.201-208, Bonanza, 2nd Floor, Shri Mathura das Vasanji
Road, (Andheri Kurla Road), J.B. Nagar, Andheri (East), Mumbai-400 059
Phone: 28203506, 28203507, Fax: 28203509,
Email: mum@kajariaceramics.com
KOLKATA: Central Plaza, 2/6, Sarat Bose Road, Flat No.807,
Kolkata – 700 020
Phone: 24754820, 24762647, and 24763179 Fax: 24748012
Email: kol@kajariaceramics.com
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21. AHMEDABAD:
202, Anand Mangal-II, behind Femina Town, C.G.Road, Navrangpura,
Ahmedabad.
Phone: 26465515, 26465516 Fax: 26566669
Email: ahm@kajariaceramics.com
CHENNAI:
28, North Usman Road, T.Nagar, Chennai-600 017
Phone: 28144323, 28144324 Fax: 28144323
Email: chn@kajariaceramics.com
COCHIN:
No.52, 2nd Floor, North Square, Paramara Temple road, Ernakulum, Kerala.
Phone: 2396433, 2393364 Fax: 2396433
Email: coc@kajariaceramics.com
REGISTERED OFFICE
A-27 & 28, Industrial Area, Sikandrabad, (Distt) Bulandshahr [UP]
Phone: (05735) 222819,222393, 223353 Fax: (05735) 222140
Email: skdgmw@kajariaceramics.com, skdaccts@kajariaceramics.com
skd@kajariaceramics.com
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22. MANUFACTURING UNITS
KAJARIA CERAMICS LTD.SIKANDRABAD
A-27/28/29, Industrial Area, Sikandrabad, [Distt.] Bulandshahr {UP}
Tel; (05735-222393 / 222819 Fax ;( 05735)-222140
KAJARIA CERAMICS LTD.GAILPUR
19 KM Stone, Bhiwadi – Alwar Road, Village – Gailpur, Bhiwadi [Raj]
Tel.; [01493] - 243142, 243143, 243507/8/9 Fax: [01493] -243510
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23. BANKERS & SOLICITORS
BANKERS: -
State Bank of India
Canara Bank
State Bank of Mysore
HDFC Bank Ltd.
State Bank of Indore
Oriental Bank of Commerce
SOLICITORS:-
Khaitan & Khaitan
New Delhi
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24. MAJOR COMPETITORS OF KCL
Name of organization State
NITCO MAHARASHTRA
H & R JOHNSON MAHARASHTRA MP, KA
SOMANY PILKINGTONS HR, GJ
SPARTEK CERAMICS ANDHRA PRADESH
BELL CERAMICS GJ, KA
REGENCY CERAMICS ANDHRA PRADESH
REGMA CERAMICS TAMIL NADU
SAINTINY CERAMICS ANDHRA PRADESH
SUNEARTH CERAMICS MAHARASHTRA
ORIENT CERAMICS UTTER PRADESH
ANANTRAJ INDUSTRIES HARYANA
SAVANA TILES GUJARAT
MURUDESHWER CERAMICS KARNATAKA
EURO CERAMICS GUJARAT
GOLD COIN CERAMICS GUJARAT
23

25. TECHNICAL COLLABORATIONS
PRODUCT COLLABORATIONS
CERAMIC GLAZED
WALL & FLOOR TODAGRES, SPAIN TILES
24

26. INTERNAL CONTROL SYSTEM
The Company has well defined its internal controls in all areas of its
operations. The Company has an independent internal audit activity, which
measures the efficiency, adequacy and effectiveness of other controls in the
organization. A summary of audit observations are placed before the Audit
Committee of the Board of Directors. The Audit Committee‟s recommendations
and directions are noted and action taken accordingly. The Company has well
defined the procedures to execute financial transactions.
25

27. AWARDS WON
Kajaria Ceramics Limited has been awarded the "Super
Brand" Title. Kajaria is the only ceramics tile company who has
won the status of consumers "Super Brand”.
Mr. Ashok Kajaria (Chairman & Managing Director) receiving the
award presented by Honorable Minster for Civil Aviation, Mr.
Praful Patel
The company has had a unique distinction of having
received the President's Award for achieving the highest
exports in the industry.
Kajaria Ceramics is the largest exporter of ceramic tiles in
India and consistently winning the Export Awards.
Mr. Chetan Kajaria with the National Export Award Presented by
The Prime Minister of India.
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28. SWOT ANALYSIS OF KCL
STRENGTHS
Low cost Producer of quality tiles. Flexible manufacturing set-up for longer
uniformity of product and comprising to international standards fully adaptation,
absorption of technology.
WEAKNESSES & RISKS
The ceramic tiles industry is dependent on the growth in the construction
and housing sector. In the Budget 02-03, tiles have been delisted from the SSI
category and accordingly all manufacturers of tiles come in the excise net. To
some extent they have arrived at the competitive level to the organized sector. But
due to their negligible overheads, tax evasion and copies of designs of organized
sector that retains the potential to under cut the organized sector. There is a stiff
competition within the organized sector which is putting pressure on the price also.
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29. OPPORTUNITIES
Strong distribution network across the country and overseas market. With focus on
retail marketing to build and establish exclusive showrooms across the country and
overseas markets.
Using innovative display and communicating to customers through
exhibitions and trade shows for consistent brand building efforts.
Nurturing and cultivating highly skilled human work force by motivating
and rewarding them.
THREATS
The Company is continuously on the path to over come any threats arising
from imports / competition amongst the tile manufacturers by making the product
more competitive in terms of price and quality, which has been possible by
reducing the input costs and providing more value added items with dynamic range
of designs and colours.
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30. QUALITY POLICY
(ISO 9001:2000)
We are committed to excel in all areas of Management to be a leader in the
manufacture of Ceramic Glazed Floor and Wall Tiles by complying with the
requirements of our customers, National and International Standards.
We shall achieve this through continual improvement in our Quality
Management System by increasing the productivity, reducing the costs, updating
and up-gradation of technology, optimum utilization of resources and active
involvement of all employees.
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31. ENVIROMENTAL POLICY (EMS)
(ISO 14001)
KAJARIA CERAMICS LIMITED, Sikandrabad, Distt. Bulandshahr (UP)
an ISO9001:2000 Company manufacturing Ceramic Glazed Floor & Wall Tiles,
resolve to achieve excellence and leadership in protection the environment.
We are committed to:
Continual reduction in pollution, consumption of energy, raw material and
conservation of other natural resources.
Prevent Air, Land, Water, Noise pollution and Solid waste
Comply relevant environmental legislation regulations and organizations
environmental standards.
Provide awareness and training to all our employees on relevant
Environmental Management issues. Its continual improvement and periodical
review of the same.
30

32. HEALTH & SAFETY POLICY (OHSAS)
(ISO 18001)
We believe that safe working methods lead to better business performance,
motivated work force and higher productivity.
We shall create a safety culture in organization by:
Continual improvement in Health and Safety Performance
Complying with all current applicable OH & S legislation and organizational
standards.
Empowering the relevant employees to ensure safety in their working area.
Promoting Safety & Health awareness among all employees, suppliers and
contractors.
Periodically reviewing the policy.
This policy shall be made available to the public.
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33. SOCIAL ACCOUNTABILITY POLICY (SA)
(SA 8000)
Committed to:
Conformance of national and international standards requirements w.r.t.
Social Responsibility and Accountability.
Improve its social performance continuously to ensure better quality of life.
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34. PRODUCT PROFILE OF KCL
PRODUCT SIZE INSTALLED CAPACITY
FLOOR TILES 300 x 300 MM 9700000 M2
(At Sikandrabad Unit) 395 x 395 MM
400 x 400 MM
WALL TILES 200 X 200 MM 8300000 M2
(At Gailpur Unit) 200 X 300 MM
250 X400 MM
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35. PRODUCT DEVELOPMENT
The Company has consistently pioneered and brought in the latest
international quality products in India. During the year the Company launched
30X40 cm and 30X45 cm in rectified wall tiles and 45X45 cm joint free floor tiles.
It opened seven Kajaria world show room in 2008-09. This has set a new trend and
has inspired interior designers/architects to recast their designs to provide a better
combination series to discerning customers. The Company has also added a series
of new products namely Oasis/Bermuda/Ranger/Smoke. Leo/Diana/Alfa/Cedar etc
which has been widely accepted by the customers in the market.
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36. MANUFACTURING PROCESS
Ceramic Floor Tile is mainly consists of two parts i.e. Body and Glaze.
Body is a mixture of triaxial body i.e. made of three different and distinguishable
Raw materials viz:
Hard materials like Quartz or Siliceous material.
Feldspar which acts as a flux on firing.
Different clays to give suitable properties required in green and fired stages.
All these materials are mixed in pre-determined quantitative proportions and
wet milled in Ball mill. The Body slip thus prepared is duly sieved and de-
magnetized and stored in under ground tanks and is converted into spray dried
granules in spray Drier.
Similarly, Glaze is prepared by mixing and wet milling of different
constituents like Frit, Feldspar powder, Quartz powder, China clay, Calcined
alumina, Zinc oxide and zirconium slicate in Ball mill depending upon the nature
of Glazes to be produced.
The spray dried granules are fed to the automatic hydraulic press to produce
tiles. These pressed tiles are bone dried in vertical drier by maintaining drier
temperature in the range 100-110 Deg.Cent. The dried tiles then sent to Glaze Line
35

37. through belt conveyor for Glaze application. Glazing is done in two coatings either
spraying by Disc or by campana depending upon the required surface followed by
screen printing and dry powder application as per design requirement.
The Glazed Tiles are automatically loaded in the box car and then transferred to
the track for roller hearth kiln feeding. At the kiln entry tiles are unloaded and fed
into the kiln in pre-determined firing cycle and temperature. The firing temperature
is in the range between 1130 to 1160 Deg.Cent. Depending upon the firing cycle.
At the kiln exit, the fired tiles are loaded in the box car and transferred to the
sorting section for selection. In Sorting Section, tiles are sorted as First, Second
and Utility depending upon the visible faults and packed in corrugated boxes and
sent to B.S.R. for dispatches.
Name of main Raw material:
 Clay‟s & Feldspar
 Glaze material such as Quartz, Alumina, China Clay & Ball Clay
 Frit
 Stains & Pigments
 Zirconium
36

38. RESEARCH AND DEVELOPMENT (R&D)
(1) Specified Areas in which (R&D) carried out by the Company:
Development of alternative basic Raw material / Glazes and its formulation
for cost reduction with standardization of method in preparation of Body /Glaze for
longer uniformity.
Research for further indigenizing pigments/frits for achieving lower firing
cycle and better quality/consistency with increase in the production of tiles.
Installation of Surface Glaze Application Machine and upgraded B&T Storage
Handling Machines at Kiln Feeding & Exit point.
37

39. (2) Benefits derived as a result of the above R & D
The Company is able to reduce the cost of raw material, fuel & spare cost.
Several new orders have been received by the Company due to this R&D in
the area of special purpose of laying wall & floor tiles.
The product has become more effective and preferable to all type of
consumers due to its products availability in wide range of floor & wall tiles.
(3) Future plan of action:
The Company has always been a leader in producing special effect Wall &
Floor Tiles that shares the advantage of existing market scenario.
Introduction of special effect of Wall & Floor tiles in larger sizes and
offering new look completely different from other manufacturers.
Up-gradation and obtain the technique for producing the extra ordinary tiles
which would be staining resistance and excellent quality.
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40. To improve Company‟s infrastructures and R&D team, so that all products
go through an exhaustive Quality Control by use of cheaper and reliable inputs
both Imported and Indigenous.
(4) Company is going to have the captive power co-generation plant
based on waste heat recoveries from Kiln & Spray Driers.
39

41. Expenditure on (R&D)
(Rs.in Million)
2009-2010 2008-2009
Capital -- --
Recurring 0.82 0.20
Total 0.82 0.20
Total R&D expenditure as a
Percentage Of total turnover. (%) 0.011 0.003
40

42. PERFORMANCE OF THE COMPANY
During the year, the company has registered a turnover of Rs.7667.54
Million as compared to Rs.6911.99 million in the previous year, showing a growth
of more than 11%. Despite cut in Natural Gas supply at Sikandrabad Plant and
substantial increase in fuel prices, the profit before interest, dep & tax has
increased from Rs.127.5 million to Rs.514.4 million showing an increase of 304%,
The profit for the year has been higher mainly on account of increased demand in
domestic market, effective cost control measures, better cash management and
reduction in the interest cost.
The performance of the Company for the past years (since beginning) has
been shown graphically.
41

43. TURNOVER CHART
(Rs. In Million)
'09-10 7667.54
'08-09 6911.99
'07-08 5289.07
'06-07 4368.03
'05-06 3517.92
'04-05 3003.96
'03-04 2491.8
'02-03 2102.4
'01-02 2278.4
00-01 2359.3
99-00 2450.8
YEAR
98-99 1939.4
97-98 1362.2
96-97 1302.1
95-96 1184.8
94-95 730.9
93-94 487.3
92-93 457
91-92 358.6
90-91 251.6
89-90 152.1
88-89 68.3
0 1000 2000 3000 4000 5000 6000 7000 8000 9000
88- 89- 90- 91- 92- 93- 94- 95- 96- 97- 98- 99- 00- '01- '02- '03- '04- '05- '06- '07- '08- '09-
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
(Rs. In Million) 68.3 152 252 359 457 487 731 1185 1302 13621939 2451 23592278 2102 24923004 3518 43685289 6912 7668
TURNOVER Rs. IN Million
42

44. NET PROFIT
(Rs. In Million)
'09-10 358.52
'08-09 89.01
'07-08 150.23
'06-07 76.73
'05-06 281.71
'04-05 254.88
'03-04 135.4
'02-03 99.3
'01-02 26.3
00-01 68.3
99-00 110.6
YEAR
98-99 67.5
97-98 148.3
96-97 201.9
95-96 210.2
94-95 129.5
93-94 86
92-93 53
91-92 40.4
90-91 25.6
89-90 7.4
88-89 0.1
0 50 100 150 200 250 300 350 400
88-89 89-90 90-91 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-00 00-01 '01-02 '02-03 '03-04 '04-05 '05-06 '06-07 '07-08 '08-09 '0 9-10
(Rs. In M illion) 0. 1 7.4 25. 6 40.4 53 86 129. 5 210.2 201. 9 148.3 67.5 110.6 68.3 26. 3 99. 3 135. 4 254. 88 281.71 76.73 150.23 89. 01 358. 52
NET PROFIT Rs. IN LAC
43

45. CAPACITY CHART
2010 238000
2009 170000
2008
2007
2006
2005
2004 150000
2003
2002
2001
2000
1999
YEAR
1998
1997 90000
1996
1995 80000
1994 60000
1993
1992 40000
1991
1990 26000
1989
1988 12000.000
0 50000 100000 150000 200000 250000
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M Tonne 1200 2600 4000 6000 8000 9000 2E+0 2E+0 2E+0
MT UPTO 1988 SQ,MTR FROM 2010
44

46. PRODUCTION CHART
GLPR
SKBD
2003 63208
54642
2002 76198
97910
2001 76417
90682
2000 74599
92817
1999 72409
81696
1998 2063
YEAR
91028
1997 84793
1996 80713
1995 56667
1994 40675
1993 40038
1992 32420
1991 25167
1990 15156
1989 8809
0 20000 40000 60000 80000 100000 120000
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
GLPR 2063 72409 74599 76417 76198 63208
SKBD 8809 15156 25167 32420 40038 40675 56667 80713 84793 91028 81696 92817 90682 97910 54642
MT UPTO 2002 & SQ.MTR FROM 2003
45

47. ORGANISATION CHART OF FINANCE DEPARTMENT
CHAIRMAN & MANAGING DIRECTOR
Mr. Ashok Kajaria
JT. MANAGING DIRECTOR
Mr. D.D.Rishi
V. P. (FIN. & A/C) & CO.SECY
Mr. R.C.Rawat
AGM (A/C)
MR. ANIL PARABHAKAR
SR. MGR. (A/Cs)
MR. ARUN LATH
Dpt. Manager (A/Cs)
MR. DEEPAK GUPTA
46

48. KAJARIA CERAMICS LTD
****** ANNUAL REPORT 2009-2010*****
47

49. BALANCE SHEET
BALANCE SHEET
AS ON 31 MARCH 2010
(Rs in Millions)
PARTICULARS SCHEDULES 2009-10 2008-09
SOURCES OF FUNDS :
Shareholder Funds:
Share Capital 1 147.17 147.17
Reserves & Surplus 2 1746.23 1473.51
1893.40 1620.68
Loan Funds
Secured Loans 3 2588.28 2926.67
Unsecured Loans 4 40.00 325.00
2628.28 3251.67
Differed Tax Liabilities 5 548.52 534.55
Total………………………………………………………………… 5070.20 5406.90
Application of Funds
Fixed Assets:
Gross Block 6 5435.46 5014.92
Less : Accumulated Depreciation 1987.57 1738.39
Net Block 3447.89 3276.53
Capital Work-in-progress 25.43 ---------
3473.32 3276.53
Investments 7 33.94 33.94
Current Assets, Loans & Advances
Inventory 8 1402.55 1384.57
Sundry Debtors 9 773.21 678.04
Cash and Bank Balance 10 44.91 78.87
Loans & Advances 11 755.76 826.82
(A) 2976.43 2968.30
Less : Current Liabilities & Provisions
Current Liabilities 12 1197.69 829.85
Provisions 13 215.80 42.02
(B) 1413.49 871.87
Net Current Assets (A-B) 1562.94 2096.43
Total Assets………………………………….. 5070.20 5406.90
48

50. PROFIT AND LOSS (Rupees in Crores)
PROFIT AND LOSS ACCOUNT
AS ON 31 MARCH 2010
(Rs in Millions)
PARTICULARS SCHEDULES 2009-10 2008-09
INCOME :
Sales (Gross) 7667.54 6911.99
Less: Excise Duty On sales 312.18 263.16
7355.36 6648.83
Other Income 14 8.24 9.96
Increase / decrease in stocks 15 2.75 -109.47
7366.35 6549.32
EXPENDITURE :
Material Manufacturing & Other Expenses 16 4811.17 4,485.61
Salaries, Wages and Amenities 17 612.84 504.87
Repairs and Maintenance 18 51.63 46.67
Administrative & Other Expenses 19 298.78 240.94
Selling & Distribution Expenses 20 435.21 311.97
Financial Charges 21 375.24 582.42
Depreciation 267.06 249.37
6851.93 6421.85
Profit Before Tax 514.42 127.47
Provisions for:
Income Tax 130.00 16.80
Fringe Benefit Tax --- 8.00
Deferred Tax 13.97 12.55
Income Tax/Wealth Tax Adjustment 11.93 1.13
Profit After Tax 358.52 88.99
Balance as per last year 819.03 728.51
Profit Available for Appropriation 1,177.55 817.50
Appropriation
Proposed Dividend on Equity Shares 73.58 14.72
Corporate Dividend Tax 12.22 2.50
Transfer to General Reserve 100.00 ----
Transfer from Debenture Redemption Reserve -2.40 -18.75
Surplus carried Over 994.15 819.52
1,177.55 817.50
Basic/Diluted Earnings per share (Rs.) 4.87 1.21
49

51. Significant Accounting Policies and Notes on Accounts 22
50

52. Introduction
Financial Analysis is the process of determining the operating & financial
characteristics of a firm from accounting data & financial statement. The goal of
such analysis is to determine efficiency & performance of the firm management, as
reflected in the financial records and reports. Its main aim is to measure the firm‟s
liquidity, profitability and other indications that business is conducted in a rational
and orderly way.
The basic financial statement
Of the various reports that the companies issue to their shareholder, the
annual report is by far the most important. Two types of information are given in
this report, first there is a text that describes the firms operating results during the
past year and discusses new development that will affect future operations. Second
there are few basic financial statements –the income statement, the balance sheet,
the statement of retained earnings and the sources and uses of funds statements.
The financial statement taken together give an accounting picture of the
firm‟s operation and financial positions.
51

53. “Financial statement analysis is largely a study of relationship among the
various financial factors in a business as disclosed by a single set of statements,
and a study of trends of these factors as shown in a series of statements”
--- John N. Myer
“The analysis and interpretation of financial statement are an attempt to
determine the significance and meaning of the financial statement data so that the
forecast may be made of the prospects for future earnings, ability to pay interest
and debt maturities (both current & long term) and profitability of a sound
dividend policy”
--- R.D. and S. % Mc Muller
Thus, analysis of financial statement means such a treatment of the
information contained in the financial statement as to afford a full diagnosis of the
profitability and financial position of the firm concerned.
52

54. Nature of financial statement
According to the American institute of certified public accountants
“……………… financial statement reflected a combination of recorded
facts, accounting conventions and personal judgments.
Objective of financial analysis
The number and types of people interested in financial statements have
changed radically over a period of time. They need varied information and
fortunately such information may be classified as relating to profitability, liquidity
and solvency.
The Project “ANALYSIS AND INTERPRETATION OF FINANCIAL
STATEMENTS” is undertaken to fulfill the following objectives.
To estimate the earning capacity
To gouge the financial position and financial performance of the firm
To determine the long terms liquidity of the funds as well as solvency
To determine the debt capacity of the firm
To decide about the future prospective of the firm
53

55. Types of Financial Analysis
Financial analysis may be classified into different categories dependency upon
 The material used
 The method of operation followed in the analysis
Graphical representation 
Financial Analysis
The material used the method of operation followed in the Analysis
Internal External Horizontal Vertical
Analysis Analysis Analysis Analysis
54

56. (a) According to material used
Internal analysis – this is performed by the corporate finance and
accounting
Department and is more detailed than external analysis. These departments
have available more details and current information that is available to outsiders.
They are able to prepare perform or future statements and are able to produce a
more accurate and analysis of the firm‟s strength and weakness.
External analysis – outsiders to the firm such as creditors, stock-holders or
investment analysis perform this. It makes use of existing financial statement and
involves a limited access to confidential information on a firm.
(b) According to modus operation of analysis
Horizontal analysis – this method of classified is based on the modus
operandi of analysis. Horizontal analysis refers to the comparison of the trend of
each item in the financial statement over a number of years or companies. The
figures of this type of analysis are presented horizontally over a number of
columns. Such a column represents a year of a company. This type of analysis is
also called „dynamic analysis‟ as it is based on data from year to year, rather than
on data of any one year
55

57. Vertical analysis – it is frequently used for referring to ratios developed for
one data or one accounting period. Vertical analysis is also called static analysis.
This is not very conductive to a proper analysis of the firm‟s financial position and
its interpretation as it does not enable to study data in respective. This can only be
provided by a study conducted over a number of years so that comparison can be
affected. Therefore, vertical analysis is not very useful.
56

58. Financial Ratio & Utility
A ratio may be defined as a fixed relationship in degree or number between
two numbers. In finance, ratios are used to point out relationship that is not
obvious from the row data. Some uses financial ratios are following 
(1) To Compare Different Companies in Some Industry: ratio can high
light the factors association with successful and unsuccessful firms. They can
reveal strong firms and weak firms, overvalued undervalued firms.
(2) To Compare Different Industries: Every industry has its own unique
set of operating and financial characteristics. These can be identified with the help
of ratios.
(3) To Compare Performance In The Different Time Periods: Over a
period of years, a firm or a industry develop certain forms that may indicate future
success or failure. If relationship changes in firms data over different time periods,
the ratio may provide clues and trends of future problems.
57

59. Utility of Financial Analysis
Following are the advantages of Financial Analysis
With the help of ratios we can determine the ability of the firms to meet its
current-obligation.
 Overall operating efficiency and performance of the firm.
 Efficiency with which firms is utilizing its various assets in generating
sales Revenue.
 Ratios help in inter-firm and intra-firm comparison.
 They help in determining the financial strength by highlighting the
liquidity.
 They are useful in comparison of performance.
 They are also useful in forecasting purpose.
58

60. 59

61. INTRODUCTION
The ever changing, external & internal environment in which the organization
operates to achieve its goal has often leaded to change in the financial structure of
the firm. This change may be in the assets structure, capital structure or any other
such type of the change have often been found out of bring changes in the liquidity
position, level of activity & profitability of organization.
To be aware of various positions parties concerned with the organization often
go for the various type of analysis one of them being financial analysis, that is
done to know about the present performance of the firm in which they are either
going to invest or do business, with. The responsibility of management to look
after the effective & efficient utilization of resources of the overall sound financial
situation of the organization, increase their requirement to have a detailed report on
probably each & every aspect of financial position which may be liquidity,
activity, profitability.
The presentation of an elaborate system of ratio analysis was made in 1909 by
Alexander wall, who criticized the bankers for its lopsided development owing to
their decisions regarding the grant of credit on current ratios alone.
60

62. Wall, one of the foremost proponents of ratio analysis, pointed out that, in
order to get a complete picture, it is necessary to consider relationship in financial
statement other than that of current assets to current liabilities – relationship that
might be measured quantitatively and used as checks on current ratio. Since then,
comprehensive analysis by means of calculation of a series rapidly became „all the
range‟.
Based upon their wide range of requirement the general trend is of going for
the financial ratio analysis, which is also considered to be the most effective one
capable of giving detailed & accurate information, more detailed & accurate than
any other type of financial analysis.
Financial ratio analysis is an arithmetic relationship between two figures.
Financial ratio analysis is a study of ratio between various items of groups of
items in financial statement. It also based upon various financial ratios, which are
calculated from the data provided in company‟s balance sheet & profit and loss
account.
As per I.M. Pandey “Financial ratio in the relationship between two
accounting figures, expressed mathematically “.
In addition to the analysis based on current year financial ratio comparison
with previous year help us in establishing various methods. Which are further
helpful in predicting the future of the concern as well as present financial situation?
61

63. This report is submitted as a part of brief study of financial condition of
“KCL”. This report has been prepared for the management purpose to make them
aware of the unit in the various fields of finance.
Detailed analysis is also a part of this report, which is based upon various
ratios calculated & various trends seen. Each & every ratio has been analyzed
briefly & adequately followed by various inferences & suffusions based on this
analysis, which is beneficial for the Top-level Management in the better financial
control & planning for future.
This report is just a part of feedback to the Top-level Management for the
various plans they made regarding allocation of financial resources etc, which were
implemented, in the current financial year.
This report can give a deep insight into various matters if any implementation
of the plans for achieving the objective of the firms.
Various other factors are there which limit the accuracy & correctness of the
report. Even then a great effort has been kind of analysis & interpretation on
personal level.
62

64. NATURE
Ratio analysis is a powerful tools a financial analysis. In financial analysis, a ratio
is used as a benchmark.
For evaluating the financial position & performance of the firm. The relationship
between two accounting figures, expressed mathematically, is known as a financial
ratio. Ratio helps to summarized large quantity of financial data & to make
qualitative judgment about the firm‟s financial performance.
This relationship is an index or yardstick, which permits qualitative judgments to
be, formed about the firm‟s ability to, meets its current obligations.
It measured the firm‟s liquidity. The greater the ratio, the greater the firm‟s
liquidity & vice-versa. The point to be note is that a ratio reflecting a quantitative
relationship helps to form qualitative judgments. Such is the nature of all financial
ratios.
63

65. USES OF FINANCIAL ANALYSIS FOR DIFFERENT PARTIES
The analysis and interpretation of financial is an important accounting
activity. The end users of business statement are interested in these statements
primarily as an aid to determine the financial position and the results of the
operations. There are different parties interested in the financial analysis of their
statement and their aims and to different parties:
To the financial executives : The first party interested in the financial statements
analysis is the finance department of the business concern itself to the financial
managers such analysis provides a deep insight into the financial condition of the
enterprises and the view of the past performance which helps in future decision
making. The financial statements give vital information concerning the position of
the enterprise as well the result of the operations.
To the top management: The top management of the concern is also increase in
the analysis of these statements because it helps them reaching conclusions
regarding:
Performance appraisal of overall business activities.
Enquire about current financial position and long-term strategic planning.
Queries concerning the relationship of earning to trends in sales etc.
Queries concerning the relationship of earning to investment.
64

66. To the creditors: The analysis of these statements is very essential to the
creditors. Also some aspect of enterprises operations are of interested to creditors
in regard to liquidity of funds, soundness of financial structure, profitability of the
operations, effectiveness of working capital management etc.
To the investors and others: Investors presents as well as prospects are also
interested in the measurement of earning capacity of the securities. Investors have
been increasingly concerned with the cash generation capability of an enterprise,
primarily in term of the flexibility available to such enterprise to acquire other
business and new assets on an advantage basis for Thai purpose.
65

67. ADVANTAGES OF RATIOS
The ratio analysis is one of the most powerful tools of financial analysis. It is use
as a device to analysis and interprets the financial health of enterprise. Just like a
doctor examines his conclusion regarding the illness and before giving his
treatment, a financial analyst analyses the financial statement with various tools of
analysis before commenting upon the financial bearlth or weakness of an
enterprise. „A ratio is known as a symptom like blood pressure, the pulse rate or
the temperature of the individual‟. It is with help of ratios that the financial
statements can be analyzed and decision made from such analysis.
HELPS IN DIVISION MAKING: Financial statements are prepared primarily
for decision making, but the information provided in financial statements is not an
end in itself and no meaningful conclusions can be drawn from these statements
alone. Ratio analysis helps in making decisions from the information provided in
these financial statements.
HELPS IN FINANCIAL FORCASTING AND PLANNING: Ratios analysis is
of much help in financial forecasting and planning. Planning is looking ahead and
the ratios calculated for a number of year‟s work as a guide for the future.
Meaningful conclusions can be drawn for future from these ratios. Thus, ratio
analysis helps in forecasting and planning.
66

68. HELPS IN COMMUNICATING: The financial strength and weakness of a firm
are communicated in a more easy and understandable manner by the use of ratios
the information contained in a financial statements conveyed in a meaningful
manner to the one for the whom it is meant. Thus, ratios help in communicating
and enhance the value of financial statements.
HELPS IN COORDINATION: Ratios even helps in coordinating, which is
utmost important in effective business management. Better communication of
efficiency and weakness of an enterprise results in better coordination in the
enterprise.
HELPS IN CONTROL: Ratio analysis even helps in making effective control of
the business. Standard ratios can be based upon Performa Financial Statements
and variance or deviations, if any, can be founded by comparing the actual with the
standards so as to take corrective action at the right time. The weakness or
otherwise, if any, come to the knowledge of the management which helps in
effective control of the business.
67

69. ROLE OF FINANCIAL RATIO
Aid in financial forecasting: Ratio analysis is very helpful in financial
forecasting. Ratio relating to the past sales, profits & financial position from the
basis for setting future trends.
Aid in comparison: With the help of ratio analysis ideal ratio can be composed &
they can be used for comparing a firm progress & performance. Inter firm
comparison with the industry averages is made possible by ratio analysis.
Financial solvency of the firm: Ratio analysis indicates the trend in financial
solvency of the firm. Solvency has to dimensions:
Long-term Solvency
Short-term Solvency
Long term solvency refers to the financial viability of the firm while Short-term
solvency is the liquidity position of the firm.
Communication values: Different financial ratios communicate the strength &
financial standing of the firm to the internal & the external parties. They indicate
overall profitability of the firm
Other uses: Financial ratios are very helpful in the diagnosis & financial health of
a firm. They highlight the liquidity, solvency, profitability & capital gearing etc.
of the firm. They are useful tools of analysis of financial performances.
68

70. OBJECTIVE OF THE STUDY
An analysis of financial statements with the help of „ratio‟ may be termed as
“Ratio Analysis”. It implies the process of computing determining & presenting
the relationship of the terms or group of items of the financial statements. It also
involves the comparison & interpretation of these ratios & use of them for future
projections.
And the fund flow arises when the net effect of the transaction is to increase or
decrease the amount of working capital. Normally, a firm will have some
transactions that will change net working capital & some that will cause no change
in net working capital include most of items of profit & loss account and those
business events, which simultaneously effect both current & non-current balance
sheet items.
CLASSIFICATION OF RATIOS
Ratio may be classified in a number of ways to suit any particular purpose.
Different kinds of ratio statement are selected for different types of situations.
Mostly, the purpose for which the ratios are used and the kind of the data available
determine the nature of analysis. In general, the following basis of classification is
in vogue.
69

71. (a) Traditional classification or classification according to the statements
from which ratios are derived:
A basis of classification of ratios which readily suggests itself is according to the
statement to which the determinants of a ratio belong. From this angle, ratios are
classified as thus:
(1) Balance Sheet Ratios: these ratios are also called financial ratios. They
deal with the relationship between two items, or group of item, which are
together in the balance sheet, example current ratio, liquid ratio, proprietary
ratio, fixed assets ratio, capital gearing ratio, and debt equity ratio.
(2) Profit & Loss Account Ratios: these ratios are also called operating ratios.
The items used for the calculation of these ratios are usually taken out from the
profit and loss statement. Example operating ratio, expensive ratio, net profit
ratio, gross profit ratio, stock turnover ratio.
(3) Inter-statement ratios or combined ratios: the information required for
the compilation of these ratios is normally drawn from both the balance sheet, and
profit & loss account. Example Return on capital employed, return on
proprietors‟ funds or share holders‟ investment, and return on total investment,
debtors Turnover ratio, creditor‟s turnover ratio, fixed assets turnover ratio,
working capital turnover ratio.
70

72. (b) Classification according to tests satisfied or functional classification:-
Robert N. Anthony suggested that ratios may be grouped the basis of certain tests
which satisfy needs of the parties having financial interest inventory the business
concern. These tests are:
Test of liquidity
Test of profitability
Market tests
(c) Classification from the point of view of financial management or
classification according to nature:
This standard of classification envisages the organization of accounting ratios into
four fundamental types which are as follows;
(1) LIQUIDITY RATIOS
Liquidity refers to the ability of the firm to meet its obligations inventory the short-
run, usually one year. Liquidity ratios are generally based on the relationship
between current assets and current liabilities (the sources for meeting short-term
obligations). Example: Current ratio, Acid test ratio.
71

73. (2) LEVERAGE RATIOS
Capital structure ratio
Earnings ratio
Dividend ratio
Financial leverage refers to the use of debt finance. While debt capital is analysis
cheaper source of finance, it is analysis riskier source of finance. Leverage ratios
helps inventory assessing the risk arising from the use of debt capital. They are
also known as capital structure ratios. Example: Debt-to-equity ratio, fixed assets
to net work, interest coverage ratio.
(3) ACTIVITY RATIOS
They are also called turnover ratios or asset management ratios. They measures
how efficiently the assets are employed by the firm. These ratios are based on the
relationship between the level of activity and the level of various assets. Example:
Fixed assets turnover, Stock turnover, Debtors turnover, Creditors turnover, Total
assets turnover ratio.
These ratios would also indicate the profitability position of the business.
72

74. (4) PROFITABILITY RATIOS
Profitability reflects the final result of business operations. There are two
types of profitability ratio.
Profit margin ratios
Rate of return ratios
A profit margin ratio shows the relationships between profit and sales. Rates of
return reflect the relationship between profit and investment.
(d) Classification According To Importance:
Some ratios when related to the main objective of the business purpose of analysis
may be more important than others. This basis classification has been
recommended by the British Institute of Management for inter-firm computations
and the following types have been suggested by the institute:
(i) Primary Ratios:
The primary motive of any commercial under taking is profit and therefore,
ratios like profit-to-sales, return on capital employed may be termed as primary
ratios to such an undertaking.
73

75. (2) Secondary Ratios:
These ratios are mainly used to explain the primary ratios. They are also
known as subsidiary or supporting ratios. Taking the ratio of return on capital
employed as the primary ratio, the following ratios may be grouped as secondary
ratios:
(a) Profit and Earning ratios
(b) Cost or expenses ratios
(c) Turnover ratios
(d) Capital and related ratios
74

76. SHORT-TERM SOLVENCY OR LIQUIDITY RATIOS
Liquidity ratios play analysis key role in the analysis of the short-term financial
position of analysis business. Commercial banks and other short-term creditors are
generally interested in such an analysis. However, managements can employ these
ratios to ascertain how efficiently they utilize the working capital in the business.
Shareholders and debenture-holder and long-term creditors can use these ratios to
assets the prospects of dividend and interest payments. This type of ratios
normally indicates the ability of the business to meet the maturing or current debts,
the efficiency of the management inventory utilizing the working capital and the
progress attained inventory the current financial position.
Description of Principal Ratios:-
1. Current Ratio
Current ratio may be defined as the ratio of current assets to current liabilities. It is
also known as working capital ratio or 2 to 1 ratio. Current ratio shows the
relationship between total current assets and total current liabilities.
75

77. Components
Current assets normally include cash in hand or at bank, marketable securities
other short-term high quality investment bills receivable, prepaid expenses, work-
in-progress, sundry debtors and inventories. While current liabilities are composed
of sundry creditors, bills payable, outstanding and accrued expenses, income tax
payable.
Expressed as a formula, the current ratio is as follows:
Current Assets
Current Ratio = -----------------------
Current Liabilities
2009-10
2976.43
Current Ratio = ------------ = 2.11:1
1413.49
2008-09
2968.30
Current Ratio = --------------- = 3.40:1
871.87
76

78. Explanation:
Coming to KCL the current ratio is 2009 has decreasing in comparison year 2008.
The ratio of 2009 shows that the assets are 2.11 times of current liabilities. Current
Assets should be one and half of current liabilities. According to KCL report is
improving. A low current ratio indicates that the enterprise is short of funds for
honoring its commitment and this was lead to insolvency. On the other hand a
very high current ratio indicates that the firm has a very large amount of current
assets Many times higher than that of current liabilities.
This is a situation of high liquidity and is indicative the existence of excessive
current assets.
2. Acid Test Ratio or Liquid Ratio
Acid test Ratio or Liquid ratio, as it is sometimes called is concerned with the
relationship between liquid assets and liquid liabilities to supplement the
information given by the current ratio. In many lines of business a concern whose
current assets consist largely of inventory can very early become technically, if not
actually; insolvent within analysis very short period of time and this is the rationale
of the term „Acid-Test Ratio‟
77

79. Components:
Liquid Assets = Current Assets – Inventory.
Generally, this ratio is considered to be good if it is 1:1. It shows the relationship
of quick cash-yielding assets to current liabilities.
Expressed as a formula, the liquid ratio is as follows:
Quick Assets
Liquid Ratio = -----------------------
Current Liabilities
2009-10
1573.88
Liquid Ratio = --------------- = 1.11:1
1413.49
The quick ratio is increasing over the period 2008 to 2009. With the help of quick
ratio we analysis the inventory level. The quick ratio analysis gives better picture
than the current ratio towards the payment of current liabilities. It is used to test
the short-term liquidity of the firm in its correct form and represent good position.
78

80. LONG-TERM SOLVENCY ANALYSIS
Bankers and other short-term creditors are most interested in the current debt-
paying ability of business, so the share holders and debenture holders are mainly
concerned with the long-term financial prospects. However, neither group may
logically ignore the financial aspects of primary interest to the other so that both
these groups concern themselves with current and prospective earnings. Some
selected solvency ratios are discussed below:
(a) Debt-Equity-Ratio
Debt-to-equity ratio relates all external liabilities to owners recorded claims. It is
also known as „External-Internal Equity Ratio‟. It is determined to measure the
firm‟s obligations to creditors in relation to the funds invested by the owners.
Components: The term external equities refers to total outside liabilities and
internal equities includes all claims of preference share holders and equity share
holders such as share capital and reserves and surplus. Outside liabilities include
all debts, whether long-term or short-term or in the form of mortgages, bills or
debentures. But when used as analysis long-term financial ratio, only term debts
like debentures etc are to be considered.
79

81. In generally, Debt-to-equity ratio 2:1 is acceptable.
2009-10
Debt 2628.28
Debt-Equity-Ratio = --------- = --------------- = 1.39:1
Equity 1893.40
The ratio indicates the degree of protection provided to the lenders. The lower the
ratio the higher will be the degree of protection. As a general rule, this should not
exceed 2:1. If the debt equity ratio is more than that is shows a rather risky
financial position from the long-term point of view. This ratio shows favorable
condition of KCL.
(b) Proprietary Ratio
This is a variant of the debt-equity ratio. This ratio relates the share holders‟ funds
to total assets. It is calculated by dividing the share holder‟s funds by the total
tangible assets. This ratio indicates the long-term or future solvency position of
the business. It is also known as Equity to total assets ratio or Net Worth to total
Assets ratio.
80

82. This ratio throws light on the general financial strength of the company.
Higher the ratio, the better it is for all concerned.
2009-10
Proprietary or Shareholder‟ Funds
Proprietary Ratio = ------------------------------------------------
Total Assets or Total Equities
1893.40
Proprietary ratio = ------------------------- = 0.37
5070.20
This ratio indicates the long term or future solvency position of the business.
Analysis high ratio shows that there is safety for creditors of all types. A ratio
below 50% may be alarming for the creditors since they may have to lose heavily
in the event of company‟s liquidation on account of heavy losses.
(c) Ratio of Fixed Assets to Proprietors‟ funds:
This ratio establishes the relationship between fixed assets and shareholders‟ funds.
The purpose of this ratio is to indicate the percentage of the owners‟ funds invested
in fixed assets.
81

83. Fixed Assets (after depreciation)
Fixed Assets to Proprietors‟ Fund = ------------------------------------------
Proprietors‟ funds
3447.89
Fixed Assets to proprietor‟s fund = -------------- = 1.82 or 182%
1893.40
D. Ratio of Current Assets to Proprietors‟ Funds
This ratio establishes the relationship between current assets and share holders‟
funds. The purpose of this ratio is to indicate the percentage of share holders‟
funds invested in current assets.
Current Assets
Current Assets to Proprietors‟ funds Ratio = ----------------------
Proprietors Funds
2009-10
2976.43
Current Assets to Proprietors‟ funds Ratio = ------------- = 1.57 or 157%
1893.40
82

84. Solvency Ratio
The difference between proprietary ratio as % and 100 percents the ratio is
solvency ratio. This ratio indicates the relationship between total liabilities & total
assets of the business. So it is also known as „Ratio of total liabilities to total
assets.‟
2009-10
Total Liabilities
Solvency Ratio = -----------------------
Total Assets
4041.77
Solvency Ratio = ----------------------- = 0.63 or 63%
6449.75
(f) Fixed Assets Ratio or Ratio of Capital and Long-Term Funds to Fixed
Assets: The ratio of long-term loans to fixed assets is important and another
aspect of long-term financial policy.
83

85. Components: Fixed assets will mean cost less depreciation or net fixed assets. It
will also include trade investments. Long-term funds will mean equity share
capital, preference share capital, reserves, debentures and long term loans.
2009-10
Fixed Assets Ratio = Share holders‟ Funds + Long term loans /
Net Fixed Assets
5070.20
Fixed Assets Ratio = --------------- = 1.45
3507.26
It is also known as „Capital Employed to Fixed Assets Ratio.‟
2009-10
Net Fixed Assets
Fixed Assets Ratio = -----------------------
Capital Employed
3447.89
Fixed Assets Ratio = ------------------ = 0.76
4521.68
84

86. This ratio gives an idea as to what part of the capital employed has been used in
purchasing the fixed assets for the concern. If the ratio is less than 1 it is good for
the concern.
G. Debt Service Ratio
This ratio relates the fixed interest charges to the income earned by the business. It
is also known as „Interest Coverage Ratio‟. It indicates whether the business has
earned sufficient profits to pay periodically the interest charges.
2009-10
Net Profit before Interest and Tax
Debt Service Ratio = ------------------------------------------------
Fixed Interest Charges
889.66
Debt Service Ratio = -------------------------- = 2.37
375.24
In 2009, debt service ratio is higher than 2008 & 2007.
85

87. B. TEST OF PROFITABILITY
The main object of analysis business concern is to earn profit. In general terms,
efficiency in business is measured by profitability. Profit as compared to the
capital employed indicates profitability of the concern. If analysis concern goes on
losing, its financial condition will definitely be bad sooner or later. Profits enable
analysis firm to improve its financial strength; there, ratios based on profitability
are termed “casual” ratios, indicating the causes of the present or expected
financial position. These ratios are designed to highlight overall efficiency of
analysis business concern. Thus, analysis measures of profitability are the overall
measure of efficiency.
(1) Gross Profit Ratio
This ratio shows the relationship of sales with the direct costs such as purchases,
manufacturing cost etc and thus is important.
2009-10
Gross Profit
Gross Profit Ratio = ------------------- * 100
Net Sales
2555.18
Gross Profit Ratio = ---------------- * 100 = 34.74%
7355.36
86

88. Any fluctuation in this gross profit is the result of a change either in „sales‟ or the
„cost of goods sold‟ or both. Thus, this ratio shows the average margin on goods
sold.
The gross profit is what is revealed by the trading account. It results from the
difference between not sales and cost of goods sold without taking into account
expenses generally charged to the profit and loss account.
Operating Ratio: - This ratio establishes the relationship between operating profit
and sales and is calculated as follows:
2009-10
Operating Profit
Operating Profit Ratio = ----------------------- * 100
Net Sales
1156.72
Operating Profit ratio = -------------- * 100 = 15.73%
7355.36
Where
Operating Profit = Net Profit + Non-Operating Expenses – Non Operating Income
OR
Gross Profit – Operating expenses
87

89. Operating ratio as follows:
Operating profit Ratio = 100 – Operating Ratio
Operating Profit margin is greater than 2008 and 2007. This ratio indicates the
portion remaining out of every rupee worth of sales after all operating costs and
expenses, have been met. Higher the ratio better it is.
(3) Expenses Ratio: Expenses ratios are calculated to ascertain the relationship
that exists between operating expenses and volume of sales. These ratios are
calculated by dividing the sales into each individual operating expense. It indicates
the portion of sales which is consumed by the various operating expenses. Thus,
such an analysis will throw good light on the levels of efficiency prevailing in
different aspects of the work. It is useful to work out the following ratios which
will total up to the operating ratios:
Ratio of Materials used to sales:
Direct Material cost / Net Sales x 100
Ratio of Labor to sales:
Direct Labor cost / Net Sales x 100
Ratio of Factory expenses to sales:
Factory expenses / Net sales x 100
88

90. Ratio of Office and Administration exp to sales:
Administrative Exp. Ratio = Office & Admin. Expenses / Net sales x 100
Selling Expenses Ratio = selling & distribution exp / Net sales x 100
Cost of Goods Sold Ratio = Cost of Goods Sold / Net Sales x 100
Generally all these ratios are expressed in terms of percentage
2009-10
Operating Exp.
Operating Expenses Ratio = ----------------------- * 100
Net Sales
1665.52
Operating Expenses Ratio = ---------------- * 100 = 22.64%
7355.36
(4) Net Profit Ratio:
We all know that gross profit is not the final profit- it is the net profit which is
really significant. Therefore, a ratio of net profit to sales (also called net margin) is
worked out; but in this case the profit considered is profit before interest. This is
the ratio of net income or profit after takes to net sales. Net Profit, as used here, is
the balance of profit and loss account which is arrived at after considered all non-
operating income such as interest an investment, dividend received etc… and non-
operating expenses like loss on sale of investments, provision for contingent
liabilities, etc
89

91. 2009-2010
Net Profit after tax
Net Profit Ratio = ------------------------- * 100
Net Sales
358.52
Net Profit Ratio = ---------------- * 100 = 4.68%
7667.54
Net profit ratio is the profit after all expenses and income tax and is available to the
owners. So this ratio indicates that forever hundred rupees of sales, Rs. 4.68 are
earned for the owners. This ratio is profitable for the company because it is
increasing time to time.
(2) OVERALL PROFITABILITY RATIO:
(i) Return On Capital Employed:
The prime objective of making investment in any business is to obtain satisfactory
return on capital invested. Hence, the return on capital employed is used as a
measure of success of a business in realizing this objective, otherwise known as
return on investment this is the overall profitability ratio. It indicates the
percentage of return on the capital employed in the business and it can be used to
show the efficiency of the business as a whole.
90

92. 2009-2010
Operating Profit
Return on Capital Employed = ----------------------- x 100
Capital Employed
878.67
Return on Capital Employed = --------------- * 100 = 19.43%
4521.68
This ratio is increasing in comparison of last year which the favorable position of
the Company and this ratio is helpful for making capital budgeting decisions.
This is due to improved efficiencies, high level of order for the purchase of
company‟s product and rise in prices of company‟s product and order from abroad
with good margin of profit.
91

93. (ii) Return on Shareholders‟ Fund
It is the ratio of net profit to shareholders‟ investment. It is also called „Return on
Proprietors‟ Funds‟, or Capital Employed. This ratio establishes the profitability
from the shareholders‟ point of view.
2009-10
Net Profit after Interest & Tax
Return on Shares holder‟s Fund = ---------------------------------- * 100
Shareholders‟ Funds
358.52
Return on Share holders Fund = ------------------ * 100 = 18.94%
1893.40
This ratio is almost half in comparison of last year. The ratio of net profit to share
holders fund shows the decrease to which profitability objective is being loose.
Higher the ratio, the better it is.
92