Arjun Finale 2

8/8/2019 Arjun Finale 2

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INTRODUCTION TO FERTILIZER INDUSTRIES

Before introducing organization KRIBHCO (a Fertilizer producing unit). I feel necessary to give an overview of

the Indian Fertilizer Industries.

“INDIA LIVES IN VILLAGE” said Mahatma Gandhi decades ago. It is true even today. Like every developing

economy. The economy of India is also agro-based. More than two-third of its population depends on agriculture as a

mean of livelihood and nearly 30% of its national income is derived from the agriculture sector. The prosperity of theindustrial sector is also closely linked with agriculture’s large proportion of agriculture product is also exported.

Therefore, agriculture base of the country must be strengthened, if accelerated, economic growth is to be achieved.

To attain this objective, agriculture practices have to be improved from their traditional pattern to a higher

technological lane involving better irrigation and use of better and use of better quality seeds, fertilizers, insecticides &

pesticides. Therefore, chemical fertilizers are king-pin in this process and fertilizer industries plays quite a major role

in increasing food production in the country and also helps to modernize the out look of the common farmers and

make them innovative and respective to the new technology and changing and situations.

“A fertilizer is any material, organic, inorganic, natural or systematic, that is placed on or incorporated into thesoil to supply plants with one or more of the chemicals elements necessary for normal growth.

Fertilizer is the material, which supplies the chemicals elements required for plant growth. Primary nutrients

like nitrogen, phosphates and potassium (required for fertilizer land) are supplied through chemical fertilizer. Fertilizer

response studies have proved that one-kg. of Fertilizer nutrient application can the food grain production by 8-10 kg.

Fertilizer production is of permanent importance for this country because Fertilizer increases agriculture

productivity. One hand population increasing but on the other hand the supply of land is totally inelastic i.e. fixed. So

we have to produce more, without any increase in arable land area. This can be done if productivity goes up. And

Fertilizer plays a major role in productivity escalation.

On one hand population has been increasing but on the other hand the supply of land is totally inelastic i.e.

fixed. So we have to produce more, without any increase in cultivatable land area. This can only be done if

productivity goes up. And fertilizer plays a major role in productivity escalation.

As this is a vital commodity it is in the interest of nation that farmers get fertilizers at reasonable rate and in

adequate quantity. Looking to the poor economic condition of Indian farmers Government of India framed fertilizer

policy in 1977 based on Marathe Committee Report. The purpose behind introducing this policy was to supply

fertilizer to resource poor farmers at a price they could afford, so as to increase the consumption of fertilizer, to

increase food production, and ensure fair return to fertilizer producers.

With this twin objective, Retention Price Scheme (RPS) for fertilizers came into picture. In this scheme

Government has brought the fertilizer under the purview of Essential Commodities Act (ECA) in which the retail price

of fertilizer to the farmer is notified by the Government of India from time to time. This retail price to the farmer is

uniform throughout the country and is subject to local taxes applicable under the respective states.

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Further under ECA, the Government also operates a system of distribution control in which the manufacturers

including the handling agents for the imported fertilizers are directed to sell specified quantities of fertilizers in given

states/union territories. While doing so, the logistics of fertilizer distribution including storage, transportation, handling

etc. are also suitably regulated conforming to overall supply plans of the Government to meet the requirement in all

the parts of the country.

Now manufacturers also should get reasonable rate of return as an incentive for producing fertilizers.

Manufacturers should get at least that much, which can enable them to remain in the industry.

Government of India fixes the price of fertilizers in such a way that manufacturer’s cost of production including

cost of marketing is covered and the manufacturer gets a 12% post tax return on net worth of the unit at pre-defined

capacity utilization. Norms are fixed for consumption of raw material, utilities, services, capacity utilization,

depreciation etc. The price so fixed is called Retention Price (RP). This price is reviewed every three years.

In a nutshell fertilizers can not be sold in open markets and producing unit has almost nil say in fixing

fertilizer price. Then how to increase profits? By operating plants efficiently.

The work of administering the Retention Price Scheme (RPS) is entrusted to Fertilizer Industry Co-ordination

Committee (FICC) which works under the control of Department of Chemicals and Fertilizers.

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FERTILIZER INDUSTRY SCENARIO IN INDIA

In India, first of all in 1906, a single super phosphate (SSP) manufacturing unit was set up

at RANIPAT near CHANNI (MADRAS) with annual capacity of 6400tones per annum.

1. PUBLIC SECTOR

• The Fertilizer And Chemicals Travancore Ltd. (FACT)• Hindustan Fertilizer Corporation Ltd. (HFC)• Madras Fertilizer Ltd. (MFL)• Hindustan Copper Ltd. (HCL)• Naively Lignite Corporation Ltd. (NLC)• Pyrites, Phosphates And Chemicals Ltd. (PPCL)

• Pradeep Phosphates Ltd. (PPL)• Rashtriya Chemicals And Fertilizers Ltd. (RCFL)• National Fertilizer Ltd. (NFL)

2. CO-OPERATIVE SECTOR

Those are only two fertilizer manufacturing societies in co-operative sector

• Indian Farmers Fertilizers Co-Operative Ltd. (IFFCO)• Krishak Bharti Co-Operative Ltd. (KRIBHCO)

3. PRIVATE SECTOR

There Are 17 Companies in Privates Sector, Which Are Producing Fertilizer

1. Gujarat Narmada Valley Fertilizer Co. Ltd. (GNFC)

2. Hindustan Lever Ltd.(HLL)

3. Hari Fertilizer

4. ICI India Ltd.

5. Indo Gulf Fertilizers & Chemicals Corporation Ltd.

6. Mangalore Chemicals & Fertilizer Ltd. (MCFL)

7. Southern Petro Chemicals Industries Corporations Ltd.

8. Nagarjuna Fertilizer & Chemical Ltd. (NFCL)

9. Shri Ram Fertilizer & Chemicals

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10. Tuticorian Alkali Chemicals & Fertilizer Ltd. (Continued…)

11. Zuari Agro Chemicals Ltd.

12. Bindali Agro Chemicals Ltd.

13. Chambal Fertilizer & Chemicals Ltd.

14. Coromandal Fertilizer Ltd. (CFL)

15. Deepak Fertilizer & Petrochemicals Corporations Ltd. (DEPCL)

16. E.D.I. Passy (India) Ltd.17. Gujarat State Fertilizer Company (GSFC)

The Role of the FERTILIZER in the National Economy

AGRICULTURE INDUSTRY SERVICES ENVIRONMENT

As critical input in crop

production

Fertilizer use promotes. It

promoters agriculture

growth food security & rural

Fertilizer industry

promotes

Use of gas, sulfur etc.

Foreign Exchange saving

Distribution network

promotes domestic world

trade; credit Banking,

services, and research,

transport and storage

services.

The proper use of Fertilizer’s

can help in

1-maintainance of soil

structure

2-prevention of soil erosion

and degradation.

3-control of deforestation

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Krishak Bharati Cooperative Limited

( KRIBHCO )

“KRIBHCO” the world’s premier fertilizer producing co-operative has an outstanding track

record to its credit in all spheres of its act ivies. Since 17 th April 1980 as a rational level Co-operative society

to manufacturing and distribute. Chemical fertilizer and allied farm imputes “KRIBHCO” imbibed the co-

operative philosophy fulfilling its commitment to strengthening and promoting the cause of agriculture

development and co-operative movements in the country.

Krishak Bharti co-operative limited popularly known as “KRIBHCO” has been registered as

national level co-operative society under the provision of the multi-state co-operative societies act, 1984.

The ”KRIBHCO” hazira unit is located around 15 kms, west of Surat and lies on the north of

river Tapti. An all weather road from Surat to hazira connects the plant site with the city. The cannel belonging

to irrigation department is running on the plant site and is feeding water from ukai. A railway feeder line

apporx.. 55 kms. Long has connected the site with Bombay –Ahmedabad main line.

Besides marketing its products “KRIBHCO” carries out various other programmed like farmers

benefit programmed, sanket Haran bima yojana, marketing of BVFCL (Brahmputra valley fertilizer

corporation limited) vred seed multiplication programmer, gramin vikas trust (rural development trust)

MEMBERSHIP: -

A cooperative thrives on the trust of, its members. Membership of “KRIBHCO” is open to government

of India, national state and district and village level cooperative society. At the initial stage, way back in

June, 1981 the total membership in ”KRIBHCO” was only 221 cooperative societies which rose

significantly to 6044 cooperative societies as on march 31,2005 as against 5790 as on march 31 2004.

Phenomenal progress made by the society becomes a testimony to the ever-increasing membership over

the years.

The total paid up share capital as on March 31, 2005 was rs.39, 354.15 lakh as against rs.49,

170.72lakh in the previous year. During the current financial year, the society has refunded share capital5



of rs.9700 lakh to “IFFCO” and government of India respectively .the state –wise membership with share

capital contribution as on March 31, 2005 vis-à-vis march 31 2004.

MAJOR MILESTONES FOR HAZIRA PLANT

PIB Clearance for the Project 17.04.1980

Land acquisition 07.07.1980

Project Zero Date 31.03.1981Foundation Stone laying by Late PM Smt. Indira Gandhi 05.02.1982

Project Completed 31.05.1985Plant Completed 26.11.1985

Mech. Completion of Plants:

a . 1st Phase of Ammonia & two streams of Urea plants

b . 2 nd Phase of Ammonia & two streams of Urea plants

30.04.1984

31.08.1984

Receipt of gas for - Phase-1

- Phase-2

18.09.1985

06.11.1985Commencement of Trial production - Ammonia

- Urea

14.11.1985

26.11.1985Start of Commercial Production Ammonia & Urea 01.03.1986

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PERFORMANCE HIGHLIGHTS :-

Highest monthly urea Production Dec.2007

Earlier Record (Jan.2005)1.662 Lack MT

1.661 Lack MT

Highest Avg. Daily Urea Prod. In Feb.2008

Earlier Record (2004)5374 MT

5363 MT

Highest monthly Urea Sales March.2008

Earlier Records (Dec.2007)4.75 Lack MT

4.36 Lack MTHighest Total Annual Urea Sale

Earlier Record (2006-07)

36.26 Lack MT

34.63 Lack MT

Highest annual Bio Fertilizer Production

Earlier Record(2005-06)953 MT

775 MTHighest Annual Bio-Fertilizer Sales

Earlier Record (2006-07)

957 MT

784 MTHighest Annual Seed Production

Earlier Record(2005-06)

1.68 Lack Quintals

1.60 Lack QuintalsHighest Annual Seed Sales

Earlier Record(2005-06)

1.67 Lack Quintals

1.53 Lack Quintals

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Theoretical Aspect

FINANCIAL STATEMENT ANALYSIS

Nature and Component of Financial Statement :-

Companies issue annual report after the close of each fiscal year Financial Statements are at thecentre of the annual report. Other components of the annual report are the board of directors’ report,

management discussion and analysis (MDA), corporate governance report and voluntary disclosures.

Board of directors’ report provides an analysis of the performance of the company during the fiscal

year covered in the report. MDA provides futuristic information such as management’s perception

about the business environment (including competition) in the next and subsequent fiscal years,

company’s strategy to take advantage of future opportunities and to face potential threats, and the

risk-management strategy corporate governance report provides a report on the company’s

compliance to the corporate governance code. Voluntary disclosures provide financial and non-

financial information in addition to information required to be disclosed in accordance with generally

accepted accounting principles (GAAP) and other laws and regulations.

Following are the components of financial statements:

(a) Balance sheet, which lists the assets, liabilities and equity at the balance sheet date

and thus provides information on the financial position of the company at the end of

the fiscal year.

(b) Income statement—profit and loss account—which lists out income and expenses for

the fiscal year and thus provides information on the operating results for the fiscal

year.

(c) Cash flow statement, which presents cash flows from operating activities investing

activities, and financing activities during the fiscal year.

(d) Accounting policies and explanatory notes, which provide explanations and

clarifications to facilitate understanding of numbers appearing in financial statements

and also additional information that is relevant to users of financial statements.

In addition to the above. International Financial Reporting Standards (IFRS) require a company to

present a statement showing changes in equity for items (e.g. revaluation reserve) that bypass the

income statement.

The financial statements are the end product of the financial accounting process. The

financial statement information presented in concise and capsule form and the financial information

relating to the financial position of the firm. Therefore, the financial statements are the depiction of the

financial position of a firm. The financial statements are prepared by the firm.

“To communication with different parties about the Financial position of the firm (These other parties

who Are the user of financial information include the Shareholder, creditors, bank financial

institutions, Financial analysts, investors, etc.), and To analyze the operation and performance of the

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firm for Further planning. The basic source which provides the financial Information is the annual

report of the company which is presented by the company to it’s the shareholder at the annual

general meeting. This annual report contains the balance sheet, report, the income statement, the

auditor’s report together with number of schedules, annexure, key operation statistics for last few

years etc. Though the presentation of annual report is a statutory requirement under the companies

act 1956, However, it is also medium of communication with the present as well as prospective

investors and creditors of the company besides the annual report Quarterly or half yearly unaudited

results may also be announced by the company clause 43-A of the listing agreement(with the stock

exchange) requires every listed company public unaudited quarterly result but it does mean that the

non corporate firms do not prepare the financial statement. Every firm big or small prepares the

following financial statement.

1. BALANCE SHEET

2. THE INCOME STATEMENT

Two other key financial statements which are usually prepared by corporate firm are.

a. Statement of appropriate of profit

b. Statement of change in financial position

1. BALANCE SHEET

The balance sheet is regarded as the most significance and basic financial statement of a firm.

The balance sheet is prepared by a firm to present a summary of financial position at a given point of time,

usually at the end of a financial year. It shows the state of affairs of the firm a point of time. It presents the

assets of the firm (i.e. the resources of the firm), the liabilities of the firm (i.e. obligations) and the contribution

of the owners of the firm. The Balance sheet in fact balance the assets of the firm against its financing (which

can be debt and owners funds) i.e. the total value of the assets must be equal to total claim against the firm

and the income statement can be stated as

TOTAL ASSETS = TOTAL CLAIMS (DEBTS + SHAREHOLDER)

= LIABILITIES + SHAREHOLDER EQUITY.

It may be noted that the balance sheet relevant at a particular point of time. It is like a financial

snapshot at a point of time. Before and after which the position may be different. So, the balance sheet is a

status report.

2. INCOME STATEMENT

The INCOME STATEMENT is, also known as the profit and loss account or the statement of

earning summarizes the revenue, and expenses of the firm for an accounting period. It gives details of

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sources of income and expenses and thus it provides the summery of the operating result of the firm for a

specific period. It match the revenue with the costs that are incurred in generating the revenue and shows the

different between the two as the net profit made net loss incurred during the period. The INCOME

STATEMENT shows the results of the operation of the firm doing a period. The INCOME STATEMENT

therefore it a show report or a status report. The INCOME STATEMENT depicts the earning capacity of firm in

terms of the net profit it helps understanding the performance of the firm during the period under

considerations.

The companies’ act 1956 does not provide any Performa for the INCOME STATEMENT.

However, 211 of the companies act, 1956 provides that the INCOME STSTEMENT of a company shall gives

true and fair view of the profit or loss of company during a financial year. The part 2 of the 6 to the companies

act 1956, provide some requirements as to the INCOME STATEMENT of the company.

3. STATEMENT OF THE APPROPRIATION OF PROFIT It is also called the profit & loss appropriation though it is not necessary as per the provision of the

companies act, 1956 to prepare the statement, still most of the companies sprit the INCOME STATEMENT

into two parts i.e. the INCOME STATMENT and P & L appropriate account where in it income statement

bifurcated in to two main parts i.e. the dividend to the share holders and the profits retained in the firm.

If there income statement a prior period item e.g. excess provision of income tax or providing

statement ion for tax for a previous year than it is also known in the P & L appropriation account. It may be

observed that the purpose of preparing account is to show separately the preposition of profit.

4. STATEMENT OF CHANGE IN FINANCE POSITION (SCFP)

The BALANCE SHEET and the INCOME STATEMENT are two common financial statements

and are also known as traditional financial statement. The BALANCE SHEET depicts the financial position at

a point of time and the INCOME STATEMENT shows the net results of operations of the firm during a

particular period but both the information regarded the change in financial position ever the period for a meter

understanding of the financial position, it income statement essential to know the movement of the

funds/cash during the period for the income statement purpose, another financial statement may be prepare

and it income statement known as the SECP, the SCFP shows how the firm generated the funds during the

period. It is historical record of where the funds came from and how they were used there can be different

sources of funds from where the firm might have procured the funds and these can be different out lets use

where the funds might have been used a comparative review of these sources and uses of funds is known as

the SCFP. The SCFP can be prepared on two basic i.e. the working capital basic income statement and the

cash basic.

When SCFP prepare on the working capital basic, it is also termed as the funds flow statement.

The SCFP prepare on the cash basic is also shown as the cash flow statement. The techniques of

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preparation of the SCFP (both working capital basic and basic and cash basic) have been discussed in the

next chapters.

Thus, the four financial statements discussed above give and describe the financial position of

the firm the change in financial position during the year and the reasons for change in the SE during the year.

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OBJECTIVES OF FINANCIAL STATEMENTSOBJECTIVES OF FINANCIAL STATEMENTS

1) Useful Information

The financial statement of business enterprise should provide information, within the limits if

financial accounting, that is useful to present and potential investors and potential investors and creditors in

making rational investment and credit decision. Financial statement should be comprehensible to investors

and creditors who have a reasonable understanding of business and economic activities. In a financial

accounting and who are willing to spend the time effort needed to study financial statement.

2) Required and sufficient information

Financial statement of business enterprise should provide information that help investors and

creditors assess the prospects of receiving cash from dividend of interest and form the proceeds from the

sale, redemption or maturely of securities or loans there prospects are ability to obtain enough cash through

its earning and financial activities to meet its obligations when due and its other cash operating needs, to

reinvesting earning resources and activity and pay cash dividend and (2) By perceptions of investors and

creditors generally about that ability, which affects market price of the enterprise income statement ES

securities relative to those of others enterprise. Thus financial account and financing statement should

provide information that helps investors and creditors assess the enterprise prospects of obtaining net cash

inflows through its earning and financing activities.

3) Primary Information

The financial statement of a business enterprise should provide information about the economics

resources of an enterprise which are sources of prospective cash Inflows to the enterprise to its obligation to

transfer economics resources to other , which are causes of prospective cash outflows from the enterprise

and its earning which are the financial results, which are the financial results of its operation and other eventsand conditions that effects the enterprise since that information income statement useful to investors and

creditors in assessing and enterprise income statement ability to pay cash dividends, and interest and to

settle obligation when they mature it should be the focus of financial accounting and financial statements.

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Traditional and modern approaches to financial statement analysis :

Modern approach is the integrated approach under which an analyst takes an analysis as a part of business

analysis.

Analysts combine industry analysis, economy analysis and financial statement analysis to get an insight intothe ability of the company to generate adequate cash flows in future. Based on those insights, analysts

forecast the future performance of the company, which forms the basis for valuation of the company. Under

the traditional approach, financial statement analysis was considered in isolation and focus of the analysis

was to evaluate the past performance of the company. Moreover, under the traditional approach, analysts do

not consider non-financial information in evaluating the performance of a company. Modem approach is to

use non-financial information to evaluate the performance of a company. For example, employee turnover,

which indicates the ability of the company to retain knowledge, is’ important parameter in evaluating the

performance of a knowledge-driven company, such as, a company operating in pharmaceutical or software

industry. Similar! Employee satisfaction, customer satisfaction, customer retention period are some H theparameters that are used to evaluate the performance of companies operating in the service sector (e.g. a

company providing telephony services).

Parties interested in Financial Statement Analysis :

The following parties are interested in financial statement analysis:

(a) Mergers, acquisition and divestitures

Restructuring of business involves mergers, acquisitions and divestitures, in restructuring, whole or a

part of an undertaking change hands. Both the parties use financial statement analysis to estimate

the intrinsic value of business from their own perspective and based on their own assumptions.

Intrinsic value forms the benchmark in negotiating price with the counter party.

Merchant bankers use financial statement analysis to identify target companies for their clients.

(b) Managers

Managers pursue the core objective Function of ‘maximization of value of the firm’. They use financialstatement analysis to evaluate alternative strategies and to compare actual results of strategic

decisions with expected result. Managers use financial statement analysis to value business from

investors’ perspective. Therefore, goal of financial statement analysis by managers is similar to the

goal of financial statement analysis by equity analysts.

(c) Financial management

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Managers use financial statement analysis to evaluate the financial management decisions (e.g.

capital structure decisions and dividend decisions) on future profitability and risks. Managers also use

financial statement analysis to estimate the intrinsic value of equity shares to determine the timing for

issuing equity share and timing for buying back shares. Managers buy back shares when shares are

under-priced, that is, when shares are traded in the capital market at a price below the intrinsic value.

Similarly, managers issue new shares when shares are over-priced or are traded at a price close to

the intrinsic value.

(d) External auditors

An external auditor expresses her opinion on the true and fairness of information provided in financial

statements. She uses financial statement analysis to evaluate the reasonableness of the financial

statements as a whole. She also uses financial statement analysis to assess the ability of the

company to sustain present level of activities. This is necessary to evaluate the validity of the ‘going

concern’ assumption.

(e) Directors and top management

Directors and top management of a company that is engaged in different businesses or that hascustomers or assets in different geographic locations, use financial statement analysis to evaluate the

performance of different businesses and geographical segments. Financial statement analysis aids in

understanding and appreciating financing, investing and operating activities and thus improves the

quality of oversight function of the board of directors.

(f) Employees and trade Unions

Employees use financial statement analysis to evaluate the sustainability and growth of the company.

This helps them to plan their career. A trade union uses financial statement analysis to understand

the profitability and the financial position of the company. This understanding is essential to formulatestrategy in collective bargaining negotiations.

(g) Customers

Customers use financial statement analysis to evaluate the sustainability and growth of the company

and its financial strength. This is important to assess the ability of the company to supply goods and

services over a long period of time. Customers also use financial statements to estimate the

profitability of products that the customer procures from the company. Although such an estimate is,

at best rough, it helps the customer to negotiate price with the company.

(h) Regulators and government

Regulators and government uses financial statement analysis for different purposes. For example, the

income tax department uses financial statement analysis to evaluate the accuracy of the tax return.

Government and regulators frame policies for different industries taking into account, among other

things, the attractiveness of the industry and the financial position of reprehensive firms operating in

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the industry. Financial statement provides insights into the attractiveness of the industry and financial

position o representative firms.

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LIMITATION OF FINANCIAL STATEMENTLIMITATION OF FINANCIAL STATEMENT

1) They are essentially internal reports and therefore, can not be final because the actual gain or loss of

a business can be determined only when it is sold or liquidated. The allocation of revenue and costs

to an account. Periods involves personal judgment. The problem involves the achievement of asatisfactory matching of cost with revenue and cost transactions flow continuously thought the life of a

business enterprise yet they must be “cut off” at each balance sheet.

2) The financial statements shows exacts amounts, which gives an impression of finality and which

gives impression may ascribe to those amount the is own concepts of value where as the statement

may nave been set up on the basis of value different value standards. Passels does the stated quay

of an assets represent the amounts of cash that would realized on liquidation even the cash balance

would be reduce in the expenses incidental to the liquidity process. The balance sheet income

statement prepared on the basin come statement of a going concern concepts where it incomestatement assumed that the enterprise statement will continue in business. Fixed asset are

customarily stated at historical revenue in the income statement by why of depreciation.

3) Both the BALANCE SHEET and INCOME STATEMENT reflects transactions that involve money

value of many dates under in factionary condition. The depreciation against current revenue by

companies may be inactive of current economy realities and increase in sales volume stated in

rupees may or may not be the result of a larger no. or units.

4) Financial statement do not reflect many factors which affects financial condition and operating results,

because they cannot be stated in terms of money such factors includes materials merchandise and

supplier, the reputation and pressing of company with the public the crediting rating of the company

and the efficiency, loyalty , and integrity of management continents liabilities customarily are not and

usually cannot be stated definitely in rupees similarly, some items that involves obligation by the

corporation to make future payments are not shown as liabilities and the debt of unconsolidated

affiliated companies are often not fully reflected in financial statement.

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TOOLS/TECHNIQUES OF ANALYSIS STATEMENTTOOLS/TECHNIQUES OF ANALYSIS STATEMENT

OF FINANCIAL STATEMENTOF FINANCIAL STATEMENT

The AFS can be undertaken in different persons and for different purposes, therefore the

methodology adopted for the AFC may be varying form one situation to another however the following

some of the common techniques of AFC.

1. Fund Flow Statement

2. Cash Flow Statement

3. Comparative Financial Statement

4. Common Size Statement

5. Ratio analysis statement

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Fund Flow Statement

The balance sheet of a company provides information on assets and liabilities of the firm at the

reporting date. The change in the carrying amount of assets and liabilities during the reporting period reflects

the outcome of the operating, investment and financial decisions of previous and current periods and also, in

some cases, the effect of economic events of those periods. The profit and loss account summarizes the

outcome of operating decisions and in some cases, the effect of economic events the current period. The

balance sheet and the income statement are prepared on ‘accrual accounting’ basis and, therefore, does not

present cash flow for the year directly. The fund flow statement and cash flow statement summaries the

outcome operating, investment and financing decisions.

Every business may be big or small, final accounts are prepared to know the financial position of that

specific period. The financial statement, income statements disclose the income of particular period where as

the balance sheet disclose the value of various assets and liabilities. The assets and liabilities are always

changed from time to time during a specific period a specific period. Some funds are generated and some are

spent. The surplus of inflow over outflows is known as increase or decrease of funds. The balance sheet

shows increase or decrease in fixed as current assets and liabilities but how these changes have come is not

explained, for this a separate statement is prepared. This statement is known as funds flow statement, which

clearly shows how fund have come in and how the some are used.

Definition:-

“The fund flow statement described the sources from which additional were derived and used to

which these sources where put to use.”

- R.N. Anthony

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Importance of Fund Flow Statement

Fund flow statement determines the financial consequences of business operation. It shows

how the funds were obtained and used in the past. Financial manager can take corrective action.

The management can formulated its financial policy dividend, reserve etc. on the basis of the

statement.

It serves as a control device, when comparing with budgeted figures. The financial manager

can take remedial steps if there is any deviation.

It points out the causes for changes in working capital.

It enables the bankers, creditors or financial institution in assessing the degree of risk

involved in granting credit to the business.

The mgt. can rearrange the firms financing more effectively on the basis of the statement.

Various uses of funds can be known and after comparing them with the use of previous year,investment or downfall in the firm can be assessed.

The statement compared with the budget concerned will show to what extent the utilization

was unplanned.

It cells whether sources of funds are increasing or decreasing or decreasing or constant.

Limitation of Fund Flow Statement

The statement lake originality because it is only re-arrangement of data oppressing accountbooks.

It indicate only the past position and not future.

It indicates funds flow in a summary form and it does not show various changes, which takes

place continuously.

When both aspects of transaction are current, they are not considered.

When both aspects of a transaction are non-current even then they are not included in this

statement.

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Cash Flow StatementA cash flow statement presents a summary of investment, dividend and financing decisions with a focus on

movements in cash and cash equivalents during the reporting period. A fund flow statement explains changes in

working capital, while a cash flow statement explains changes in the cash balance (including cash equivalents).

Balances in the cash credit account and bank overdraft account should be treated as part of the cash balance. Cashflow statement is considered superior to fund flow statement in terms of ‘decision usefulness’. A cash flow statement

helps to assess the ability of the firm to generate and use cash to the benefit of shareholders. It helps to estimate the

amount, timing and uncertainty of future cash flows.

Every businessman needs capital for successful implementation of business capital is needed for

acquiring fixed assets while cash is needed for acquiring current assets or payment of current liabilities. Cash

acquirement or cash planning is very important in every business mgt.

Advantages of Cash Flow Statement

A cash flow statement is of primary importance to the financial mgt. It is an essential tool o short loan

financial analysis. Its main uses are as follow:

It helps the mgt. in taking short –term financial decision.

Cash flow statement facilitates to prepare sounds

financial policies. It also helps to evaluate the current cash position.A projected cash flow statement can be prepared in order to

know the future cash position of a concern as to enables a firm to plan and co0ordinate its financial operations

properly.

It helps in taking loan form banks and other financial

institutions. They repayment capacity of the firm can understood by going through the cash flow statement.

Cash is the soul and heart of the business cash is the pivot

business activity. Business is a source while cash is the end. Therefore, it is very useful.

20



Limitations of Cash flow Statement

Cash flow statement is a useful tool of financial analysis however it suffers from some limitations, which are

as follow:

A cash flow statement only reveals the inflow and outflow of

cash balance disclosed by this statement may not depict the true liquid position. There are controversies over

a number of items like cheque, stamps, postal order etc. to be included in cash.

A cash fund statement cannot be equated with the income

statement. An income statement takes into accounts both cash and non-cash items. Hence a cash fund does

not mean net income of the business.

Working capital being a wider concept of funds, a fund flow

statement present more complete picture than cash flow statement.

21



COMPARATIVE FINANCIAL STATEMENT

In CFS, two or more BALANCE SHEET and/or the INCOME STATEMENT of a firm are present financial data

for two or more years are placed and presented adjacent columns and thereby the financial data I provided a time

perspective in order to facilities data is statement on. In CFS, the BALANCE SHEET and the INCOME STATEMENT

for number of years are presented in condensed form for years to Year Company and to exhibit the magnitude and

direction of changes.

The preparation of the CFS is based on that a statement covering a period of a number of years more meaningful

and significant than for a single year only and that the financial statement for one period represent only 1 phase of the

long and continues his statement history of the firm. Nowadays most of the published, annual report of the companies

provides important of statically information about the company in considered from for the last so many years. The

presentation of such data enhances the usefulness of these reports and brings out more clearly the nature and trends

of changes affecting the profitability and financial position of the firm.

So the CFS helps a financial analyst in horizontal analysis statement of the firm and in established operating and

position trend of the firm the CFS may be prepared to show.

The CFS can be prepared for both the INCOME STATEMENT and BALANCE SHEET .

Comparative Income Statement

A COMPERATIVE INCOME STATEMENT shows the figures different items of the INCOME

STATEMENT s of the firm in a balance sheet terms the a balance sheet changes from one period to another and

if desires, the changes in diving meaningful concludes regarding changes in sales of item cost of goods sold

different expense item etc form the INCOME STATEMENT a financial analysis statement can quickly ascertain

whether sales are increasing or decreasing and how much percentage similarly analysis statement can be made

for other items also.

Comparative Balance sheet

The COMPERATIVE BALANCE SHEET shows the assets and liabilities of the firm on different dates to

make comparison statement of a balance sheet of balances and also of changes if any from on dated to

another’s. The COMPARATIVE BALANCE SHEET may be helpful in analyzing and evaluating the financial

position of the firm over a period of number of years.

22



Advantages

1) These statements indicate trends in sales, cost of production, profits etc., and helping the analyst to

evaluate the performance, efficiency and financial condition of the undertaking. For example, if the sales

are financial condition of the undertaking. For example, if the sales are increasing coupled with it or better

profit margins, it indicates healthy growth.

2) Comparative Statement can also be used to compare the position of the firm with the average

performance of the industry or with other firms. Such a comparison facilitates the identification of

weaknesses and remedying the situation .

Disadvantages

1) Inter-firm comparison may be misleading if the firms are not of the same age and size, follow

different accounting polices in relation to depreciation, valuation of stock, etc., and do not care to the

same market.

2) Inter-period comparison will also be misleading of the period has witnessed frequent changes

in accounting policies.

23



COMMON SIZE STATEMENT

The COMMON SIZE STATEMENT represents the relationship of different item of financial statement with some item

by expressing each item as percentage of the common items. In common size balance sheet each item of the

BALANCE SHEET is stated as a percentage of the total of the balance sheet similarly each item is stated as

percentage of the net sale the percentage for the different item are computed In dividing the a balance sheet solute

amount of that item by the common base (i.e. the BALANCE SHEET total or the net sales as case may be ) and them

multiplying by 100. The percentages to calculated can be easily compared at with the corresponding percentage in

some other period thus, the COMMON SIZE STATEMENT is useful not only in intra firm comparison on over a series

of afferent year but also in making inter firm comparison income statement on for the same years or several years.

Interpretation:

In profit & Loss account sales figure is assumed to be equal to 100 & all other figures are expressed

as percentage to sales. Similarly, in Balance sheet the total of assets or liabilities is taken as 100 and all the figures

are expressed as percentage of the total its called Common-size statement.

24



Research Methodology

Problem statement:

Financial Statement Analysis at KRIBHCO.

Objective:The Principal objective on” Financial Analysis “of KRIBHCO is to asses the performance of a company based

on Ratio Analysis. These bases find out the position of the KRIBHCO in competitive market of scenario based

on the cash flow, fund flow and common size statement.

Period of Study:

The study is based on the data of last five years.

Objective:

To study the analysis Financial Performance of KRIBHCO using ratio analysis, cash flow and fund

flow, comparative Financial Statement, common size statement.

To study the annual report of financial position of the company.

To study the company history in brief.

Methodology:

Data Collection :

I have collected the data through secondary data collection

Secondary data :

Secondary data means the data which are already collected and used by some body else.

Annual report of the company having been analyzed the data it was arranged in the form of ratios.

25



Research Approach:

Descriptive Study :

Descriptive Study is also used to study the situation. This study helps to describe the situation. A detail

description about present situation can be found out by the descriptive study. Descriptive study involves the

analysis of situation using secondary data.

In this project work the secondary data i.e. annual report of the company is used to find out the ratios and

financial position of the company.

Limitation :

1. As obtaining information from secondary data, it is easy to get it. But it is very difficult to understand.2 It is very hard job to convince employees of the company to give few minutes from their tight working

schedule.

3 Some of the calculation, shown in the report, has been obtained trough personal discussion.

4 Some of the information which is treated as company secret was no disclosed.

26



Data Analysis

SOURCES AND APPLICATION OF FUNDS (Fund Flow)

(R

ees in crore)

2007-2008 2006-2007 2005-2006 2004-2005 2003-2004

SOURCES

Share Capital and Application 396.08 396.11 394.67 393.59 491.82

Reserves and Surplus 1,982.43 1,891.41 1,779.02 1,666.76 1,602.99

Net Worth 2,378.51 2,287.52 2,173.69 2,060.35 2,094.81

Secured Loan from Bank 0.76 0.41Unsecured Loan from Bank 223.96

Deferred Tax Balance 0.00 24.61 30.32 35.07 37.42

FUNDS EMPLOYED 2,603.23 2,312.54 2,204.01 2,095.42 2,132.23

APPLICATION

Fixed Assets:

Gross Block (including capital

work-in-progress)1,231.58 1,115.10 1,053.69 1,041.26 1,035.42

Less: Depreciation 856.29 844.77 829.11 813.70 795.42

Net Block (A) 375.29 270.33 224.58 227.56 240.00

Investments (B) 870.56 807.56 855.67 455.64 455.69

Deferred Tax Assets (C) 4.18

Working Capital:

Current Assets 1,851.78 1,577.00 1,421.00 1,712.05 1,786.48

Less: Current Liabilities and

Provisions 498.58 342.35 297.24 299.83 349.94

Net Working Capital (D) 1,353.20 1,234.65 1,123.76 1,412.22 1,436.54

NET ASSETS EMPLOYED

(A+B+C+D)2,603.23 2,312.54 2,204.01 2,095.42 2,132.23

27



CASH FLOW STATEMENT FOR THE YEAR ENDED

MARCH 31, 2008 (Rupees in Lakh)

P articu la rs Y ear E nd ed31 .03.2 008 Year En ded 31.03.2007

(A) Cash F low f rom Op era t ing Act iv i t ie s :

N et P rofit B efore T ax 27 ,2 1 3.5 3 23,153.44

Adjustmen t for:

D eprecia tion 2,279 .20 1,762.54

In te rest (N et) (8 ,364 .1 9) (6 ,562 .26)

A m o un ts ch a rg ed -o ff 71 .23 211.83

Asse ts wri t ten-off 2 .88 20.01

F ore ign E xcha nge R a te F luctua tio ns 30.14 (1.46)

Lo ss on S a le o f F ixed A sse ts (N e t) (13 .24) 11.47D iv ide nd Incom e (11,552.48) (11,534.49)

L iab ilitie s /P rov is ion s no lon g er requ ired , w ritte n-back (454 .95) (315.29)

P rio r P eriod D epre cia tion (68 .72) (18 ,070 .13) (0.14) (16,407.7

Ope ra ting Prof it be fore Wo rk ing C api ta l Chan ges 9 ,143 .4 0 6,745.65

Adjustment for :

Inven tories 3,181 .36 (9,710.77)

T rad e and O th er R ece iva b les (21 ,300.44) (19 ,359.95)

T ra de P ayab le a nd Prov is io ns 11,249.63 (6 ,869 .45) 4 ,154.2 0 (24,916.5

Cash G enera ted from Op era tions 2,27 3.9 5 (18,170.87)

D irect T axes P a id (N et of R efunds) (7 ,247 .47) (3,823 .16)

C ontribu tio n to C o op era tive E duca tio n F und (178.11) (167.29)

D onations P aid (25.00) (7,450.58) (17.61) (4,008.06)

N et C a sh fro m O p era tin g A ctiv itie s (A ) (5,176.63) (22,178.93

(B) Cash F low from Inves t ing Act iv i ti e s :

P urchase o f F ixed A sse ts includ ing C .W .I.P . (12,965 .20) (6 ,385 .58)

P ro ceeds from S a le o f F ixe d A ssets 269 .30 16.39

Investm ents (6 ,300.0 0) 4 ,810.83

D ividend R ece ived 11,552.48 11,534.49

Inte rest rece ived 6 ,929 .0 5 6 ,614 .60

N e t C a sh fro m In v es tin g A c tiv itie s (B ) (514 .3 7) 1 6 ,5 9 0 .7

Continued….

28



Continued

(Rupees in La

P articu lars Y ear E n d ed 31 .03 .2008 Y ear E n d ed 31 .03 .20

(C ) Cash F low f rom F inanc ing Ac t iv it ie s :

P roceedsfrom issue/repatriat ionof ShareC ap ita l (2 .75) 143.30

Proceeds f romShort TermLoans 34.95 40.69

Interest Paid (531.99) (147.25)

Dividend Paid (7 ,880.18) (7,862.17)

ForeignE x change R a te F luctua tions (30.14) 1.46

N et C ash u sed in F in an c in g A ctiv ities (C ) (8,410.11) (7 ,823.97)

Net lncrease/ (Decrease ) in Cas h and C ash

Equiva len t s (A+B+C )(14,101.11) (13,412.17)

C a s h a n dCas h Eq uivalents as a t the beginning of the 77,073.86 90,486.03

C a s hand C ash E qu iva len ts as a t the c lose o f the yea r 62,972.75 77,073.86

Net lnc rease /(Decrease ) in C ash and Cash (14,101.11) (13,412.17)

29



COMPARATIVE BALANCE SHEET AS ON 30TH

JUNE 2007-08 & 2006-07

Particulars As at 31.03.2008 As at 31.03.2007

Amount

Increase/Decrease

% Increase/

Decrease

Source of fundsshare capital 39,607.93 39,610.68 (2.75) (0.0069)Reserve and

Surplus198,243.15 189,141.73 9099.42 4.81

Total 237,851.08 228,752.41 9098.67 3.98secured loan

from bank75.63 40.69 34.94 85.87

unsecured loan

from bank22,396.87 0.00 - -

Differed Tax

liability0.00 2,461.18 - -

Total 260,323.58 231,254.28 29069.30 12.57application of

FundsFixed assets: 36,802.52 20,804.35 15998.17 76.90Capital work in

progress726.23 6,228.62 (5502.39) (88.34)

Investments 87,056.46 80,756.46 6300 7.80Differed tax

Asset418.38 0.00 - -

Net current

Asset:Current Assets,

loan, advances185,178.30 157,699.67 27478.63 17.43

Less: current

liabilities and

provisions

49,858.31 34,234.82 15623.49 45.64

Total 260,323.58 231,254.28 29069.30 12.57

30



COMPERATIVE PROFIT & LOSS ACCOUNT

FOR THE YEAR ENDING JUNE 2007-08 & 2006-

07

Particulars Year ended

31.03.2008

Year ended

31.03.2007

Amount

Increase/

Decrease

% Increase/

Decrease

INCOME FROM

OPERATIONS/ OTHER

REVENUESales (Net of

Discounts/Rebates)140,002.80 135,383.39 4619.41 3.41

Excise Duty (1,514.47) (986.29) (528.18) (53.55)Concession/Remuneratio

n from Government of

India

84,479.12 51,158.77 33320.35 65.13

Other Revenue 26,730.12 1918.42 7.73Accretion/Decretion in

Finished Goods:Closing Stock 11,020.20 14,696.98 (3676.78) (25.02)Less: Opening Stock (14,696.98) (6,376.20) (8320.78) (130.50)

Total 246,020.79 218,688.35 27332.44 128.20LESS- COST OF

OPERATIONS/ OTHER

OUTGOINGSConsumption of Materials

and Stores:111,116.20 82,543.07 28573.13 34.62

Purchases : 45,450.07 62,705.03 (17254.96) (27.52)Employees'

Remuneration and

Benefits

17,340.21 12,149.55 5190.66 42.72

Other Expenses on

Manufacturing,

Administration and

Distribution

42,160.46 36,220.55 5939.91 16.40

Interest 531.99 147.25 384.74 261.28Depreciation / 2,279.20 1,762.54 516.66 29.31

31



Amortization218,878.13 195,527.99 23350.14 11.94

Net Profit for the year 27,142.66 23,160.36 3952.30 17.19Prior Period lncome/

(Expenditure) (Net)70.88 (6.92) 77.80 1124.28

Profit before Tax 27,213.54 23,153.44 4060.10 17.54Provision for Taxation 6,293.54 3,829.48 2464.06 64.34Profit after Tax 20,920.00 19,323.96 1596.04 8.26

32



COMMON SIZE BALANCE SHEET

AS ON 31 st March 2008 and 31 st March 2007

Particulars As at 31.03.2008 As at 31.03.2007Source of fundsshare capital 15.22 17.13Reserve and Surplus 76.15 81.79secured loan from bank 0.03 0.02unsecured loan from bank 8.60 0.00Differed Tax liability 0.00 1.06Total 100 100Application of FundsFixed assets: 14.14 9.00Capital work in progress 0.28 2.69Investments 33.44 34.92Differed tax Asset 0.16 0.00Net current Asset:Current Assets,

loan, advances71.13 68.19

Less: current liabilities and

provisions(19.15) (14.80)

Total 100 100

33



COMMON SIZE PROFIT& LOSS ACCOUNT FOR

YEAR ENDING 31 st March 2008 and 31 st March 2007

Particulars Year ended

31.03.2008

Year ended

31.03.2007INCOME FROM

OPERATIONS/ OTHER

REVENUESales (Net of

Discounts/Rebates)56.91 61.91

Excise Duty (0.62) (0.45)Concession/Remuneration

from Government of India34.34 23.39

Other Revenue 10.86 11.35Accretion/Decretion in

Finished Goods:Closing Stock 4.48 6.72Less: Opening Stock (5.97) (2.92)Total 100 100LESS- COST OF

OPERATIONS/ OTHER

OUTGOINGSConsumption of Materials

and Stores:50.77 42.22

Purchases : 20.77 32.07Employees' Remuneration

and Benefits7.92 6.21

Other Expenses on

Manufacturing,

Administration and

Distribution

19.26 18.52

Interest 0.24 0.08Depreciation /

Amortization1.04 0.90

Net Profit for the year 100 100

34



RATIO ANALYSISIntroduction:-

Ratio analysis is the process of determining and interpreting numerical relationship based

on financial statements. It is the technique of the interpretation of financial statements

with the help of accounting ratio derived from the balance sheet and profit and loss A\c. it

involves the comparison of existing ratios against standards established. The standards

may be set by management as goals expressed in the budgets or may be historical

figures showing performance of the same concern in the past or may be figure reflecting

the performance of the other companies.

Meaning of Ratio:-

A ratio is simply one number expressed in terms of another. It is an expression of

relationship spelt out by dividing one figure by another. It is the quotient of two arithmeticnumbers obtain from financial statement.

“An expression of the quantitative relationship between two numbers.”

- Wixon, kell and Bedford in their book Accountant hand book

“According to J.batty the term accounting ratio is used to describe the significant

relationship which exists between figures show in a balance sheet and profit and loss

account in budgetary control system or any other part of accounting organization.”

Nature of Ratio:-

Ratio are indicators, sometimes they serve as pointer but not in themselves

powerful tools of management. The ratio help to summarized the large quantities of

financial data and to make qualitative judgment about the firm’s financial performance

They cannot be taken as the final result regarding good or bad financial position

of the business. They are at best symptoms and there is the always need to investigate

the facts reveled by them further. Hence ratios are not adequate for taking financial

decision.

It may indication that affirm is weak or strong in a particular area but it must

never be taken as a powerful tool of the management.

35



Ratio as a matter of fact are tools of quantitative analysis and it is quite possible

that quantitative factors may override numerical aspects with the consequence that the

conclusion from the ratio analysis may get distorted .in a way ratios are an attempt to

delve in the past as financial statement.

THE VARIOUS WAY OF INTERPRETING ACCOUNTING RATIO:-

1] Single Absolute Ratio

2] Group Ratios

3] Historical Comparison

4] Inter-firm Comparison

5] Projected Ratios

The following are the various ways of interpreting accounting ratio:-

1] Single absolute ratio:-

A ratio taken in isolation may not convey much meaning .lf it is expressed in relation to

another aspect it may prove to be more useful. For example, if current ratio is less than

one, it may reveal the insolvency position of the business. Ex:- current assets are not

sufficient to pay current liabilities. Sometimes a single ration may fail to show the exact

financial position of business.

2] Group ratios:-

When group of ratio are calculated and interpreted they convey better idea about thebusiness operation and efficiency. For example, in addition to calculating current ratio,

Ex. Current assets to current liabilities if liquid ratio Ex. Liquid asset to liquid liabilities, is

also used, it throw better light on the business.

3] Historical comparison:-

Under this method of interpretation, the ratio of current period is compared with ratios of

past year or years. Comparison of ratios over a period of time gives better indication and

sets a trend which again reflects the performance and position of the business. However,

care must be taken to ensure that there is no change in accounting policy and procedure

during the period of comparison .

36



Limitation:-

1] Usefulness of ratios depends upon the abilities and the intention of the

persons who handle them. It will be affected considerably by the prejudice of such

persons.

2] Ratios are worked out on the basis of money value only. They don’t take into

account the real values of various items involved.

3] Historical values are considered in working out the ratios. However, the effects of

changes in the price levels of various items are ignore and to that extent the comparison

and evaluation of proposals through ratio become unrealistic.

4] One particular ratio in isolation is not sufficient to analyze investment proposals or

liquidity analysis. A group of ratios are to be considered simultaneously to arrive at the

conclusion.

5] Ratio analysis is only a technique for making judgment and not a substitute for a

judgment.

6] Ratio are only symptoms, they may indicate what is to be investigated, only a careful

investigation.

7] Liquidity ratio can mislead since current assets and liabilities can change quickly.

Their utility becomes more doubtful for firms with seasonal business.

8] If there is window dressing in financial statement, ratios derived there from will not

serve the purpose. Outsiders can not make out the window dressing of the business.

9] Financial statement suffers from inherent limitations which make ratios inaccurate.Ratio calculate on the basis of past statements need not necessarily constitute true

indicator of future.

38



TYPES OF RATIOS:-

Traditional basis of classification of ratio:-

1] Classification on the basis of statement

2] Classification on the basis of time

3] Classification on the basis of nature

4] Classification according to function

Ratios may be classified according to the following bases:

1] Classification on the basis of statement:

a) Balance sheet or position ratios:

They deal with relationship between two items or group of items with are taken form

the balance sheet such as current ratio, debt equity ratio, etc.

b) Profit and loss account or revenue ratios:

These are the ratios which are calculated out of the figures appearing in the profit and

loss account, are gross profit ratio operating profit ratio, etc.

c) Position-cum-revenue ratio:

These ratios are also known as consolidated or combined or complex ratios or inter

statement ratios. They portray the relation ship between items one of which is a part of

the balance sheet and the other of the revenue statement.

Examples of such ratios are return on total resources return on capital employed,turnover of debtors etc.

2] Classification on the basis of time :

a) Structural ratios:

Ratio computed from data referring to the same point of time; e.g. ratios of a

particular months or year

b) Trend ratios:Ratio compared between the items referred to different period of time.

39



3] Classification on the basis of nature:

a) Primary ratios:

It measures the size of profit in the relation to capital employed e.g., Operating profit

to capital employed .

b) Secondary ratios:

Also referred to as supporting ratios brings to light strategic facts in the profit earning

structure e.g., stock velocity, debtors velocity, expense ratios etc.

4] Classification according to function:

a) Financial ratios:

Financial ratios include liquidity and solvency ratio. Ratio indicating the liquidity

position of the firm are current ratio, quick-ratio, absolute liquidity ratio. Solvency ratiosinclude proprietary ratio, debt equity-ratio, capital gearing ratio.

b) Profitability ratios:

Profitability ratios would cover gross profit ratio, net profit ratio, return on capital

employed.

c) Market test ratio:

Market test ratios comprise of dividend yield, fixed dividend cover, price earning ratio, etc.

-:For the more understanding we classify ratio into the following types:-

40



41

Activity ratio

- Stock turn over ratio

- Debtor turns over ratio- Creditors turnover

ratio- Working capital

turnover ratio- Fixed assets turnover

ratio

- Current assetsturnover ratio- Total assets turnover

ratio- Sales to net worth

ratio

Profitability ratio

- Gross profit ratio- Net profit ratio- Operating ratio- Expenses ratio- Operating profit ratio- Return on total resource

ratio- Return on capital

employed ratio

- Return on equity share- Return on equity capital

ratio- Earning per

Share- Dividend pays out ratio- Price earning ratio- Dividend yield ratio- Book value for share- Preference Dividend

covers

Analysis of shortterm financialPosition or testsof liquidity

- Current ratio- Quick ratio- Absolute

liquid ratio

Analysis of long termfinancial position or tests of solvency

- Debt-equity ratio- Proprietary ratio- Solvency ratio- Fixed assets to net

worth ratio- Current assets to net

worth ratio- Current liabilities to net

worth ratio- Capital gearing ratio- Fixed assets ratio- Fixed charge cover

ratio- Dividend cover ratio

Classificationof ratios



SIGNIFICANT FINANCIAL RATIOS USES IN

KRIBHCO

1] Current Ratio :-

s LiabilitieCurrent AssetsCurrent

RatioCurrent =

Particular Year CurrentAsset

CurrentLiabilities Current Ratio

1 2003-04 1786.48 349.94 5.112 2004-05 1712.05 299.83 5.713 2005-06 1421.00 297.24 4.784 2006-07 1577.00 342.35 4.615 2007-08 1851.78 498.58 3.71

Current Ratio

0.00

1.00

2.00

3.004.00

5.00

6.00

2003-04 2004-05 2005-06 2006-07 2007-08

Current Ratio

The current ratio measures the ability of the firm to meet its current liabilities. Current

assets get converted into cash in the operating cycle of the firm and provided the funds

needed to pay current liabilities. However, in interpreting the current ratio the composition

of current assets must not be overlooked. A firm with a high proportion of current assets

in the form of cash and accounts receivable is more liquid than one with a high proportion

42



of current assets in the form of inventors even though both the firms have the same

current ratio.

The standard ratio generally accepted for this is 2:1.

INTERPRETATION:-

As seen in the data the current Ratio for the years has shown deteriorating trend. The

current Ratio for 2003-04 was 5.11:1 which has come down to 3.71:1 in 2007-2008

Which show that company’s current assets decrease and current liabilities increase so

that we can say that company’s current ratio is decrease.

43



2] Quick Ratio:-

s LiabilitieCurrent AssetsQuick

Quickratio =

Particular Year Quick Asset CurrentLiabilities Quick Ratio

1 2003-04 1679.71 349.94 4.802 2004-05 1565.11 299.83 5.223 2005-06 1269.21 297.24 4.274 2006-07 1324.89 342.35 3.875 2007-08 1635.34 498.58 3.28

Quick Ratio

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2003-04 2004-05 2005-06 2006-07 2007-08

Quick Ratio

It also called the Acid-test Ratio.

The quick ratio is a fairly stringent measure of liquidity. It is based on those current assets

which are highly liquid-inventories are excluded from the numerator of this ratio because

inventories are deemed to be the least liquid component of current assets. Quick assets

are defined as current assets excluding inventories.

The standard ratio is accepted for this is 2:1.

44



INTERPRETATION:-

Again here referring to the data we can see that this ratio is showing the fluctuating trend.

The ratio of 2003-04 was 4.8: 1. It again increases in the year 2004-05.It is in 2005-06

shows a little better position compare to previous year but in the year 2007-08 there is

quick ratio is decrease because of the inventory increase in that year.

45



3] Debt- Equity Ratio:-

Fund soprietor Debt Term Long

Ratio Equity Debt 'Pr

−=−

Particular Year Debt-EquityRatio

1 2003-04 0:12 2004-05 0:13 2005-06 0:14 2006-07 0:15 2007-08 0:1

The standard debt-equity ratio is 2:1.

It means for every 2 share there is 1 debt. If the debt is less than 2 times the equity, it

means that creditors are relatively less and the financial structure of the business is

sound. If the debt is more than 2 times the equity, the states of long-term creditors are

more and indicate week financial structure.

INTERPRETATION:-

From the above chart we can understand that there is no debt because KRIBHCO is total

handling by government, so they are not using out sides debt. Through this we can say

that company’s financial structure is very sound. Because every year they maintain debt-

equity ratio 0:1.

46



4] Proprietary Ratio or Net Worth Ratio:-

The following formula is used:-

AssetsTotal

Employed Capital Ratiooprietary =Pr

OR

AssetsTotal Fund sopritor

atiooprietaryR'Pr

Pr =

Particular Year ProprietorsFund Total Asset Proprietary

Ratio1 2003-04 2094.81 2821.90 0.742 2004-05 2060.35 2753.31 0.75

3 2005-06 2173.69 2474.69 0.894 2006-07 2287.52 2692.10 0.855 2007-08 2378.51 3083.36 0.77

Proprietary Ratio

0.000.100.200.300.400.500.600.700.800.901.00

2003-04 2004-05 2005-06 2006-07 2007-08

Proprietary Ratio

This ratio establishes the relationship between the proprietor’s fund (equity + preference

+ capital reserves +free reserves +undistributed profits) and total assets. It is also called

as net worth to total assets ratio.

INTERPRETATION:-

47



A ratio of 0.5: 1 is considered ideal.

Higher the proprietary ratio, stronger the financial position of the organization and vice-

versa.

Form the above chart we can says that in the year 2005-06 proprietary ratio was high (89

%), so that we can says that in that year company’s financial position was very strong but

in the year 2007-08 company’s proprietary ratio (77 %) which is in maintained level so we

can says that company’s financial position is strong.

48



5] Solvency Ratio :-

lf expresses the relationship between total assets and total liabilities of a business. It is

expressed as a proportion.

The following formula as used :-

s LiabilitieTotal AssetsTotal

RatioSolvency =

Particular Year Total Asset Total Liabilities SolvencyRatio

1 2003-04 2821.90 387.36 7.282 2004-05 2753.31 334.90 8.223 2005-06 2474.69 327.56 7.554 2006-07 2692.10 367.37 7.335 2007-08 3083.36 723.30 4.26

Solvency Ratio

0.001.002.003.004.005.006.007.008.009.00

2003-04 2004-05 2005-06 2006-07 2007-08

Solvency Ratio

Interpretation:-

No standard ratio is fixed in this regard. It may be compared with similar, such

organizations to evaluate the solvency position. Higher the solvency ratio, the stronger is

its financial position and vice –versa. From above chart we see that KRIBHCO’s solvency

ratio is very high. So the financial position of KRIBHCO is very strong.

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6] Fixed Assets to Net Worth Ratio :-

It is obtained by dividing the depreciated book value of fixed assets by the amount of

proprietor’s funds.

It is calculated by applying the following formula :-

Funds soprietor or Worth Net Assets Fixed Net

Ratioworth Net to Assets Fixed 'Pr

=

Particular Year Net FixedAsset Net Worth

Fixed Assetsto Net Worth

Ratio1 2003-04 240.00 2094.81 0.11

2 2004-05 227.56 2060.35 0.113 2005-06 224.58 2173.69 0.104 2006-07 270.33 2287.52 0.125 2007-08 375.29 2378.51 0.16

Fixed Assets to Net Worth Ratio

0.000.020.040.060.080.100.120.140.16

0.18

2003-04 2004-05 2005-06 2006-07 2007-08

Fixed Assetsto Net Worth

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Interpretation:-

This ratio shows the extent to which ownership funds are sunk into assets with relatively

low turnover. When the amount of proprietor’s funds exceed the value of fixed assets, a

part of the net working capital is provided by the shareholders, provided there are no

other non-current assets, and when proprietor’s funds are less than the fixed assets,

creditors obligation have been used to finance a part of fixed assets.

The yardstick for this measure is 65% for industrial undertakings. It is a sound principle

that proprietors should subscribe sufficient capital to cover fixed assets, investments in

other companies and a reasonable figure for working capital.

Some analysts deduct intangible assets from the proprietor’s funds, but this would

depend upon the realizable value of intangibles and the purpose of analysis. Losses

should also be deducted and funds payable to others should not be added:

From the above chart we can say that KRIBHCO’s fixed asset is less as compare

to net worth, it means Working Capital of KRIBHCO is near to standard level.

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7] Current Assets to Net Worth Ratio :-

This is obtained by dividing the value of current assets by the amount of proprietor’s

funds.

The following formula is used :-

Fund soprietor AssetsCurrent RatioWorth Net to AssetsCurrent

'Pr =

Particular Year CurrentAsset Proprietor Fund

CurrentAssets to NetWorth Ratio

1 2003-04 1786.48 1518.51 0.852 2004-05 1712.05 1421.00 0.833 2005-06 1421.00 923.65 0.654 2006-07 1577.00 1088.13 0.835 2007-08 1851.78 1444.39 0.85

Current Assets to Net WorthRatio

0.000.10

0.200.300.400.500.600.700.800.90

2003-04 2004-05 2005-06 2006-07 2007-08

Current Assets toNet Worth Ratio

Interpretation:-

The purpose of this ratio is to shown the percentage of proprietor’s fund

investment in current assets. A higher proportion of current assets to proprietor’s

fund, as compared with the proportion of fixed assets to proprietor’s fund areadvocated, as it is an indicator of the financial strength of the business. In 2007-

08 KRIBHCO’s ratio is 0.85, which is more than last two year, means

comparatively good from last two years.

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8] Current Liabilities to Net Worth Ratio :-

This ratio is expressed as a proportion and is obtained by dividing current liabilities by

proprietor’s fund.


Worth Net s LiabilitieCurrent RatioWorth Net to s LiabilitieCurrent =

Particular Year CurrentLiability Net Worth

CurrentLiabilities to

Net WorthRatio

1 2003-04 349.94 2378.51 0.172 2004-05 299.83 2287.52 0.153 2005-06 297.24 2173.69 0.144 2006-07 342.35 2060.35 0.155 2007-08 498.58 2094.81 0.21

Current Liabilities to Net WorthRatio

0.00

0.05

0.10

0.15

0.20

0.25

2003-04 2004-05 2005-06 2006-07 2007-08

Current Liabilities toNet Worth Ratio

Interpretation:-

This ratio indicates the relative contribution of short-term creditors and owner to

the capital of an enterprise. The standard ratio fixed is 1/3. If the ratio is high, itmeans it is difficult to obtain long-term funds by the business. In the last five year

KRIBHCO is achieving less than the standard ratio. So that KRIBHCO’s Current

Liability to Net Worth is not standard one.

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9] Fixed Assets Ratio :-

It establishes the relation between fixed assets and capital employed.


Employed Capital Asssets Fixed Ratio Assets Fixed =

Components of capital employed:-

1. Owners funds

2. Long-term lone

3. Long-term deposits

4. Debentures

Particular Year Fixed Asset CapitalEmployed Fixed assetsratio1 2003-04 1035.42 2132.23 0.492 2004-05 1041.26 2095.42 0.503 2005-06 1053.69 2204.01 0.484 2006-07 1015.10 2312.54 0.485 2007-08 1231.58 2603.23 0.47

Fixed Assets Ratio

0.460.460.470.470.480.480.490.490.500.500.51

2003-04 2004-05 2005-06 2006-07 2007-08

Fixed AssetsRatio

Interpretation:-

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This ratio enables to know how fixed assets are financed, i.e. by use of long-term funds

or by short-term funds. The ideal ratio is 0.67. This ratio should not be more than 1.From

the above chart we see that company fixed asset ratio is 0.47 in 2007-08.So company

position is not ideal but good financing position.

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10] Working Capital Turnover Ratio :-

The term working capital refers to excess of current assets over current liabilities. This

ratio establishes a relationship between working capital and sales.

The Following Formula is used :-

Capital Working Sales Net

RatioTurnover Capital Working =

Particular Year Net Sales WorkingCapital

Workingcapital

turnover ratio1 2003-04 979.31 1436.54 0.682 2004-05 924.22 1412.22 0.653 2005-06 1253.30 1123.76 1.194 2006-07 1343.97 1234.65 1.09

5 2007-08 1384.88 1353.20 1.02

Working Capital Turnover Ratio

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

2003-04

2004-05

2005-06

2006-07

2007-08

Working Capital TurnoveRatio

Interpretation :-

This ratio enables to know efficient utilization of working capital of an organization.

Through this chart we can say that KRIBHCO Company’s working capital increase so

that we can say that company’s financial position is going into the good situation.

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13] Total Assets Turnover Ratio :-

This ratio establishes a relationship between total assets and sales. This ratio enables to

know the efficient utilization of total assets of a business.

The following Formula is used :-

AssetsTotal Sales Net

RatioTurnver AssetsTotal =

Particular Year Net Sales Total AssetTotal assets

turnover ratio

1 2003-04 979.31 2821.90 0.352 2004-05 924.22 2753.31 0.343 2005-06 1253.30 2474.69 0.514 2006-07 1343.97 2692.10 0.505 2007-08 1384.88 3083.36 0.45

Total Assets Turnover Ratio

0.00

0.10

0.20

0.30

0.40

0.50

0.60

2003-04

2004-05

2005-06

2006-07

2007-08

Total Assets TurnoverRatio

This ratio establishes a relationship between total assets and sales. This ratio enables to

know the efficient utilization of total assets of a business. A total assets turnover ratio of 2

times or more indicates that assets are utilized efficiently and a ratio below 2 indicates

that the assets are under- utilized.

INTERPRETATION:-

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From the above given chart we can find out that company’s total assets turnover ratio

every year increase. In the year 2003-04 company’s total turnover ratio was 0.35 and in

the year 2007-08 company’s total assets turnover ratio 0.45 so that we can say that

KRIBHCO company’s total assets are more utilized and efficiently use their assets.

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14] Gross Profit Ratio :-


100Pr

Pr X Sales Net

ofit Gross Ratioofit Gross =

Particular Year Gross Profit Net Sales Gross ProfitRatio

1 2003-04 219.51 979.31 22.412 2004-05 185.83 924.22 20.113 2005-06 280.20 1253.30 22.294 2006-07 231.53 1343.97 17.23

5 2007-08 272.14 1384.88 19.65

Gross Profit Ratio

0.00

5.00

10.00

15.00

20.00

25.00

2003-04 2004-05 2005-06 2006-07 2007-08

Gross Profit Ratio

It expresses the relationship of gross profit to net sales and is expressed in terms of

percentage. Sales for this purpose means net sales i.e., sales after deducting the value

of goods returned by the customers. Gross profit results from the difference between net

sales and cost of goods sold without taking into account expenses generally charged to

profit and loss account. Cost of goods sold in the case of a trading concern in the

purchase of goods and all expenses directly connected with the purchases of goods,

while in the case of manufacturing concern, it consist of the purchases price of the raw

materials and all manufacturing expenses.

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A low gross profit may indicate unfavorable purchasing, the instability of the management

to develop sales volume thereby making it impossible to by goods in the large volume,

excessive competition etc.

On the other hand an increase in the gross profit ratio may reflect an increase in the

sales price of goods sold without any corresponding increase in costs; a decrease in cost

without it’s the impacts on the sale price of goods, opening stock valued at a figure lower

than it should have been, over valuation of the closing stock at the end of accounting

period etc. There is no rigid standard to this ratio. Normally 25% to 30% margin is

anticipated.

INTERPRETATION:-

From the above given chart we can understand that in the year 2003-04 gross profit ratiowas 22.41 % that was lowest that’s reason was that in that year government provide less

subsidy so that in that year gross profit ratio was lowest. And than after company’s gross

profit ratio around 20% and in the year 2007-08gross profit ratio 19.65%.

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15] Operating Ratio:-

This ratio establishes a relationship between costs of goods sold plus other operating

expenses and net sales. Operating expenses consist of administrative expenses,

financial expenses, selling and distribution expenses.


Sales Net ExpencesOperating Sold Good of Cost

RatioOperating +

=

Particular Year

C.O.G.S. +

OperatingExpense Net SalesOperating

ratio

1 2003-04 1819.56 979.31 1.862 2004-05 1833.23 924.22 1.983 2005-06 2451.77 1253.30 1.954 2006-07 3067.79 1343.97 2.285 2007-08 3300.80 1384.88 2.38

Operating Ratio

0.00

0.50

1.00

1.50

2.00

2.50

2003-04 2004-05 2005-06 2006-07 2007-08

Operating Ratio

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Interpretation :-

This ratio is calculated mainly to ascertain the operational efficiency of the management

in their business operations, as it shows the percentage of net sales that is absorbed by

the cost of goods sold. Higher the operating ratio, the less favorable because it would

leave a smaller margin to meet interest dividend and other corporate need in general for

manufacturing concern operating ratio is expected to touch a percentage of 75% to 35%.

This ratio can also be used as a partial index of overall profitability but can not be used as

a test of financial condition.

From the above chart we can say that, increasing from last two year, which

maintain the overall profitability.

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As above chart we can say that every year company’s operating profit ratio is around

25% so that we can say that company has not proper control on the operating expenses

because in the year 2003-04 operating profit ratio is 10.21% and in the year 2007-08

operating ratio is 2.60%, so that we can say that company is failed to maintain their

operating expenses.

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17] Net Profit Ratio :-

It expresses the relationship between net profits after taxes to sales.


100Pr

Pr X Sales Net

Taxafter ofit Net Ratioofit Net =

Particular Year Net profitafter tax Net sales Net profit

ratio1 2003-04 152.70 979.31 15.592 2004-05 140.59 924.22 15.213 2005-06 192.45 1253.30 15.314 2006-07 193.24 1343.97 14.385 2007-08 209.20 1384.88 15.11

Net Profit Ratio

13.6013.8014.0014.2014.4014.6014.8015.0015.2015.4015.6015.80

2003-04 2004-05 2005-06 2006-07 2007-08

Net Profit Ratio

This ratio is widely used as a measure of over-all profitability and is very useful

proprietors, as it gives an idea of the efficiency as well as profitability of the business to a

limited extent. It is the different from the operating ratio in the sense it is calculated after

adding non-operating income like interest or dividend on investment etc., to generating

profit and deducting non-operating expenses such as loss on sale of old assets, provision

for legal damages, etc from such profit.

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Interpretation:-

From the given data we can say that the profitability ratio in year 2003-04 is 15.59% and

in the year 2007-08 company’s profitability ratio is 15.11%, that company maintain their

profitability ratio through this we can says this thing indirectly that company maintain their

sales.

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18) Net Working Capital Ratio:

Assets Net LC AC Capital Working Net

RatioCapital Working Net )....( −

=

Particular Year Net

WorkingCapital

Net Assets Net WorkingCapital Ratio

1 2003-04 1436.54 2471.96 0.582 2004-05 1412.22 2453.48 0.583 2005-06 1123.76 2177.45 0.524 2006-07 1234.65 2349.75 0.535 2007-08 1353.20 2584.78 0.52

Net Working Capital Ratio

0.490.50

0.510.520.530.540.550.560.570.580.59

2003-04

2004-05

2005-06

2006-07

2007-08

Net Working Capital

Ratio

This ratio shows the quantum of working capital in net assets. The working capital of an

enterprise is as important as the fix assets. It is used for running the functions of an enterprise till

share proceeds are realized working capital is an out come of current assets current liability.

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INTERPRETATION:-

As seen in the data this Ratio has shown a decreasing trend till 2005-06. However it has shown

an improved picture in 2006-07. This is because the increase in net working capital compare than

last year 2005-06.The data of 2007-08 shows that 52% of net assets constitute of working capital.

Through this chart we can say that company’s net working capital increase so that we can say

that company’s financial position is going into the good situation.

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CONCLUSIONAfter analyzing Fund Flow Statement and Cash Flow Statement, I found that this

year’s performance report of cash is not better than previous year. Cash Flow

gives the picture of ability to generate and use of cash. In Cash Flow Statement

and from the Fund Flow Statement income generation of company is higher than

last five year.

Ratio Analysis of organization pointed that it is a profit making and

liquidity ratio and Profitability Ratio of the organization are on satisfactory level

but from the actively ratio of the organization is not as good as it should be.

During our Winter Project in KRIBHCO, We studied various components of the

different department. We observed different activities of them.

The finance and purchase departments under the personnel and administration

department handle the purchase functions, inventory management and financial

ratio. Several steps are followed for the contract of the purchase and long term

service.

All the Project activities are carried out by human resource department in

prescribed way. It also takes care of employee relations. Good employee and

customers relations are the great ingredient in the success of KRIBHCO.

In short KRIBHCO Company handling all the work related with the production or

non-production related they are doing this work very effectively and very

efficiency.

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SUGGESTIONAfter having completed my winter project in Krishak Bharti Co-operative Limited,

Hazira, I have come to know its working and understand various departments therein.

The Project makes us able to understand the various aspects of management. After having a detailed study of the various departments of KRIBHCO, I am giving our

conclusion.

In liquidity ratio, Standard Ratio for Current Ratio, Quick Ratio and Debt-Equity Ratio are

2:1. Current Ratio and Quick Ratio asset ratio are nearer to the standard, but Debt-Equity

ratio is 0:1 for all the five year, because KRIBHCO is subsidized from by the government.

So there no need to debt. KRIBHCO should reduce its liability to reach standard position.

KRIBHCO should increase it sales to maintain activity ratios. As we know that

requirement of Urea and other Fertilizer is higher than its production, So KRIBHCO

should use proper sales channel for sales increment.

A profitability ratio of KRIBHCO is doing well, so there no need to change it profit policies.

As far as cash management is concerned, cash inflow is efficiently undertaken, but

improvement in cash out flow is payment & disbursement of cash required condrable

attention.

Company have to reduce differ tax liabilities which is continuously increase in last two

years for the better result of the company.

The KRIBHCO is achieving more production capacity than installed. On an average, the

KRIBHCO is running on 108 % capacity utilization. It is having a skilled staff to running

the plant. The KRIBHCO is also implementing the good Inventory Control Techniques to

control the stocks of materials with a good purchasing policy.

Finally, KRIBHCO is having a professional management to control all the activities

carried out therein. So, we would like to conclude that KRIBHCO is having a bright future

to expand and diversify.

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BIBLIOGRAPHY

KRIBHCO Personnel Manual

Annual Report of KRIBHCO (2007-08)

KRIBHCO at Glance

KRIBHCO Pragati

KRIBHCO News

Book Reference:

Financial management By I.M.Pandey

Websites:

http://www. KRIBHCO.org .

http://www. KRIBHCOsurat.com

http://www.kribhco.org/


http://www.kribhcosurat.com/




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