5290185-48895-247650-213360FINANCIAL STATEMENT ANALYSIS OF KG DENIM, COIMBATORE BY MATHI SANKARI. E.
B 177MB125 ofBannari Amman Institute of Technology (Autonomous institution affiliated to Anna University, Chennai Approved by AICTE, Accredited by NBA, New Delhi and NAAC with ‘A’ grade) Sathyamangalam – 638 401 Under the supervision of Ms. B. NandhiniAssistant professor PROJECT I REPORT Submitted to the School of Management StuidesIn partial fulfillment of the requirements for the award of degree of MASTER OF BUSINESS ADMINISTRATION ofANNA UNIVERSITY, CHENNAI 2018 BONAFIDE CERTIFICATE Certified that this Summer Internship Report titled “FINANCIAL STATEMENT ANALYSIS OF KG DENIM, COIMBATORE” is the Bonafide work of Ms. MATHI SANKARI. E. B who carried out the research under my supervision.
Certified further, that to the best of my knowledge the work reported herein does not form a part of any other Project I (Summer Internship) report or dissertation on the basis on which a degree or award was conferred on an earlier occasion to this or any other candidate. Signature of the Supervisor Signature of the Director (SMS) Submitted for the Internal Viva-Voce – held on ————— Signature of the Supervisor Signature of the Internal Examiner Place: Sathyamangalam Date: DECLARATION I, MATHI SANKARI. E. B hereby declare that the thesis entitled “FINANCIAL STATEMENT”submitted to the School of Management Studies, Bannari Amman Institute of Technology, Sathyamangalam, in partial fulfillment of the requirements for the award of the Degree of Master of Business Administration of Anna University, Chennai is a record of original and independent research work done by me during the year 2017-2019 under the supervision and guidance of Ms.
B.Nandhini , Assistant Professor, Bannari Amman Institute of Technology, Sathyamangalam and it has not formed the basis for the award of any Degree / Diploma / Associateship / Fellowship or other similar title to any candidate of any University. Signature of the Candidate. ACKNOWLEDGEMENT One of the most pleasant aspects of writing an acknowledgement is the opportunity to thank all those who have contributed to it. Unfortunately, the list of expression of gratitude no matter how extensive- is always incomplete and inadequate. This acknowledgement is no exception.
I would, at the very onset, like to thank Mr.R.SELVA KUMAR, VICE PRESIDENT,KG DENIM for providing me the opportunity to perform my Summer Internship Project in the Company. I would like to give special thanks and gratitude to monitoring and provide necessary data and information as a when required throughout the project. I express my sincere gratitude to Dr. J.Ashok, Director of School of Management Studies, Bannari Amman Institute of Technology for his constant support and encouragement.
I would never forget to thank Ms. B. Nandhini Assistant Professor, School of Management Studies, Bannari Amman Institute of Technology for her valuable guidance in preparation of this project work. I would like to express my heartfelt thanks to all the respondents who gave valuable information to me. ABSTRACT This study is based on financial statements such as Ratio Analysis, Comparative balance sheet. By using this tools combined it enables to determine in an effective manner.The study is made to evaluate the financial position, the operational results as well as financial progress of a business concern.
It explains the ways in which ratio analysis can be of assistance in long-rang planning, budgeting and asset management to strengthen financial performance and help avoid financial difficulties. Contents TOC o “1-3” h z u 1.INTRODUCTION: PAGEREF _Toc522298980 h 71.1TOPIC CHOSEN FOR STUDY: PAGEREF _Toc522298981 h 81.2Objective of the study: PAGEREF _Toc522298982 h 81.3Need of the study: PAGEREF _Toc522298983 h 81.4Scope of the study: PAGEREF _Toc522298984 h 81.5LIMITATION OF THE STUDY: PAGEREF _Toc522298985 h 92INDUSTRY PROFILE AND COMPANY PROFILE PAGEREF _Toc522298986 h 92.1TEXTILE MANUFACTURING: PAGEREF _Toc522298987 h 92.2about kg denim: PAGEREF _Toc522298988 h 92.2.1Product range of the company includes: PAGEREF _Toc522298989 h 112.2.2DENIM: PAGEREF _Toc522298990 h 112.2.3Apparel fabrics: PAGEREF _Toc522298991 h 112.2.4Achievements/ recognition: PAGEREF _Toc522298992 h 122.3INFRASTRUCTURE FACILITIES: PAGEREF _Toc522298993 h 122.3.1PROCESSING: PAGEREF _Toc522298994 h 122.3.2WEAVING: PAGEREF _Toc522298995 h 122.3.3QUALITY & INNOVATION: PAGEREF _Toc522298996 h 122.3.4R & D PAGEREF _Toc522298997 h 132.3.5SPINNING : PAGEREF _Toc522298998 h 132.4CSR ACTIVITIES: PAGEREF _Toc522298999 h 132.4.1SOCIAL SERVICES: PAGEREF _Toc522299000 h 133Review of literature PAGEREF _Toc522299001 h 143.1Research methodology: PAGEREF _Toc522299002 h 163.1.1Research PAGEREF _Toc522299003 h 163.1.2TYPES OF RESEARCH: PAGEREF _Toc522299004 h 173.1.3SOURCE OF DATA COLLECTION: PAGEREF _Toc522299005 h 173.1.4Tools used for data analysis: PAGEREF _Toc522299006 h 173.1.5INTRODUCTION TO FINANCIAL STATEMENT: PAGEREF _Toc522299007 h 183.1.6Methods of Financial Statement Analysis PAGEREF _Toc522299008 h 193.1.7Purpose of analysis of financial statement: PAGEREF _Toc522299009 h 204COMPARATIVE BALANCE SHEET FOR THE YEAR 2015-16 AND 2016-17 PAGEREF _Toc522299010 h 204.1CURRENT RATIO: PAGEREF _Toc522299011 h 224.2Liquidity ratio: PAGEREF _Toc522299012 h 244.3Debt equity ratio: PAGEREF _Toc522299013 h 264.4Gross profit ratio: PAGEREF _Toc522299014 h 274.5Net profit ratio: PAGEREF _Toc522299015 h 284.6Operating profit ratio: PAGEREF _Toc522299016 h 294.7Operating ratio: PAGEREF _Toc522299017 h 304.8Capital turnover ratio: PAGEREF _Toc522299018 h 314.9Fixed assets turnover ratio: PAGEREF _Toc522299019 h 325result PAGEREF _Toc522299020 h 345.1Findings: PAGEREF _Toc522299021 h 345.2suggestions: PAGEREF _Toc522299022 h 345.3Conclusion: PAGEREF _Toc522299023 h 35 CHAPTER 1INTRODUCTION: The study of financial statement is prepared for the purpose of presenting a periodical review or report by the management of and deal with the state of investment in business and result achieved during the period under review. They reflect the financial position and operating strengths or weaknesses of the concern by properly establishing relationship between the items of the balance sheet and remove statements. Financial statement analysis is a method of reviewing and analyzing a company’s accounting reports (financial statements) in order to gauge its past, present or projected future performance. This process of reviewing the financial statement allows for better economic decision making. The main purpose of financial statement analysis is to utilize information about the past performance of the company in order to predict how it will fare in the future.
Another important purpose of the analysis of financial statements is to identify potential problem areas and troubleshoot those. The main aspect of financial management is working capital management and it should be done on day-to-day basis. Hence the company permits me to do in the area of finance. TOPIC CHOSEN FOR STUDY:An analysis on “Financial statement of KG Denim Ltd” , at KG Denim, Then thirumalai, Coimbatore. Objective of the study:To study the financial statement analysis of KG denim.
To analyze the financial changes over a period of three years. To analyze the financial statements of the company by using financial tools. To evaluate the financial position of the company in terms of solvency, profitability, activity and earning ratios. To suggest effective measures in the existing system of the company.
Need of the study:This study helps to review the financial performance of the company. It helps us to know the reasons for relative changes – either in profitability or in the financial position as a whole. It also helps to know both the short-term liquidity position vis-a-vis working capital position, as also long-term liquidity and solvency position of a firm. It also highlights the operating efficiency and the present profit-earning capacity of the firm as a whole. Scope of the study:The study covers the financial performance of KG Denim.
The study is made by making comparison of five year of it operation. The study covered aims to reveal where the stands in respect to liquidity and an effective use of asset. The analysis of financial statements helped to judge the financial strength of the firm. LIMITATION OF THE STUDY:Financial information collected for the study is entirely secondary in nature. In such a case, it carries all the limitation inherent with secondary data and financial information.
The study is limited to accuracy of the statistical tools used. Market capitalization details of company were not accessible for it to form basis for selecting the sample. CHAPTER 2 INDUSTRY PROFILE AND COMPANY PROFILETEXTILE MANUFACTURING:Textile manufacturing is a major industry. It is based on the conversion of fiber into yarn, yarn into fabric. These are then dyed or printed, fabricated into clothes. Different types of fibers are used to produce yarn. HYPERLINK “https://en.wikipedia.org/wiki/Cotton” o “Cotton” Cottonremains the most important natural fiber, so is treated in depth.
There are many variable processes available at the92.2.1Product range of the company includes: PAGEREF _Toc522298989 h 112.2.2DENIM: PAGEREF _Toc522298990 h 112.2.3Apparel fabrics: PAGEREF _Toc522298991 h 112.2.4Achievements/ recognition: PAGEREF _Toc522298992 h 122.3INFRASTRUCTURE FACILITIES: PAGEREF _Toc522298993 h 122.3.1PROCESSING: PAGEREF _Toc522298994 h 122.3.2WEAVING: PAGEREF _Toc522298995 h 122.3.3QUALITY & INNOVATION: PAGEREF _Toc522298996 h 122.3.4R & D PAGEREF _Toc522298997 h 132.3.5SPINNING : PAGEREF _Toc522298998 h 132.4CSR ACTIVITIES: PAGEREF _Toc522298999 h 132.4.1SOCIAL SERVICES: PAGEREF _Toc522299000 h 133Review of literature PAGEREF _Toc522299001 h 143.1Research methodology: PAGEREF _Toc522299002 h 163.1.1Research PAGEREF _Toc522299003 h 163.1.2TYPES OF RESEARCH: PAGEREF _Toc522299004 h 173.1.3SOURCE OF DATA COLLECTION: PAGEREF _Toc522299005 h 173.1.4Tools used for data analysis: PAGEREF _Toc522299006 h 173.1.5INTRODUCTION TO FINANCIAL STATEMENT: PAGEREF _Toc522299007 h 183.1.6Methods of Financial Statement Analysis PAGEREF _Toc522299008 h 193.1.7Purpose of analysis of financial statement: PAGEREF _Toc522299009 h 204CO spinning and fabric-forming stages coupled with the complexities of the finishing and colouration processes to the production of a wide ranges of products. There remains a large industry that uses hand techniques to achieve the same results. about kg denim:K G Denim Ltd. (KGDL) was incorporated on June 25, 1992 under the Companies Act, 1956.
KGDL has its registered office at Then Thirumalai, Mettupalayam, Coimbatore District, Tamil Nadu. The company was promoted by K. Govindaswamy Naidu and his sons including KG Baalakrishnan and went public in the year 1993. KGDL is a premier denim and apparel fabric manufacturer, whose products are supplied to leading jeans wear makers, fashion brands and retailers worldwide. It sells its products under the trade mark Indigo Fabrics with various lines like Strength, Pride, Ecstasy, Fortune and Passion and Trigger for readymade jeans.
KGDL has recently entered the home textiles market to provide innovative and specialized products for beds, blankets, pillow cases and duvet/ comforter covers. The company has two wholly owned subsidiaries (a) Trigger Apparels Limited (b) K G Denim (USA) Inc. K G Denim (USA) Inc is yet to commence commercial operations. Trigger Apparels Limited markets Trigger branded garments in the domestic market.
It commenced operations in the domestic marketing during 2005–06 The products are well sought after by leading Jeanswear makers, fashion brands and Retailers worldwide. KG Denim sells its products under the trade mark Indigo Fabrics, with various lines like Strength, Pride, Ecstasy, Fortune and Passion. KG Denim now has entered the home textiles market to provide innovative and specialized products for Beds, Blankets, pillow cases and Duvet/comforter covers. KG Denim is part of textile group having annual turnover of $150 million and the company currently manufactures 24 million meters of denim fabrics 12 million meters of cotton fabrics 2 million equivalent sheetsets of made–ups 3 milllion jeans ; trousers. KG Denim has spinning equipments from Trutzchler ; Lakshmi Rieter to produce some of the most demanding yarns required to weave fashion fabric for various applications. Product range of the company includes:Denim fabric Apparel fabric Jeanswear Bed ; Bath Trigger, its jeans wear brand is the largest selling brand in the country in its segment.
DENIM:Denim is a sturdy cotton warp-faced textile in which the weft passes under two or more warp threads. This twill weaving produces a diagonal ribbing that distinguishes it from cotton duck. The most common denim is indigo denim, in which the warp thread is dyed, while the weft thread is left white. As a result of the warp-faced twill weaving, one side of the textile is dominated by the blue warp threads and the other side is dominated by the white weft threads. This causes blue jeans to be white on the inside.
The indigo dyeing process, in which the core of the warp threads remains white, creates denim’s signature fading characteristics. Apparel fabrics:DYED FABRICS They believe in delivering high-end quality at lower cost with less lead time. Technical skills along with design and fashion skills help us provide the best in the market. Processing: they source high quality yarn from mills in India and abroad. Technology: State-of-the-art facilities and constant reinvention ensure that we stay abreast in the game Achievements/ recognition:ISO 9001:2000 certified ISO 14001:2004 certified. Oeko–Tex–tested for harmful substances Lycra Accredited Mill Organic Certification–GOTS Organic Exchange.
The first textile processing company in India to achieve EMS 14001 during the year 1998 towards Environment Management System. INFRASTRUCTURE FACILITIES:PROCESSING:Their processing department has equipment from leading suppliers like Benninger for continuous bleaching & mercerizing, Monforts & Kuster for continuous dyeing equipments, and Bruckner Stenter & Ramish Gurneri Calendar to facilitate Various types of finishes as well as fabric dyeing using reactive & vat in E-control dyeing technology.. WEAVING:Technological versatility is the hallmark of our weaving department. It offers in shuttle less weaving with high speed air jet looms from 92.2.1Product range of the company includes: PAGEREF _Toc522298989 h 112.2.2DENIM: PAGEREF _Toc522298990 h 112.2.3Apparel fabrics: PAGEREF _Toc522298991 h 112.2.4Achievements/ recognition: PAGEREF _Toc522298992 h 122.3INFRASTRUCTURE FACILITIES: PAGEREF _Toc522298993 h 122.3.1PROCESSING: PAGEREF _Toc522298994 h 122.3.2WEAVING: PAGEREF _Toc522298995 h 122.3.3QUALITY & INNOVATION: PAGEREF _Toc522298996 h 122.3.4R & D PAGEREF _Toc522298997 h 132.3.5SPINNING : PAGEREF _Toc522298998 h 132.4CSR ACTIVITIES: PAGEREF _Toc522298999 h 132.4.1SOCIAL SERVICES: PAGEREF _Toc522299000 h 133Review of literature PAGEREF _Toc522299001 h 143.1Research methodology: PAGEREF _Toc522299002 h 163.1.1Research PAGEREF _Toc522299003 h 163.1.2TYPES OF RESEARCH: PAGEREF _Toc522299004 h 173.1.3SOURCE OF DATA COLLECTION: PAGEREF _Toc522299005 h 173.1.4Tools used for data analysis: PAGEREF _Toc522299006 h 173.1.5INTRODUCTION TO FINANCIAL STATEMENT: PAGEREF _Toc522299007 h 183.1.6Methods of Financial Statement Analysis PAGEREF _Toc522299008 h 193.1.7Purpose of analysis of financial statement: PAGEREF _Toc522299009 h 204COPicanol & Toyota to weave fancy yarns & high thread counts with various blends. QUALITY & INNOVATION:They believe that directional changes in the markets must be matched with innovation. They constantly strive for better solutions, environmentally friendly products, quality and productivity by investing heavily investments in infrastructure, technology and human resources.
They work towards identifying new market trends, launching products and remaining competitive. After all, only innovations can satisfy a thirsty market that wants tomorrow’s products today. R ; DTheir Research and Development unit has been recognized by the Department of Scientific and Industrial Research, Ministry of Science and Technology, Government of India. SPINNING :Their spinning equipment is from Trutzchler ; Lakshmi Rieter and it produces some of the most demanding yarns required to weave fashion fabric for various applications.
CSR ACTIVITIES:SOCIAL SERVICES:The company helps the local community by way of: Providing sewing machines and training people. Providing drinking water facilities. Providing a vedic as well as music school for thpose interested. Conducting road safety camps regularly and imparting fire fighting training Maintenance of roads and sanitary works for local villages at the time of need. The company strictly adheres to the policies of: Avoiding chid labour.
They also observe anti-chid labour day on the 12th of june every year Taking care of the disadvantaged/underprivileged providing and promoting equal ooportunity to all the employees without any form of bias, or discrimination based on caste, religion or gender. The company also, Always ensure that preference is given to qualified people/employees from the disadvantaged groups. While appointing vendors or entering into contracts for supply or purchase, would give preference to entrepreneurs from the disadvantaged group, as long as the other set requirements are met. Makes soecial allocations in its budgets for upskilling and/or providing training to the disadvantaged in its employment.
Makes all attempts and seize ooportunitiies of making investments in areas, which have heavy concentration of SC and ST population. Chapter 3 Review of literatureDoron Nissim ; Stephen H Penman (1999) in his research article on financial performance he has pointed that this paper outlines a financial statement analysis for use in equity valuation. Standard profitability analysis is incorporated, and extended, and is complemented with an analysis of growth. The perspective is one of forecasting payoffs to equities.
So financial statement analysis is presented first as a matter of Performa analysis of the future, with forecasted ratios viewed as building blocks of forecasts of payoffs. Kennedy and Muller (1999) in his research article on financial performance he has pointed that the analysis and Inferences/interpretation of financial Statements are an attempt to determine the significance and meaning of financial statements data So that the forecast may be made of the prospects for future earnings, ability to pay interest and Debt maturates (both current and long term) and profitability and sound dividend policy. Elizabeth Duncan and Elliott (2004) in his research article on financial performance he has pointed that he had stated that the paper in the title of efficiency, Customer service and financing performance among Australian financial institutions showed that All financial performance measures as interest margin, return on assets, and capital adequacy are Positively correlated with customer service quality scores. Jonas Elmerraji (2005) in his research article on financial performance he has pointed that he tries to say that ratios can be an invaluable tool for making an Investment decision.
Even so, many new investors would rather leave their decisions to fate than try to deal with the intimidation of financial ratios. The truth is that ratios aren’t that intimidating, Even if you don’t have a degree in business or finance. Using ratios to make informed decisions about an investment makes a lot of sense, once you know how use them. John J.Wild, K.R.Subramanyam ; Robert F.Halsey (2006) in his research article on financial performance he has pointed that he have said that the financial Statement analysis is the application of analytical tools and techniques to general-purpose financial statements and related data to derive estimates and inferences useful in business Analysis. Financial statement analysis reduces reliance on hunches, guesses, and intuition for Business decisions.
It decreases the uncertainty of business analysis. From the above literature review, it is evident that, the financial performance depicts the efficiency of organization. Along with that financial statements are very useful for decision making in the company by Board of Directors and management. It also helps to know the prosperity of the company with the profitability. Chapter 3 Research methodology:Research Research is a careful and detailed study into a specific problem, concern, or issue using the scientific method. It is the adult form of the science fair projects back in elementary school, where you try and learn something by performing an experiment.
This is best accomplished by turning the issue into a question, with the intent of the research to answer the question. It is conducted according to the researcher’s intention, their purpose, and the paradigm they are operating from within. TYPES OF RESEARCH:Descriptive research usually involves surveys and studies that aim to identify the facts. In other words, descriptive research mainly deals with the “description of the state of affairs as it is at present”, and there is no control over variables in descriptive research. Analytical research, on the other hand, is fundamentally different in a way that “the researcher has to use facts or information already available and analyse these in order to make a critical evaluation of the material”. SOURCE OF DATA COLLECTION:For the success of the present study data was collected mainly from secondary data.
The secondary data are those which have already been collected by someone else and which have already been passed through the statistical process. Thus the data was collected from company document reports and books. Tools used for data analysis:The last 5 year annual report of the company is compiled and tabulated for the purpose of study. The techniques used are Comparative study of balance sheet Comparative study of profit and loss account Ratio analysis Cash flows INTRODUCTION TO FINANCIAL STATEMENT:Finance statement are prepared primarily for decision making. Financial statement analysis refers to the process of determining financial strength and weakness of the firm by properly establishing strategic relationship between the items of the balance sheet and profit and loss account. There are various methods and techniques used in analyzing financial statement such as comparative statement, trend analysis, common size statement, schedule of changes in working capital, funds flow and cash flow analysis, cost volume profit analysis and ratio analysis and other operative data.
The analysis of financial statement is used for decision making by various parties. The purpose of financial analysis is to diagnose the information contained in financial statements so as to judge the profitability and financial soundness of the firm. The analysis and interpretation of financial statement is essential to bring out the mystery behind the figures in financial statement. Financial statement analysis is an attempt to determine the significance and meaning of the financial statement data so that earning, ability to pay interest and debt maturities(both current and long-term) and profitability of a sound dividend policy.
The term “Financial statement analysis” includes both “analysis” and “interpretation”. A distinction should, therefore, be made between the two terms. While the term “analysis” is used to mean the simplification of financial data by methodical classification of the data given in the financial statement, “interpretation” means “explaining the meaning and significance of the data so simplified however, both analysis and interpretation are interlinked and complimentary to each other. Analysis is useless without interpretation and interpretation without analysis is difficult or even impossible most of the authors have used the term analysis only to cover the meaning both analysis and interpretation as the objective of analysis is to study the relationship between various items of financial statements by interpretation. Methods of Financial Statement AnalysisThe two most common types of financial statement analysis are: Horizontal & Vertical analysis Ratio analysis Horizontal analysis A horizontal analysis consists of a two-year comparison of financial data with other years.
This type of financial analysis is also known as trend analysis. The horizontal analysis is often expressed in monetary terms (currency) and percentages. Comparisons of currency amounts provide analysts with an insight into aspects that might contribute significantly to the profitability or the financial position of the organization. A horizontal analysis expressed as a percentage, provides more insight and feeling about the significance of an increase or decrease. Expressing an analysis as a percentage provides a much better insight into the increase than when expressed as a currency.
Vertical Analysis A vertical analysis consists of a representation of standard headings on a financial statement that are expressed as percentage of those headings. In a vertical analysis both the assets and liabilities are considered equal to 100%. A vertical analysis is also often used to compare companies with one another in the form of benchmarking. Because the headings occur in any given organization, this makes it easy to compare organizations. For example borrowed capital compared to the total assets.A vertical analysis can also be applied to the profit and loss accounts. By representing the standard heading as a percentage of the total turnover of that year, it is easy to obtain insight into the division of each currency with the different costs, expenditures and profit.
This makes it possible to compare the successive years to identify certain trends. Ratio analysis Ratios, a ratio between two quantities, are used to represent relationships between various figures on a balance sheet, profit and loss account or other accounting records. Ratios always represent a ratio of one figure related to another. The following are some ratios: Current ratio Liquidity ratio Debt equity ratio Gross profit ratio Net profit ratio Operating profit ratio Operating ratio Capital turnover ratio Fixed assets turnover ratio Purpose of analysis of financial statement:To know the earning capacity or profitability.
To know the solvency To know the financial strengths To know the capability of payment of interest and dividends To make comparative study with other firms To know the trend of business Chapter 4 COMPARATIVE BALANCE SHEET FOR THE YEAR 2015-16 AND 2016-17Particulars March 16 (Rs. Cr) March 17 (Rs. Cr) Absolute change Percentage change Equity & liabilities Share capital 25.67 25.67 0 0 Share warrants and outstanding Shareholder’s funds 80.03 101.89 -21.86 -21.45 Long term borrowings Secured loans 51.39 32.74 18.65 36.29 Deferred tax assets/liabilities 18.75 18.16 0.59 3.15 Other long term liabilities 2.4 2.4 0 0.00 Long term provisions 3 3.81 -0.81 -27.00 Total non-current liabilities 75.55 57.12 18.43 24.39 Trade payables 113.37 125.75 -12.38 -10.92 Current liabilities Other current liabilities 28 23.07 4.93 17.61 Short term borrowings 70.79 64.27 6.52 9.21 Short term provisions 5.37 7.26 -1.89 -35.20 Total current liabilities 217.53 220.35 -2.82 -1.30 Total liabilities 373.11 379.36 -6.25 -1.68 Assets Gross block 315.21 325.59 -10.38 -3.29 less: Accumulated depreciation 183.65 196.04 -12.39 -6.75 Net block 131.55 129.91 1.64 1.25 Capital work in progress 8.44 8.83 -0.39 -4.62 Non current investments 7.83 7.83 0 0.00 Long term loans and advance 5.82 3.48 2.34 40.21 Total non current assets 153.65 150.05 3.6 2.34 Total reserves 54.37 76.23 -21.86 -40.21 Current assets loans and advances Inventories 107.76 120.49 -12.73 -11.81 Cash and bank 9.43 10.61 -1.18 -12.51 Other current assets 5.93 6.16 -0.23 -3.88 Short term loans and advances 22.01 15.08 6.93 31.49 Total current assets 219.46 229.32 -9.86 -4.49 Net current assets(including current investments) 1.93 8.97 -7.04 -3.64 Total current assets(excluding current investments) 219.46 229.32 -9.86 -4.49 Total assets 373.11 379.36 -6.25 -1.68 Contingent liabilities 46.08 42.91 3.17 6.88 Total debt 143.01 115.63 27.38 19.15 INTERPRETATION: It is clear from the Comparative Income Statement of the FY ended 2015-16 and 2016-17 of KG Denim Ltd that Total Fixed Assets increase in the FY 2016-17 over the FY 2015-16 is 1.25%. The total Shareholder’s Fund has decreased by 21.45%,the major contribution is decrease in Reserves and Surplus in FY 2016-17 by 40.21%. The total Loan Funds had increased by 40.21% in FY 2016-17. The main reason behind this is increase in secured loans by 36.29%,mainly due to issue of privately placed non-convertible debenture, term loans taken from banks and other short term borrowings.
There has been substantial no change in Working Capital in FY 2016-17 due to decrease in Current Liabilities by 1.68% and Loans and Advances reduction as the advance against equity was converted into Investments during the financial year. Thus, it is very clear that Application of funds are made in Purchase of Fixed Assets and Investment and Sources of funds in order to meet these activities are mainly Unsecured loans .The company is mare dependent on external sources of funds than Internal sources of funds. CURRENT RATIO:The current ratio is a liquidity ratio that measures whether or not a firm has enough resources to meet its short-term obligations. The current ratio is an indication of a firm’s liquidity. In many cases a creditor would consider a high current ratio to be better than a low current ratio, because a high current ratio indicates that the company is more likely to pay the creditor back. It is expressed as follows: Current ratio = current assets/current liabilities Table 4.1 current ratio of the KG Denim Particulars 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 Current assets 186.89 198.24 205.71 219.46 229.32 Current liabilities 189.53 218.8 233.89 217.53 220.35 Ratio 0.99 0.91 0.88 1.01 1.04 03194050 The above chart depicts the current ratio of the KG Denim.
The Current Ratio for the years under study stood as 0.99%, 0.91%, 0.88%, 1.01% and 1.04% for the year 2012-2013, 2013-2014, 2014-2015, and 2015-2016 and 2016-2017 it has been increasing respectively. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time, as and when it is due. Greater is safety of fund of short term creditors. On the other hand a low current ratio indicates that the liquidity position of the firm is not good. From the analysis of the above date it is clear that the current ratio is higher than the standard. Hence the company is said to be liquid and can pay off the current obligations in time.
Liquidity ratio:Liquidity ratio may refer to: Reserve requirement, a bank regulation that sets the minimum reserves each bank must hold. Quick ratio (also known as an acid test or liquidity ratio), a ratio used to determine the liquidity of a business entity Liquidity ratio expresses a company’s ability to repay short-term creditors out of its total cash. It is the result of dividing the total cash by short-term borrowings. It shows the number of times short-term liabilities are covered by cash.
If the value is greater than 1.00, it means fully covered. The formula is the following: Liquidity Ratio = liquid assets / short-term liabilities Table 4.2 liquidity ratio of the KG Denim Particulars 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 Current assets 186.89 198.24 205.71 219.46 229.32 Current liabilities 189.53 218.8 233.89 217.53 220.35 Ratio 0.99 0.91 0.88 1.01 1.04 The above chart depicts the liquidity ratio of the KG Denim. The liquidity ratio for the years 2012-2013 was 0.99%, it was slightly decreased to 0.91% in 2013-2014 and a major decreas on 2014-2015 as 0.88%. The liquidity ratio for 2015-2016 was increased to 1.01% and further increase on 2016-2017 as 1.04%. If the actual quick ratio is equal to or greater than the standard ratio 1:1, it can be said that the firm is liquid and pay the quick liabilities reasonably without any difficulty.
On the other hand if the quick ratio is less than the standard ratio the firm the firm is not liquid. From the above analysis it is clear that the capacity of the company is reasonably good. Debt equity ratio: Debt Equity Ratio, calculated by dividing a company’s total liabilities by its stockholders’ equity, is a debt ratio used to measure a company’s financial leverage. The debt equity ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity.
The debt equity ratio is also referred to as a risk or gearing ratio. The formula for calculating Debt equity ratios is: Debt Equity Ratio = Total Liabilities / Shareholders’ Equity table 4.3 debt equity ratio of the kg denim Particulars 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 Long term borrowed funds 3.61 11.52 6.35 5.82 3.48 Shareholders capital 63.29 67.64 61.23 80.03 101.89 Reserves and surplus 37.62 41.97 35.56 54.37 76.23 Ratio 0.04 0.11 0.07 0.04 0.02 The above chart depicts the debt equity ratio of the KG Denim. The debt equity ratio calculation is 0.04% for the year 2012-2013, 0.11% for the year 2013-2014, 0.07% for the year 2014-2015, 0.04% for the year 2015-2016, and 0.02% for the year 2016-2017. The position of the creditors will be uncomfortable, if the ratio is higher than this. The analysis for the year 2014-2015 and 2015-2016 says the position of the creditor is uncomfortable.
Gross profit ratio:Gross profit ratio (GP ratio) is a profitability ratio that shows the relationship between gross profit and total net sales revenue. It is a popular tool to evaluate the operational performance of the business . The ratio is computed by dividing the gross profit figure by net sales. Gross profit ratio = gross profit / net sales table 4.4 gross profit ratio of the kg denim Particulars 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 Gross profit 252.49 273.71 277 315.21 325.59 Net sales 514.82 591.86 591.78 651.73 617.69 Ratio 49.04 46.25 46.81 48.37 52.71 The above chart depicts the gross profit ratio of the KG Denim. The gross profit ratio calculation is 49.04% in 2012-2013, 46.25% in 2013-2014, 46.81% in 2014-2015, 48.37% in 2015-2016 and 52.71% in 2016-2017. From the table, the gross profit ratio decreased in the year 2013-2014 as 46.25%, slowly increased from 46.81% to 52.71% in the year 2016-2017.
The company is maintaining proper control on trade activities. Net profit ratio:Net profit ratio (NP ratio) expresses the relationship between net profit after taxes and sales. This ratio is a measure of the overall profitability net profit is arrived at after taking into account both the operating and non-operating items of incomes and expenses. The ratio indicates what portion of the net sales is left for the owners after all expenses have been met. Net profit ratio =( net profit / sales)100 table 4.5 net profit ratio of the kg denim Particulars 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 Net profit 111.99 120.41 97.83 131.55 129.91 Net sales 514.82 591.86 591.78 651.73 617.69 Ratio 21.75 20.34 16.53 20.18 21.03 666753048000 The above chart depicts the net profit ratio of the KG Denim.
The net profit ratio decreases from 21.75% to 16.53; was on the respective years 2012-2013 to 2014-2015, then it goes a slight increase to 20.18% on 2015-2016 and increased to 21.03% on 2016.2017. The ratio reveals the firm’s capacity to withstand in the adverse economic condition. Operating profit ratio:Operating profit ratio analysis helps in judging the operation efficiency of the company in running the business. A higher ratio would imply that company is successful in managing and reducing the various costs associated with the operation of the business whereas lower ratio would indicate inefficiency on the part of top management and therefore it need to do introspection and take steps to improve it. This ratio helps in determining the ability of the management in running the business.
Operating profit ratio = (gross profit – operating expenses/sales)100Table 4.6 operating profit ratio of the KG Denim Particulars 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 Gross profit 252.49 273.71 277 315.21 325.59 Operating expenses 113.88 127.29 121.88 116.95 113.08 Net sales 514.82 591.86 591.78 651.73 617.69 Ratio 26.92 24.74 26.21 30.42 34.40 The above table depicts the operating profit ratio of the KG Denim. Operating profit ratio is 26.92% in the year 2012-2013, then decreased to 24.74% in the year 2013-2014 and increased gradually to 26.21% in the year 2014-2015. During 2015-2016 and 2016-2017 there was a major increases to 30.42% and 34.40%. Operating ratio:The Operating ratio is a company’s operating expenses as a percentage of revenue.
The operating ratio can be used to determine the efficiency of a company’s management by comparing operating expenses to net sales. It is calculated by dividing the operating expenses by the net sales. The smaller the ratio, the greater the organization’s ability to generate profit. The ratio does not factor in expansion or debt repayment.
Operating ratio = (sales – gross profit + operating expenses / sales) 100 Table 4.7 operating ratio of the KG Denim Particulars 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 Gross profit 252.49 273.71 277 315.21 325.59 Operating expenses 113.88 127.29 121.88 116.95 113.08 Net sales 514.82 591.86 591.78 651.73 617.69 Ratio 73.08 75.26 73.79 69.58 65.60 The above table depicts the operating ratio of the KG Denim. The operating ratio calculation is 73.08% in 2012-2013, 75.26% in 2013-2014, 73.79% in 2014-2015, 69.58% in 2015-2016, 65.60% in 2016-2017. Capital turnover ratio:Capital turnover ratio shows the relationship between net sales and capital employed. It is used to measure the efficiency of management to generate revenue from companies’ capital.
Capital turnover ratio = sales / (equity share capital + perfered share capital + long term borrowed funds or loan) Table 4.8 capital turnover ratio of the KG Denim Particulars 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 Long term borrowed funds 3.61 11.52 6.35 5.82 3.48 Equity share capital 25.67 25.67 25.67 25.67 25.67 Sales 514.82 591.86 591.78 651.73 617.69 Ratio 17.58 15.91 18.48 20.70 21.19 The above table depicts the apital turnover ratio of the KG Denim. The capital turnover ratio calculation is 17.58% in 2012-2013, 15.91% in 2013-2014, 18.48% in 2014-2015, 20.70% in 2015-2016 and 21.19% in 2016-2017. Fixed assets turnover ratio:Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the value of fixed assets (on the balance sheet). It indicates how well the business is using its fixed assets to generate sales. Fixed assets turnover ratio = sales / fixed assets Table 4.9 fixed assets turnover ratio of the KG Denim Particulars 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 Net sales 514.82 591.86 591.78 651.73 617.69 Fixed assets 116.78 127.56 154.5 140 138.73 Ratio 4.41 4.64 3.83 4.66 4.45 The above table depicts the fixed assets turnover ratio of the KG Denim.
The fixed assets turnover ratio calculation is 4.41% in 2012-2013, 4.64% in 2013-2014, 3.83% in 2014-2015, 4.66 % in 2015-2016 and 4.45% in 2016-2017. Chapter 5 resultFindings:This report work has identified how companies use financial statement analysisand interpretation in making effective management objective were discussed. Again the difference between the returns of a financial statement analysis and interpretation based on management decisions were also discussed. Gross profit and net profits are decreased during the period of 2016 – 17, which indicates that firm’s inefficient management in manufacturing and trading operations. Liquidity ratio of the firm is better liquidity position in over the two years. It shows that the firm had sufficient liquid assets.
The fixed asset turnover ratio of the firm has in 2016 – 17 the ratio is 4.66 to 4.45 Current liabilities are decreased by 17.61% Current assets ratio are increased in 2016 – 17 Net profit also increased by 21.03% Gross profit has decreased by 3.29% suggestions:The liquidity position of the company can be improved by investing low stocks or finished goods. The debt should be recovered in time. There is also large sum given in terms of loans and advances which will again decrease the cash and bank balances which is required by the company to pay off debts. Future there is a large amount of debt to be paid to creditors, which is not safe to the liquid position of the company.
Due to liabilities of the working capital of the company is affecting a lot. This may affect day to day activities of the company and the company may require paying of additional interest on these debts. The sales of the company are increasing in the same way the expenses are also increasing. The expenses can be reduced by not investing in unnecessary things. The net profit of the company has been decreased this year when compared to past years. Due to increase in administration expense and other expenses the company should take necessary steps to improve in certain places.
The overall position of the company is satisfactory because it deals with the government electronic and defense products but it needs to check out where it is a lagging behind and improve it. However the company is public enterprise it is submitted that indirect specific norms are not consideration due to lack of information. If all the employees of the company can work efficiently and effectively in the company it can reach to great heights in our country. Conclusion:Liquidity ratios, both current ratio and quick ratio are showing effectiveness in liquidity as in all the years current ratio is greater than the standard 2:1 and quick ratio is greater than the standard 1:1 ratio. The firm is maintaining a low cash balance and marketable securities which means they done cash payments. Debt equity ratio, solvency ratio and interest coverage ratio are showing an average increase in the long term solvency of the firm. The proprietary ratio is showing an average increase which means, the shareholders have contribute more funds to the total assets.
Average payment period of the firm is showing the credit worthiness of the firm to its suppliers. Fixed assets turnover ratio is showing that the firm needs lesser investment in fixed assets to generate sales. The increasing trend of current assets turnover ratio indicates that the firm needs more investment in current assets for generating sales. The gross profit ratio, net profit ratio is showing the increasing trends. The profitability of the firm the increasing.
Operating ratio of the company has observed decreasing trend, hence it may be good control over the operating expenses. The interest that has to be paid is very less when compared to the sales. The firm is not utilizing the debt conservatively. The firm is retaining much of the earnings (based on dividend payout ratio) .The company financial performance is very good and also they will increase their business year by year by expanding their branches.