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Chapter 1
1 . 1 C o m p a n y P r o f i l e
Name of Organisation:- Kiran Machine Tools Ltd.(KMT)
Registed Office:- 6,Dhake Colony, Jilha Peth, Jalgaon 425001
Plant:- I-1, MIDC Area, Ajanta Road,Jalgoan 425003
Telphone Number:- 91-0257-2211989
Fax:- 91-0257-2212869
Email ID:- [email protected], [email protected]
Website:- www.kmtsprings.com
Nature of Production:- All types of springs and tools required for automobilebrakes.
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1.2 Corporate Profile
Kiran Machine Tools Limited (KMT) believes in delivering
performance to the Best level By maintaining top-notch quality product and
service in consistent manner. That is way Kiran machine Tools Ltd team today is
trusted by global brands such as Honda, Bosch, Renault, and Maruti etc. Till
date, we have materialized our reputation by careful selection of material, state of
the art production facility, continuous monitoring of production process, qualified
and experience team, ISO9001 quality control procedures and our persistence to
deliver customer satisfaction to the fullest extent.
Ours is a public limited Company established in the year 1995, by founder
and managing director Dr.Ramesh B Chaudhari (BE-Mech,UNO Hon
Doctorate) who has over thirty year of experience in engineering industry and is
distinguished by many prestigious awards including International Quality
Excellence award by International Business Prod forum, India and many other
KMTs highly professional and technocrat engineers team today is managing
supply of 2,000,000 qty per month involving over three hundred spring designs on
Direct Online (DOL) basis to existing customer, Recent addition of Mr. Chetan R
Chaudhari as executive director (BE-Mech, MS-USA), who has received
outstanding academic achievement award from IIT Chicago and having three
years of experience as design engineer in USA, has further consolidated the
promise for growth and companys ability to provide quality solutions.
We are ISO 9001-2000 company manufacturing highly precision products.
Our company is located on state high way at Jalgaon, Maharashtra, India,
comprising Plot area 16225sq.m and built up area 1226.20sq.m in green
environment. There are two major divisions:
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I. Springs Division:
II. Tool Room Division.
I. In Spring Division we are manufacturing all types of spring required for
automobile brakes & for other assembly, Railways etc.
II. A) In Tool Room Division we are manufacturing Die Pillar sets required
for thermoplastics machine which are used to manufacture (use and
throw ) cups, dish and containers for food packaging.
B) Jig fixtures, gauges and SPM.
SPRING DIVISION:
In spring division, we are manufacturing compression, tension,torsion springs ranging from 0.2-8.0 mm used for applications such as two , three
and four wheelers automobile brakes, rail ways, automobile suspension etc. we are
sole suppliers to BOSCH CHASSIS SYSTEM INDIA LTD, Jalgaon and BOSCH
CHASSIS SYSTEM INDIA LTD Chakan, Pune where in these brakes are used as
OEM by automobile manufacturers like Maruti Udyog Ltd , M & M , Tata Motors,
Bajaj Auto & Honda Motors etc. Our springs are supplied to BOSCH CHASSIS
SYSTEM INDIA LTD on Direct Online (DOL) basis.
We are also proud to inform you that our springs have been already
approved by world leaders such as BOSCH-JAPAN and HONDA meeting their
stringent quality norms. General Motors is also using our springs for Panther
vehicle, after performing extensive testing and inspections, our springs etc. We have
achieved the 100% schedule and 99.8% Vendor Rating with our existing suppliers.
It demonstrates our commitment to Quality and timely service.
For spring our sales is increasing by more than 25% every year. We are keen
to collaborate with Multinational Company for spring production and marketing.
Because of our in spring manufacturing, today we are sole supplier to BOSCH
CHASSIS SYSTEM INDIA LTD. Very soon we are expanding our OEM customer
base we are keen to be one of the national and international players, and feel
confident to achieve our goals with key tools such as expert team, quality and cost
advantage.
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TOOL ROOM DIVISION:
In Tool room division we manufacture Die Piller Sets, Jigs, Fixtures,
Gauges special purpose machines etc. we are a major supplier of M/s Wonder pack
industries Pvt. Ltd. who has collaborated with American firm M/s IRWIN and is
growing its markets very fast globally. The products of these machines are used in
various applications such as Cups and Mugs Dishes and packaging Industries. There
is a tremendous demand for these machine in India as well as overseas. We have
supplied jigs, fixtures to M/s Bajaj Auto Ltd and attained 100% vendor rating.
As we have now developed the skill and expertise for manufacturing world class
quality spring fixtures, gauges and die sets and we feel confident to serve ourcustomers to the global level.
EXPANSION PLANS:
Soon we are expanding our OEM customer base by implementing infrastructure,
latest machinery and testing equipments to full fill the customer needs.
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Valuable Customer:
1. BOSCH CHASIS SYSTEMS INDIA LTD.JALGAON2. BOSCH CHASIS SYSTEMS INDIA LTD.CHAKAN3. BOSCH CHASIS SYSTEMS INDIA LTD.MANESAR4. BOSCH CHASIS SYSTEMS INDIA LTD.SITARGANJ5. KBX MOTORBIKE6. DEVLAL FLOWTECH, PUNE7. VIRGO, PUNE8. MODERN THERMOPLASTICS , MUMBAI9. SUPRAJIT ENGINEERING , PUNE10.JAIN IRRIGATION SYSTEMS LTD.11.TATA AUTOCAMP SYSTEMS, PUNE12.INDIAN RAILWAYS13.WONDER PACK INDUSTRIES PVT LTD NASIK14.BAJAJ AUTO AURANGABAD15.SPECTRUM FABRICATORS
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HIGHLIGHTS
y Almost 60% Vehicles in India are using our springs in their brake systemsy Honda, General motors, Renault, Toyota, Maruti-Suzuki, Tata, Bajaj,
Piaggio, M&M , Railways etc. are our producers and users.
y Supplying on DOL (Direct Outline) basis to BOSCHy Honored byGovt. Of India Ministry of company affairs with Quality
Excellence Award, Hon.Doctiratr by UNO-Colombo Etc
y Producing world class quality springs meeting BOSCH (global) norms.y Fast product developments due toInhouse Standard Tool room setupy Also Manufacturing Value springs, rectangular wire springs, SS springs etc.
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Chapter 2
2.1Objective Of The Study
The major objectives of the resent study are to know about financial
strengths and weakness of Kiran Machine Tools Ltd. through FINANCIAL RATIO
ANALYSIS.
The main objectives of resent study aimed as:
To evaluate the performance of the company by using ratios as a
yardstick to measure the efficiency of the company. To understand the liquidity,
profitability and efficiency positions of the company during the study period. To
evaluate and analyze various facts of the financial performance of the company. To
make comparisons between the ratios during different periods.
OBJECTIVES
1. To study the present financial system of company.2. To determine the Profitability, Liquidity Ratios.3. To analyze the capital structure of the company with the help of
Leverage ratio.
4. To offer appropriate suggestions for the better performance of theorganization
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2.2RESEARCH METHODOLOGY
The information is collected through secondary sources during the
project. That information was utilized for calculating performance evaluation and
based on that, interpretations were made.
Sources of secondary data:
1. Most of the calculations are made on the financial statements of the companyprovided statements.
2. Referring standard texts and referred books collected some of theinformation regarding theoretical aspects.
3. Method- to assess the performance of the company method of observation ofthe work in finance department in followed.
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2.3LIMITATION OF THE STUDY
1. The study provides an insight into the financial, personnel, marketing andother aspects of Kiran Machine Tools. Every study will be bound with
certain limitations.
2. The below mentioned are the constraints under which the study is carriedout.
3. One of the factors of the study was lack of availability of ample information.Most of the information has been kept confidential and as such as not assed
as art of policy of company.
Time is an important limitation. The whole study was conducted in a
period of 60 days, which is not sufficient to carry out proper interpretation
and analysis.
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2.4 RATIO ANALYSIS
FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths
and weaknesses of the firm and establishing relationship between the items of the
balance sheet and profit & loss account.
Financial ratio analysis is the calculation and comparison of ratios,
which are derived from the information in a companys financial statements. The
level and historical trends of these ratios can be used to make inferences about a
companys financial condition, its operations and attractiveness as an investment.
The information in the statements is used by
y Trade creditors, to identify the firms ability to meet their claims i.e. liquidityposition of the company.
y Investors, to know about the present and future profitability of the companyand its financial structure.
y Management, in every aspect of the financial analysis. It is the responsibilityof the management to maintain sound financial condition in the company.
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RATIO ANALYSIS
The term Ratio refers to the numerical and quantitative relationship
between two items or variables. This relationship can be exposed as
y Percentagesy Fractionsy Proportion of numbers
Ratio analysis is defined as the systematic use of the ratio to interpret
the financial statements. So that the strengths and weaknesses of a firm, as well as its
historical performance and current financial condition can be determined. Ratio
reflects a quantitative relationship helps to form a quantitative judgment.
STEPS IN RATIO ANALYSIS
y The first task of the financial analysis is to select the information relevant tothe decision under consideration from the statements and calculates
appropriate ratios.
y To compare the calculated ratios with the ratios of the same firm relating tothe pas6t or with the industry ratios. It facilitates in assessing success or
failure of the firm.
y Third step is to interpretation, drawing of inferences and report writingconclusions are drawn after comparison in the shape of report or
recommended courses of action.
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BASIS OR STANDARDS OF COMPARISON
Ratios are relative figures reflecting the relation between variables.
They enable analyst to draw conclusions regarding financial operations. They use of
ratios as a tool of financial analysis involves the comparison with related facts. This
is the basis of ratio analysis. The basis of ratio analysis is of four types.
y Past ratios, calculated from past financial statements of the firm.y Competitors ratio, of the some most progressive and successful competitor
firm at the same point of time.
y Industry ratio, the industry ratios to which the firm belongs toy Projected ratios, ratios of the future developed from the projected or pro
forma financial statements
NATURE OF RATIO ANALYSIS
Ratio analysis is a technique of analysis and interpretation of
financial statements. It is the process of establishing and interpreting various ratios
for helping in making certain decisions. It is only a means of understanding of
financial strengths and weaknesses of a firm. There are a number of ratios which can
be calculated from the information given in the financial statements, but the analyst
has to select the appropriate data and calculate only a few appropriate ratios. The
following are the four steps involved in the ratio analysis.
y Selection of relevant data from the financial statements depending upon theobjective of the analysis.
y Calculation of appropriate ratios from the above data.y Comparison of the calculated ratios with the ratios of the same firm in the
past, or the ratios developed from projected financial statements or the ratios
of some other firms or the comparison with ratios of the industry to which
the firm belongs.
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INTERPRETATION OF THE RATIOS
The interpretation of ratios is an important factor. The inherent
limitations of ratio analysis should be kept in mind while interpreting them. The
impact of factors such as price level changes, change in accounting policies, window
dressing etc., should also be kept in mind when attempting to interpret ratios. The
interpretation of ratios can be made in the following ways.
y Single absolute ratioy Group of ratiosy Historical comparisony Projected ratiosy Inter-firm comparison
GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS
The calculation of ratios may not be a difficult task but their use is
not easy. Following guidelines or factors may be kept in mind while interpreting
various ratios are
y Accuracy of financial statementsy Objective or purpose of analysisy Selection of ratiosy Use of standardsy Caliber of the analysis
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IMPORTANCE OF RATIO ANALYSIS
y Aid to measure general efficiencyy Aid to measure financial solvencyy Aid in forecasting and planningy Facilitate decision makingy Aid in corrective actiony Aid in intra-firm comparisony Act as a good communicationy Evaluation of efficiencyy Effective tool
LIMITATIONS OF RATIO ANALYSIS
y Differences in definitionsy Limitations of accounting recordsy Lack of proper standardsy No allowances for price level changesy Changes in accounting proceduresy Quantitative factors are ignoredy Limited use of single ratioy Background is over lookedy Limited usey Personal bias
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CLASSIFICATIONS OF RATIOS
The use of ratio analysis is not confined to financial manager only.
There are different parties interested in the ratio analysis for knowing the financial
position of a firm for different purposes. Various accounting ratios can be classified
as follows:
1. Traditional Classification2. Functional Classification3. Significance ratios
1.Traditional Classification
It includes the following.
y Balance sheet (or) position statement ratio: They deal with the relationshipbetween two balance sheet items, e.g. the ratio of current assets to current
liabilities etc., both the items must, however, pertain to the same balance
sheet.
y Profit & loss account (or) revenue statement ratios: These ratios deal with therelationship between two profit & loss account items, e.g. the ratio of gross
profit to sales etc.,
y Composite (or) inter statement ratios: These ratios exhibit the relation between a profit & loss account or income statement item and a balance
sheet items, e.g. stock turnover ratio, or the ratio of total assets to sales.
2. Functional Classification
These include liquidity ratios, long term solvency and leverage ratios,
activity ratios and profitability ratios.
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3. Significance ratios
Some ratios are important than others and the firm may classify them
as primary and secondary ratios. The primary ratio is one, which is of the prime
importance to a concern. The other ratios that support the primary ratio are called
secondary ratios.
IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE
RATIOS ARE
1. Liquidity ratio
2. Leverage ratio
3. Activity ratio
4. Profitability ratio
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1. LIQUIDITY RATIOS
Liquidity refers to the ability of a concern to meet its current
obligations as & when there becomes due. The short term obligations of a firm can
be met only when there are sufficient liquid assets. The short term obligations are
met by realizing amounts from current, floating (or) circulating assets The current
assets should either be calculated liquid (or) near liquidity. They should be
convertible into cash for paying obligations of short term nature. The sufficiency
(or) insufficiency of current assets should be assessed by comparing them with
short-term current liabilities. If current assets can pay off current liabilities, then
liquidity position will be satisfactory.
To measure the liquidity of a firm the following ratios can be
calculated
y Current ratioy Quick (or) Acid-test (or) Liquid ratioy Absolute liquid ratio (or) Cash position ratio
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(a) CURRENT RATIO:
Current ratio may be defined as the relationship between
current assets and current liabilities. This ratio also known as Working capital ratio
is a measure of general liquidity and is most widely used to make the analysis of a
short-term financial position (or) liquidity of a firm.
Current assets
Current ratio =
Current liabilities
Components of current ratio
CURRENT ASSETS CURRENT LIABILITIES
Cash in hand Outstanding or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payableInventories Short-term advances
Work-in-progress Sundry creditors
Marketable securities Dividend payable
Short-term investments Income-tax payable
Sundry debtors
Prepaid expenses
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(b) QUICK RATIO
Quick ratio is a test of liquidity than the current ratio. The term
liquidity refers to the ability of a firm to pay its short-term obligations as & when
they become due. Quick ratio may be defined as the relationship between quick or
liquid assets and current liabilities. An asset is said to be liquid if it is converted into
cash within a short period without loss of value.
Quick or liquid assets
Quick ratio =Liquid liabilities
Components of quick or liquid ratio
QUICK ASSETS CURRENT LIABILITIES
Cash in hand Out standing or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payable
Sundry debtors Short-term advances
Marketable securities Sundry creditors
Temporary investments Dividend payable
Income tax payable
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(c) ABSOLUTE LIQUID RATIO
Although receivable, debtors and bills receivable are generally more
liquid than inventories, yet there may be doubts regarding their realization into cash
immediately or in time. Hence, absolute liquid ratio should also be calculated
together with current ratio and quick ratio so as to exclude even receivables from the
current assets and find out the absolute liquid assets.
Absolute liquid assets
Absolute liquid ratio =Absolute liquid liabilities
Absolute liquid assets include cash in hand etc. The acceptable forms
for this ratio is 50% (or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are
considered to pay Rs.2 worth current liabilities in time as all the creditors are nor
accepted to demand cash at the same time and then cash may also be realized from
debtors and inventories.
Components of Absolute Liquid Ratio
ABSOLUTE LIQUID ASSETS CURRENT LIABILITIES
Cash in hand Out standing or accrued expenses
Cash at bank Bank over draft
Interest on Fixed Deposit Bills payable
Short-term advancesSundry creditors
Dividend payable
Income tax payable
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2. LEVERAGE RATIOS
The leverage or solvency ratio refers to the ability of a concern to
meet its long term obligations. Accordingly, long term solvency ratios indicate
firms ability to meet the fixed interest and costs and repayment schedules
associated with its long term borrowings.
The following ratio serves the purpose of determining the solvency of
the concern.
y Proprietory ratio(a) PROPRIETORY RATIO
A variant to the debt-equity ratio is the proprietory ratio which is also
known as equity ratio. This ratio establishes relationship between share holdersfunds to total assets of the firm.
Shareholders funds
Proprietory ratio =
Total assets
SHARE HOLDERS FUND TOTAL ASSETS
Share Capital Fixed Assets
Reserves & Surplus Current Assets
Cash in hand & at bank
Bills receivable
Inventories
Marketable securities
Short-term investments
Sundry debtors
Prepaid Expenses
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3. ACTIVITY RATIOS
Funds are invested in various assets in business to make sales and
earn profits. The efficiency with which assets are managed directly effect the
volume of sales. Activity ratios measure the efficiency (or) effectiveness with whicha firm manages its resources (or) assets. These ratios are also called Turn over
ratios because they indicate the speed with which assets are converted or turned
over into sales.
y Working capital turnover ratioy Fixed assets turnover ratioy Capital turnover ratioy Current assets to fixed assets ratio
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(a) WORKING CAPITAL TURNOVER RATIO
Working capital of a concern is directly related to sales.
Working capital = Current assets - Current liabilities
It indicates the velocity of the utilization of net working capital. This
indicates the no. of times the working capital is turned over in the course of a year.
A higher ratio indicates efficient utilization of working capital and a lower ratio
indicates inefficient utilization.
Working capital turnover ratio=cost of goods sold/working capital.
Components of Working Capital
CURRENT ASSETS CURRENT LIABILITIES
Cash in hand Outstanding or accrued expenses
Cash at bank Bank over draft
Bills receivable Bills payable
Inventories Short-term advances
Work-in-progress Sundry creditors
Marketable securities Dividend payable
Short-term investments Income-tax payable
Sundry debtors
Prepaid expenses
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(b) FIXED ASSETS TURNOVER RATIO
It is also known as sales to fixed assets ratio. This ratio measures the
efficiency and profit earning capacity of the firm. Higher the ratio, greater is the
intensive utilization of fixed assets. Lower ratio means under-utilization of fixed
assets.
Sales
Fixed assets turnover ratio =
fixed assets
Cost of Sales = Income from Services
Fixed Assets = Fixed Assets - Depreciation
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(c) CAPITAL TURNOVER RATIOS
Sometimes the efficiency and effectiveness of the operations are
judged by comparing the cost of sales or sales with amount of capital invested in the
business and not with assets held in the business, though in both cases the same
result is expected. Capital invested in the business may be classified as long-term
and short-term capital or as fixed capital and working capital or Owned Capital and
Loaned Capital. All Capital Turnovers are calculated to study the uses of various
types of capital.
Sales
Capital turnover ratio =
Capital employed
Sales = Income from Services
Capital Employed = Capital + Reserves & Surplus
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(d) CURRENT ASSETS TO FIXED ASSETS RATIO
This ratio differs from industry to industry. The increase in the ratio
means that trading is slack or mechanization has been used. A decline in the ratio
means that debtors and stocks are increased too much or fixed assets are more
intensively used. If current assets increase with the corresponding increase in profit,
it will show that the business is expanding.
Current Assets
Current Assets to Fixed Assets Ratio =
Fixed Assets
Component of Current Assets to Fixed Assets Ratio
CURRENT ASSETS FIXED ASSETS
Cash in hand Machinery
Cash at bank Buildings
Bills receivable Plant
Inventories Vehicles
Work-in-progress
Marketable securities
Short-term investments
Sundry debtors
Prepaid expenses
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4. PROFITABILITY RATIOS
The primary objectives of business undertaking are to earn profits.
Because profit is the engine, that drives the business enterprise.
y Net profit ratioy Return on total assetsy Reserves and surplus to capital ratioy Earnings per sharey Operating profit ratioy Price earning ratioy Return on investments
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(a) NET PROFIT RATIO
Net profit ratio establishes a relationship between net profit (after tax)
and sales and indicates the efficiency of the management in manufacturing, selling
administrative and other activities of the firm.
Net profit
Net profit ratio=
Sales
Net Profit = Net Profit () Depreciation () Interest () Income Tax
Sales = Income from Services
It also indicates the firms capacity to face adverse economic
conditions such as price competitors, low demand etc. Obviously higher the ratio,
the better is the profitability.
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(b) RETURN ON TOTAL ASSETS
Profitability can be measured in terms of relationship between net
profit and assets. This ratio is also known as profit-to-assets ratio. It measures the
profitability of investments. The overall profitability can be known.
Net profit
Return on assets =
Total assets
Net Profit = Earnings before Interest and Tax
Total Assets = Fixed Assets + Current Assets
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(c) RESERVES AND SURPLUS TO CAPITAL RATIO
It reveals the policy pursued by the company with regard to growth
shares. A very high ratio indicates a conservative dividend policy and increased
ploughing back to profit. Higher the ratio better will be the position.
Reserves& surplus
Reserves & surplus to capital =
Capital
(d) EARNINGS PER SHARE
Earnings per share is a small verification of return of equity and is
calculated by dividing the net profits earned by the company and those profits after
taxes and preference dividend by total no. of equity shares.
Net profit after tax
Earnings per share =
Number of Equity shares
The Earnings per share is a good measure of profitability when
compared with EPS of similar other components (or) companies, it gives a view of
the comparative earnings of a firm.
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(e) OPERATING PROFIT RATIO
Operating ratio establishes the relationship between cost of goods
sold and other operating expenses on the one hand and the sales on the other.
Operating Profit
Operation ratio =
Net sales
However 75 to 85% may be considered to be a good ratio in case of a
manufacturing under taking.
Operating profit ratio is calculated by dividing operating profit by
sales.
Operating profit = Gross Profit - Operating Expenses
Operating profit
Operating profit ratio =
Sales
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(f) PRICE - EARNING RATIO
Price earning ratio is the ratio between market price per equity share
and earnings per share. The ratio is calculated to make an estimate of appreciation in
the value of a share of a company and is widely used by investors to decide whether
(or) not to buy shares in a particular company.
Generally, higher the price-earning ratio, the better it is. If the price
earning ratio falls, the management should look into the causes that have resulted
into the fall of the ratio.
Market Price per Share
Price Earning Ratio =
Earnings per Share
Capital + Reserves & Surplus
Market Price per Share =
Number of Equity Shares
Earnings before Interest and Tax
Earnings per Share = Number of Equity Shares
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(g) RETURN ON INVESTMENTS
Return on share holders investment, popularly known as Return on
investments (or) return on share holders or proprietors funds is the relationship
between net profit (after interest and tax) and the proprietors funds.
Net profit
Return on shareholders investment=
Shareholders funds
The ratio is generally calculated as percentages by multiplying the above with 100.
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Chapter 3
3.1L T RAT
1. CURRE T RAT
(Amount in Rs.)
Current Ratio
Year Current Assets Current Liabilities Ratio
2008 12739426 4741815 2.69
2009 18898733 5535069 3.41
2010 21265913 5756315 3.69
Table 1
GRAPHICAL REPRE E TATION
Chart 1
Interpretation
As a rul t current rati wit 2:1 (or) more is consi ered as
satisfactory position oft e firm.When compared with 2008, there is an increase in
the provision for tax, because the debtors are raised and for that the provision is
created.The sundry debtors have increased due to the increase to corporate taxes.
In the year 2008, the cash and bank balance is reduced because that is used
for payment of dividends. In the year 2010, the loans and advances include majorly
the advances to employees and deposits to government. The loans and advances
reduced because the employees set offtheir claims. The other current assets include
0
1
2
3
4
2008 2009 2010
Current Ratio
Current Ratio
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the interest attained from the deposits. The deposits reduced due to the declaration of
dividends. So the other current assets decreased.
The huge increase in sundry debtors resulted an increase in the ratio,
which is above the benchmark level of 2:1 which shows the comfortable position of
the firm.
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2. QUICK RATIO
(Amount in Rs.)
Qui Ratio
Year Liquid Assets Liquid Liabilities Ratio
2008 7438505 4741815 1.57
2009 13391615 5535069 2.42
2010 15482024 5756315 2.69
Table 2
GRAPHICAL REPRE ENTATION
Chart 2
Interpretation
Quick assets are those assets which can be converted into cash with
in a short period of time, say to six months. So, here the sundry debtors which are
with the long period does notinclude in the quick assets.
Compare with 2007, the Quick ratio is increased because the sundry
debtors are increased due to the increase in the corporate tax and for that the
provision created is also increased. So, the ratio is also increased with the 2007.
0
2
3
200 200 20 0
Series 1
S
ri
s
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3. ABOSULTELIQUIDIT RATIO
(Amount in Rs.)
Absolute Cash Ratio
Year Absolute Liquid Assets Current Liabilities Ratio
2008 1436023 4741815 0.30
2009 1079066 5535069 0.19
2010 1596026 5756315 0.27
Table 3
GRAPHICAL REPRESENTATION
Chart 3
Interpretation
The current assets which are ready in the form of cash are considered
as absolute liquid assets. Here, the cash and bank balance and the interest on fixedassts are absolute liquid assets.
In the year 2008, the cash and bank balance is decreased due to
decrease in the deposits and the current liabilities are also reduced because of the
payment of dividend. That causes a slightincrease in the current years ratio.
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
200 200 2010
Liq id Ra i
Liquid Rati
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3.2LE ERAGE RATIOS
4. PROPRIETORY RATIO
(Amount in Rs.)
Proprietory Ratio
Year Share Holders Funds Total Assets Ratio
2008 12767683 27698067 0.46
2009 14527055 32614743 0.45
2010 15913727 42779327 0.37
Table 4
GRAPHICAL REPRESENTATION
Chart 4
Interpretation
The proprietary ratio establishes the relationshi p between
shareholders funds to total assets. It determines the long-term solvency ofthe firm.
This ratio indicates the extentto which the assets ofthe company can be lost without
affecting the interest ofthe company.
Higherthe proprietary ratio better forthe company. In case of Kiranmachine tools ltd. proprietary ratio is not favorable to the company. It shows the
solvency position ofthe firm. Here the ratio is in decreasing trend. Itis as 0.46, 0.45,
and 0.37 respectively. It shows poor working conditions.
0
0.1
0.2
0.3
0.
0.5
200 200 2010
Pr perie ry Ra i
Pr p ri t ry Rati
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3.3ACTIVITY RATIOS
5. WORKING CAPITALTURNOVER RATIO
(Amount in Rs.)
Working CapitalTurnover Ratio
Year Turnover Working Capital Ratio
2008 24213468 7997490 3.03
2009 27398567 13363664 2.05
2010 35344784 15509598 2.28
Table 5
GRAPHICAL REPRESENTATION
Chart 5
Interpretation
Income from services is greatly increased due to the extra invoice for
Operations & Maintenance fee and the working capitalis also increased greater due
to the increase in from services because the huge increase in current assets.
The income from services is raised and the current assets are also
raised together resulted in the decrease ofthe ratio of 2007 compared with 2008.
0
0.5
.5
2
2.5
3
3.5
200
200
20
0
Activity Rati
Activit Ratio
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6. FIXED ASSETS TURNOVER RATIO
(Amount in Rs.)
Fi ed Assets Turnover Ratio
Year Income From Services Net Fixed Assets Ratio
2008 24213468 24747316 0.98
2009 27398567 25452609 1.08
2010 35344784 27432500 1.29
Table 6
GRAPHICAL REPRSENTATION
Chart 6
Interpretation
Fixed assets are used in the business for producing the goods to be
sold. This ratio shows the firms ability in generating sales from all financial
resources committed to total assets. The ratio indicates the account of one rupee
investmentin fixed assets.
The income from services is greaterly increased in the current year
due to the increase in the Operations & Maintenance fee due to the increase inextra
invoice and the net fixed assets are reduced because of the increased charge of
depreciation. Finally, that effected a huge increase in the ratio compared with the
previous years ratio.
0
0.
.
! 008 ! 009 ! 0 " 0
Fixed Assets T r ver Rati
Fix # d Ass # ts Turn $ % # r Rati $
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7. CAPITALTURNOVER RATIO
(Amount in Rs.)
CapitalTurnover Ratio
Year Income From Services Capital Employed Ratio
2008 24213468 12767683 1.89
2009 27398567 14527055 1.88
2010 35344784 15913727 2.22
Table 7
GRAPHICAL REPRESENTATION
Chart 7
Interpretation
This is another ratio tojudge the efficiency and effectiveness of the
company like profitability ratio.
The income from services is greaterly increased compared with the
previous year and the total capital employed includes capital and reserves & surplus.
Due to huge increase in the net profit the capital employed is also increased alongwith income from services. Both are effected in the increment ofthe ratio of current
year.
1.7
1.&
1. '
2
2.1
2.2
2.3
200& 200( 2010
Capital T r ver Rati
Capital Turn) 0 1
r Rati)
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8. CURRENT ASSETS TO FIXED ASSETS RATIO
(Amount in Rs.)
Current Assets To Fi ed Assets Ratio
Year Current Assets Fixed Assets Ratio
2008 7997490 19700577 4.05
2009 13363664 19251079 0.69
2010 21265913 27432500 0.77
Table 8
GRAPHICAL REPRESENTATION
Chart 8
Interpretation
Current assets are increased due to the increase in the sundrydebtors
and the net fixed assets ofthe firm are decreased due to the charge of depreciation
and there is no majorincrementin the fixed assets.
The increment in current assets and the decrease in fixed assets
resulted an increase in the ratio compared with the previous year
0
1
2
3
4
5
2002 2003 2010
Curre tAssets T Fixed Assets Rati
Curr4
nt Ass4
ts T5
Fix4
d Ass4
ts
Rati5
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3.4 PROFITABILITY RATIOS
GENERAL PROFITABILITY RATIOS
9. NET PROFIT RATIO
(Amount in Rs.)
Net Profit Ratio
Year Net Profit After Tax Sales Ratio
2008 2147828 24213468 8.87
2009 2547217 27398567 9.30
2010 2077933 35344784 5.88
Table 9
GRAPHICAL REPRESENTATION
Chart 9
Interpretation
The net profit ratio is the overall measure ofthe firms ability to turn
each rupee ofincome from services in net profit. Ifthe net margin is inadequate the
firm will failto achieve return on shareholders funds. High net profit ratio will helpthe firm service in the fall of income from services, rise in cost of production or
declining demand.
The net profit is increased because the income from services is
increased. The increment resulted a slightincrease in 2008.
It decreases in current year, which may create problem forthe company in future.
0
2
4
6
8
10
2008 2006
2010
NetPr fit Rati
N 7 t Pr8 fit Rati 8
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10. OPERATING PROFIT
(Amount in Rs.)
Operating Profit
Year Operating Profit Sales Ratio
2008 3312579 24213468 0.13
2009 3069468 27398567 0.11
2010 3025655 35344784 0.085
Table 10
GRAPHICAL REPRESENTATION
Chart 10
Interpretation
The operating profit ratio is used to measure the relationship between
net profits and sales of a firm. Depending on the concept, it will decide.
The operating profit ratio is decreased compared with the last year.
The earnings are decreased due to the decrease in the income from services because
ofRecessioin. So, the ratio is decreased slightly compared with the previous year.
0
0.05
0.1
0.15
2009 200 @ 2010
Operati g Pr fit
Op A rating Pr B fit
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11. RETURN ON TOTAL ASSETS RATIO
(Amount in Rs.)
Return on Total Assets Ratio
Year Net Profit After Tax Total Assets Ratio
2008 2147828 36522353 5.88
2009 2547217 42779327 5.95
2010 2077933 43188593 4.81
Table 11
GRAPHICAL REPRESENTATION
Chart 11
Interpretation
This is the ratio between net profit and total assets. The ratio indicates
the return on total assets in the form of profits.
The net profitis increased in the 2008 because ofthe incrementin the
income from services. The fixed assets are reduced due to the charge of depreciation
and no majorincrements in fixed assets butthe current assets are increased because
of sundry debtors and that effects an increase in the ratio compared with the last year
i.e. 2007.
0
1
2
3
C
5
D
7
2008 2009 2010
Retur T tal Assets Rati
RE
turnF
n TF
tal AssE
ts RatiF
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12. RESERVES & SURPLUS TO CAPITAL RATIO
(Amount in Rs.)
Reserves & Surplus To Capital Ratio
Year Reserves & Surplus Capital Ratio
2008 5267683 7500000 0.70
2009 7027055 7500000 0.93
2010 8413727 7500000 1.12
Table 12
GRAPHICAL REPRESENTATION
Chart 12
Interpretation
The ratio is used to revealthe policy pursued by the company a very
high ratio indicates a conservative dividend policy and vice-versa. Higher the ratiobetter will be the position.
The reserves & surplus is decreased in the year 2007, due to the
payment of dividends and in the year 2008 the profitis increased. Butthe capitalis
remaining constant from the year 2007. So the increase in the reserves & surplus
caused a greaterincrease in the current years ratio compared with the older.
0
0.2
0.G
0.H
0.8
1
1.2
2008 2009 2010
Reserves & Surplus T Capital Rati
RI
sI
rP I
s & Surplus TQ
Capital
RatiR
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3.5OVERALL PROFITABILITY RATIOS
13. EARNINGS PER SHARE
(Amount in Rs.)
Earnings Per Share
Year Net Profit After Tax No of Equity Shares Ratio
2008 2147828 7500000 0.29
2009 2547217 7500000 0.34
2010 2077933 7500000 0.27
Table 13
GRAPHICAL REPRESENTATION
Chart 13
Interpretation
Earnings per share ratio are used to find out the return that the shareholders earn
from their shares. After charging depreciation and after payment of tax, the
remaining amount will be distributed by allthe shareholders.
EPS is small variant of return on equity capital. It gives a view of
comparative earnings of firm. High ratio is favorable to the shareholders of
company. In case of Kiran machine tools ltd. it is very poor. In two years it in
increasing trend, butin year 2009. It shows fluctuations in ratio.
EPS in Kiran machine tools ltd. is not favorable to the shareholders.
0
0.1
0.2
0.S
0.4
2008 2009 2010
Ear i gs Per Share
Earnings PT
r SharT
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14. PRICEEARNINGS (P/E) RATIO
(Amount in Rs.)
Pri e Earning (P/E) Ratio
Year Market Price Per Share Earnings Per Share Ratio
2008 17.023 4.05 4.20
2009 19.36 4.69 4.12
2010 21.21 3.14 6.75
Table 14
GRAPHICAL REPRESENTATION
Chart 14
Interpretation
The ratio is calculated to make an estimate of application in the value
of share of a company.
The market price per share is increased due to the increase in the
reserves & surplus. The earnings per share are also increased greaterly compared
with the last year because of increase in the net profit. So, the ratio is increased
compared with the previous year.
0
1
2
U
4
5
V
7
8
2008 2009 2010
Price Ear i g (P/E) Rati
PriW X
Earning (P/E) RatiY
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15. RETURN ON INVEST ENT
(Amount in Rs.)
Return on Investment
Year Net Profit After Tax Share Holders Fund Ratio
2008 2147828 36522353 5.88
2009 2547217 42779327 5.95
2010 2077933 43188593 4.81
Table 15
GRAPHICAL REPRESENTATION
Chart 15
Interpretation
This is the ratio between net profits and shareholders funds. The ratio
is generally calculated as percentage multiplying with 100.
The net profit is increased due to the increase in the income from
services and the shareholders funds are increased because of reserve & surplus. So,
the ratio is decreased in the current year due to recession.
0
1
2
4
5
a
7
2008 2009 2010
Retur I vestme t
Rb
turnc
n Ind b
stmb
nt
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Chapter 4
4.1FINDINGS OF THE STUDY
1. The current ratio has shown in a fluctuating trend as 3.69, 3.41, and 2.69during 2009 of which indicates a continuous increase in both current assets
and current liabilities.
2. The quick ratio is also in a increasing trend throughout the period 2009 10resulting as 1.57, 2.42 and 2.69. The companys present liquidity position is
satisfactory.
3. The absolute liquid ratio has been decreased from 0.30 to 0.19.the period2008 07.
4. The proprietary ratio has shown a fluctuating trend. The proprietary ratio isdecreased compared with the last year. So, the long term solvency of the firm
is satisfactory.
5. The working capital increased from 2.05 to 2.28 in the year 2009 10.6. The fixed assets turnover ratio is in increasing trend from the year 2008 10
(0.98,1.08 and 1.29). It indicates that the company is efficiently utilizing the
fixed assets.
7. The capital turnover ratio is increased form 2008 10 (1.89, 1.88, and 2.22)and decreased in 2009 to 1.88, It increased in the current year as 0.34.
8. The current assets to fixed assets ratio is increasing gradually from 2009 10as 0.69 and 0.77. It shows that the current assets are increased than fixed
assets.
9. The net profit ratio is in fluctuation manner. It decreased in the current yearcompared with the previous year form 9.30 to 5.88.
10.The net profit is decreased greaterly in the current year. So the return on totalassets ratio is decreased from 5.95 to 4.81.
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11.The Reserves and Surplus to Capital ratio is increased to 0.70 from 1.12. Thecapital is constant, but the reserves and surplus is increased in the current
year.
12.The earnings per share was very high in the year 2009 i.e., 0.34. That isdecreased in the following years because number of equity shares are
increased and the net profit is decreased.
13.The operating profit ratio is in fluctuating manner as 0.13, 0.11,and 0.085,from 2008 10 respectively.
14.Price Earnings ratio is increased when compared with the last year. It isincreased from 4.12 to 6.75.
15.The return on investment is decreased from 5.95 to 4.81 compared with the previous year. Both the profit and shareholders funds decrease cause an
decrease in the ratio.
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4.2SUGGETIONS
1. The company should productively utilize the funds.2. Debt equity ratio has not satisfactory for the past two years. So the
company has enough scope for the more long-term borrowings from
the outsiders as its current ratio is also good and has a sufficient
amount of current assets.
3. Company having a significant portion of slow paying debtors, company
should take necessary actions so that to improve the debtors position.
4. Issue the fresh equity shares to reduces the debt burden.
5. The low fixed assets turnover ratio indicates declining trend in capacity
utilization, company should take it seriously.
6. Net profit margin of company is deteriorating in the year 2009-10, The
company activities to turn around its operations.
7. Adoption of profit planning and control techniques such as marginal
costing, cost volume- profit analysis, activity based system.
8. Steps to expand the existing market.
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Chapter 5
5.1SUMMARY
1) After the analysis of Financial Statements, the company status is better, because the Net working capital of the company is increased from the last
years position.
2) The company profits are huge in the current year; it is better to declare thedividend to shareholders.
3) The company is utilising the fixed assets, which majorly help to the growthof the organisation. The company should maintain that perfectly.
4) The company fixed deposits are raised from the inception, it gives the otherincome i.e., Interest on fixed deposits.
5.2CONCLUSION
Financial ratio analysis is the calculation and comparison of ratios, which are
derived from the information in a companys financial statements. The level and
historical trends of these ratios can be used to make inferences about a companys
financial condition, its operations and attractiveness as an investment. So after
studying the companys overall position it come to conclusion as at a particularly the
current years company is in decreasing trend. So it is advised to the company
reduce expenses. It is better for the organization to diversify the funds to different
sectors in the present market scenario. It was observed that ratio analysis is one of
the best tools for analyzing financial statements.
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ANNEXURE
Kiran Machine Tools LTD.
1-1 MIDC JalgonBALANCE SHEET AS ON 31st March 2008
Sr
. Particulars
Sch
No.
As on
31.03.2008
As on
31.03.2007
I Sources of Funds
1 Shareholders Funds
A) Share Capital I 7500000 7500000
B) Reserve & Surplus II 5267683 3986819
2 Loan Funds
Secured Loans III 22310203 25814158
3 Deferred Tax Liability 1444466 1552039
36522352 38853016
II Application Funds
1 Fixed Assets
A) Gross Block IV 24747316 19705318
B) Less: Depreciation V 5046739 4141641C) Net Block 19700577 15563704
2 Investments VI 8819710 15688403
3 Current Asset, Loans &
Advances
A) Inventories VI 5218888 3974064
B) Sundry Debtors VII 4712329 6720518
C) Cash & Bank Balance VIII 1436023 503045
D) Loans & Advances IX 1372186 40101412739426 11598641
Less: Current Liabilities &
Provisions X 4741936 4006887
Net Current Assets 7997490 7591754
4 A) Miscellaneous Expenses XI 4576 9156
36522353 38853017
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Profit & Loss AccountSr
. Particulars
Sch
No.
As on
31.03.2008
As on
31.03.2007
1 IncomeSales & Exceis XII 24213468 23645854
Other Income XIII 540237 2259150
Increase / Decrease in Stock XIV 1244824 (1,023,591)
25998529 24881413
2 Expenditure
Raw Material Purchases XV 9045337 7657199
Manufacturing & Other Expenses XVI 5051347 4865426
Payments & Previsions for
Employees XVII 788833 839994Administration & Selling
Expenses XVIII 6355070 4777409
Financial Charges 812561 669125
22053148 18809153
Profit(Before Depreciation) 3945381 6072260
Less: Depreciation 905126 723216
Profit(After Depreciation) 3040255 5349044
Less: Tax Provisions 892427 2300772
Current Tax 970000 825000
Deferred Tax -107573 1433072
FBT 30000 42700
Less: Appropriation of Profits 877463 855188
Proposed Dividend 750000 750000
Tax on Dividend 127463 105188
Net transferred to B/S 1270365 2193084
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Kiran Machine Tools LTD.
1-1 MIDC Jalgaon
BALANCE SHEET AS ON 31st March 2009
Sr
. Particulars
Sch
No.
As on
31.03.2009
As on
31.03.2008
I Sources of Funds
1 Shareholders Funds
A) Share Capital I 7500000 7500000
B) Reserve & Surplus II 7027055 5267683
2 Loan Funds
Secured Loans III 26173626 22310203
3 Deferred Tax Liability 2078646 1444466
42779327 36522352
II Application Funds
1 Fixed Assets
A) Gross Block IV 25452609 24747316
B) Less: Depreciation V 6201530 5046739C) Net Block 19251079 19700577
2 Investments VI 10164584 8819710
3 Current Asset, Loans &
Advances
A) Inventories VI 5415663 5218888
B) Sundry Debtors VII 9920197 4712329
C) Cash & Bank Balance VIII 1079066 1436023
D) Loans & Advances IX 2483807 137218618898733 12739426
Less: Current Liabilities &
Provisions X 5535069 4741936
Net Current Assets 13363664 7997490
4 A) Miscellaneous Expenses XI 0 4576
42779327 36522353
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Profit & Loss AccountSr
. Particulars
Sch
No.
As on
31.03.2009
As on
31.03.2008
1 Income
Sales & Exceis XII 27398567 24213468
Other Income XIII 1621628 540237
Increase / Decrease in Stock XIV 196,775 1244824
29216970 25998529
2 Expenditure
Raw Material Purchases XV 8941272 9045337
Manufacturing & Other Expenses XVI 8413487 5051347
Payments & Previsions for
Employees XVII 2429058 788833
Administration & Selling Expenses XVIII 3587266 6355070
Financial Charges 1169700 812561
24540783 22053148
Profit(Before Depreciation) 4676187 3945381
Less: Depreciation 1154791 905126
Profit(After Depreciation) 3521396 3040255
Less: Tax Provisions 974179 892427
Current Tax 300000 970000
Deferred Tax 6347179 -107573
FBT 40000 30000
Profit After Tax 2547217 2147828
Less: Appropriation of Profits 877463 877463
Proposed Dividend 750000 750000
Tax on Dividend 127463 127463
Net transferred to B/S 1669754 1270365
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Kiran Machine Tools LTD.
1-1 MIDC Jalgon
BALANCE SHEET AS ON 31st March 2010
Sr. Particulars Sch No.As on31.03.2010
As on31.03.2009
I Sources of Funds
1 Shareholders Funds
A) Share Capital I 7500000 7500000
B) Reserve & Surplus II 8413727 7027055
2 Loan Funds
Secured Loans III 24915219 26173626
3 Deferred Tax Liability 2359647 2078646
43188593 42779327
II Application Funds
1 Fixed Assets
A) Gross Block IV 27432500 25452609
B) Less: Depreciation V 7431092 6201530
C) Net Block 20001408 19251079
2 Investments VI 7677587 10164584
3 Current Asset, Loans & Advances
A) Inventories VI 5783889 5415663
B) Sundry Debtors VII 11418699 9920197
C) Cash & Bank B balance VIII 1596026 1079066
D) Loans & Advances IX 2467299 2483807
21265913 18898733
Less: Current Liabilities &
Provisions X 5756315 5535069
Net Current Assets 15509598 13363664
4 A) Miscellaneous Expenses XI 0 0
43188593 42779327
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Profit & Loss Account
Sr. Particulars
Sch
No.
As on
31.03.2010
As on
31.03.2009
1 Income
Sales & Exceis XII 35344784 27398567
Other Income XIII 772835 1621628
Increase / Decrease in Stock XIV 368226 196,775
36485845 29216970
2 Expenditure
Raw Material Purchases XV 11174956 8941272
Manufacturing & Other Expenses XVI 9378438 8413487
Payments & Previsions for Employees XVII 2987472 2429058
Administration & Selling Expenses XVIII 7916927 3587266
Financial Charges 1439555 1169700
32897348 24540783
Profit(Before Depreciation) 3588497 4676187
Less: Depreciation 1229562 1154791
Profit(After Depreciation) 2358935 3521396
Less: Tax Provisions 281002 974179
Current Tax 0 300000
Deferred Tax 281002 6347179
FBT 0 40000
Profit After Tax 2077933 2547217
Less: Appropriation of Profits 877463 877463
Proposed Dividend 750000 750000
Tax on Dividend 127463 127463
Net transferred to B/S 1200470 1669754
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Bibliography
Annual Reports of Kiran Machine Tools Ltd. IM .Pandey, Financial Management 8th Edition, Vikas Publishing
house Pvt Ltd, 6th
Reprint -2006- New Delhi.
Ravi M. Kishore, Financial Management, 6 Edition Reprint 2007,TAXMANNS Allied Services (P) Ltd. New Delhi.
WEB SITES
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