Authorised Learning Centre

ACIIT INSTITUTE, Ludhiana.

Learning Centre Code No. 1788

“FINANCIAL RATIO ANALYSIS OF KOTAK MAHINDRA

BANK”

BY

Varun Sachdeva

Roll No.: 581127281

A project report submitted in partial fulfillment of the requirement for

Master of Business Administartion

in

Finance

Of Sikkim Manipal University, INDIA

S I K K I M M A N I P A L U N I V E R S I T Y

Directorate of Distance Education

Annexure B

I here by declare that the project report entitled

“FINANCIAL RATIO ANALYSIS OF KOTAK MAHINDRA BANK”

Submitted in partial fulfillment of the requirement for the degree of

Master of Business Administartion

in

Finance

To Sikkim Manipal University, INDIA

Is my original work and not submitted for the award of any other degree, diploma fellowship, or any other

similar title or prizes

Place: Ludhiana Varun Sachdeva

Date: ___________ Reg. No.: 581127281

Annexure C

The Project Report of

Varun Sachdeva

Is approved and is acceptable in quality and form

Internal Examiner External Examiners

(Name, Qualification and Designation) (Name, Qualification)

Annexure D

This is to certify that the project report entitled

“FINANCIAL RATIO ANALYSIS OF KOTAK MAHINDRA BANK”

Submitted in partial fulfillment of the requirement for the degree of

Master of Business Administartion

in

Finance

Of Sikkim Manipal University, INDIA

S I K K I M M A N I P A L U N I V E R S I T Y

Directorate Distance Education

Varun Sachdeva

Has worked under my supervision and guidance and that no part of this report has been submitted for the award of any other degree, Diploma, Fellowship or other similar titles or prizes and that the work

has not been published in any journal or Magazine.

(Reg. No. 581127281) Certified

[Enter Guide Name]

([Enter Qualification of Guide])

[Enter Designation of Guide]

PREFACE

“One can learn more about a road by travelling it, than by consulting all the maps

in the world”.

In the present age of business when profit maximization is the prime motive of every

man, Price quality & service are the major trust areas to conquer the market. Initiative,

foresight, talent & competency are imperative to manage the modern business.

The MBA course inculcates those skills in students, which prepare them to face the

challenges of business world. In the midst of the course, project work in some business

organization is arranged for the student that is very essential. Such training gives practical

experience and helps the students to view the real business world closely, which in turn

widely influences their conception and perceptions.

The project become more significant when it is done in a reputed & fast growing

professionally managed organization like Kotak Mahindra Bank . We were really

fortunate to get an opportunity to work with it. I must forewarn that this project is not a

work of excellence by scholar. It is a student attempt to watch, analyze & understand the

practical aspects by applying theoretical knowledge & concepts. I have made best

possible attempt to accomplish the work assigned.

ACKNOWLEDGEMENT

“A Kind Thought Has A More Than A Material Gift Because It Cannot Be Bought”

First of all I would like to thank almighty for vesting me wisdom without which I would

not be able to carry out this project.

A project usually falls short of its expectations unless guided by the right person at the

right time. This project would not have been completed without the direct or indirect help

and guidance of the staff of Kotak Mahindra Bank. They provided us with the necessary

resources and an environment conducive for healthy learning and training under their

able guidance.

The summer training was an amazing experience. It gave the much needed knowledge. I

got a chance to understand the activities performed. However, this would not have been

possible without the noble attitude of some persons in bank. At the outset, I would like to

take this opportunity to gratefully acknowledge the very kind and patient guidance and

encouragement that I have received from our CHIEF MANAGER MR. HARSH

MARWAHA. Last but not the least I would like to thank all the staff of bank who had

directly or indirectly supported me in completion of my project report.

VARUN SACHDEVA

INDEX

Sr.No. Contents

1. Introduction of ratio analysis

2. Steps in ratio analysis

3. Significance of ratio analysis

4. Trend, industry analysis

5. Standards of comparison

6. Classification of ratios

7. Organization profile

About company, its formation

Progress so far

Kotak’s businesses

Mission of company

Vision statement

Promises, services, awards,principles

8. Research objectives & scope

9. Research methodology

Intro, steps in research, sampling

Data collection, limitations

10. Data interpretation & presentation

Profit & loss a/c, balance sheet

Calculation of ratios

Presentation in graphs

11. Findings

12. Suggestions

13. Bibliography

CHAPTER-1

INTRODUCTION

RATIO ANALYSIS

DEFINITION OF RATIO ANALYSIS :

There are various methods or techniques used in analyzing financial statements such as

comparative statements, trend analysis, common-size statements, schedule of changes in

working capital, fund flow and cash flow analysis, cost-volume profit analysis and the

ratio analysis.

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic

use of ratio to interpret the financial statements so that the strength and weaknesses of a

firm as well as its historical performance and current financial condition can be

determined. The term ratio refers to the numerical or quantitative relationship between

two variables. In other words we can say that ratio analysis is a technique of analysis and

interpretation of financial statements. It is a process of establishing and interpreting

various ratios for helping in making certain decisions. Ratios serve as a means of better

understanding of company’s performance as a whole. It is with the help of ratios that the

financial statements i.e. profit and loss account and the Balance sheet can be analysed

more clearly and decisions made more accurately from such analysis.

STEPS INVOLVED IN THE RATIO ANALYSIS:- The following are thefour

steps involved in the ratio analysis:

1. Selection of relevant data from the financial statements i.e. from the Profit and loss

account or the Income statement as the case may and the Balance sheet depending

upon the objective of the analysis of the concerned organization..

2. Then we will calculate the appropriate ratios from the above data.

3. Next step is the comparison of the calculated ratios with the ratios of the same firm

in the past or the ratios developed from the projected financial statements or the

ratios of some other firms or the comparison with ratios of the industry to which

the firm belongs.

4. Last but not the least we make interpretation of the ratios and thus draw

conclusions.

SELECTION OF DATA CALCULATION OF RATIOS

COMPARISON OF RATIOS INTERPRETATION OF

RATIOS

SIGNIFICANCE OR IMPORTANCE OF RATIO ANALYSIS :The significance or the importance of ratio analysis are as follows:

HELPS IN EVALUATING THE FIRM’S PERFORMANCE: With the help of

ratio analysis conclusion can be drawn regarding several aspects such as financial

health, profitability and operational efficiency of the undertaking. Ratio points out the

operating efficiency of the firm i.e. whether the management has utilized the firm’s

assets correctly, to increase the investor’s wealth. It ensures a fair return to its owners

and secures optimum utilization of firm’s assets.

HELPS IN COMMUNICATING: The financial strength and weakness of a firm are

communicated in a more easy and understandable manner by the use of ratios. The

info contained in the financial statements is conveyed in a meaningful manner to the

one for whom it is meant. Thus, ratios help in communication and enhance the value

of the financial statements.

HELPS IN INTER FIRM COMPARISION:Ratio analysis helps in inter-firm

comparison by providing necessary data. An inter-firm comparison indicates relative

position.It provides the relevant data for the comparison of the performance of

different departments. If comparison shows avariance, the possible reasons of

variations may be identified & if results are negative, the actions may be initiated

immediately to bring them as desired.

HELPS IN CO-ORDINATION:Ratios even help in co-ordination which is of utmost

importance in effective business management. Better communication of efficiency and

weakness of an enterprise and weakness of an enterprise results in better co-ordination

in the enterprise.

HELPS IN CONTROL :Ratio analysis even helps in making effective control of the

business. Standard ratios can be based upon proforma financial statements and

variances or deviations, if any, can be found by comparing the actual with the

standards so as to take a corrective action at the right time. The weaknesses or

otherwise, if any, come to the knowledge of the management which helps in effective

control of the business.

SIMPLIFIES FINANCIAL STATEMENT :The information given in the basic

financial statements serves no useful Purpose unless it is interpreted and analyzed in

some comparable terms. The ratio analysis is one of the tools in the hands of those

who want to know something more from the financial statements in the simplified

manner.

HELPS IN DETERMINING THE FINANCIAL POSITION OF THE

CONCERN: Ratio analysis facilitates the management to know whether the firm’s

financial position is improving or deteriorating or is constant over the years by setting

a trend with the help of ratios The analysis with the help of ratio analysis can know

the direction of the trend of strategic ratio may help the management in the task of

planning, forecasting and controlling.

HELPS IN BUDGETING AND FORECASTING:Accounting ratios provide a

reliable data, which can be compared, studied and analyzed. These ratios provide

sound footing for future prospectus. The ratios can also serve as a basis for preparing

budgeting future line of action.

LIQUIDITY POSITION:With the help of ratio analysis conclusions can be drawn

regarding the Liquidity position of a firm. The liquidity position of a firm would be

satisfactory if it is able to meet its current obligations whenever they become due. The

ability to meet short term liabilities is reflected in the liquidity ratio of a firm.

LONG TERM SOLVENCY:Ratio analysis is equally for assessing the long term

financial ability of the Firm. The long term solvency is measured by the leverage or

capital structure and profitability ratio which shows the earning power and operating

efficiency, Solvency ratio shows relationship between total liability and total assets.

OTHER USES : There are so many other uses of ratio analysis .It is an essential part

of the budgetary control & costing. These are of immense imp in analysis &

interpretation of financial statements as they bring the strength or weakness of firm.

TREND AND INDUSTRY ANALYSIS :

That’s where trend (time-series) and industry (cross-

sectional) analysis come in. You can compare your firm’s ratios to trend data,

which is data from other time periods related to your firm with a current data,

so as to see how your firm is doing over a series of time periods. You can

analyse its performance over a number of years that whether your company is

progressing or its constant or its going worse…

In a similar way you can also compare your firm’s ratios to

industry data. You can gather data from similar firms in the same industry,

calculate their financial ratios, and see how your firm is doing as compared to

the industry at large. Ideally, to get a good picture of the financial picture

of your firm, you should do both.

Compare two firms

Compare one firm yearly

STANDARDS OF COMPARISION:

The ratio analysis involves comparison for a useful interpretation of the financial

statements.  A single ratio is itself does not capable of indicating favourable or

unfavourable condition.  It should be compared with some standards.  It consists of:

PAST RATIOS: Ratios calculated from the past historical financial statements of

the same firm. FOR EXAMPLE: Current ratio in 1991 compared with of 2009.

COMPETITORS RATIOS: Ratios of some selected firms, especially most

progressive and successful competitors of the firm, at the same point of time. FOR

EXAMPLE: Solvency ratio of Punjab national bank compared with state bank of India.

INDUSTRY RATIOS: Ratios of industry to which the firm actuallybelongs. This

is also a basis which can be used for interpretation of a firm to know its progress in an

industry.

PROJECTED RATIOS: Ratios developed using the projected or proforma

financial statements of the same firm. Ratios can also be calculated for future standards

based upon the projected or proforma financial statements. These future ratios may be

taken as a standard for comparison and the ratios calculated on actual financial statements

can be compared with thestandard ratios to find out variances, if any. Such variances help

in interpreting and taking corrective action for improvement in future.

CLASSIFICATION OF RATIOS

The use of ratio analysis is not confined to financial managers only. There are

different parties interested in ratio analysis for knowing the financial position of a firm

for different purposes. The parties who are interested in financial analysis are short and

long term creditors, owners and management.  Short term creditor’s main interest is in

the liquidity position or short term paying capacity of the firm.  Long term creditors, on

the other hand, are more interested in the solvency or long term financial position of the

concern. Similarly, owners or the shareholders generally concentrate on the firm's

profitability or dividend position. On the other hand, Management is interested in

evaluating every aspect of the firm's performance to protect the interest of all the parties.

Thus  ratios are classified as follows:

TRADITIONAL FUNCTIONAL SIGNIFICANCE

CLASSIFICATION CLASSIFICATION RATIOS

Balance sheet Liquidity Ratios Primary Ratios

Profit and loss Leverage Ratios Secondary Ratios

Account Ratios Activity Ratios

Composite/ mixed Profitability Ratios

(A) TRADITIONAL CLASSIFICATION:

BALANCE SHEET PROFIT& LOSS A/C MIXED RATIOS

RATIOS RATIOS

Current ratio Gross profit ratio Stock turnover ratio

Liquid ratioOperating ratio Debtors turnover

Absolute liquidityOperating profit Payable turnover

RatioratioFixed asset turnover

Debt equity ratioNet profit ratioReturn on equity

Proprietory ratioCash profit ratioReturn on sh.holder

Capital gearing Expense ratiofunds ratio

Asset proprietorshipInterest coverageCapital turnover

Ratio ratio ratio

Capital inventory to Working capital

Working capital ratioturnover ratio

Current to fixed assetReturn on total

Ratioresources ratio & Total assets ratio

(a) Balance sheet or position statement ratios: Balance sheet ratios deal with the

relationship between two balance sheet items. Both the items must pertain to the

same balance sheet.

(b) Profit and loss account or revenue/income statements ratios: These ratios

deal with the relationship between two profit & loss account items. Both the

items must belong to the same profit and loss account.

(c) Composite / mixed ratios or inter statement ratios : These ratios exhibit the

relationship between a profit & loss account or income statement and a balance

sheet item e.g. stock turnover ratio.

(B) FUNCTIONAL CLASSIFICATION :

(a) Liquidity ratios: These measure the short term solvency or financial position

of a firm. These are calculated to comment upon the short term paying capacity

of concern to meet its current obligations.

(b) Long term solvency and leverage ratios: These ratios convey a firm’s ability

to meet the interest costs and repayment schedules of its long term obligations.

The leverage ratios can further be classified as:

(i) Financial leverage (ii) Operating (iii) Composite leverage

(B) FUNCTIONAL CLASSIFICATION

LIQUIDITY LONG TERM ACTIVITY PROFIT

RATIOS & LEVERAGE RATIOS RATIOS

1.Current ratio 1. Debt equity ratio 1 . Stock turn (A) Sales

2.Liquidity 2. Debt to total capital over ratio 1. Gross

Ratio Ratio 2.debtors turn profit

3. Absolute 3. Interest coverage 3.fixed assets 2.operating

Liquid ratio ratio ratio ratio

4.Interval measure 4.Cash flow/debt 4.total asset 3.operating

5.Debtors turnover 5.Capital gearing turnover profit ratio

Ratio Ratio 5.working 4 .Net profit

6.Creditors turnover capital ratio ratio

Ratio 5 .Expense

7. Inventory turnover ratio

Ratio

B) Investment

ROI, EPS, P/E

ROC, ROR.

(c) Activity ratios: Activity ratios are calculated to measure the efficiency with

which the resources of a firm have been employed. These ratios are also called

turnover ratios. Because they indicate the speed with which assets are being

turned over into sales.

(d) Profitability ratios:These ratios measure the results of business operations or

overall performance and effectiveness of the firm. Generally two types of

profitability ratios are calculated :

(i) In relation to sales (ii) In relation to Investments.

(C) CLASSIFICATION ACCORDING TO SIGNIFICANCE OR

IMPORTANCE:

Some ratios are more important than others and firms may classify them as

primary and secondary ratios. The primary ratio is one which is of the

prime importance to the concern, thus return on capital employed is named as

primary concern. The other ratios which support or explain the primaryratio are

called secondary ratiose.g. therelationship of operating profit to sales. The

BRITISH INSTITUTE OF MANAGEMENT recommended the classification

of ratios according to importance for inter firm comparisons.

ANALYSIS OF SHORT TERM FINANCIAL POSITION OR

TEST OF LIQUIDITY

The short term creditors of a company are interested in knowing the company’s ability to

meet its current or short term obligations as and when these become due. The short term

obligations of a firm can be met only when there are sufficient liquid assets. Therefore, it

is very important to have a proper balance in regard to the liquidity of the firm. Two

types of ratios can be calculated for measuring short term financial position or short term

solvency of a firm.

(A) Liquidity ratios

(B) Current assets movement or efficiency ratios

(A) LIQUIDITY RATIOS:

Liquidity ratios measure the firm’s ability to meet current obligations.  It is

extremely essential for a firm to be able to meet its obligations as they become due.  The

short term obligations are met by realizing amounts from current, floating or circulating

assets. The current assets should either be liquid or near liquidity. These should be

convertible into cash for paying obligations of short term nature.In fact analysis is of

liquidity needs in the preparation of cash budgets and cash and funds flow statements.

Liquidityratiosbyestablishing arelationship between cash and other current assets

to current obligations provide a quick measure of liquidity. A firm should ensure that it

does not suffer from lack of liquidity and also that it does not have excess liquidity.   The

failure of the company to meet its obligations due to the lack of sufficient liquidity

willresult ina poor credit worthiness, loss of creditors confidence or even in legal tangles

resulting in the closure of company.  A very high degree of liquidity is also bad, because

idle assets earn nothing.  The firm's funds will be unnecessarily tied up to current assets. 

Therefore, it is necessary to strike a proper balance between high liquidity and lack of

liquidity.

HIGH LIQUIDITY BBBBBAB LOW LIQUIDITY

To measure the liquidity of a firm, the following ratios can be calculated:

1. Current ratio

2. Quick ratio

3. Interval measure

4. Absolute liquid ratio or cash position ratio

These ratios are of utmost importance as the bankers, suppliers of goods and other short

term creditors are interested in the liquidity of the concern.

1. CURRENT RATIO:

Current ratio may be defined as the relationship between current assets and current

liabilities.Current ratio is calculated by dividing current assets by current liabilities.  

Current assetsinclude cash and those assets which can be converted into cash within a

year, such as marketable securities, debtors and inventories.  Current liabilities include

sundry creditors, bills payable, accrued expenses, short term bank loan, income tax

liabilityand dividend payable .  The current ratio is a measure of firm's short term

solvency, general liquidity.

As a conventional rule a current ratio of 2:1 or more is considered satisfactory.  

The current ratio represents margin of safety for creditors.

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITIES

2. QUICK RATIO:

Quick ratio establishes a relationship between quick or liquid assets and current or

liquid liabilities. An asset is said to be liquid if it can be converted into cash within a

short period without loss of value. In that sense Cash in hand & cash at bankare the most

liquid asset, other assets which are considered to be relatively liquid and included in

quick assets are sundry debtors and bills receivables and marketable securities & short

term or temporary investments. Inventories& prepaid expenses are considered to be less

liquid because they cannot be converted into cash immediately.

Generally as a rule of thumb quick ratio of 1:1 is considered satisfactory. It is generally

thought that if quick assets are equal to current liabilities then the concern may be able to

meet its short term obligations.

QUICK RATIO: QUICK OR LIQUID ASSETS

CURRENT LIABILITIES

QUICK ASSETS= CURRENT ASSETS – (INVENTORIES + PREPAID EXP)

3. ABSOLUTE LIQUID RATIO OR CASH RATIO:

Although receivables, debtors and bills receivable are generally more liquid than

inventories, yet there may be doubts regarding their realization into cash immediately or

in time, thus the absolute ratio should also be calculated together with current ratio and

acid test ratio so as to exclude even receivables from the current assets and find out the

absolute liquid assets.

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITIES

ABSOLUTE LIQUID ASSETS =CASH & BANK + SHORT TERM SECURITIES

4. INTERVAL MEASURE OR DEFENSIVE INTERVAL RATIO:

The ratio which assesses a firm's ability to meet its regular cash expenses is the

interval measure.  Interval measure relates the liquid assets to average daily cash

operating outflows.  The daily operating expenses will be equal to cost of goods sold plus

office & administrative, selling & distribution and general expenses less depreciation and

other non- cash expenses divided by number of days in the year.

INTERVAL MEASURE= QUICK OR LIQUID ASSETS

AVERAGE DAILY OPERATING EXPENSES

LIQUID ASSETS = CASH + SHORT TERM SECURITIES + RECEIVABLES

AND THE AVERAGE DAILY CASH OPERATING EXPENSES

= COST OF GOODS SOLD + ADMINISTRATION & OFFICE

EXPENSES + SELLING & DISTRIBUTION EXPENSES –

(DEPREIATION AND OTHER NON CASH EXPENSES)

NO. OF DAYS IN AYEAR (365 OR 360)

Thus by calculating all these ratios we can come to know about the short term

liquidity of the organization and thus can take decisions easily and correctly.

(B) ACTIVITY RATIOS OR EFFICIENCY RATIOS:

Funds of creditors and owners are invested in various assets in business to generate

sales and earn profits. The efficiency with which assets are managed directly affect the

sales. The better the management of assets, the larger is an amount of sales and the

profits.  Activity ratios are employed to evaluate the efficiency with which the firm

manages and utilizes its assets or resources. These ratios are also called turnover ratios

because they indicate the speed with which assets are being converted or turned over into

sales.  Activity ratios, thus, involve a relationship between sales and assets.  A proper

balance between sales and assets generally reflects that assets are managed well.

1. Inventory turnover ratio

2. Debtors turnover ratio

3. Creditors turnover ratio

4. Working Capital turnover ratio

1. INVENTORY TURNOVER RATIO:

Every firm has to maintain a certain level of inventory of finished goods so as to be

able to meet the requirements of the business. But the level of inventory should neither be

too high nor too low because it blocks capital. Therefore Inventory turnover ratio is

Calculated which indicates the efficiency of the firm in producing and selling its

product. It would indicate whether inventory has been efficiently used or not. The

purpose is to see whether only the required funds have been locked up in inventory. It

indicates the no. of times the stock has been turned over during the period and evaluates

the efficiency with which a firm is able to manage its inventory. It is calculated by

dividing cost of goods sold by average inventory.  Average inventory consists of opening

stock plus closing stock divided by 2.

INVENTORY TURNOVER RATIO:COST OF GOODS SOLD

AVERAGE INVENTORY

AVERAGE INVENTORY = OPENING + CLOSING STOCK

2. DEBTORS TURNOVER RATIO:

A concern may sell goods on cash as well as on credit. Credit is one of the

important elements of sales promotion. Trade debtors are expected to be converted into

Cash within a short period of time&are included in current assets. Debtors turnover ratio

is found out by dividing credit sales by average debtors.  Debtors turnover indicates the

number of times debtors turnover each year.  Generally the higher the value of debtors

turnover, the more efficient is the management of credit.

DEBTORS TURNOVER RATIO = CREDIT SALES

AVERAGE DEBTORS

AVERAGE DEBTORS= OPENING + CLOSING TRADE DEBTORS

Collection Period:

The average collection period represents the average no. of days for which a firm

has to wait before its receivables are converted into cash. In other words, the average

number of days for which debtors remain outstanding is called the average collection

period.

AVERAGE COLLECTION PERIOD= NO. OF DAYS IN A YEAR

DEBTORS TURNOVER RATIO

3. CREDITORS / PAYABLES TURNOVER RATIO:

In the course of business operations, a firm has to make credit purchases & incur short

term liabilities. A supplier of goods i.e. creditor is naturally interested in finding out how

much time the firm is likely to take in repaying its creditors so thus it is calculated.

Much time the firm is likely to take in repaying its trade creditors so that’s why the

creditors turnover ratio is calculated.

CREDITORS TURNOVER RATIO = NET CREDIT ANNUAL PURCHASES

AVERAGE TRADE CREDITORS

AVERAGE TRADE CREDITORS = OPENING + CLOSING TRADE CREDITORS

Payment Period:

The average payment period ratio represents the average number of days taken by the

firm to pay its creditors. Generally, lower the ratio, the better is the liquidity position of

the firm and higher the ratio, less liquid is the position of the firm.

AVERAGE PAYMENT PERIOD: NO. OF WORKING DAYS

CREDITORS TURNOVER RATIO

4. WORKING CAPITAL TURNOVER RATIO: Working capital of a concern is

directly related to sales. The current assets like debtors, bills receivable, cash , stock etc.

change with the increase or decrease in sales. A firm may also like to relate net current

assets to sales.

WORKING CAPITAL = CURRENT ASSETS- CURRENT LIABILITIES

WORKING CAPITAL TURNOVER RATIO= COST OF SALES OR SALES

AVERAGE WORKING CAPITAL

AVERAGE WORKING CAPITAL= OPENING + CLOSING WORKING CAPITAL

2

ANALYSIS OF LONG TERM FINANCIAL POSITION OR TESTS OF

SOLVENCY:

The term solvency refers to the ability of a concern to meet its long term obligations. The

long term indebtedness of a firm includes debenture holders, financial institutions

providing medium & long term loans and other creditors selling goods on installment

basis. All these parties are more concerned with firm’s long term financial strength.  In

fact a firm should have short as well as long term financial position.  To judge the long

term financial position of the firm, financial leverage or capital structure, ratios are

calculated.  These ratios indicate mix of funds provided by owners and lenders.  As a

general rule, there should be an appropriate mix of debt and owner’s equity in financing

the firm's assets.The long term creditors of a firm want to know firm’s ability to pay

regular interest on long term borrowings, repayment of principal amount at maturity and

security of their loans.These ratios indicate firm’s ability to meet the fixed interest and

costs and repayment schedules associated with its long term borrowings.

(A)CAPITAL STRUCTURE RATIOS:

1. DEBT EQUITY RATIO:

Debt equity ratio is calculated to measure the relative claims of outsiders & the

owners i.e. shareholders against the firm’s assets. This ratioindicate the

relationship between the external equities or the outsiders funds and the

shareholder’s funds.It is computed by dividing long term borrowed capital or total

debt by Share -holders fund or net worth.

DEBT EQUITY RATIO: TOTAL DEBT

NET WORTH

Or

DEBT EQUITY RATIO: LONG TERM DEBT

SHARE HOLDERS FUND

2. FUNDED DEBT TO TOTAL CAPITALISATION RATIO: The ratio

establishes a link between the long term funds raised from outsiders and total long

term funds available in the business. It will be calculated as follows:

FUNDED DEBT (LONG TERM DEBT) X 100

TOTAL CAPITALISATION

3. CAPITAL EMPLOYED TO NET WORTH RATIO:

There is an another alternative way of expressing the basic relationship between

debt and equity.  It helps in knowing, how much funds are being contributed together by

lenders and owners for each rupee of owner's contribution.  This can be found out by

calculating the ratio of capital employed or net assets to net worth.

NET WORTH RATIO:       CAPITAL EMPLOYED

NET WORTH

4. PROPRIETORY RATIO:

This ratio establishes the relationship between shareholder’s funds to total assets of

the firm. It is an important ratio for determining long term solvency of a firm. The

components of the ratio are shareholder’s funds and total assets.

PROPRIETORY RATIO: SHAREHOLDER’S FUNDS

TOTAL ASSETS

5. SOLVENCY RATIO :

This ratio is small variant of equity ratio and can be simply calculated as 100-

equity ratio. It shows the relationship between total liabilities to total assets of a

firm.

SOLVENCY RATIO: TOTAL LIABILITIES / TOTAL ASSETS

6. FIXED ASSETS TO NET WORTH RATIO :

This ratio establishes the relationship between fixed assets and shareholder’s funds

i.e. share capital plus reserves and retained earnings.

FIXED ASSET TO NET WORTH RATIO: FIXED ASSETS (AFTER DEP.)

SHAREHOLDER’S FUNDS

(B)COVERAGE RATIOS:

1. INTEREST COVERAGE RATIO OR DEBT SERVICE RATIO:

This ratio is used to test the debt servicing capacity of a firm. This ratio is

calculated by dividing the net profit before interest & taxes by fixed interest

charges.

DEBT SERVICE RATIO: NET PROFIT BEFORE INTEREST & TAX

FIXED INTEREST CHARGES

2. TOTAL COVERAGE RATIO: NET PROFIT BEFORE INTEREST & TAX

TOTAL FIXED CHARGES

3. PREFERENCE DIVIDEND COVERAGE RATIO: PROFIT AFTER TAX

PREFERENCE DIVIDEND

4. CASH TO DEBT SERVICE RATIO: It is calculated as follows:

= ANNUAL CASH FLOW BEFORE INTEREST & TAX + DEPRECIATION

INTEREST + SINKING FUND APPROPRIATION ON DEBT / 1- TAX RATE

ANALYSIS OF PROFITABILITY OR PROFITABILITY RATIOS:

A company should earn profits to survive and grow over a long period of time. 

Profits are essential but it would be wrong to assume that every action initiated by

management of a company should be aimed at maximizing profits, irrespective of social

consequences.

Profit is the difference between revenues and expenses over a period of time. 

Profit is the ultimate output of a company and it will have no future if it fails to make

sufficient profits.  Therefore, the financial manager should continuously evaluate the

efficiency of the company in terms of profits.  The profitability ratios are calculated to

measure the operating efficiency of the company.

Generally, there are two types of profitability ratios

1. Profitability in relation to sales

2. Profitability in relation to investment.

(A) GENERAL PROFITABILITY RATIOS:

a. Gross Profit Ratio:

It is calculated by dividing gross profit by sales.  The gross profit margin reflects

the efficiency with which management produces each unit of product.  This ratio

indicates the average spread between the cost of goods sold and the sales revenue.

GROSS PROFIT RATIO= GROSS PROFITS / SALES

b. Net Profit Ratio:

Net profits are obtained when operating expenses, interest and taxes are subtracted

from the gross profit.  The net profit margin is measured by dividing profit after tax or net

profit by sales. This shows relationship between net profits and sales.

NET PROFIT RATIO= NET PROFIT

SALES

c. Operating Expense Ratio:

Operating expense ratio explains the relationship between cost of goods sold and

other operating expenses, sales. It explains changes in the profit margin ratio.  This ratio

is computed by dividing operating expenses like cost of goods sold plus selling expenses,

general expenses and administrative expenses by sales.

OPERATING EXPENSE RATIO= OPERATING EXPENSES X 100 SALES

The higher operating expenses ratio is unfavorable since it will leave less operating

income to meet interest, dividends etc.

d. Operating profit ratio:

This ratio is calculated by dividing operating profit by sales. Operating profit is

calculated as sales – cogs –office, administrative & selling, distribution expenses.

OPERATING PROFIT RATIO = SALES- COGS- OFFICE & SELLING EXP. X 100

NET SALES

e. Expense ratio:

Expense ratio indicate a relationship of various expenses to sales. It will be

calculated as follows:

PARTICULAR EXPENSE RATIO: PARTICULAR EXPENSE X 100

SALES

f. Cash profit ratio:

The net profits of a firm are affected by the amount/ method of depreciation charged. As

depreciation being a non -cash expense, it is better to calculate cash profit ratio.

CASH PROFIT RATIO: CASH PROFIT X 100

SALES

(C)OVERALL PROFITABILITY RATIOS :

a. Return On Investment:

The term investment may refer to total assets or net assets.  The conventional

approach of calculating return on investment is to divide profit after tax by investment. 

Investment represents pool of funds supplied by shareholders and lenders.  While PAT

represent residue income of shareholders. It shows the relationship between net profits

and the proprietor’s funds.

RETURN ON INVESTMENT= PROFIT AFTER TAX

SHAREHOLDER’S FUNDS

b. Return On Equity:

Ordinary share-holders are the real owners of the business. So they are entitled to

the residual profits.  A return on shareholder’s equity is calculated to see the profitability

of owners investment.  Return on equity indicates how well the firm has used the

resources of owners.  The earning of a satisfactory return is the most desirable objective

of business.

RETURN ON EQUITY=NET PROFIT AFTER TAX- PREFERENCE DIVIDEND

EQUITY SHARE CAPITAL (PAID UP)

c. Earnings Per Share:

The measure is to calculate the earning per share.  The earning per share is

calculated by dividing profit after tax by total number of outstanding shares.  EPS simply

shows the profitability of the firm on a per share basis, it does not reflect how much is

paid as dividend and how much is retained in business.

EARNINGS PER SHARE= PROFIT AFTER TAX- PREFERENCE DIVIDEND

NO. OF EQUITY SHARES

d. Capital turnover ratio:

Capital turnover ratio is the relationship between cost of goods sold & the capital

employed. As capital is invested in a business to make sales and earn profits, this ratio is

a good indicator of overall profitability of the concern.

CAPITAL TURNOVER RATIO: COST OF GOODS SOLD OR SALES

CAPITAL EMPLOYED

e. Working capital turnover ratio:

This ratio indicates the velocity of the utilization of net working capital.

WORKING CAPITAL TURNOVER RATIO: COST OF GOODS SOLD OR SALES

AVERAGE WORKING CAPITAL

(D)MARKET TEST OR VALUATION RATIOS:

(i) Dividend yield ratio: Shareholders are the real owners of a company & they

are interested in earnings &dividends distributed. So this shows the relationship

between dividend per share paid & market value of the share.

DIVIDEND YIELD RATIO: DIVIDEND PER EQUITY SHARE X 100

MARKET VALUE PER SHARE

Dividends Per Share:

The net profits after  taxes belong to shareholders.  But the income which they really

receive is the amount of earnings distributed as cash dividends.  Therefore, a larger

number of present and potential investors may be interested in DPS rather than EPS. 

DPS is the earnings distributed to ordinary shareholders divided by the number of

ordinary shares outstanding.

DPS= DIVIDEND PAID TO SHARE HOLDERS

NUMBER OF SHARES

(ii). Dividend Pay Out Ratio:

The dividend pay- out ratio is simply the dividend per share divided by Earnings

Per Share. It is calculated to find the extent to which EPS have been retained in the

business.

DIVIDEND PAY OUT RATIO= DIVIDEND PER SHAREX 100

EARNINGS PER SHARE

(iii).Price- Earning Ratio:

The reciprocal of the earnings yield is called price -earning ratio.  The price

earning ratio is widely used by security analysts to value the firm's performance as

expected by investors.  Price earning ratio reflects investor’s expectations about the

growth of firm's earnings.  Industries differ in their growth prospects.  Accordingly, the

P/E ratios for industries vary widely.

PRICE EARNING RATIO = MARKET VALUE PER SHARE

EARNING PER SHARE

(iv)Earnings yield ratio:

This ratio also shows a relationship between earnings per share & market value of shares.

It can be calculated as follows:

EARNING YIELD RATIO: EARNINGS PER SHARE X 100

MARKET PRICE PER SHARE

ANALYSIS OF CAPITAL STRUCTURE OR LEVERAGE

(A)Capital gearing ratio:

The term capital gearing is used to describe the relationship between equity share

capital including reserves to preference share capital & other fixed interest bearing

securities. If preference share capital &loans exceed equity share capital, the firm

is said to be highly geared and vice-versa.

CAPITAL GEARING RATIO: EQUITY SHARE CAPITAL+ RESERVES

PREFERENCE CAPITAL+ LONG LOANS

(B)Leverages:

(i) Financial leverage or trading on equity:The use of long term fixed interest

bearing debt & preference share capital along the equity share capital is called

FINANCIAL LEVERAGE OR TRADING ON EQUITY. It is owner’s equity

which is used as a basis to raise loans, that’s why it’s called trading on equity.

FINANCIAL LEVERAGE: PROFIT BEFORE INTEREST & TAX

EBIT- INTEREST – PREFERENCE DIVIDEND

(II) Operating leverage:

It is obtained by dividing contribution i.e. sales minus variable cost, by the EBIT i.e.

earnings before interest & taxes.

OPERATING LEVERAGE: CONTRIBUTION

EARNINGS BEFORE INTEREST & TAXES

(III) Combined leverage: CONTRIBUTION

EARNINGS BEFORE INTEREST AND TAXES

(IV)Ratio of reserves to equity capital: RESERVES X 100

EQUITY SHARE CAPITAL

(V)Total investment to long term liabilities: This is calculated by dividing the total of

long term funds by long term liabilities.

FORMULA= SHAREHOLDER’S FUNDS + LONG TERM LIABILITIES

LONG TERM LIABILITIES

(VI) Ratio of fixed assets to funded debt: FIXED ASSETS / FUNDED DEBT.

CHAPTER – 2

ORGANIZATION PROFILE

COMPANY PROFILE

CORPORATE IDENTITY

KOTAK MAHINDRA BANK LIMITED

 

ABOUT THE COMPANY

Established in 1984, KOTAK MAHINDRA is one of the India’s leading financial

institutions, offering complete financial solutions that encompass every sphere of life.

From commercial banking, to stock broking, to life insurance, to investment banking, the

group caters to the financial needs of individuals and corporate world as well.

In February 2003, KOTAK MAHINDRA FINANCE LIMITED, the group flagship

company was given the license to carry on banking business by the reserve bank of India

(RBI). Kotak Mahindra Finance Limited is the first company in the Indian history to

convert to a bank.Recently KOTAK MAHINDRA BANK LIMITED and HDFC BANK

have signed a memorandum of understanding to share their ATM network. This

agreement will give customers of the two banks access to over 1400 ATMs across the

country while HDFC Bank has 1335 ATMs across 228 locations in the country; Kotak

Mahindra Bank has 75 ATMs at 41 locations, accessible 24 hours a day, and 365 days a

year.

The group has a net worth of over 6,523 crores and has a distribution network of

branches, franchisees, representative offices and satellite offices across cities and towns

in India and offices in New York, London, San Francisco, Dubai, Mauritius and

Singapore. The Group services around 6.2 million customer accounts.

FORMATION OF THE COMPANY

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management

Finance Limited. This company was promoted by Uday Kotak, Sidney A. A. Pinto and

Kotak & Company. Industrialists Harish Mahindra and Anand Mahindra took a stake in

1986, and that's when the company changed its name to Kotak Mahindra Finance

Limited.

Since then it's been a steady and confident JOURNEY to GROWTH AND SUCCESS.

The general management include Mr. Uday kotak anexecutive vice chairman,& MD, Mr.

C.JAYARAM, MR. DIPAK GUPTA.

PROGRESS SO FAR….

1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting

1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market

1990 The Auto Finance division is started

1991 The Investment Banking Division is started. Takes over FICOM, one of India’s

largest financial retail marketing networks

1992 Enters the Funds Syndication sector

1995 Brokerage and Distribution businesses incorporated into a separate company -

Kotak Securities. Investment Banking division incorporated into a separate

company - Kotak Mahindra Capital Company

1996 The Auto Finance Business is hived off into a separate company - Kotak

Mahindra Prime Limited (formerly known as Kotak Mahindra Primus Limited).

Kotak Mahindra takes a significant stake in Ford Credit Kotak Mahindra Limited,

for financing Ford vehicles. The launch of Matrix Information Services Limited

marks the Group’s entry into information distribution.

2000 Kotak Mahindra ties up with Old Mutual plc. For the Life Insurance business.

Kotak Securities launches its on-line broking site (now

www.kotaksecurities.com). Commencement of private equity activity through

setting up of Kotak Mahindra Venture Capital Fund.

2001 Matrix sold to Friday Corporation Launches Insurance Services

2003 Kotak Mahindra Finance Ltd. converts to a commercial bank – the first Indian

company to do so.

2004 Launches India Growth Fund, a private equity fund.

2005 Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime

(formerly known as Kotak Mahindra Primus Limited) and sells Ford credit Kotak

Mahindra.

2006 Bought the 25% stake held by goldman sachs in kotak Mahindra capital co.&

kotak securities.

2008 Launched a pension fund under NEW PENSION SYSTEM.

2009 It opened a representative office in DUBAI. Entered AHMEDABAD

COMMODITY EXCHANGE as anchor investor.

2010 AHMEDABAD DERIVATIVES & COMMODITY EXCHANGE, a kotak

anchored enterprise, became operational as a NATIONAL COMMODITY

EXCHANGE.

JOURNEY SO FAR

KOTAK MAHINDRA BANK LIMITED

OUR BUSINESSES OR WE CAN SAY “MULTIPLE BUSINESSES ONE

BRAND”.Kotak Mahindra Bank Ltd is a one stop shop for all banking needs. The bank

offers personal finance solutions of every kind from savings accounts to credit cards,

distribution of mutual funds to life insurance products. Kotak Mahindra Bank offers

transaction banking, operates lending verticals, manages IPOs and provides working

capital loans. Kotak has one of the largest and most respected Wealth Management teams

in India, providing the widest range of solutions to high net worth individuals,

entrepreneurs, business families and employed professionals.

KOTAK’S BUSINESSES :

(A) KOTAK MAHINDRA CAPITAL COMPANY LIMITED:

Kotak Mahindra Capital Company Limited (KMCC) is India's premier Investment Bank

and a Primary Dealer (PD) approved by the RBI. KMCC's core business areas include

Equity Issuances, Mergers & Acquisitions, Structured Finance and Advisory Services,

Fixed Income Securities and Principal Business.

(B) KOTAK SECURITIES:

Kotak Securities Ltd. is one of India's largest brokerage and securities distribution house

in India. Over the years Kotak Securities has been one of the leading investment broking

houses catering to the needs of both institutional and non-institutional investor categories

with presence all over the country through franchisees and co-coordinators. Kotak

Securities Ltd. offers online (through www.kotaksecurities.com) and offline services

based on well-researched expertise and financial products to the non-institutional

investors.

(C) KOTAK MAHINDRA PRIME LIMITED:

Kotak Mahindra Prime Limited (KMP) (formerly known as Kotak Mahindra Primus

Limited) has been formed with the objective of financing the retail and wholesale trade of

passenger and multi utility vehicles in India. KMP offers customers retail finance for both

new as well as used cars andwholesale finance to dealers in the automobile trade. KMP

continues to be among the leading car finance companies in India.

(D) KOTAK MAHINDRA ASSET MANAGEMENT COMPANY:

Kotak Mahindra Asset Management Company (KMAMC), a subsidiary of Kotak

Mahindra Bank, is the asset manager for Kotak Mahindra Mutual Fund (KMMF). KMMF

manages funds in excess of Rs. 11,000 cores and offers schemes catering to investors

with varying risk- return profiles. It was the first fund house in the country to launch a

dedicated gilt scheme investing only in government securities.

(E) KOTAK MAHINDRA OLD MUTUAL LIFE INSURANCE LIMITED:Kotak

Mahindra Old Mutual Life Insurance Limited is a joint venture between Kotak Mahindra

Bank Ltd. and Old Mutual plc. Kotak Life Insurance helps customers to take important

financial decisions at every stage in life by offering them a wide range of innovative life

insurance products, to make them financially independent. The company covers over 3

million lives & is one of the fastest growing insurance companies in India.

(E)KOTAK PRIVATE EQUITY GROUP (KPEG):

Kotak Private Equity Group helps nurture emerging businesses and mid-size enterprises

to evolve into tomorrow's industry leaders. With a proven track record of helping build

companies, KPEG also offers expertise with a combination of equity capital, strategic

support and value added services. What differentiates KPEG is not merely funding

companies, but also having a close involvement in their growth as board members,

advisors, strategists and fund-raisers.

(F) KOTAK REALTY FUND :

Kotak Realty Fund deals with equity investments covering sectors such as hotels, IT

parks, residential townships, shopping centres, industrial real estate, health care, retail,

education and property management. The investment focus here is on development

projects and enterprise level investments, both in real estate intensive businesses.

Thus, kotak mahindra company is not restricted to one business only.

MISSION OF THE COMPANY:

To provide error free quality service to all the customers with speed and smile by

deploying best and innovative practices, enthusiastic talents, state of art technologies and

thus create center of excellence in operations management. Our team pushes the limits so

our clients can benefit.

Always looking forward, we are committed to fostering and developing successful

business relationships. With a commitment to excellence and paying sharp attention to

the quality of work and services, perfectionalism is our only acceptable standard.

Thus company’s main focus is on the customer satisfaction because as we all know

customer is the king of the market. So that’s why company value their customers and

their different types of needs are studied and efforts are made to cater to their needs and

to satisfy them also happily.

A company is always interested that its customer enjoys while being with them.

KOTAK MAHINDRA BANK LIMITED

PROMISES :

To deliver the highest standard of service quality.

To advise you of our targeted turnaround time and adhere to the same.

To have transparency in all our transactions or dealings.

To have solution oriented mindset where customers are placed first.

To act courteously fairly and reasonably in all our dealing with you.

To accept and act upon customers feedback/complaint.

SERVICES OFFERED:-

(a)KOTAK MOBILE BANKING

FEATURES

I. No need to remember complex codes.

II. Security through 128 bit encryption.

III. Check account balance for current, saving accounts.

IV. Transfer funds between accounts.

V. Purchase mutual funds units.

(b)KOTAK GOLD ETERNITY

FEATURES

I. 24 Pure gold bars.

II. Manufactured in Switzerland by PAMP

III. Certified by one of the top assayers in the world.

IV. Tamper proof packaging to ensure the purity of gold bar.

PRODUCTS OFFERED

ATM PHONE BANKING

NET BANKING

GLOBAL DEBIT CARD

AWARDS AND CERTIFICATES

2012

The company got ICAI AWARD for excellence in financial reporting category-1

in banking sector for the year ended 31st march, 2010.

Asia money:

Best local cash management bank 2010.

IDG INDIA:

Kotak won the CIO 100 the agile award 100’ award 2010.

2011

Banking technology excellence awards, best bank award in IT AWARD in IT

framework and governance among other banks 2009

IR GLOBAL RANKING:

Best corporate governance policies –ranked among the top five companies in asia

pacific 2009

FINANCE ASIA:

Best Private Bank in India, for Wealth Management business, 2009

KOTAK ROYAL SIGNATURE CREDIT CARD:

Was chosen "Product of the Year" in a survey conducted by Nielsen in 2009.

EUROMONEY:

Best Private Banking Services (overall), 2009

2010

Banking Technology Award for IT Governance and Value Delivery, 2008

IBA BANKING TECHNOLOGY AWARDS:

Best Customer Relationship Achievement - Winner 2008 & 2009

EMERSON UPTIME CHAMPION AWARDS:

Technology Senate Emerson Uptime Championship Award in the BFSI category,

2008.

2010

Awarded the 10th Best Employer in the recently Conducted Hewitt’s Best

Employers in India 2007 Study.

Best Investment Bank in India by Finance Asia.

Emerged winner in 16 categories in the Euro money Private Banking Poll 2007,

including the Best local Private Bank.

2009

“IT Team of the Year” award at the annual Banking Technology Awards 2006.

Kotak Securities was ranked The Most Customer Responsive Company for

2006 (Category - Financial Services) by Avaya Global connect

Awarded the Best Domestic Investment Bank and the Best Equity House in The

Asset Triple A Country Awards

Awarded Voice of Customers Award for the Best Passenger Vehicle Finance

Company in India in 2006 by Frost & Sullivan

Best Investment Bank in India by Finance Asia

Adjudged the best Mutual Fund House in the NDTV Business Leadership

Award 2006

2007

Ranked as the top mergers & acquisitions advisor in India in terms of the value

of mergers & acquisitions deals announced from January to December 2005.

Topped the India Advisory Partners In data League table in terms of the value of

deals announced for the calendar year 2005.

Thus, we can say that kotak Mahindrais a recognized name in the field of banking and

of course when we talk about the awards and certificates.

PRINCIPLES OF CUSTOMER SERVICE IN BANKING:

1. By satisfying our client’s business objectives we satisfy our own professional and

personal objectives.

2. We want our client to regard Kotak Mahindra bank as their partner of choice time

after time.

3. Satisfied clients become engaged clients, when they trust us, bond us and feel a sense

of pride through an association with us.

4. Engaged clients forms a significant source of continued and improved growth.

5. An engaged client will actively sell our banks products and services to others.

6. Engaged client forms a sound commercial foundation for Kotak Mahindra Bank’s

future.

7. Don’t keep good news to yourself-inform the client of every success.

8. Give every client a reason to trust Kotak Mahindra bank.

9. Do what you said; you could do it, when you said you could do it.

10.Take personal ownership and responsibility for keeping the client informed of

progress in any matter they have raised to you.

11.Let the client know in advance, if you will be unable to deliver as intended even bad

news can be well received, if it’s conveyed in time.

12.Ensure all communications are reviewed before being sent to a client.

13.Treat all clients with equal and absolute respect.

COMPANY’S PRODUCT OR SERVICES IN MUTUAL FUNDS

Kotak 30 Kotak Midcap Kotak Opportunities

Kotak Lifestyle Kotak Contra Kotak Tax Saver

Kotak Equity Arbitrage

Fund

Kotak Emerging

Equity Scheme

Kotak Global

Emerging Market

Kotak Indo World

Infrastructure Fund

CHAPTER-3

RESEARCH OBJECTIVES

&SCOPE

(A) OBJECTIVES OF PROJECT :

Ratios are highly important profit tools in financial analysis that help financial analyststo

implement plans that improve profitability, liquidity, financial structure, reordering,

leverage, and interest coverage as well. Although ratios report mostly on past

performances, they can be predictive too, and provide lead indications of potential

problem areas.

Ratio analysis is primarily used to compare a company's financial figures over a

period of time, a method sometimes called trend analysis. Through trend analysis, you

can identify trends, good and bad, and adjust your business practices accordingly. You

can also see how your ratios stack up against other businesses, both in and out of your

industry.

There are several considerations you must be aware of when comparing ratios from

one financial period to another or when comparing the financial ratios of two or more

companies.

If you are making a comparative analysis of a company's financial statements

over a certain period of time, make an appropriate allowance for any changes in

accounting policies that occurred during the same time span.

When comparing your business with others in your industry, allow for any

material differences in accounting policies between your company and industry

norms.

When comparing ratios from various fiscal periods or companies, inquire about

the types of accounting policies used. Different accounting methods can result

in a wide variety of reported figures.

(B) SCOPE OF PROJECT:

Financial ratio analysisis the calculation and comparison of main indicators -

ratios which are derived from the information given in a company's financial

statements(which must be from similar points in time and preferably

auditedfinancial statements and developed in the same manner). It involves

methods of calculatingand interpreting financial ratios in order to assess a firm's

performance and status. This analysis is primarily designed to meet informational

needs of investors, creditors and management. The objective of ratio analysis is

the comparative measurement of financial data to facilitate wise investment, credit

and managerial decisions. Some examples of analysis, according to the needs to

be satisfied, are:

HORIZONTAL ANALYSIS VERTICAL ANALYSIS CROSS-SECTIONAL

ANALYSIS

Horizontal analysis:

The analysis is based on a year-to-year comparison of a firm's ratios.

Vertical analysis:

The comparison of balance sheet accounts either using ratios or not, to get useful

information and draw useful conclusions and

Cross-sectional analysis–

Ratios are used and compared between several firms of the same industry in order

to draw conclusions about an entity's profitability and financial performance. Inter-

firm analysiscan be categorized under cross-sectional, as the analysis is done by

using some basic ratios of the industry in which the firm under analysis belongs to

(and specificall, the average of all the firms of the industry) as benchmarks or the

basis for our firm's overall performance evaluation.

CHAPTER-4

RESEARCH METHODOLOGY

&LIMITATION

(A) MEANING OF RESEARCH:

Research Methodology is a way to systematically solve the research problem.

It may be understood as a Science of studying how research is done,

Scientifically in it we study the various steps that generally adopted by a

researcher in studying his research problem along with the logic behind them.

“Accuracy of the study depends on the systematic application of the method.”

The researcher has to decide the method to be used that helps him to get a

desired direction in a systematic way.

Definitions:

ACCORDING TO CLIFFORD WOODY:“Research comprises defining and

redefining problems, formulating a hypothesis or suggested solutions; collecting,

organizing and evaluating data, making deductions and reaching conclusions to

determine whether they fit the formulating hypothesis.”

ACCORDING TO REDMAN & MORY: “Research is a systematized effort to gain

new knowledge.”Research is an academic activity. The inquisitiveness is the mother of

all knowledge and the method, which man employs for obtaining the knowledge of

whatever the unknown, can be termed as research.Thus, Research Methodology is a

strategy that guides a researcher in providing answers to research questions and for this

research, survey is being done.

Present the findings to the decision makers.

Research in common parlance refers to a search for knowledge. In fact research is an

act of scientific investigation. Research is a scientific and systematic search for pertinent

information on a specific topic.

STEPS OF RESEARCH PROCESS:The seven major steps to be used in a

research processare as follows:

Determine or define the problem or opportunity that is faced

Specify what information is needed

Identify the sources of the information.

Decide on the techniques for accruing the information

Gather and process the information

Analyze and interpret the meaning.

(B)SAMPLING DESIGN-

Sampling is the selection of some part of aggregate or totality on the basis of which a

judgement or inference about the aggregate or totality is made and thus the conclusions

are drawn which are applicable to the whole universe. Thus a researcher must prepare a

sample design for his study i.e. he must plan how a sample should be selected and of

what size such a sample would be.

A SAMPLE DESIGN is a definite plan for obtaining a sample from a given population. It

refers to a technique or the procedure the researcher would adopt in selecting items for

the sample. Sample design is determined before data are collected.

(C) SAMPLING UNIT-

The sampling unit of my survey includes the Balance Sheet, Profit & Loss Account,

Quarterly Results etc.

(D) SAMPLING METHOD-

In my survey,I have used Observation Method.

(E) DATA COLLECTION-

Data Collection is done in two ways they are as follows-

1. Primary data collection

2. Secondary data Collection

PRIMARY DATA SECONDARY DATA

PRIMARY DATA are those which are collected afresh and for the first time and

thus happen to be original in character.

SECONDARY DATA,on the other hand, are those which have already been

collected by someone else and which have already been passed through the

statistical process. The researcher would have to decide which sort of data he

would be using for his study and accordingly he will have to select one or the other

method of data collection.

In my project I have taken secondary data for analysis it is through Website,

Journals etc.

(F) ANALYSIS AND INTERPRETATION:

Data collected has compiled up and on the basis of percentage method depicted

through bar diagrams Interpretation has done and recommendations has given. .

(G)LIMITATIONS OF RATIOS AND POTENTIAL IMPACT IN THE

ANALYSIS:

Ratios are not predictive, as they are usually based on historical information

notwithstanding ratios can be used as a tool to assist financial analysis.

They help to focus attention systematically on important areas and summarize

information in an understandable form and assist in identifying trends and

relationships (see methods for facilitating the financial analysis above).

However they do not reflect the future perspectives of a company, as they ignore

future action by management.

They can be easily manipulated by window dressing or creative accounting and

may be distorted by differences in accounting policies.

Inflation should be taken into consideration when a Ratio Analysis is being applied

as it can distort comparisons and lead to inappropriate conclusions.

Comparisons with industry averages is difficult for a conglomerate firm since it

operates in many different market segments.

Seasonal factors may distort ratios and thus must be taken into account when

making ratios are used for financial analysis.

Not always easy to tell that a ratio is good or bad. Must be always used as an

additional tool to back up or confirm other financial information gathered.

Different operating and accounting practices can distort comparisons.

Using the average of certain ratios for companies operating in a specific industry to make

comparisons and draw conclusions may not necessarily be an indicator of good

performance; perhaps a company should aim higher.

CHAPTER-5

DATA INTERPRETATION &

PRESENTATION

Profit & Loss account of Kotak Mahindra Bank

------------------- in Rs. Cr. -----------

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Income

Interest Earned 6,180.24 4,303.56 3,255.62 3,065.14 2,535.36

Other Income 848.42 507.56 420.97 157.56 310.48

Total Income 7,028.66 4,811.12 3,676.59 3,222.70 2,845.84

Expenditure

Interest expended 3,667.75 2,058.49 1,397.48 1,546.60 1,309.56

Employee Cost 902.36 783.83 583.48 583.63 519.23

Selling and Admin Expenses 542.71 487.82 648.07 552.91 326.66

Depreciation 116.76 98.27 90.00 69.56 50.86

Miscellaneous Expenses 714.03 564.53 396.47 193.91 345.60

Preoperative Exp Capitalised 0.00 0.00 0.00 0.00 0.00

Operating Expenses 1,754.66 1,528.58 1,447.42 1,333.60 999.25

Provisions & Contingencies 521.20 405.87 270.60 66.41 243.10

Total Expenses 5,943.61 3,992.94 3,115.50 2,946.61 2,551.91

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Net Profit for the Year 1,085.05 818.18 561.11 276.10 293.93

Extra ordianary Items 0.00 0.00 2.01 0.00 0.00

Profit brought forward 1,494.52 965.91 648.94 528.17 354.18

Total 2,579.57 1,784.09 1,212.06 804.27 648.11

Preference Dividend 0.00 0.00 0.00 0.00 0.00

Equity Dividend 44.49 36.88 29.66 25.96 25.87

Corporate Dividend Tax 7.22 4.37 0.00 1.86 4.40

Per share data (annualised)

Earning Per Share (Rs) 14.65 11.10 16.12 7.99 8.53

Equity Dividend (%) 12.00 10.00 8.50 7.50 7.50

Book Value (Rs) 107.75 92.74 130.40 112.98 104.26

Appropriations

Transfer to Statutory Reserves 310.81 207.41 188.43 113.70 74.98

Transfer to Other Reserves 54.26 40.91 28.06 13.80 14.70

Proposed Dividend/Transfer to Govt

51.71 41.25 29.66 27.82 30.27

Balance c/f to Balance Sheet 2,162.79 1,494.52 965.91 648.94 528.17

Total 2,579.57 1,784.09 1,212.06 804.26 648.12

Balance Sheet of Kotak Mahindra Bank

------------------- in Rs. Cr. -------------------

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Capital and Liabilities:

Total Share Capital 370.34 368.44 348.14 345.67 344.67

Equity Share Capital 370.34 368.44 348.14 345.67 344.67

Share Application Money 0.00 0.00 0.00 0.00 0.00

Preference Share Capital 0.00 0.00 0.00 0.00 0.00

Reserves 7,610.41 6,464.95 4,191.78 3,559.86 3,249.04

Revaluation Reserves 0.00 0.00 0.00 0.00 0.00

Net Worth 7,980.75 6,833.39 4,539.92 3,905.53 3,593.71

Deposits 38,536.52 29,260.97 23,886.47 15,644.93 16,423.65

Borrowings 16,595.52 11,723.95 6,140.51 5,904.07 5,119.25

Total Debt 55,132.04 40,984.92 30,026.98 21,549.00 21,542.90

Other Liabilities & Provisions 2,553.67 3,032.36 2,869.42 3,257.34 3,175.75

Total Liabilities 65,666.46 50,850.67 37,436.32 28,711.87 28,312.36

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08

12 mths 12 mths 12 mths 12 mths 12 mths

Assets

Cash & Balances with RBI 2,016.49 2,107.72 2,085.67 995.35 1,710.29

Balance with Banks, Money at Call

618.06 363.26 214.59 145.32 439.18

Advances 39,079.23 29,329.31 20,775.05 16,625.34 15,552.22

Investments 21,566.81 17,121.44 12,512.66 9,110.18 9,141.99

Gross Block 955.41 831.80 745.34 460.61 391.42

Accumulated Depreciation 505.45 406.20 317.69 247.25 181.17

Net Block 449.96 425.60 427.65 213.36 210.25

Capital Work In Progress 0.00 0.00 0.00 0.00 0.00

Other Assets 1,935.91 1,503.33 1,420.69 1,622.33 1,258.43

Total Assets 65,666.46 50,850.66 37,436.31 28,711.88 28,312.36

Contingent Liabilities 17,319.52 12,291.30 4,156.15 4,486.28 7,172.79

Bills for collection 6,166.00 4,470.06 3,063.64 1,188.17 826.55

Book Value (Rs) 107.75 92.74 130.40 112.98 104.26

RATIOS (IN %)

MARCH 2012

MARCH2011

MARCH2010

MARCH2009

MARCH2008

CURRENT RATIO

0.75 0.49 0.49 0.49 0.39

CURRENT RATIO(inc. std loans)

0.04 0.04 0.05 0.08 0.06

QUICK RATIO

16.85 10.86 8.46 5.91 5.83

NET PROFIT MARGIN RATIO

15.44 17 15.26 8.57 10.33

INTEREST EARNED RATIO

87.9 89.45 88.55 95.11 89.09

OTHER INCOME RATIO

12.1 10.55 11.45 4.89 10.91

INTEREST PAID TO TOTAL EXPENSE RATIO

61.7 51.55 44.85 52.48 51.32

EMPLOYEE COST TO TOTAL EXPENSE RATIO

15.18 19.63 18.73 19.8 20.34

OPERATING EXPENSE RATIO

29.52 38.28 46.45 45.258 39

LOAN & ADVANCES RATIO TO TOTAL ASSETS RATIO

59.51 57.67 55.49 57.9 54.93

LONG TERM 0.91 0.92 0.90 0.85 0.88

ASSETS TO TOTAL ASSETSTOTAL DEBT TO EQUITY RATIO

4.83 4.28 5.26 4.01 4.57

PROPRIETORY RATIO

12.15 13.44 12.13 13.6 12.69

SOLVENCY RATIO

87.3 85.7 86.86 84.65 85.7

FIXED ASSETS TO SHAREHOLDER FUND RATIO

5.6 6.2 9.4 5.46 5.85

FIXED ASSETS TO TOTAL LONG TERM FUNDS RATIO

0.713 0.89 1.24 0.84 0.83

RATIO OF CURRENT ASSETS TO PROPRIETOR’S FUND

546.9 487.3 539.5 496.43 527.59

RETURN ON INVESTMENT

13.59 11.97 12.36 7.07 8.18

RETURN ON EQUITY

292.9 222 161.17 79.87 85.28

EARNING PER SHARE

14.65 11.10 16.12 7.99 8.53

RETURN ON TOTAL ASSETS

1.65 1.61 1.49 0.96 1.038

DIVIDEND PAYOUT RATIO(NET PROFIT)

4.76 5.04 5.28 10.07 10.29

DIVIDEND PAYOUT RATIO(CASH PROFIT)

4.3 4.5 4.55 8.04 8.77

EARNING RETENTION RATIO

95.24 94.96 94.75 89.92 89.67

DIVIDEND PER SHARE

0.60 0.50 0.85 0.75 0.75

CAPITAL GEARING RATIO

14.48 16.67 15.12 18 16.68

OWNER’S FUND AS A % OF TOTAL SOURCES

17.15 18.93 15.97 19.97 17.95

FIXED ASSETS TURNOVER RATIO

7.36 5.7 4.9 7.08 7.21

RETURN ON LONG TERM SOURCES

65.99 47.5 48.71 50.50 47.47

ADJUSTED CASH MARGIN RATIO

17.04 19.26 17.76 10.45 12.12

TOTAL

INVESTMEN

T TO LONG

TERM

LIABILITIES

114 116.67 115 118 116.68

CURRENT

LIABILITIES

TO

PROPRIETO

R’S FUNDS

31.9 44.37 63.2 83.4 88.36

RESERVES

TO EQUITY

CAPITAL

2054.9 1754.68 1204 1029.8 942.65

LEVERAGE

RATIO

0.56 0.72 0.93 1.203 1.22

RESERVES

AS A % OF

TOTAL

LOANS

RATIO

13.8 15.72 13.96 16.52 15.08

PRESENTATION OF RATIOS

IN FORM OF GRAPHS

NET PROFIT MARGIN RATIO

2008 2009 2010 2011 20120

2

4

6

8

10

12

14

16

18

INTEREST EARNED RATIO

2008 2009 2010 2011 201284

86

88

90

92

94

96

INTEREST PAID TO TOTAL EXPENSE RATIO

2008 2009 2010 2011 20120

10

20

30

40

50

60

70

LOANS AND ADVANCES RATIO

2008 2009 2010 2011 201252

53

54

55

56

57

58

59

60

CURRENT RATIO

2008 2009 2010 2011 20120

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

DEBT- EQUITY RATIO

2008 2009 2010 2011 20120

1

2

3

4

5

6

PROPRIETORY RATIO

2008 2009 2010 2011 201211

11.5

12

12.5

13

13.5

14

RETURN ON INVESTMENT

2008 2009 2010 2011 20120

2

4

6

8

10

12

14

16

EARNINGS PER SHARE

2008 2009 2010 2011 20120

2

4

6

8

10

12

14

16

18

RETURN ON TOTAL ASSETS

2008 2009 2010 2011 20120

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

SOLVENCY RATIO

2008 2009 2010 2011 201283

83.5

84

84.5

85

85.5

86

86.5

87

87.5

88

DIVIDEND PAY-OUT RATIO

2008 2009 2010 2011 20120

2

4

6

8

10

12

CAPITAL GEARING RATIO

2008 2009 2010 2011 20120

2

4

6

8

10

12

14

16

18

20

LEVERAGE RATIO

2008 2009 2010 2011 20120

0.2

0.4

0.6

0.8

1

1.2

1.4

FINDINGS OF THE STUDY:

After doing the analysis, i find out that the net profit margin of a bank is low in

year 2012 i.e. 15.44% as compared to last year i.e. 17% which shows that bank is

not performing well to recover its debts. The net profit margin ratio is not following

any trend.

Interest paid ratio has also shown an increasing trend in the last five years.

The operating expense ratiofrom the year 2008 to year 2010 has also shown an

increasing trend and then afterwards from 2011 to 2012 it has shown a decreasing

trend. In 2012 its 29.52% as compared to last year 38.28%.

The interest earned ratio rises in 2008 & 2009 & then in 2010 it falls. In 2011 also

it rises i.e. 89.45% and then it falls i.e. 87.9%. No TREND followed.

The loans and advances ratio in 2008 & 2009 rises. In 2010 it falls then again it

rises in 2011 i.e. 57.67 %, in 2012 it increases up to 59.51%.

The current ratio in 2008 was 0.39. Then it remained constant for the three years

i.e. 0.49% in the recent year 2012 it rises up to 0.75%.

The quick ratio in 2008 was 0.06% afterward it rises. Now for two years it

remained constant 0.04% in 2011 and 2012.

The total debt to equity ratio in 2008 was 4.57%, in 2009 it was 4.01%,thenin

2010 it rises 5.26% in 2011 and 2012 it falls 4.28 & 4.83%.

The proprietory ratio in 2008 was 12.69%, 2009 it was 13.6%. In 2011 it stood

13.44% and in 2012 it is 12.15%. Thus it varies with a very less margin or we can

say it remained almost constant.

The solvency ratioin 2008 it was 85.7% in 2009 it was 84.65%, it was 2010 it was

86.86% in 2011it was 85.7% and in 2012 it was 87.3%. Thus it remained constant.

The dividend pay-out ratio for 2008 & 2009 it remained constant, in 2010 & 2011

it was 5.28 % and 5.04% and in 2012 it was 4.76%.

The capital gearing ratio in 2008 it was 16.68%,in 2009 it was 18%, in 2010 it was

15.12% in 2011 it was 16.67% and in 2012 it is 14.475%.

The return on investment ratio comes up by very less margin; it shows that the

bank is having a consistent performance in earning on its investment as compared to

last year. In 2011 it was 11.97% and in 2012 it was 13.59%.

The earnings per sharein all these five years since 2008 to 2012 was highest in

2010 i.e. it was 16.12 but now in 2011 it falls up to 11.10 and now in 2012 it is

14.65.

The return on equityshows that how the firm uses the shareholder’s interest or

investment fund to generate earning growth. By comparing last five years it is

decaling every year which shows the bank is having much profit available to equity

shareholder & it is not preferred much by the investors. In 2010 it was 161.17% & in

2011 it was 222% and thus in 2012 it is 292.9% showing a tremendous growth in

these last three years.

The Return on assets ratio has also increased in this year i.e. 1.65% and in last year

it was 1.61% so it’s an indicator of good performance also.

The return on long term funds has also increased in 2012 i.e. 65.99% and thus in

2011 it was 47.5%. This ratio has also increased.

Owner’s funds as a percentage of total resources ratio has fallen in this year i.e.

17.15% and in 2011 it was 18.93%.

The leverage ratio has also fallen in recent year 2012 i.e. 0.56 and in 2011 it was

0.72 and in 2010 it was 0.93.

Thus all these above are the findings of my study.

CHAPTER-6

SUGGESTION

SUGGESTIONS

The study has provided with the useful data from the respondents. There has a lot to be

recommended. Following are the recommendations made or we can say that the

suggestions are as follows:

There is a need for better promotion for the investment products & services. The

bank should advertise its products through television because it will reach to the

masses.

More returns should be provided on Insurance plans.

As the bank provides the Insurance facility to its customers. It should provide this

facility by tie up with the other Insurance organizations as well. The main reason is

that, the entire customers do not want Insurance of only one company. They should

have choice while selecting a suitable Insurance plans. This will definitely add to

the goodwill & profit for the bank.

The net profit margin ratio as has fallen down the company should make efforts to

Keep it consistent by providing more loans to the public and by providing

satisfactory services.

Interest paid ratio is also to be kept under control as it will automatically affect net

profits.

The loans & advances ratio is though satisfactory but still efforts should be made to

increase it by widening the customer base.

The debt equity ratio is just 4.83% so thus an attempt should be made so that they

remain balanced. If it’s possible more equity should be used.

The return on investment ratio has improved this year but company should make

efforts to have an increasing trend or should try to keep it constant.

The return on assets ratio is just 1.65% the company should try to improve it.

The solvency ratio is just 87.3% it means that the company can pay only 87% of

liabilities from its assets. The company should try to improve as this strongly

affects the goodwill of the concern.

The owner’s funds as a percentage of total resources is 17.15% thus this ratio

should be increased. Moreand more owner’s funds should be employed.

The adjusted cash margin ratio is also to be improved.

The current liabilities to proprietor’s funds is 31.9 it should be decreased.

The capital gearing ratio states that the company is highly geared. A company is

relying more on the outsider resources.

Thus these are the suggestions made by me.

Chapter-7

BIBLIOGRAPHY

(7.1) Books:

Research methodology by C.R. KOTHARI

Management accounting and business finance by SHASHI K. GUPTA & R.K. SHARMA

(7.2) Website

www.google.com

www.indiainfoline.com

www.kotaklife.com

www.insuranceworld.com

www.corpbank.com

www.about.com