A

SUMMER INTERNSHIP PROJECT REPORT

ON
RATIO ANALYSIS
FOR
KANSAI NEROLAC PAINTS LTD.
At Lote, Parshurum
BY
Mr. PRATIK VIRAJ KHATU
Under the guidance of
Prof. Mrs. ANAGHA GOKHALE

Submitted to
University of Mumbai
In the partial fulfillment of the requirement for the award of the degree of
Master of Management Studies (MMS)

Through
Vishwakarma Sahajeevan Institute of Management, Khed

ACKNOWLEDGMENT
It is my greatest pleasure to acknowledge sincere gratitude towards Mr. S.
R. Deshmukh (HR Manager) who gave me a good opportunity to do my project in the
Kansai Nerolac Paints ltd.
I am also grateful to Mr. Nilesh Jangam (HR Officer), Nitin Jathar
(Commercial Manager) and other officers who are working in accounts department for
their valuable advice, cooperation and support in completion of my project.
I am thankful to Prof. Mrs. Anagha Gokhale madam for helping me to make this
project.
I am also thanks to VSIM College who helped me to making this project.

Regards
Pratik viraj khatu

VISHWAKARMA SAHAJEEVAN INSTITUTE

OF

MANAGEMENT

Khed, Dist. Ratnagiri. (MS) - 415709

(Affiliated to Mumbai University, Approved by AICTE and DTE)

CERTIFICATE
This is to certify that Mr. PRATIK VIRAJ KHATU has submitted the Summer
Internship Report titled RATIO ANALYSIS completed at KANSAI NEROLAC
PAINTS LTD. as per requirements of the two years full time Master of Management
Studies (MMS) course of Mumbai University for III Semester of the academic year
20010-11.

Date:Dr.
(Director VSIM)

Prof. Mrs. Anagha Gokhale

(Project guide)

TO WHOM SO EVER IT MAY CONCERN

This is to certify that Mr. PRATIK VIRAJ KHATU 3rd semester M.M.S. student from
Vishwakarma Sahajeevan Institute of Management; Khed was engaged as an
Inplant Trainee.

In our factory from 17th May 2010 to 30th June 2010, he has completed his training
successfully.
During his entire training period he was found to be sincere, hardworking and punctual.
We wish his success in his future assignments.

For
KANSAI NEROLAC PAINTS LTD.

S.R. Deshmukh
Sr. Manager Human Resources.

INDEX
Sr.

Particulars

Page
Number

Executive Summary

Overview of Indian Paint Industry

27

Company profile

8 18

Need for the study

19

Objective of study

20

Research Methodology

21 22

Introduction to Ratio Analysis

23 37

Data collection and Interpretation

38 63

Findings

64 65

10

Suggestions and Conclusion

66 67

11

Limitations

68

Number

Bibliography

1. EXECUTIVE SUMMARY
As a part of the partial fulfillment of the M.M.S course at VISHWAKARMA
SAHJEEVAN INSTITUTE OF MANAGENT, Khed (Ratnagiri), Summer
Training was undertaken with the KANSAI NEROLAC PAINTS LTD., Lote, Khed
(Ratnagiri)

This project is specially designed to understand the subject matter of Financial

Statement Analysis through various ratios in the company. This project gives us
information and report about companys Financial Position. Throughout the project
the focus has been on presenting information and comments in easy and intelligible
manner.

The purpose of the training was to have practical experience of working in an

organization and to have exposure to the various management practices in the field of
Finance. This training has also given me an on the job experience of Financial
Management.

This project is very useful for those who want to know about company and financial
position of the company.

2. INDIAN PAINT INDUSTRY

The success story of the 100 years old Indian paint industry began when
Shalimar Paints set up a factory in Calcutta the way back in 1902. In the beginning the
industry was mainly comprised of number of small producers and very few major
players. Immediately after the Second World War, though the Indian Paint Industry had
seen numerous local entrepreneurs, the foreign companies

Like Goodlass Walls (now Kansai Nerolac), ICI, British Paints (now Berger Paints),
Jenson & Nicholson and Blundell & Eomite have been dominating the market for many
years.

Sector trends and specifics

The Indian paint industry is mainly segmented into two categories industrial
and decorative paints. While industrial paints are used for protection against corrosion
and rust on steel structures, vehicles, white goods and appliances, decorative paints are
used in protecting valuable assets like buildings. In most developed countries, the ratio of
decorative paints vis--vis industrial paints is around 50:50. But, in India the industrial
paint segment accounts for only 30% of the paint market while the decorative paint
segment accounts for 70% of paints sold in India. Within the decorative segment, the
share of exterior paints is 21%, interior emulsions 11%, distempers 30%, solvent-based
enamel paint 36% and wood finishes two percent. The exterior category, particularly
exterior emulsions, is the fastest growing segment at 20% for the last three years. The
industrial coatings segment includes high performance coatings with 30% market share,
powder coatings with ten percent, coil coatings with five percent, marine coatings five
percent and automotive coatings 50%.

Demand and Growth

The demand for decorative paints is highly price-sensitive and also cyclical.
Monsoon is a slack season while the peak business period is Diwali festival time, when
most people repaint their houses. The industrial paints segment, on the other hand, is a

high volume-low margin business. Total paint and coatings demand in India in 2008
amounted to 1.64 million tons, of which decorative coatings represented 79% or 1.3
million tons. The industrial coatings market in India still remains relatively small in
comparison at about 340,000 tons, and this is dominated by structural and infrastructural
applications associated with the protective coatings market.
Despite having recorded a healthy growth of 13% annually in the 1990s, the per
capita consumption of paints in India is very low at 0.5 kg per annum as compared to 4
kg in the South East Asian nations and 22 kg in developed countries. And the global
average per capita consumption is 15 kg.

Threats
The industry is raw-material sensitive. Of the 300 odd raw materials, nearly half
of them are imported petroleum products. Thus, any deficit in global oil reserves affects
the bottom-line of the players. The demand for paints is relatively price-elastic but is
linked to the industrial and economical growth. Mainly the construction and automobile
sector throws shades of grey across the industry spectrum during recession in those
sectors. Evidently the slowdown in automotive business had a direct impact on the
growth of Industrial paint sale business this year. Despite having phenomenal real GDP
growth at 9% for the last five years, the consumer durables basket, that forms a part of
Index of Industrial Production (IIP), has shown a negative growth during 2007-08. This
had a direct impact on the paint sale business last year.

Opportunities

Although industry figures expect some modest abatement in growth in the

Indian paint and coatings market, particularly in the short term, the prevailing economic
climate of infrastructure investment and renewal holds the key to most of the growth in
the Indian coatings market.
Other opportunities in India are pegged to the transport sector. Car ownership in
India stands at little more than one percent. However, rising affordability and the launch
of economical cars such as the Tata Nano are expected to propel the market for OEM
coatings and refinishes in the coming years. Higher demand for marine paints can be
expected in the next decade, once investments in ports and port development have started
to reach fruition. As India is hopeful of competing with other established shipbuilding
nations, the multinationals are likely to find plentiful opportunity in India, given the
compliance requirements imposed by effects of international legislation on marine paints.
Powder coatings are also a good growth market in India, growing at about ten
percent per annum, which is typical of the mean coatings segment growth in the country.
This segment has been finding new applications in India and represents one area in which
the consciousness of VOCs and the environment has been raised. Indian companies are
now beginning to appreciate the benefits of cleaner technology once initial investment in
finishing in this area has been made. However, it is in the decorative coatings market that
the greatest volume growth can be expected. Almost another 900,000 tons of decorative
paints may well be in use by 2013, prompted by a whole breadth of different applications,
ranging from the construction of housing and apartment blocks to civil and tourist
amenities. The structure of the decorative paint market in terms of quality is changing
very slowly with growth in the premium and economy sectors squeezing the intermediate

quality segment to about 3540% of demand. Other habits are changing too including the
formal entry of SherwinWilliams, Jotun and Nippon Paint into the Indian decorative
sector, which has started to bring a much greater international dimension and much
bigger budgets to the Indian decorative paint market. Although the arrival of these
companies in the segment has not had a major impact on the market yet, Indian
consumers are becoming more experimental and adventurous in their use of paint and as
a result many traditional ideas are being given up in favor of trying something different,
especially as the Indian population is a relatively young one.

Market Profile
The organized sector of Indias paint and coatings market holds a whopping
65% share of the approximately Rs. 13600 crore industry, while the balance is made up
of over 2000 unorganized units. There are now twelve major players in the organized
sector namely Asian Paints, Kansai Nerolac, Berger, ICI, Shalimar, and so on. Recent
years, the industry has attracted world leaders like Alzo Nobel, PPG, DuPont and BASF
to set up base in India to offer product ranges such as auto refinishes, powder coatings
and industrial coatings.
Asian Paints (APIL) is the industry leader with an overall market share of 33
per cent in the organized paint market. It has the largest distribution network among the
players and its aggressive marketing has earned it strong brand equity. The Berger Group
and ICI share the second slot in the industry with market shares of 17 per cent each.
GNPL has a market share of 15 percent in the organized sector.

APIL dominates the decorative segment with a 38 per cent market share. The
company has more than 15,000 retail outlets and its brands Tractor, Apcolite, Utsav, Apex
and Ace are entrenched in the market. GNPL, the number-two in the decorative segment,
with a 14 per cent market share too, has now increased its distribution network to 10,700
outlets to compete with APIL effectively. Berger and ICI have 9 per cent and 8 per cent
shares respectively in this segment followed by J&N and Shalimar with 1 and 6 per cent
shares. On the other hand, GNPL dominates the industrial paints segment with 41 per
cent market share. It has a lion's share of 70 per cent in the OEM passenger car segment,
40 per cent share of two wheeler OEM market and 20 per cent of commercial vehicle
OEM market. It supplies 70 per cent of the paint requirement of Maruti, India's largest
passenger car manufacturer, besides supplying to other customers like
Telco, Toyota, Hindustan Motors, Hero Honda, TVS-Suzuki, Mahindra & Mahindra,
Ashok Leyland, Ford India, PAL Peugeot and Bajaj Auto. GNPL also controls 20 per cent
of the consumer durables segment with clients like Whirlpool and Godrej GE. The
company is also venturing into new areas like painting of plastic, coil coatings and cans.
APIL, the leader in decorative paints, ranks a poor second after Goodlass Nerolac in the
industrial segment with a 15 per cent market share. But with its joint venture Asian-PPG
Industries, the company is aggressively targeting the automobile sector. It has now
emerged as a 100 per cent OEM supplier to Daewoo, Hyundai, Ford and General Motors
and is all set to ride on the automobile boom. Berger and ICI are the other players in the
sector with 10 per cent and 9 per cent shares respectively. Shalimar too, has an 8 per cent
share.

3. COMPANY PROFILE

3.1 ABOUT KANSAI NEROLAC PAINTS LTD. (KNPL)

Kansai Nerolac Paints ltd is Indias second largest paint company with group turnover of
about Rs.1170/- crore per annum. It is market leader in industrial coating business in
India and second largest in the Decorative Paints market. KNP Co. Ltd of Japan holds
69.27% equity of KNPL. Kansai Paint is one of the top ten companies in the world. The
company has technical tie ups with reputed foreign collaborations such as Oshima
Kogyo,E.I. Du Pont, NTT, Nihon Parkerizing and Ameron in the field of speciality &
High performance coatings. Kansai Nerolac Paints Ltd. has the reputation in being
innovative, creating value, delivering quality and service.
KNPL has manufacturing locations at Lote in Maharashtra, Perungudi in Tamil Nadu,
Jainpur in Uttar Pradesh, Bawal in Haryana and Hosur in Tamil Nadu. The corporate
office is situated at Lower Parel in Mumbai.
The total strength of the employees is about 2000 spread over in corporate office,
manufacturing plant, zonal, regional, and area offices.
Nerolac is well established brand in Decorative Coatings. It has widespread distribution/
marketing network with over 11000 dealers and 65 depots. Product ranges of Decorative
Coatings include exterior and interior finishes, wood finishes, auto refinishes, and certain
speciality products. The product range in automotive coating includes Pre-treatment
Chemicals, Electro Deposition Primers, PVC sealers, Mono coats & Metallics finishes,
Clear Coatings etc.

KNPL has very good research and development set up. It engages over 175 paint
technologists for continuous developing superior products. KNPL is a professionally
managed company with young and vibrant team with an average age of 37 years.

3.2 History of Kansai Nerolac Paints Ltd. (KNPL):

Kansai Nerolac is one of the largest paints companies in India having a significant
presence in industrial as well as decorative sectors.

Kansai Nerolac embarked their journey in 1920 as Gahagan Paints and Varnish Co. Ltd.
at Lower Parel in Bombay.

In 1930, three British companies merged to formulate Lead Industries Group Ltd.

In 1933, Lead Industries Group Ltd. acquired entire share capital of Gahagan Paints in
1933 and thus, Goodlass Wall (India) Ltd. was born.

Subsequently, by 1946, Goodlass Wall (India) Ltd. was known as Goodlass Wall Pvt. Ltd.

In 1957, Goodlass Wall Pvt. Ltd. grew popular as Goodlass Nerolac Paints (Pvt.) Ltd.
Also, it went public in the same year and established itself as Goodlass Nerolac Paints
Ltd.

In 1976, Goodlass Nerolac Paints Ltd. became a part of the Tata Forbes Group on

acquisition

of

part

of

the

foreign

shareholdings

by

Forbes

Gokak.

In 1983, Goodlass Nerolac Paints Ltd. strengthened itself by entering in technical

collaboration agreements with Kansai Paint Co. Ltd., Japan and Nihon Tokushu Toryo
Co.Ltd.Japan.

In 1986, Goodlass Nerolac Paints Ltd. turned into a joint venture of the Tata Forbes and
the Kansai Paint Co. Ltd., with the latter acquiring 36% of its share capital.

In 2000, Kansai Paint Company Ltd., Japan took over the entire stake of Tata Forbes
group and thus GNP became a wholly owned subsidiary of Kansai Paint Company Ltd.

In 2006, on the 11th of July, Goodlass Nerolac Paints Ltd. name has been changed to
Kansai Nerolac Paints Ltd.

3.3 Vision of KNPL:

KNPL its unique vision to leverage global technology for servicing customer with
superior coating system built on innovative and superior product and world class solution
to strengthen its leadership in industrial coating and propel for leadership in architectural
coating all to the delight of its stake holder.

3.4 Management:

Being the second largest paint company in India, it spread over the country with
employee strength of around 2000. An efficient management provides the conducive
work atmosphere to develop and grow.

BOARD OF DIRECTORS:

Name Of Person
Dr. Jamshed Jiji Irani
Mr. Devendra Motilal Kothari
Mr. Hiroshi Ishino
Mr. Yuzo Kawamori
Mr. Pradip Shah
Mr. Harishchandra Meghraj

Designation
Chairman
Vice Chairman
Director
Director
Director
Managing Director

Bharuka
Mr. Susim Mukul Datta
Mr. Noel Tata
Mr. Yaso Tajiri
Mr. Pravin Chaudhari

Director
Director
Director
Director

Management committee members:

Name Of The Person

Mr. H.M. Bharuka
Mr. Pravin Chaudhari
Mr. Shrikant Dikhale
Mr. Anuj Jain

Designation
Managing Director
Director
Vice President Hr
Vice
President
-

Mr. Mahesh Mehrotra

Mr. Hitoashi Nishibayashi

(Decorative
Vice President Technical
Director Supply Chain & Auto

Marketing

Mr. P.D. Pai

Mr. Jason Gonsalves

Marketing
Vice President Finance
Vice President - Corporate Planning
& It

3.5 Customers of Kansai Nerolac Paints ltd.:

I. Bajaj Auto Ltd.
II. Maruti Udyog Ltd.
III. Godrej & Boyce
IV. Mahindra & Mahindra
V. Samsung
VI. Ashok Leyland
VII. Toyota Kirloskar Motors Ltd.
VIII. Aditya Birla Group
IX. Hero Honda

3.6 About Kansai Nerolac Paint Ltd. (Lote Plant):

Nerolac Lote plant was commissioned on 29th April 1998 which is situated in MIDC
Lote, Parshuram Industrial area. The site is surrounded by other manufacturing units
which is 1km away from National Highway NH-17. Nerolac Lote plant is spread over 10
acres (40400 sq. m.). KLP started this plant mainly to maintain the requirement of the
growing automobile sector in Pune.

In terms of production capacity Lote plant is second largest plant of KNPL and basically
focuses on industrial paint. Recently Industrial Lote Plant achieved 1616.8 KL
production-which is the highest ever production at Lote.
To meet overall requirement of water base paint Kansai Nerolac has started a new plant
of decorative paints which is totally advanced to meet the required quantity water base
paint. The new decorative water base plant started in the end of October 2008.

3.7 Major business lines:

I. Automotive Coating
II. High Performance Coating
III. Architectural Coating
IV. Powder Coating

3.8 Products of KNPL (Lote):

A) Industrial:
I. Primer
II. I/C Coats
III. Top Coats
IV. Thinner
B) Decorative:
I. Water Based: Emulsion, CCD
II. Solvent Based: Primers, Enamels High Performance

3.9 Capacity of Lote Plant:

I. Installed Capacity: 1000 kl/month
II. Actual capacity: 850kl/month

3.10 Quality and EHS certifications received by KNPL (LOTE) plant:

TS 16949
ISO 9000-2000
ISO 14000
OHSAS 18000

June 2006
May 2004
September 2002
January 2005

3.11 Award and Recognition to KNPL (LOTE) Plant:

Golden Peacock Environment Management Award 2009- Winner

Symbiosis centre for management Lean and six sigma

-As a participant
Greentech Environment Excellence Award 2008 in chemical sector- Awarded by

Greentech foundation, New Delhi.

ECS Manufacturing Excellence Level 2 Certificate in April 2008
Goodlass Nerolac Paint Ltd C2E- Commitment to Excellence in May 2006

excellence

Lote has achieved recognition to their outstanding performance in commitment

for excellence in Human Resource Care in May 2006

3.12 Employee Team of KNPL (LOTE) Plant:

Category of employees

Paint unit

Powder coating unit

Managers

10

Executive staff

114

25

Operators

144

47

Trainee operators

17

10

Casuals

94

Contract Labours

83

45

Thus, total no. of permanent workers/staff in KNPL Lote plant including both Paint unit
and Powder coating unit are 343.
The total number of contract employees/workers in KNPL Lote plant including both
Paint unit and Powder coating unit are 128.

3.13 Other Activities at Lote Plant:

QC

PROD
Monthly Virangula
is celebrated at officers recreational club at Chiplun.
.
World environment day is celebrated by all employees on 5th June.
QA competition
Various
such as kaizen, FIP, Best AET, best CANDO zone are
ENGI.

organised for all three units under ME Convention theme.

Dassera pooja festival is celebrated at all three units. Various cultural programs
are organized at PC Unit.

UNITOF LOTE PLANT

3.14 ORGANISATION STRUCTURE
HEAD

TECHNICAL

MFG

DECO
.

INDT.

NEW
WATE
R
BASE

RESIN
/CED

HR

ENGI

FPP

MATE
RIAL

ACCO
UNTS

MFG
EXCE
LLEN
CE

HSE

3.15 Functions of Finance & Accounts Department of KNPL (lote):

Accounting function is necessary is a necessary input into the finance
function i.e. accounting is a sub-function of finance. Accounting generates information \
data relating to operations/ activities of the firm. The end product of accounting
constitutes financial statements such as Balance sheet, The Income Statement and The
Statement of changes in Financial position/ sources and uses of funds statement/ Cash
flow statement. The information contained in these statements and reports assists
Financial Managers in assessing the past performance & future direction of the firm and
meeting the legal obligation, such as payment of taxes and so on. Thus Accounting and
Finance are functionally closely related.

STRUCTURE OF ACCOUNTS DEPERTMENT AT LOTE PLANT

COMMERCIAL
MANAGER

ACCOUNTS
HEAD

JUNIOR
OFFICER

JUNIOR
OFFICER

JUNIOR
OFFICER

Various Sections in Accounts Department at Lote Plant:

1.

Financial:
Funds are arranged from head office for the payment of expenses,

engineering bills, transportation bills etc. Reports are maintained related to operating
expenses that means total expenses during the month like, salary, wages, freight, welfare
etc.
2. Excise:
Accounts of modvat received and payment of the central excise duty on
the finished goods dispatches.
3.

Sales Tax:
Accounts of vat received on purchase and payment of vat on finished

goods dispatches.

The various duties and responsibilities of Accounts department in KNPL Lote plant:

1.

Recording day-to-day operating expenses

2.

Excise duty analysis

3.

Transportation bill passing

4.

Engineering bill passing

5.

Powder coating bill passing

6.

Day-to-day cash transactions

7.

MIS Activities

4. NEED FOR THE STUDY

The study has great significance and provides benefits to various parties whom
directly or indirectly interact with the company.

It is beneficial to management of the company by providing crystal clear picture

regarding important aspects like liquidity, leverage, activity and profitability.

The study is also beneficial to employees and offers motivation by showing how
actively they are contributing for companys growth.

The investors who are interested in investing in the companys shares will also get
benefited by going through the study and can easily take a decision whether to
invest or not to invest in the companys shares.

5. OBJECTIVES OF STUDY

The major objectives of the resent study are to know about financial strengths and
weakness of KANSAI NEROLAC PAINTS LIMITED 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.

Secondary Objectives:

To study the present financial system at KANSAI NEROLAC PAINTS

LIMITED.

To determine the Profitability, Liquidity Ratios.

To simplifies and summarizes a long array of accounting data and makes them
understandable.

6. RESEARCH METHODOLOGY
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. So, the research methodology not only talks about the research methods but
also considers the logic behind the method used in the context of the research study.
6.1 Research Design:
Descriptive research is used in this study because it will ensure the minimization
of bias and maximization of reliability of data collected. The researcher had to use fact
and information already available through financial statements of earlier years and
analyze these to make critical evaluation of the available material. Hence by making the
type of the research conducted to be both Descriptive and Analytical in nature.
From the study, the type of data to be collected and the procedure to be used for
this purpose were decided.
6.2 Data Collection:
The required data for the study are basically secondary in nature and the data are
collected from the audited reports of the company.
6.2.1 Primary Data:
Primary data are those data, which is originally collected afresh.

In this project, Questionnaire Method and Interview Method has been used for
gathering required information.
6.2.2 Sources of Data:
The sources of data are from the annual reports of the company from the year
2007-2008 to 2009-2010.

6.3 Methods of Data Analysis:

The data collected were edited, classified and tabulated for analysis. The
analytical tools used in this study.

6.3.1 Analytical Tools Applied:

The study employs the following analytical tools:

Comparative statement.
Common Size Statement.
Trend Percentage.
Ratio Analysis.

7. RATIO ANALYSIS
7.1 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

Trade creditors, to identify the firms ability to meet their claims i.e. liquidity
position of the company.

Investors, to know about the present and future profitability of the company and
its financial structure.

Management, in every aspect of the financial analysis. It is the responsibility of

the management to maintain sound financial condition in the company.

7.2 Ratio Analysis:

The term Ratio refers to the numerical and quantitative relationship
between two items or variables. This relationship can be exposed as

Percentages

Fractions

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.

7.3 Ratios Are Useful For Several Parties Such As:

1) Investors, both present as well as potential investors.
2) Financial analyst.
3) Mutual funds.
4) Stock broker and stock exchange authorities.
5) Government.
6) Tax department.
7) Competitors.
8) Research analysts and students.
9) Companys management.
10) Creditors and Suppliers
11) Lending Institutions Banks and Financial Institutions
12)

Financial Manager

13) Other Interested parties like credit rating agencies etc.

7.4 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.

Selection of relevant data from the financial statements depending upon the
objective of the analysis.

Calculation of appropriate ratios from the above data.

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.

7.5 Classification of Ratios:

A) Liquidity Ratios
It is also known as liquidity ratios. it includes the following
1) Measures ability of a company to meet its current obligations.
2) Indicates short term financial stability of a company.

3)

Indicates present cash solvency and ability to remain solvent in times of

adversities.
To measure the liquidity of a firm the following ratios can be calculated

Current ratio

Quick (or) Acid-test (or) Liquid ratio

(a) Current Ratio:

Current ratio is useful to find out solvency of the company. High current
ratio indicates that company will be able to pay its debt maturity within a year. Low
current ratio indicates that company will not be able to meet its short term debts.
Minimum standard current ratio is 2:1.
Current Assets
Current Ratio=
Current Liabilities

(b) Quick Ratio:

Quick ratio is also known as acid test ratio. It indicates immediate ability
of a company to pay off its current obligations. And also shows the solvency and
financial soundness of the business. Greater the ratio stronger the financial position of
the company.
The standard quick ratio should be 1:1

Quick Assets
Quick Ratio=
Quick Liabilities

B) Profitability Ratios:
The primary objectives of business undertaking are to earn profits.
Because profit is the engine, that drives the business enterprise.
It measures the overall efficiency of the business. It indicates whether
utilization of business assets and funds are done efficiently and best way or not , so as to
generate adequate profits or returns.
Profitability ratios fall in two categories:
a) Related To Sales:
1) Gross Profit Ratio:
It shows the operating efficiency of the business. It measures the
efficiency of production as well as pricing. Decrease in the ratio indicates reduction in
selling price or increase in the cost of production or decline in the business activity.
Increase in the ratio indicates increase in the selling price or reduction in the cost of
production.
Gross Profit
Gross Profit Ratio =

X 100
Sales

2) Operating Profit Ratio:

It indicates profitability of entire business after meeting all operating cost
including direct and indirect cost of administrative and distribution expenses.
Operating Profit
Operating Profit Ratio:

100

Sales

3) Net Profit Ratio:

It shows the overall efficiency of the business. Higher the ratio indicates
higher efficiency of business and better utilization of total resources. In addition it
indicates efficiency of financing operations as well as tax management.
Net profit after tax
Net Profit Ratio:

X 100
Sales

b) Related To Investment Of Capital Employed:

1) Return On Investment:
It measures the overall performance of the company that is utilization of total resources
and funds available with the company. Higher the ratio better utilization of funds. It
indicates earning capacity of the business. It measures the management performance.

EBT But AT
Return on Investment:

X 100
Total Assets/ Liability

2) Return On Net Worth Or Proprietors Funds:

It measures the productivity of shareholders funds. Higher the ratio indicates better
utilization of shareholders funds or higher productivity of owners funds. It helps to
investor to compare the earning capacity of company with that of other companies.
Net Profit after Tax
Return on Net Worth:

X 100
Equity Shareholder Fund

C) Turnover RatioIt measures how efficiently the assets are employed. These ratios are
expressed in number of times the assets is used during the period.
1) Inventory Turnover Ratio:
It indicates number of times the replacement of inventory during the given
period usually a year. Higher the ratio more efficient is the management of inventory. But
higher inventory turnover ratio is not always good if it is lower level of inventory because
it invites problem of frequency stock outs and loss of sales and customer or goodwill.

Cost of Goods Sold

Inventory Turnover Ratio:
Average Stock in Hand

2) Average Collection Period:

It indicates credit and collection policy and also indicates efficiency in
management of debtors. Smaller no. of dates, higher will be the efficiency of the
collection department.
Avg. collection period should not exceed 1.5 times the credit period allowed.
Receivable (Debtors)
Avg. Collection Period:
Average Sales per Day.

3) Receivable Turnover Ratio:

The ratio indicates average credit period enjoyed by debtors.
Debtors + Bills Receivable
Receivable Turnover Ratio:

X 100
Total Credit Sales

4) Fixed Asset Turnover Ratio:

It indicates efficiency in the utilization of fixed assets like plant and machinery by
management.
Net Sales
Fixed Assets Turnover Ratio =
Fixed Assets

5) Total Asset Turnover Ratio =

It indicates how efficiently the assets are employed overall. It indicates
relationships between the amount invested in the assets and the result accrues in terms of
sales.
Net Sales
Total Asset Turnover Ratio =
Total Assets

6) Creditors Turnover Ratio:

It indicates the how the credit period enjoyed by the creditors.

Net Credit Purchases

Creditors Turnover Ratio=
Average Creditors
D) Financial Ratio

1) Capital Gearing Ratio:

This ratio indicates the relationship between preferential capital,
debenture. Term loan and capital which does not carry fixed rate of interest or dividend.
When the ratio is more than one then the capital is said to be highly geared that means
low equity share capital and greater amount of preference share capital, debenture, long
term loan.
When the ratio is less than one then the capital is said to be very lowly
geared that means low earning per share. Equity shareholder will control the company. It
results in over capitalization.
Preferential Capital + Debenture + Term Loan
Capital Gearing Ratio:
Equity Share Capital + Reserve and Surplus

2) Proprietary Ratio:
It measures the relationship between funds invested in business by the
owners with the total funds invested in business. It indicates long run solvency of the
business. High ratio means company is less dependent on outside funds and company is
quite solvent. Low ratio indicates company is more dependent on outside funds solvency
and solvency may be danger.

Proprietary Fund
Proprietary Ratio:

Total Assets

3) Stock Working Capital Ratio:

It indicates weightage of stock in the current assets or in the working
funds. It indicates strength and weaknesses of working capital; high ratio indicates slow
movement in stock and also reflects better management of inventory as well as working
capital.
Stock
Stock Working Capital Ratio:
Working Capital

E) Financial Leverage Ratio:

It indicates financial structure of the organization that is proportion of
debts as compare to owners fund.
1) Debt Equity Ratio:
Higher the ratio less secured is the creditors, lower the ratio creditors
enjoy higher degree of safety.

Debt
Debt Equity Ratio:

Equity

2) Debt Asset Ratio:

It indicates the percentage of the total asset created by the company
through short term and long term debt. Higher the ratio less safe is the creditors and vice
versa.
Debt
Debt Asset Ratio:
Total Assets

3) Long Term Debt to Total Capitalization:

It explains the relationship between long term debts borrowed from
outsiders with owners contribution. Lower the ratio better is the solvency of the business
and safer is the creditor so far as his repayment.
Long Term Debt
Long Term Debt to Total Capitalization:
Total Capital Employed

4) Interest Coverage Ratio:

This indicates earning capacity of the business to pay its interest

burden. Higher the ratio business can easily pay the interest.
Earnings before Interest and Tax
Interest Coverage Ratio:
Interest

F) Dividend Ratio:
These ratios for a particular company are relevant for an investor for
making an investment decision as to whether he should invest in the share of the
company.
1) Earnings per Share:
This ratio indicates weather over a given period their have been change
in the wealth per share holder. Other the ratio increases the possibility for the higher
dividends and increase in the market price of the shares.
Earnings after Tax Preference Dividend
Earnings per Share:
No. Of Shares Paid Up

2) Price Earnings Ratio:

It indicates relationship between market price of the share and the current
earnings per share. It helps to determine the future price of the share.
Market Price per Share
Price Earnings Ratio:
Earning Per Equity Share

3) Payout Ratio:
It indicates how much proportion of the earning per share is retaining for
plaguing back and portion distributed as dividend to the share holder.
Dividend per Equity Shares
Payout Ratio:
Earnings per Share

4) Dividend Yield Ratio:

It indicates the ultimate current return which investor will get as a
percentage of is investment. It indicates the feature like the profitability and dividend
policy of the company. When dividend yield is lower than the expected return, market
price for the share may fall in future or vice versa.

Equity Dividend

Dividend per Share:

No. Of Equity Shares

Dividend per Share

Dividend Yield
Market Price per Share

7.6 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.

7.7 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 is

Accuracy of financial statements

Objective or purpose of analysis

Selection of ratios

Use of standards should also be kept in mind when attempting to interpret ratios.

8. DATA ANALYSIS AND INTERPRETATION

8.1 Financial stability Ratios:

To measure the liquidity of a firm the following ratios can be calculate the following
ratios,
a) CURRENT RATIO:
Current Asset
Current Ratio:
Current Liabilities
Table 8.1.a:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Current Assets
48468.47
51764.02
49807.77

Current Liabilities
21582.46
27739.78
32808.36

Ratio
2.2:1
1.8:1
1.5:1

ANALYSIS AND INTERPRETATION:

The current ratio of the firm measures the short term solvency. It indicates
the rupees of current asset available for each rupee of current liabilities.

The above chart shows that decline trend from the F.Y. 2007 to F.Y. 2009.
This is mainly due to increasing creditors from F.Y. 2007 to F.Y. 2009. In the F.Y. 200708 it shows 2.2:1 which was higher than the standard ratio i.e. 2:1. There was continuous
decline in the current ratio which is not good sign for the company.

b) QUICK RATIO:
Quick Asset
Quick Ratio:
Quick Liabilities
Table 8.1.b:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Quick Asset
23199.99
27062.4
28573.68

Quick Liabilities
21582.46
27739.78
32808.36

Ratio
1.07:1
0.975:1
0.870:1

ANALYSIS AND INTERPRETATION:

The above chart indicates the decline trend from the F.Y. 2007 to F.Y. 2009. In the
F.Y. 2008 and F.Y. 2009 the quick ratio of the company was below standard that means
large part of current asset of the firm is tie up in slow moving and unsellable investment
of Finish goods and also slow moving of debts, but, the overall trend shows declining
which is not a positive sign for KNPL.

8.2. PROFITABILITY RATIO

A) RELATED TO SALES
a) Operating Profit Ratio:
Earnings before Interest Taxes
Operating Profit Ratio:

X 100
Sales

Table 8.2.A.a:
(Rupees in lakhs)

Earning Before
Year
31-3-07
31-3-08
31-3-09

Interest Taxes
15542.89
16759.11
14272.70

Sales

Ratio

129345.66
139992.48
139639.94

12.02 %
11.97 %
10.22 %

ANALYSIS AND INTERPRETATION:

The above chart shows that there was a continuous decreased in the ratio.
That means the ratio was decreased from 12.02% in FY 2007-08 to 10.22% in FY 200910. This is due to increases in the expenditure of the company.

b) Net Profit Ratio:

Net Profit
Net Profit Ratio:

X 100
Sales

Table 8.2.A.b:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Net Profit
10202.8
11702.72
10136.19

Sales
129345.66
139992.48
139639.94

Ratio
7.88 %
8.35 %
7.25 %

ANALYSIS AND INTERPRETATION:

The above chart indicates the Net Profit Ratio in 2007-08 was 7.88 %
which further increases to 8.35% in FY 2008-09. Further it had fallen to 7.25% in FY
2009-10. That means company suffers the losses after the FY 2008-09. In FY 2008-09 the
net profit was high to increase in the sales of the company.

(B) RELATED TO CAPITAL EMPLOYED

a) Return on investment:
Earnings before interest but after tax
Return on investment:

X 100
Total asset / liability

Table 8.2.B.a:
(Rupees in lakhs)

Earnings Before
Total Asset /
Year

Interest But After

31-3-07
31-3-08

Tax
10378.39
11929.75

Ratio
Liability
65912.12
73746.32

15.74 %
16.17 %

31-3-09

10257.99

75662.49

13.55 %

ANALYSIS AND INTERPRETATION

It can be found that the return on investment ratio of KNPL was slightly
increased in first two years. Further it was decreased by 0.13% which implies an
ineffective decisions made by the managers.
(b) Return on Net Worth or Proprietors Funds:
Net Profit after Tax
Return on net worth:

X 100
Equity shareholder fund

Table 8.2.B.b:
(Rupees in lakhs)

Equity shareholder
Year
31-3-07
31-3-08
31-3-09

Net Profit after Tax

10202.8
11702.72
10136.19

Ratio
fund
51721.18
59875.12
66299.87

19.72 %
19.54 %
15.28 %

ANALYSIS AND INTERPRETATION:

This ratio indicates how well the firm has used the resources of owner.
The earning of a satisfactory result is the most desirable objective of the business. This
ratio is important to present as well as prospective shareholders and also of great concern
to management.
The above chart shows that the ratio was almost constant in first two
years. Further it declined to 15.28% this is due to increased in the reserve and surplus of
the company.
Higher the ratio indicates better utilization of recourses but in KNPL It
shows decreasing trend which is not good.

8.3. TURNOVER RATIOS:

a) Inventory turnover ratio:

Net Sales
Inventory turnover ratio:
Closing Stock

Table 8.3.a:
Year
31-3-07
31-3-08
31-3-09

Net Sales
129345.66
139992.48
139639.94

Closing Stock
19996.18
19926.90
17063.39

(Rupees in lakhs)
Ratio
6.46 times
7.02 times
8.18 times

ANALYSIS AND INTERPRETATION:

The above chart shows that the stock gets converted into cash was 6.46
times, 7.02 times and 8.18 times in the FY 2007 to 2009 respectively.
If we compared the figures of sales and inventory of first two years, the
level of inventory is almost same, but in the FY 2008 and09 the sales was increased with
low cost of inventory which implies the management is successful to reduce the cost
involved for management of inventory.
b) Average Collection Period:
Receivable (Drs)
Average collection period:
Average sales per day

Table 8.3.b:
(Rupees in lakhs)

Average sales per

Year
31-3-07
31-3-08
31-3-09

Receivable (Drs)
20994.41
23637.37
20957.29

Ratio
day
129345.66
139992.48
139639.94

59.24days
61.62 days
54.77 days

ANALYSIS AND INTERPRETATION:

The above chart shows that the collection period was high in FY 2008-09 i.e. 62 days.
This means, a very long collection period would imply either for credit selection or an
inadequate collection. The average collection period short in FY 2009-10 which means
that better is a credit management and prompt payment on the part of debtors.

c) Receivable turnover ratio:

Credit sales
Receivable turnover ratio:
Average debtors

Table 8.3.c:

(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Credit sales
129345.66
139992.48
139639.94

Average debtors
20994.41
23637.37
20957.29

Ratio
6.1times
5.9 times
6.6 times

ANALYSIS AND INTERPRETATION:

This ratio indicates the average credit period enjoyed by debtors. The
above chart shows that the customers to whom the credit sales are made pay 6.1times, 5.9
times & 6.6 times in the FY 2007 to respectively. In the FY 2008-09 THE DEBTORS
TURNOVER RATIO was low which indicates the absence of a strict credit policy and
also point out that there were delayed to recover the revenue from sales. This point out
into the huge block up of working capital in book debt.
It was high in FY 2009-10 i.e. 6.6 times which indicate prompt payment
on the part of debtors. Overall debtors turnover ratio was good.
d) Fixed Asset Turnover Ratio:
Net sales
Fixed asset turnover ratio:
Fixed assets

Table 8.3.d:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Net sales
129345.66
139992.48
139639.94

Fixed assets
22538.61
24140.44
23861.99

Ratio
5.73 times
5.79 times
5.85 times

ANALYSIS AND INTERPRETATION:

It indicates efficiency in the utilization of fixed assets like plant and
machinery by management.
From the above chart the fixed asset turnover ratio of KNPL slowly
increases over period of time. From this we can say that a company has been successful
to manage and utilized its assets. Also a company has been more effective in using the
investment in fixed assts to generate revenue.
e) Total Asset Turnover Ratio:
Net sales
Total asset turnover ratio:
Total asset
Table 8.3.e:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Net sales
129345.66
139992.48
139639.94

Total asset
65912.12
73746.32
75662.49

Ratio
1.962 times
1.898 times
1.845 times

ANALYSIS AND INTERPRETATION:

The total asset turnover ratio indicates the firms ability to generate sales from all
financial resources.
From the above chart the total asset turnover ratio was decreased from 1.9 times in FY
2007-08 to 1.8 in FY 2009-10. The total asset turnover of the company was 1.8 times
implies that KNPL generate a sell of Rs. 1.8 for one rupee investment in fixed and current
asset together.
f) Creditors Turnover Ratio:
Net credit purchases
Creditors turnover ratio:
Average creditors
Table 8.3.f:
(Rupees in lakhs)

Year

Net credit

Average creditors

Ratio

31-3-07
31-3-08
31-3-09

purchases
84723.95
89136.85
92418.41

15906.86
18430.47
23007.12

5.3 times
4.8 times
4.0 times

ANALYSIS AND INTERPRETATION:

The above chart dips from 5.3 times to 4.0 times from the FY 2007-08 to FY 2009-10.
From this we can interpret that KNPL has successful to manage its creditors because,
over the years trend is declining.

8.4 Financial ratio

a) Proprietary ratio:
Proprietary Fund
Proprietary ratio:

X 100
Total assets

Table 8.4.a
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Proprietary fund
51721.18
59875.12
66299.62

Total assets
65912.12
73746.32
75662.49

Ratio
78.46 %
81.19 %
87.62 %

ANALYSIS AND INTERPRETATION:

From the above chart the ratio was consistently increased in three years.
The ratio was high in the FY 2009-10 i.e. 0.87%. It indicates the company is quite
solvent.

b) Stock working capital ratio:

Stock
Stock working capital ratio:
Working capital
Table 8.4.b:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Stock
19996.18
19926.90
17063.39

Working capital
26886.01
24024.24
16999.41

Ratio
74.37%
82.94%
100.37%

ANALYSIS AND INTERPRETATION:

The above chart shows the continuous increase in the trend of the ratio.
The weightage of stock in the current assets is high in the FY 2009 FY 2010 as compare
to other FY. That means there was a slow movement of stock.
8.5 Financial Leverage Ratio:
It indicates financial structure of the organization that is proportion of debts as compare
to owners fund.
a) Debt Equity Ratio:
Debt
Debt equity ratio:
Equity

Table 8.5.a:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Debt
12657.80
12480.40
9362.62

Equity
51721.18
59875.12
66299.62

Ratio
24.47%
20.84%
14.12%

ANALYSIS AND INTERPRETATION:

This ratio is useful to judge long term financial solvency of a firm. This
ratio reflects the relative claim of creditor and shareholder against the assets of the firm.
From the above chart the debt equity ratio of the KNPL was consistently
declined from 24.47% in FY 2007-08 to 14.12% in FY 2009-10.The low debt equity ratio
in FY 2009-10 indicates the firm had less claims from outsiders as compared to those of
owner.
b) Debt Asset Ratio:
Debt
Debt asset ratio:
Total assets
Table 8.5.b:
(Rupees in lakhs)

Year
31-3-07
31-3-08
31-3-09

Debt
12657.80
12480.40
9362.62

Total assets
65912.12
73746.32
75662.49

Ratio
19.20%
16.92%
12.37%

ANALYSIS AND INTERPRETATION:

From the above chart the debt asset ratio was consistently decreased from
19.20% in FY 2007-08 to 12.37% in FY 2009-10. That means at beginning creditors of
KNPL bear the high risk than the other years.
c) Long Term Debt to Total Capitalization:
Long term debt
Long term debt to total capitalization:
Total capital employed
Table 8.5.c:
(Rupees in lakhs)

Total Capital
Year

Long Term Debt

31-3-07
31-3-08
31-3-09

4660.29
4603.14
1608.29

Ratio
Employed
65912.12
73746.32
75662.49

7.07%
6.24%
2.12%

ANALYSIS AND INTERPRETATION:

The above chart indicates that the ratio was consistently decreased from
7.07% in FY 2007-08 to 2.12% in FY 2009-10, means that KNPL is successful to manage
its long term debt which further implies that the KNPL is in better position in terms of
solvency.
d) Interest Coverage Ratio:
Earning before interest and tax
Interest coverage ratio:
Interest
Table 8.5.d:
(Rupees in lakhs)

Earnings Before
Year
31-3-07
31-3-08
31-3-09

Interest And Tax

15718.48
16986.14
14505.05

Interest

Ratio

175.59
227.03
212.8

89.51times
74.91 Times
68.16 Times

ANALYSIS AND INTERPRETATION:

From the above chart the trend of the ratio was decreased from 89.51
times in FY 2007-08 to 68.16 times in FY 2009-10. From this, it indicates that KNPL is
trying to reduce its interest burden which is good sign for both i.e. there creditors and
shareholders.
8.6 Dividend Ratio:
These ratios for a particular company are relevant for an investor for making an
investment decision as to whether he should invest in the share of the company.

a) Earnings per Share:

Earning after tax preference dividend
Earning per share:
No. of shares paid up

Table 8.6.a:
(Rupees in lakhs)

Year

Earnings After Tax

Preference

No. Of Shares Paid

Up

Ratio

31-3-07
31-3-08
31-3-09

Dividend
10202.08
11702.72
10136.19

255.07666
269.45986
269.45986

39.99
43.43
37.61

ANALYSIS AND INTERPRETATION:

From the above chart the EARNING PER SHARE of the company was
high in FY 2008-09 i.e. Rs.43.43. This means that as compare to the other FY there has
been increase in wealth per shareholder.
b) Payout Ratio:
Dividend per equity share
Payout ratio:

X 100
Earnings per share

Table 8.6.b:
(Rupees in lakhs)

Dividend per

Earning per equity

Year
31-3-07
31-3-08
31-3-09

Ratio
equity share
12.14
12.00
12.00

share
39.99
43.43
37.61

30.35%
27.63%
31.90%

ANALYSIS AND INTERPRETATION:

It indicates how much proportion of the earning per share is retaining for
plugging back and portion distributed as dividend to the share holder.
The above chart indicates that the pay out ratio was high in FY 2009-10
i.e. 31.90%. If the divided pay out ratio is subtracted from 100, retention ratio is obtained.
Means that in KNPL the retention ratio from FY 2007 to FY 2009 was 69.65%, 72.37%,
68.1% respectively and KNPL is ploughed back its maximum percentage of its profit.
c) Dividend per shares ratio:
Equity dividend
Dividend per share:
No. of equity shares
Table 8.6.c:
(Rupees in lakhs)

No. Of Equity
Year
31-3-07
31-3-08
31-3-09

Equity Dividend
309879000
323352000
323352000

Ratio
Shares
25507666
26945986
26945986

Rs. 12.14
Rs. 12.00
Rs. 12.00

ANALYSIS AND INTERPRETATION:

The dividend per share ratio of the KNPL was almost same i.e. Rs. 12 in
the FY 2007 to FY 2009.But if we compared earning per share with Dividend per share it
shows that Earning per share is more than Dividend per share. In this case of Earning per
share, adjustment of bonus or right issue should be made while calculating Dividend per
share over the year.

9 FINDINGS
1. The ideal current ratio is 2:1 which the firm obtains only in the FY 2007-08 it shows
the positive impact.

2. The ideal liquid ratio is 1:1 which is also obtained by the firm in FY 2007-08 and FY
2008-09 it indicates that KNPL, without selling its inventory, has enough short-term
assets to cover its immediate liabilities.

3. The net profit ratio shows fluctuating trend, it shows that more or less the company is
successful to maintained efficiency in sales value and operating expenses.
4. The operating profit ratio of the KNPL is in fluctuating manner as 12.02%, 11.97%,
and 12.22% from FY 2007to FY 2009.
5. The return on investment ratio is increased from 0.15% to .016% in FY 2007 to FY
2008 because both the EBIT and total asset increased.
6. The company is maintaining the proper record of inventory. Management is successful
to manage the cost involved in inventory, because of increasing ratio of inventory.
7. The fixed asset turnover ratio of the firm is in increasing trend from the F.Y. 2007 to
2009, means that the company is efficiently utilizing the fixed assets.
8. The proprietary ratio of the firm shows increasing trend, means that the long term
solvency of the firm is increased.

9. KNPL borrowed loans in such a way that the cost of this debt financing do not
outweigh the return that the company generates on the debt through investment and
business activities And become too much for the company to handle.

10. The KNPL is successful to manage its long term debt. In the FY 2007-08 the long
term debt was Rs. 4660.29 which was reduced to Rs. 1608.29 in FY 2009-10.

11. KNPL is far better in covering its fixed cost with the interest coverage ratio.

12. The sales, profit before tax, profit after tax shows the increasing trend during the
period under review. It depicts that the company is working with more efficiency.

13. The company has not made any preferential allotment of shares and also company has
not issue any debentures.

10 SUGGESTIONS AND CONCLUSION

10.1 Suggestions:
1. The CURRENT RATIO of KNPL was less than the standard in FY 2008-09 and 200910 i.e.1.8, 1.5 respectively. A low current ratio indicates that co will not be able to meet
its short term debts.
2. KNPL should look into its credit policies in order to ensure the timely collection of
imparted credit that is not earning interest for the firm.
3. There is decreasing trend in interest coverage ratio which is due to heavy investment
which further effect on the return on investment ratio. So KNPL should keep up its
investment unto sufficient level.

4. The KNPL should formulate the strategy to use the fixed assets more effectively to
generate more revenues.
5. Operating expenses should be especially considered to be reduced.
6. Inventory is the biggest item of balance sheet that must have demanded a large amount
of maintaining cost. So there is need for efficient Inventory Management.
7.

There should be efficient utilization of share holder fund to increase return on

investment and return on equity to maintain its goodwill in investors mind.

10.2 CONCLUSION:
Finance is the life blood of every business. Without effective financial
management a company cannot in this competitive world. A Prudent financial Manager
has to measure the working capital policy followed by the company.
The companys overall position is at a good position. Through the losses
were there in the FY 2003-2004, they were able to come out of it successfully and regain
into profitable scenario. Particularly the last three years position is well due to raise in
the profit level from the FY 2007 to FY 2009. It is better for the firm to diversify the
funds to different sectors in the present market scenario.

On a whole Kansai Nerolac Paints Limited has once again demonstrated

its potential to ride through the difficult times. Despite the slowdown in its growth, it has
determined to grab numerous opportunities that are facing Indian Paint Industry.

As mentioned earlier, other opportunities in India are pegged to the

transport sector. Car ownership in India stands at little more than one percent. However,

rising affordability and the launch of economical cars such as the Tata Nano are expected
to propel the market for OEM coatings and refinishes in the coming years.

Higher demand for marine paints can be expected in the next decade, once
investments in ports and port development have started to reach fruition. As India is
hopeful of competing with other established shipbuilding nations, the multinationals are
likely to find plentiful opportunity in India, given the compliance requirements imposed
by effects of international legislation on marine paints.

Also other segments are showing promising opportunities to grow. With

these many opportunities at hand along with the potential player who would be able to
make use of the situation well, I would rather start looking at a career in KNPL.

So from this we can conclude that there is a better opportunities for

investors to invest in this company.

11 LIMITATIONS

The main limitations of the project undertaken are as under:-

Time: The time of around two months was too short to study as wide subject like
Financial Analysis.

Confidential information: The executives were hesitant to reveal complete

information since it was confidential.

Busy Schedule of Concerned Executives: The concerned executives were not

having very busy schedule because of which they were reluctant to give
appointment.

12 BIBLIOGRAPHY

Financial Management: M Y KHAN AND P K JAIN Fifth Edition

FINANCIAL MANAGEMENT - I. M. PANDEY

Financial Management (BMS): MR. Kale.

Kansai Nerolac Paints magazines, brochures etc.

Annual Reports of the Kansai Nerolac Paints Ltd.

o 88th annual report 2007-08
o 89th annual report 2008-09

www.nerolac.com

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