1.

INTRODUCTION
INTRODUCTION TO RATIO ANALYSIS
The ratio analysis is the most powerful tool of financial
analysis.Several ratio calculated from their data can be grouped into
various classes according to financial activity or functiom to be
evaluated.

Analysis and interpretatiom of financial statement thehelp of

Financial statements with the help of 'ratio' is termed as 'ratio analysis'
Ratio analysis involved process of completing,determining and
presenting the relationship of items or groups of items of financial
statement. '

MEANING OF RATIO ANALYSIS

Ratio analysis is a mathematical method in which different
financial ratios of a company, taken from the financial sheets
and other publicly available information, are analysed to
gain insights into company’s financial and operational details.
DEFINITION OF RATIO ANALYSIS
The Institute of Cost and Works accountants of India (ICWAL) has
defined management accounting as a “system of collection
and presentation of relevant economic relating to an enterprise
for planning,controlling and decision making”.

In the words of kennedy and McMillan “the relationshiop of an

item to another expressed on simple mathematical from is
known as a ratio”.
In the words of Robert Anthony,”Management accounting is
concerned with accounting informatio that is udeful to management”
 1.1 OBJECTIVE OF THE STUDY
THE MAIN OBJECTIVE OF ANALYZING THE FINANCIAL STATEMENT
ARE SUMMARIES BELOW

 To anlyze the profitability position of the company.

 To generate internal sources for profitable growth.

 To find out the short term long term solvency of the company

 To assess the return on investment .

 To determine the valuation of the company .

 To anlyze the Return on assets.


 To maintain good inventory management system .
 1.2 NEED OF THE STUDY
 Analysis of financial statements

 Helps in understanding the profitability of the company

 helps in identying the business risks of the firm

 Helps in identying the financial risks of the company

 For planning and future forecasting of the firm

 To compare the performance of the firms

 Liquidity of the firms

 Analysis of operational efficiency of the firms

 The study helps to know about the liquidity,solvency,profitability

and turnover position of the company

 To diagonise the information contained in financial statement so

as to jude the profitability of the firm
 1.3 SCOPE OF THE STUDY

The scope of the study is limited to collecting financial data published

in the annual report of the company every year.The analysis is done
to suggest the possible solution.
The study is carreid for 5 years (2015-2019).
The main scope is to put practical and theoritical aspects of the study
into real life experience.The study of ratio analysis further the study
is based on past 5 years annual reports of Kothari industrial
corporation limited.
 1.4 LIMITATIONS OF THE STUDY

 Ratios are based on Historical(old) data

 Changes in accounting methods (comparability)

 Non availability of required dara to analysis the performance


 The short span of the time provided one of the limitations

 The study was limited to only five years Financial Data.

 1.5 RESEARCH METHODOLOGY

Research Design

In view of the objects of the study listed above an

exploratory
research design has been adopted. Exploratory research
is one which is
largely interprets and already available information and it
lays
particular Emphasis on analysis and interpretation of the
existing
and available information.

 To know the financial status of the company.

 To know the credit worthiness of the company.
To offer suggestions based on research finding.

DATA COLLECTION METHODS

PRIMARY DATA
Data that has been collected from first-hand-experience is
known as primary data. Primary data has not been
published yet and is more reliable, authentic and
objective. Primary data has not been changed or altered
by human beings; therefore its validity is greater than
secondary data.
SECONDARY DATA
Data collected from a source that has already been
published in any form is called as secondary data. The review of
literature in any research is based on secondary data. It is collected
by someone else for some other purpose (but being utilized
by the investigator for another purpose). For examples, Census
data being used to analyze the impact of education on career
choice and earning. Common sources of secondary data for
social science include censuses, organizational records and data
collected through qualitative methodologies or qualitative
research. Secondary data is essential, since it is impossible to
conduct a new survey that can adequately capture past change
and/or developments

DATA COLLECTION TOOLS

To analysis the data acquire from the Primary Data
sources”RATIO ANALYSIS” The scope of the study is
defined below in terms of concepts adopted and period
under focus
Find the study of RATIO ANALYSIS is confirmed only to the
Kothari Industrial Corporation Limited.

Secondly the study is based on the annual reports of the company

for a period of 5 years from 2015-2019 the reason for restricting to
this period is due time constraint.
 RATIO ANALYSIS TYPES

Ratio analysis are mainly classified into four types.They are

1) PROFITABILITY RATIO
2) SOLVENCY RATIO
3) LIQUIDITY RATIO
4) TURNOVER RATIO
5) EARNINGS RATIO
Type #1 – Profitability Ratios
This type of ratio analysis suggests the Returns that are
generated from the Business with the Capital Invested
• GROSS PROFIT RATIO
• NET PROFIT RATIO
• OPERATING PROFIT RATIO

GROSS PROFIT RATIO:

It represents the operating profit of the company after
adjusting the cost of the goods that are been sold. Higher the
gross profit ratio, lower the cost of goods sold and greater
satisfaction for the management.

Gross Profit Ratio = Gross profit

----------------- x 100
Net sales
NET PROFIT RATIO:
It represents the overall profitability of the company after
deducting all the cash & no cash expenses. Higher the net profit
ratio, higher the net worth and stronger the balance sheet.
Net profit ratio= Net profit
-------------- x100
Net sales

OPERATING PROFIT RATIO:

It represents the soundness of the company and the ability to

pay off its debt obligations.
Operating Profit Ratio= EBIT
-------- x100
Net sales
Type #2 – Solvency Ratios
These ratio analysis types suggest whether the company is solvent
& is able to pay off the debts of the lenders or not.

DEBT-EQITY RATIO:
This ratio represents the leverage of the company. A low d/e ratio
means that the company has a lesser amount of debt on its books
and is more equity diluted. A 2:1 is an ideal debt-equity ratio to be
maintained by any company.

Debt equity ratio= Total debt

-----------------
Shareholders fund
INTEREST COVERAGE RATIO:
It represents how many times the company’s profits are capable of
covering its interest expense. It also signifies the solvency of the
company in the near future since higher the ratio more comfort to
the shareholders & lenders regarding servicing of the debt
obligations and smooth functioning of the business operations of
the company.
Interest Coverage Ratio = Ebit
--------------
Interest
Type expense
#3 – Liquidity Ratios

These ratios represent whether the company has enough liquidity to

meet its short term obligations or not. Higher liquidity ratios more
cash-rich the company.

CURRENT RATIO:

It represents the liquidity of the company in order to meet its

obligations in the next 12 months. Higher the current ratio,
stronger the company to pay its current liabilities. However, a
very high current ratio signifies that a lot of money is been stuck
in receivables that might not realize in the future
Current Ratio = Current Assets
------------------------
Current liabilities
QUICK RATIO:

It represents how cash rich is the company to pay off its

immediate liabilities in the short term.

Quick Ratio = Current assets- Inventories

----------------------------------------
Current liabilities

Type #4 – Turnover Ratios

FIXED ASSETS TURNOVER RATIO:

Fixed asset turnover represents the efficiency of the company to

generate revenue from its assets. In simple terms, it is a return on
the investment in fixed assets. Net Sales = Gross Sales – Returns.
Net Fixed Assets = Gross Fixed Assets –Accumulated Depreciation.
Average Net Fixed Assets = (Opening Balance of Net Fixed Assets +
Closing Balance of Net Fixed Assets)/2

FIXED ASSET TURNOVER RATIO = Net sales

-------------------
Average fixed assets
 INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio represents how fast the company is able

to convert its inventory into sales. It is calculated in days signifying
the time required to sell the stock on an average. Average
inventory is been considered in this formula since the inventory of
the company keeps on fluctuating throughout the year.

INVENTORY TURNOVER RATIO= Cost of goods sold

----------------------------
Average inventories
Type #5 – Earning Ratios

This ratio analysis type speaks about the returns that the
company generates for its shareholders or investors.

EARNINGS PER SHARE:

Earnings Per Share represents the monetary value of the earnings
of each shareholder. It is one of the major components looked at
by the analyst while investing in equity markets.
EARNINGS PER SHARE = (Net Income – Preferred Dividends)
------------------------------------------------
(Weighted Average of Shares Outstanding)
 CHAPTER 2
REVIEW OF LITERATURE
 REVIEW OF LITERATURE

• Shinde Govind P. & Dubey Manisha (2011) the study has

been conducted considering
the segments such as passenger vehicle, commercial vehicle, utility
vehicle, two and
three wheeler vehicle of key players performance and also analyze SWOT
analysis and
key factors influencing growth of automobile industry.
• Sharma Nishi (2011) studied the financial performance of
passenger and commercial
vehicle segment of the automobile industry in the terms of four financial
parameters
namely liquidity, profitability, leverage and managerial efficiency analysis
for the period
of decade from 2001-02 to 2010-11. The study concludes that
profitability and
managerial efficiency of Tata motors as well as Mahindra & Mahindra ltd
are satisfactory
but their liquidity position is not satisfactory. The liquidity position of
commercial
vehicle is much better than passenger vehicle segment.
• Singh Amarjit & Gupta Vinod (2012) explored an overview of
automobile industry.
Indian automobile industry itself as a manufacturing hub and many
joint ventures have
been setup in India with foreign collaboration. SWOT analysis done
there are some
challenges by the virtue of witch automobile industry faces lot of
problems and some
innovative key features are keyless entry, electrically controlled
mechanisms enhanced
driving control, soft feel interiors and also need to focus in future on
like fuel efficiency,
emission reduction safety and durability.
• Zafar S.M.Tariq & Khalid S.M (2012) the study explored that
ratios are calculated
from financial statements which are prepared as desired policies
adopted on depreciation
and stock valuation by the management. Ratio is simple comparison
of numerator and a
denominator that cannot produce complete and authentic picture of
business. Results are
manipulated and also may not highlight other factors which affect
performance of firm by
promoters.
• Dawar Varun (2012) Study to analyze the effect of various
fundamental corporate policy
variables like dividend, debit, capital expenditure on stock prices of
automobile
companies of India. The study tends that dividend & investment policy
are relevant and
capital structure irrelevant to stock prices.
• Mistry Dharmendra S. (2012) understood a study to analyze the
effect of various
determinants on the profitability of the selected companies. It
concluded that debt equity
ratio, inventory ratio, total assets were important determinants which
effect positive or
negative effect on the profitability. It suggerted to improve solvency as
to reduce fixed
financial burden on the company profit & give the benefit of trading
on equity to the
shareholders.
• Dharmaraj, A.and Kathirvel N. (2013) explored an overview of
new industrial policy
act 1991, which allow 100 percent foreign direct investment. An
attempt is made to find
out the effect of FDI on financial performance of automobile industry.
It is concluded
that the liquidity ratios shows minor changes and profitability shows
an increasing trend
during post FDI when compared to pre FDI. Post FDI efficiency ratio
shows that
companies are efficiently utilizing the available resources.
• Murlidhar, A. Lok Hande & Rana Vishal S. (2013) the author
tries to evaluate the
performance of Hyundai Motors Company with respect to export,
Domestic Sales,
productions and profit after tax. For this purpose, the pie chart and
bar graph are used to
show the performance of company various years.
• Rapheal Nisha (2013) the author tries to evaluate the financial
performance of Indian
tyre industry. The study was conducted for period 2003-04 to 2011-12
to analyze the
performance with financial indicators, sales trend, export trend,
production trend etc. The
result suggests the key to success in industry is to improve labour
productivity and
flexibility and capital efficiency.

• Sharma Rashmi, Pande Neeraj & Singh Avinash (2013) for

understanding how social
media monitoring can help diving the consumer decision & also study.
The functions of
social media i.e. monitor, responses amplify and lead at maruti Suzuki
India ltd. The
researcher had discussion with social media team median managers
for collecting data &
also visited the official social media sites of MSIL.
• Daniel A. Moses Joshunar (2013) the study has been conducted
to identify the financial
strength and weakness of the Tata motors Ltd. using past 5 year
financial statements.
Trend analysis & ratio analysis used to comment of financial status of
company.
Financial performance of company is satisfactory and also suggested
to increase the loan
levels of company for the better performance.
• Shende Vikram (2014) this research will be helpful for the
new entrants and existing car
manufacturing companies in India to find out the customer
expectations and their market
offerings. The objective of study is the identification of factors
influencing customers
performance for particular segment of cars.
• Azhagaiah R. & Gounasegaran (2014) recognized India’s per
capita real GDP growth
as one of key drivers of growth for country’s automobile industry.
The central
government would be set up various task forces on issue related
to taxation, land
acquisitions, labour reform and skill development for auto
industry.
• Buvaneswari .R & Kanimozhip (2014) to study the credit
worthiness of selected firms
in Indian car industry, tiruchy. Professor Edward Altman of New
York University
developed method Z score analysis to predict the company failure
or bankruptcy. To
measure the fiscal fitness of a company combined a set of five
financial ratios.
• Sarangi Pradeepta K et al (2014) undertook a study to forecast
the future trend of
automobile industry. The study highlighted the six different
experiments have been
carried out for period of 12 years data to estimate values for next 3
years. In each
experiment graph has been plotted using spreadsheet and then linear
trend has been
drawn and expanded to calculate future values.
• Nandhini, M. & Sivasalthi, V.(2015) have studied the impact of
both financial
leverage as well as operating language on the profitability of TVS
motor company. The
result shows that company suffers from certain weakness & suggested
to control fixed
cost as well as variable cost to gain adequate profits.
• Jothi, K. & Kalaivani, P. (2015) studied the comparative
performance of Honda Motors
and Toyota Motor that both companies have satisfactory short term
liquidity position. As
for as cash ratio concerned Honda company has upper hand upper
hand in sound cash
management practice during the study period. In case of profitability it
is rising from the
both of companies but remained much higher earning potential in
Honda motor ltd.
• Krishnaveni , M. & Vidya, R (2015) author has selected 87
companies out of 242
companies in capital line database to discuss the standard current
ratio of automobile
industry is matched with tractor and four sectors like engine parts,
lamps, gears and
ancillaries with standard norms. The study concludes that current and
liquidity ratio of
automobile industry is matched with tractor and the four sectors but
other sectors have to
improve the repaying capacity to strengthen the financial aspects.
• Sarwade Walmik Kachru (2015) analyzed the effects of
liberalization, government delicensing and liberal trade policies on the
growth of Indian auto mobile industry .The
study recommends that investing four- wheeler is going to be smart
potion not only in
India but all around the world.

• Becker Dieter (2015) the report shows about the current state and
future prospects of the
worldwide automobile industry. This survey report the manufacturer,
executive and
consumer views about four aspects, mobility culture, technological fit,
business model
readiness and market share.

• Surekha B. & Krishnalah K.Rama (2015) this study reveals the

prosperity of Tata
motors company. It can be concluded that inner strength of company
is remarkable.
Company can further improve its profitability by optimum capital
gearing, reduction in
administration and financial expenses for the growth of company
• Nandhini, M. & Sivasalthi, V.(2015) have studied the impact of
both financial
leverage as well as operating language on the profitability of TVS
motor company. The
result shows that company suffers from certain weakness &
suggested to control fixed
cost as well as variable cost to gain adequate profits.
• Kumar Rakesh Rasiklalajani & Bhatt Satyaki J. (2015) the
proposed research is
intended to examine the trend and pattern of financing the capital
structure of Indian
companies. The study is to analyze the determinants of total debt
ratios as well as
determinants of short term and long term ratios.
• Kumar Neeraj & Kaur Kuldip (2016) made an attempt to test
the size and profitability
relationship in the Indian automobile industry. To analyze the
relationship linear
regression model as well as cross-sectional has been employed for
the year 1998to 2014.
For profitability analysis two different measures have been used
(i) ratio of net profit to total sales turnover
(ii) ratio of net income to net assets plus working capital and for
form size two indicators used namely, total sales turn over and net
assets.The time series analysis showed the positive relationship
•
between firm size and profitability but crosssectional show no
relationship between firm size and profitability.
• Ravichandran, M. & Subramanium M Venkata (2016) the
main idea behind this
study is to assessment of viability, stability and profitability of Force
motors limited.
Operating position of the company can be measured by using various
financial tools such
as profitability ratio, solvency ratio, comparative statement & graphs
etc. This study finds
that company has got enough funds to meet its debts & liabilities.
Company can further
improve financial performance by reducing the administrative, selling
& operating
expenses.
• Mathur Shivam & Agarwal Krati (2016) Ratio’s are an excellent
and scientific way
to analyze the financial performance of any firm. The company has
received many
awards and achievements due to its new innovations and
technological advancement.
These indicators help the investors to invest the right company for
expected profits. The
study shows that Maruti Suzuki limited is better than Tata motors
limited.

• Jothi, K. & Geethalakshmi, A. (2016) this study tries to evaluate

the profitability &
financial position of selected companies of Indian automobile industry
using statistical
tools like, ratio analysis, mean, standard deviation, correlation. The
study reveals the
positive relationship between profitability, short term and long term
capital
• Kumar Mohan M.S, Vasu. V. and Narayana T. (2016) the
study has been made
through using different ratios , mean, standard deviation and
Altman’s Z score approach
to study the financial health of the company. The study reveals
there is a positive
correlation between liquidity and profitability ratios except return
on total assets as well
as Z score value indicate good health of the company.
• Kaur Harpreet (2016) the author tries to examine the qualities
& quantities performer of
maruti Suzuki co. & how had both impact on its market share in
India, For this study
secondary data has been collected from annual reports, journals,
report automobile sites.
Result shows that MSL has been successfully leading automobile
sector in India for last
few years.
 CHAPTER 3
COMPANY PROFILE
The making of an Era
The year was 1919. Chandulal Mothilal Kothari, a Gujarati from the
Kutch region made Madras his home, and sank roots. He was one of
the first from his community to become a professional with a law
degree. He practiced for a while and was soon thinking about
expanding into business – a rare lawyer with an entrepreneurial
streak.

He set up Kothari & Sons, Share, Stock and Exchange Broker, one of
the first firms in the stocks and share business in Madras. The Madras
Stock Exchange was his brain child and he went on to head it, par
excellence. Over the years, there were many firsts and pioneering
ventures on his path – Madras Safe Deposit Company Ltd, Kothari
Textiles Ltd et al. Growth came rapidly. These companies he started
grew by leaps and bounds, as he kept adding new product lines and
cannot-resist-offerings.

Often described as a philanthropist, impeccably well-dressed,

extremely intellectual, his directorships demonstrated his range of
interests and capabilities – He was one of the founders of the
Southern India Chamber of Commerce and Hindustan Chamber of
Commerce, was Member of Commerce, Board of the University of
Madras, a member of the Board of Industries, and, most significant of
all, the first Indian Planting Member in the Madras Legislature. He was
also a director of Amrutanjan Ltd., The Madras Publishing House Ltd.,
The Guntur Power & Light Co. Ltd., and the Vizagapatnam Sugar and
Refinery Ltd.
To his peers and competitors, he was not an overnight success –
Because they understood his resourcefulness, innovation, depth of
knowledge, creativity and hard work. And so did his sons –
Dr.D.C.Kothari and Mr.H.C.Kothari who joined him in 1930 to become
the Partners of Kothari & Sons.

When he passed away at 64, his obituaries in leading dailies read as

“the former President of the Federation of Indian Chambers of
Commerce and Industry and an ex-Sheriff of Madras,” – a pioneering
entrepreneur who’s considerable contributions to the business world
of South India, were driven by his simple motivation: To innovate and
to make a difference.

Enterprise backed by Innovation

C.M.Kothari was all passion and energy, because he understood that
every opportunity comes with a challenge. And every challenge has a
solution. And every such solution will encompass discoveries and
innovation that can help the creator and the user – the producer and
the consumer. He shared with his sons that within finite resources,
the world’s population must be fed, clothed and sheltered, and the
world needed greater innovation and enterprise in agriculture.

It was the 1950s. His son Dr.D.C.Kothari shared his vision and
expanded the business into Fertilizers, Textiles, Plantations – Tea and
Coffee, Coffee curing works, Chemicals and Fertilizers. In less than 2
decades, they established separate undertakings for each line of
business:
 Blue Mountain Estates and Industries Limited
 Waterfall Estates Limited
 Balmadies Plantaions Limited
 Kothari Textiles Limited and
 Adoni Spinning & Weaving Co. Limited

In 1961 a fertilizer factory was started at Ennore, a small town near

Madras. Located in a sprawling 44 acre campus, the factory has a
production capacity of 66,000 MTs per annum.

In 1970, with considerable progress under each wing, the brothers

Dr.D.C.Kothari and H.C.Kothari, amalgamated all the five to form
Kothari (Madras) Limited (K(M)L).

With expansion into power, coal, cement, fertilizers and chemicals,

Kothari (Madras) Limited was a hugely successful dividend paying
company. In 1984, the name of Kothari (Madras) Limited was changed
to Kothari Industrial Corporation Limited (KICL). KICL took over
fertilizers and agro chemicals in 1982 and 1990 were land mark years,
as it’s shareholders rose to 50,000.

The 1990s saw expansion into building a manufacturing facility at

Ennore for granites, adjacent to the fertilizers factory.

While the manufacturing facility at Ennore delivers Single Super

Phosphate, the NPK Physical Mixtures are prepared across all KICL
branches spread over four states, viz. Tamilnadu, Andhra Pradesh,
Karnataka and Kerala, amounting to around 50,000 MTs per annum. In
addition, NPK Granulated Mixtures are prepared in Tamil Nadu,
Karnataka and Andhra Pradesh and touch upon an annual sale of
40,000 MTs
Plant Protection Chemicals, Micro Nutrients, Organic Fertilizers & Bio
Fertilizers are some of the off-shoot diversifications of KICL,
committed to improving the lives of the farming committee – A legacy
that Late C.M.Kothari would certainly be proud of.
Addressing the Challenge of Finite Land with Infinite Needs
The world of challenges has not changed from the times of
C.M.Kothari. It has remained the same. And the concept of finite
land and infinite needs too remains the same. So has our passion to
help our world with unexpected innovations – To help producers
(farmers) and consumers in all parts of India and the world.

KICL invests in R&D efforts to build up value-added biotech traits

through fertilizers, agrochemicals, micro-nutrients and growth
promoters. With its strong network of technology collaborations KICL
has unique opportunities that can capitalize on future potential
benefits of innovation in this space. The company has an outstanding
base, both in terms of its market reach and its proprietary products
and expertise.
KICL is now embarking upon an aggressive growth strategy. Apart
from organic growth, strategic acquisitions are on cards, to achieve
our objectives set for the next five years.

 As we brainstorm on the future of agriculture in India, we

empower resources to create solutions that:
 Identify opportunities to save money for the farmer
 Enhance farmer productivity
 Lead the development of new knowledge and data about
where, when, and how infinite needs can be met with finite
resources.
 As we strategize on our market share, we add shareholders who
share our passion to create these solutions.
 As we create solutions, we add more distributors and dealers who
can reach out to embolden the dreams of the Indian farmer
 As we step in to this brave new world, our Corporate Social
Responsibility programs work on the social, economic and
environmental factors enabling all-round sustainability, in the long
run.
We have done Late Shri C.M.Kothari proud in the last 100 years. We
want to be a company that benefits India and the world, for another
100 years. At KICL, we believe these are plausible solutions.