Analysis of financial statement @ kirloskar project report mba finance

ANALYSIS OF FINANCIAL STATEMENT

EXECUTIVE SUMMARY
INDUSTRY PROFILE
The healthy growth in the industrial sector achieved during 2003-04 has continued during
the current year as well with overall industrial growth (measured in terms of the index of
Industrial Production) growing at a rate of 7.9 percent during the April- September
2004-05 compared with 6.2 percent achieved during the same last year.
The existing installed capacity in the industry is of the order of 4500 MW
thermal, 1345 MW of Hydro and about 25 MW of gas based power generation equipment
per annum and manufacturing units depending upon the needs and their capacity are
augmenting the capacity.
COMPANY PROFILE
THE KIRLOSKAR GROUP
A significant event in history of Indian industry was the rise of the Kirloskar
Group of companies to a multibillion conglomerate. The founder Mr. Laxmanrao
Kirloskar strongly believed that a company’s progress was determined by the integration
of man and his intellect with technological growth and environment.
The first kirloskar product, “iron plough”, was an innovation far ahead of
its time a product designed wholly with the customer in mind. it ultimately became an
instrument of wealth for an entire society.

His words breathe the spirit with the Kirloskar industrial journey began. And this
spirit has continued through the passage of time. K.E.C Ltd. An ISO 9001 certified

Company was established in 1946 with its registered office at Rajajinagar in Bangalore.
As a part of diversification activity, K.E.C Ltd. started another unit at Hubli in 1969, to
manufacture Electric motors ranging from fractional horsepower to motor up 20HP.
Under the leadership of Shri Laxmanrao Kirloskar and Shri N.W.GUJAR, K.E.C unit-1

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Was started in Bangalore, Kirloskar Electric Company is the pioneer in India in the
manufacture of quality equipments like AC and DC electric motors, generators, welding
equipments, controls equipments transformers etc.

OBJECTIVES OF THE STUDY
• To study on the financial performance of the company for the past 4 years.
• To bring out the results of financial statements through ratio analysis.
• To study about the Kirloskar electric company limited. Hubli in general.
• To study the financial position of the company.
SCOPE OF THE STUDY
The scope of the study is the covered area for the purpose of study. The study is
limited to KAYTEE SWITCHERGEAR LIMITED (subsidiary of kirloskar electric co.
ltd) Unit –II.
METHODOLOGY
Methodology is the systematic method or an activity, which is used to collect
the information required to complete this project work.
The data is collected by 2 methods:
1. Primary data
2. Secondary data.
Primary data is collected through collecting information from company officers, from
external guide.
Secondary data, which is secondary in nature i.e. already, collected information this
secondary data is collected through Company’s Annual Report and discussion with them.
Interpretation of:
 Balance sheet
 Profit and loss account
 Annual reports

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INTRODUCTION OF THE STUDY
The accounting process begins with the recording of transactions in the books of
primary entry. The accounting information resulting from the transactions so recorded
gets posted in to various accounting heads in the ledger. In the ledger each account is
balanced at the end of an accounting period and a summary of all balances in the various
accounting heads from the ledger is prepared which is known as trial balance from such
trial balances and after effecting certain adjustments considered necessary (which is
dependent on the particular accounting system followed by the organizations) the
financial statements relating to the accounting period are prepared.
NEED FOR THE STUDY
There are some questions, which arise from the study of financial statements.
These could be “Is Company’s profitability adequate? Why is a profit low in spite of
increased sales? Why is there liquidity problem though profitability is good? Why no
reasons for changes in assets, liabilities and equity between two dates? Why no dividends
are paid though there are good profits? From where have come cash flows and how they
are applied? These and many other questions need answers, which can be possible when
the financial statements are suitably analyzed

Thus financial statement analysis deals with meaningful interpretation of financial
data available in financial statements to serve specific purpose of organizations of such
data for their decision making .this involves identifying the purpose and selecting suitable
means of analysis. Financial statement analysis is essentially purposive.

ABOUT THE ORGANIZATION
Kirloskar group of companies are a century old company which comprises of over
20 companies with a total turnover of over Rs.1200crores and personnel strength of over
25000 workers, engineers and managers.
In the history of India industry, a significant event was the rise of kirloskar group of
company.

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The kirloskar stands for excellence in engineering, quality and reliability. The business
areas of the group companies reflects its diversity, process control equipment and
machine tools, rotating electrical machines, internal combustion, engines, computers etc.

The company started with manufacture of AC Motors 1984. Today KEC manufactures
diversified product range consisting of AC Motors, AC Generators, Transformers, DC
Motors and Electric equipments. The Unit-II in Hubli, Kirloskar Electric Company
limited is a subsidiary of Kirloskar electric company limited. It manufactures AC Motors
and AC Generators.

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INDUSTRY PROFILE

The healthy growth in the industrial sector achieved during 2003-04 has continued during
the current year as well with overall industrial growth (measured in terms of the index of
Industrial Production ) growing at a rate of 7.9 percent during the April- September
2004-05 compared with 6.2 percent achieved during the same last year.

The worldwide electric power industry provides vital services essential to modern life. It
provides the nation with the most prevalent energy form known in history electricity. It
advances the nation’s economic growth and productivity; promotes business development
and expansion; and provide solid employment opportunities to workers globally in
general and India in particular. It is a robust industry that contributes to the progress and
prosperity of our nation. Today the electric power industry operates in a hybrid model of
competition and regulation. The worldwide electrical and electronics industry is growing
at a fast pace which consist of manufacturers, suppliers, dealers, electricians, electronic
equipment manufacturers.

Power industry restructuring, around the world, has a strong impact on Asian power
industry as well. Indian power industry restructuring with a limited level of competition,
since 1991, has already been introduced at generation level by allowing participation of
independent power producers (IPPs). The new Electricity Act 2003 provides the
provision of competition in several sectors. It is felt that the prevailing condition in the
country is good only for wholesale competition and not for the retail competition at this
moment.

As per the recent survey, the global electric & electronic market is worth $1, 03.8 billion,
which is forecasted to grow to $ 1,216.8 billion at the end of the year 2008. If we talk of
electric & electronic production statistics, the industry accounted for $ 1,025.8 billion in
2006, which is forecasted to reach $1,051.5 billion in future.

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Size of the Electric/ Electronic Industry

Top three electric and electronic goods manufacturing countries in the world are;
United States of America, Japan and Korea respectively, The United States of America
being the largest producer of electronic products worldwide contributes the total share of
around 21% furthermore; USA is at the forefront to have the largest market share with
around 29% in the global market.

The world’s electrical market size was $ 1038.8 billion in 2006, since last year an
increase of 10.6% is forecasted to grow even more. The industrial electrical goods
industry size was $ 651.3 billion, contributing around 62.7% of the total. With regard to
electronics parts and components sector, the total market share was around $ 282.7
billion i.e.; 27.2% while home electronics was 104.7 billion. This figure is supposed to
increase in this decade.

Major Production and Export Centers
As electronic manufacturing industry is growing with a fast pace, Western Europe is
developing gradually to contribute this industry. Western Europe comprising of 16
countries is contributing around 22% of the global market. Simultaneously, Eastern
Europe is forecasted to grow about $ 24 billion in 2013 from $ 9 billion in 2006.

If we talk of Asia Pacific region, China, Japan, North & South Korea, Singapore and
India are the top manufacturer of electrical and electronic products. Among these Asian
countries, China is becoming the manufacturing region of electronic products on the
globe.

In United States of America, cities like New York, Atlanta, Colorado, Detroit, Florida,
and New England, San Diego, San Francisco, and Texas can be named as industrial hubs
of electronics industry.

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At present, Asia is growing with more speed in comparison to America and Europe. In
2002, Asia occupied 41% of total electronics market share, which grew up to 56% in
2007. Those days are not far away when Asia will become the market leader globally.

Future Outlook of Electric & Electronic Industry

Totally, the electrical and electronic industry is experiencing phenomenon and
remarkable changes worldwide. The worldwide electronics industry is distinguished by
fast technological advances and has grown rapidly than most other industries over the
past 30 years.

Products are heading towards new destinations where cost is less than other place with
higher costs involved. These places offer the most long term potential for market growth.
Companies indulged in manufacturing electrical products are investing a lot on research
and development for the best products to meet the demand of the market. They are
manufacturing the products with the best quality at reduced cost due to many
competitors.

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COMPANY PROFILE

THE KIRLOSKAR GROUP
A significant event in history of Indian industry was the rise of the Kirloskar
Group of companies to a multibillion conglomerate. The founder Mr. Laxmanrao
Kirloskar strongly believed that a company’s progress was determined by the integration
of man and his intellect with technological growth and environment.

The first Kirloskar product “the iron plough”, was an innovation far ahead of its
time a product designed wholly with the customer in mind. It ultimately became an
instrument of wealth for an entire society. The group is committed to innovation, quality
and continuing technological advancement. This is evident in their and customs designed
products, which have already gained a worldwide reputation for meeting critical
industrial needs. The company’s growth within the country and their entry into global
market is based on their highly skilled Human resource and their vast distribution
network. We have some of the best engineering and technical brains in the country, who
have made their mission immensely productive and successful.
.K.E.C at a glance
A country’s progress has been closely linked to effective harnessing and use of
electrical energy for the benefit of its people. Kirloskar Electric Company’s endeavor has
been to contribute cost effective solutions in all application of electricity. They are
actively involved in supplying electrical industrial electronic equipment, systems to
industry, agriculture and utilities. In all these ventures, their focus has been to provide
state of the art technology that can living standards and thereby make the environment a
better place to live in.
In the words of Mr. Laxman Kirloskar:
“My faith is in the human intellect. It gives us our means to create wealth by
directing our talents towards procedure work. And therefore, freedom for individual
ability is the only way a society can prosper. After all, you cannot distribute wealth
unless you first create it. And you cannot create it unless you know how”

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His words breathe the spirit with the Kirloskar industrial journey began. And this
spirit has continued through the passage of time. K.E.C Ltd. An ISO 9001 certified
company was established in 1946 with its registered office at Rajajinagar in Bangalore.
As a part of diversification activity, K.E.C Ltd. started another unit at Hubli in 1969, to
manufacture Electric motors ranging from fractional horsepower to motor up 20HP.
Under the leadership of Shri Laxmanrao Kirloskar and Shri N.W.GUJAR, K.E.C unit-1
Was started in Bangalore, Kirloskar Electric Company is the pioneer in India in the
manufacture of quality equipments like AC and DC electric motors, generators, welding
equipments, controls equipments transformers etc.

The company started with manufacture of AC Motors in 1984. Today KEC
manufacturers diversified product range consisting of AC Motors, AC Generators,
Transformers, DC Motors and Electronic Equipments. The Unit II in Hubli, Kirloskar
Electric Company Limited is a subsidiary of Kirloskar Electric Company Limited. It
manufactures AC Motors and AC Generators.

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EMPLOYEES PROFILE
KEC Ltd. has a strong employee base. It has maintained fully trained and experienced
workers. It values its employees and the employees are considered the real Asset of the
company.
The employees are very hard working and dedicated towards the growth of the company.
The employee base can be depicted based on the number of employees in each section.

SECTION NO. OF EMPLOYEES

• Canteen 9
• Central Planning Dept. 5
• Production Dept. 32
• Engineering Dept. 13
• Finance Dept. 14
• Forwarding Dept. 3
• General Stores 12
• MED 3
• Marketing Dept. 7
• Packing Dept. 32
• MMD and MSD 17
• Personnel Dept. 4
• Quality Assurance Dept. 73
• Reception 1

----------
229

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MILESTONES IN THE HISTORY OF KEC

1946 ---- KEC established at Bangalore.

1948 -- A new era opens for Indian K.E.C produces the country’s very first AC
motors

1954 ---- Impatient for progress, the company gets into product diversification producing
its first transformers.

1956 ---- First transformer manufactured.

1958 --- A critical power situation inspires production of the country’s first
transformers.

1963 ---- The patient of breakdown continues. DC motors and DC generators roll off the
assembly line.

1965 ---- Market demand increases. India’s first motorized gear unit joins the K.E.C
product range.

1966 ---- Intensive research and development sets the pace for production of the first
induction heating equipment.

1973 ---- First oversees office at Malaysia.

1976 ---- Office at Nairobi established.

1982 ---- New collaborations. Better products. Thyristor, Converters, made in
collaboration with Thorn EMI, U.K.

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1987 ---- Introduction of CNC systems and factory automation.

1989 ---- More collaboration. More products. With Fuji of Japan for investors and with
Toshiba of Japan for UPS

1991 ----Toyo Denki collaboration for motors and generators up to 10MW/ MVA.
Production of technologically advanced large DC motors and large AC machines in
collaboration with AEG Daimler Benz of Germany up to 20MW

1992 ---- The company starts production of Hi- Tech CRT based CNC systems.

1993 ---- Kirloskar Electric becomes the first company in India to receive ISO 9001
certification for its entire product range and for all its manufacturing units.

1995 ---- Took over Voltas Transformer and started manufacturing plant at Tumkur for
Manufacturing units

1996 ---- Celebrated Golden jubilee and started manufacture of wind turbine.

2001 ---- Company restructure.

2002 ---- First test lab was started at Tumkur.

2003 ---- Received NVLAP certificate test lab.

2004 ---- Customer Excellence Certificate.

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COLLABORATION
KEC provides the latest technology products to customers. Towards this, it has entered
into collaboration with foreign companies apart from indigenous research and
development efforts. Some of the major collaboration is:

AC induction motors ---- AEG, Germany

AC generators ---- AEG, Germany

Cast resin transformer ----- OCREV, Italy

Inverters ----- Fuji Electric, Japan

Vector control inverters ---- University of Wuppertal, Germany

Uninterruptible power systems ---- Toshiba Corporation, Japan

CNC Controls ---- ADOLPH numerical controls.
Ltd, UK

Transformers ---- Peebles Electric Ltd.

Wind turbine generators ---- Wind energy group, UK.

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K.E.C. UNITS

Units Place Products

Unit - 1 Bangalore AC motors, AC generators, motorized gear units.

Unit – 2 Hubli AC motors, AC generators, motorized gear units.

Unit – 3 Peenya DC motors, generators, traction.
Recently
Closed
Unit -4 My sore • Industrial electronic group- thyristor
devices, static invertors, UPS systems.
• Factory automation group- digital
readouts, CNC systems, Servo drives and
induction heaters.

Unit – 5 Bangalore Transformers.
Recently
Closed
Unit – 6 Pune Automation electric equipments, small range
induction motors and alternators up to 5 HP.

Unit – 7 Tumkur Stampings, Die cast rotors/ bodies and coils.

Unit – 8 Pune Cast resin, transformers, and oil filled
transformers.

ORGANISATION SET UP OF KEC

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Board of Directors manages KEC Unit II. Mr. Vijay Kirloskar is the Managing Director
and Chairman. Under the managing director, there is an Executive Vice- President. A
chief executive manages each of this unit.

BOARD OF DIRECTORS

Vijay Kirloskar : Chairman and Managing Director

Agarwal. S.N : Director

Anil Kumar Bhandari : Director

Sarosh. J. Ghandy : Director

Mythili Bal Subramanian : IDBI Nominee

Ramesh. D. Damle : LIC Nominee

Malik. P.S : Dy. Managing Director

Venkatesh Murthy. D.R : Director Sales & Marketing

Company Secretary : P. Y. Mahajan

Auditors : B.K.Ramdhyani & co. Bangalore

BANKERS

1. Bank of Baroda

2. Bank of India

3. State bank of India

4. State bank of Mysore

5. State bank of Travancore

6. Standard Chartered Bank

7. The Hong Kong & Shanghai Banking Corp.

REGISTERED OFFICE

Industrial Suburb, Rajajinagar

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Bangalore – 560010

FACTORIES

1. Belvadi Industrial Area, Mysore

2. Gokul Road, Hubli

3. Hirehalli, Tumkur.

K.E.C UNIT –II

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The K.E.C Unit – II, Hubli was founded on 2nd march 1969 and is situated on Gokul road,
Hubli- 580030. It covers 110 acres, which presents a gigantic picture. K.E.C Unit-II is
also known, as KAYTEE SWITCHGEAR LTD. is a subsidiary unit of K.E.C. It is
mainly concerned with production whereas K.E.C looks carries out all other activities.
The main branch is at Bangalore. The board of Directors at Bangalore formulates all the
policies and plans.

Kaytee switchgear Ltd. has been set up under the Arrangement Scheme U/S 391- 394 of
Company’s Act 1956, which has been approved by the honorable High Court of
Karnataka. Certain specified assets and liabilities of K.E.C have been transferred to KSL.
Thus KSL has come into existence from 4th August 2003.

KSL has been brought into existence to over come financial problems which are the
results of accumulated losses of 30 crores because of heavy competition. Performance of
K.E.C has been disappointing as concerned to the financial year 1997-1998. This unit is
the only one unit that seems to be contributing to the profits in terms of turnover, which is
the highest among all over units of K.E.C group. The production activity is carried out
throughout the year in this unit.

QUALITY POLICY

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The quality price of KEC shall be to design, manufacture and market at
competitive prices, products of such quality, which results in customer satisfaction,
quality reputation and market leadership.

MISSION
• To remain a leading produce of electrical technology products in India.

• To continuously grow in our business and become a significant player in the
world market.
• To maximize return on investment.
• To achieve international levels of excellence in technology and quality.

VALUES
• Products of highest technology and quality.
• Customer orientation
• Teamwork among our people.
• Profits for growth

GUIDING PRINCIPLES
• Innovate continuously to excel in design and manufacturing.
• Development products required by market.
• Manufacture products of highest quality
• Focus on customer in all actions.
• Respond promptly to customer needs.
• Deliver supplies on time every time.
• Treat each other with trust and respect to build a team.
• Develop people by training and delegation.

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• Adopt process-oriented thinking, continuous improvement, and management by
facts priority.
• Reduce costs constantly to remain competitive.
• Earn enough profits to fund growth and diversification.
• Offer goods and services at competitive prices.
• Look upon dealers, suppliers and business associates as partners.
• Maintain safe, clean and healthy environment.
• Conduct business in a socially responsible manner.

HOD’S OF KIRLOSKAR ELECTRIC CO.LIMITED,
UNIT-II

CEO - K.S.S.PANIKAR
PERSONNEL - U.PARAMESHWARA
PRODUCTION - A.B.JOSHI (SHOP III),
- D.S.WODEYAR (SHOP III),
FINANCE - K.SHRIDHAR
MARKETING - V.RAMPRASAD
ENGINEERING - D.A.DESAI
MMD - ASHOK KADAKOLI
MED & MSD - S.V.PUROHIT
CEN.PLANNING - A.B.JOSHI

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ORGANISATION STRUCTURE OF KEC UNIT II
HUBLI

Personnel
Department
(Senior Chief Executive
Manager)

Deputy General Manager

Quality
Production Finance Engineering
Assurance Central
Department Department Department Marketing M.M.D Stores
Department Planning
(Senior (Senior (Senior (Deputy (Assistant (junior
(Senior (Assistant
Manager) Manager) Manager) Manager) Manager) Manager)
Manager) Manager)

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MANPOWER IN KEC UNIT-II
AS on 01-05-2007

Human Resource Total Members
Daily rated employees (DRE’s) From grade 432
1 to 8
Monthly rated employees (MRE’s) From 45
grade 1 to 7
Officers, Engineers and above From grade 85
8 to 16
Total 562
Table: 1
Besides these permanent employees, around 81 trainees are recruited and contract Labour
are hired only for some specific purposes and in never employed in production or feeder
shops.
Officer’s cadre is divided into 2 categories.
1. Junior officers from the grade from 5 to 7
• Junior officer 1: Grade 5
2. Senior officers from the grade from 8 to 9
Officer: Grade 8
Senior Officer: Grade 9
The manager cadre is classified as follows from grade 10 to 16
Assistant Manager - Grade 10
Deputy Manager - Grade 11
Manager - Grade 12
Deputy Senior Manager - Grade 13

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Senior manager - Grade 14
Deputy General Manager - Grade 15
General Manager - Grade 16

PRODUCT PROFILE

AC Generator AC motor

`

DC Motor Traction Equipment

We design and manufacture our products according to the standards of :

• ISO (International Organization for Standardization)
• IEC (International Electro technical Commission)
• BIS (Bureau of Indian Standards)

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• BSI (British Standards Institution)
• JEM(Japan Electrical Manufactures Association)

PERSONNEL DEPARTMENT
K.E.C, company recognizes its employees as its most important asset for its continued
growth. Human resources management in Kirloskar Electric Company shall striver to
ensure continuous organizational growth by nurturing the strengths of its employees and
providing the environment and opportunity for every individual to rise to his/her highest
potential, identity and achieve his/her personal goal within the framework of
organizational, social and natural objectives. To achieve this following sections are
formed to perform the various functions including, Positive Motivation, Preparation and
maintenance of quality plans with aid of systems, procedures and work instructions
published collectively in quality manuals.
Scope: Personnel Department is applicable to personal welfare safety and security.
Responsibility of Personnel Department:
Implementation and maintenance of various functions is the responsibilities of the Head
of Department (HOD) with appropriate duties assigned to section in charges (SIC) and
staff.
Functions:
The Main functions of Personnel Department are:
HOD-PERSONAL AND INDUSTRIAL RELATIONS:

• To ensure that harmonious relations exists between workers and management
• To ensure safe working conditions and to provide safety equipments.
• To Co-ordinate security and vigilance activities
• Manpower planning accountability.

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ORGANISATION CHART OF PERSONNEL DEPARTMENT

HOD

SIC DEPARTME
SECURITY WELFARE IND.REL
TRAINING NT
OFFICER OFFICER OFFICER
IN CHARGE ASSISTANT

CANTEEN AMBULANC TIME
E ROOM OFFICE I.C

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MARKETING DEPARTMENT
Success of any product totally depends on HO it is marked and positioned din the
market. Marketing department is on of the important functional divisions of KEC UNIT-
II, which is basically, identifies and meets the needs of customers profitably. The people
in the marketing department are responsible for the growth of a business concern because
they come in direct contact with the customers who now are considered as King of the
market as it is a buyers market and no more a sellers market.

As marketing departments basic principle is to take care of the customers to
achieve way they have divided their department in to there sections such as :
 Marketing
 Customer Service
 Communication
Marketing is further having its subgroups i.e. technical group, which does the job of
tendering or equally handling Execution, is planning group.
The network of marketing department has all over India at 28 branches known as sales
office/branches.
The function of this division in K.E.C UNIT-II starts to determine the needs of the
customers their documents concurrently then accurately to communicate then to various
departments.

Marketing:-

When a branch office in any part of its network receives an order in case of special
product (i.e. as per customer requirements) it sends an order acceptance copy i.e. duly
verified by the sales engineering of that branch to the tendering group where this OA
copy is examined and sent to planning department and further forwarded engineering
department for design and development of special product who prepares its engineering

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specification and sends it to the purchase department if any new or additional
components are regard to the production department. The marketing department based on
the demand contacts the materials management department issues materials on the
amount and the type of material, which required. Based on the amount required the
department based on the demand contacts the materials management department issued
materials on the amount required the production scheduling, routing and the like has to be
carried out.

K.E.C UNIT-II is planning turnover is 100 crores for last year achieved to the 84
crore. This planning for turnover is 110 crores.

AC-Generator Marketing:-
In case of AC-Generator the final customer is directly purchase through
Manufacture of Branch office or Dealer.

The O.E.M. (Original Equipment Manufactures) who in turn places the purchase
order to the branch office, The order acceptance form along with desired specifications is
studied. Carefully in the marketing department and if found possible for production is
immediately informed to the O.E.M the information is also forwarded to the production
units

AC Motor Marketing:-
The customer decided the rating of a motor required and approaches to the dealer,
the dealer in turn acceptance and passes it on to the branch office which prepares an order
acceptance and passes to customers and another to the unit of the production otherwise
customer is directly contact through the marketing department.

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The order acceptance is then separated into the one for standard products and
other for special products. The special products requirements have to be discussed with
the engineering department and then accepted.
CREDIT POLICY:
Generally K.E.C-II does not follow the policy. But some times the credit is issued
to a particular customer depending on the volume of the purchase, the type of a customer
K.E.C UNIT-II has a credit policy extending to a maximum of 30 days.
Objectives:
The objectives of marketing department are to achieve customer satisfaction with
quality products, price, and delivery in time, and presale service after sale service,
maintain brand image and earn profit for further diversification.

COMPETITIORS
1. Organized sector
• BHEL
• ASEA
• Crompton Graves Ltd.
• Bharat Bijli ltd.
• Asian Brawn Boweri Ltd (ABB Ltd.)
• General Electrical Company Ltd.
• Jyoti Ltd.

Unorganized Sector:
• Mainly cottage industries.

Direct Customers.
• OEM’s (Original Equipment Manufacturer’s)
• OEA’s (Original Equipment Assembler’s)

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• Government organization (Railway, Airports)
• Indian Defense
• Indian Railways
• Other Industries

ORGANISATION CHART OF MARKETING

GROUP ACM SIC WEST FIC GKN
AND EAST
JMU

SIC NORTH
AND SOUTH
RNA

SIC PING &
EXECN RPK

HOD SIC AKN
MARKETING

GROUP ACG SIC PING
& EXEN
SGM

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MATERIAL MANAGEMENT DEPARTMENT
Objectives:
To provide components can service for manufacturing as required by others
functional divisions.
Scope:
 To plan and procure materials confirming to specifications through adequate
selection of sub contractor.
 To feed the materials to the production division at required schedules at an
economic cost.
Functions:-
 Work out material requirement based on sales requisite plan (SRP), Sales
constancy plan (SCP) and Critical credit requirement (CCR)
 To exercise purchase order as per procedure.
 To plan for non-production item based on purchase requisitions to materials
management division.
 To finalize terms of purchase.
Job Description and Responsibility
 To maintain and direct the organization, which is adequate to perform material
management functions.
 To define the duties and responsibilities of MMD and to ensure that they carried
out effectively.
 To plan for realistic purchase budget.
 To manage obsolete surplus and scrap material.
SIC’S:

 To plan the material requirement
 To order material and on approved suppliers and supply in the quantity necessary
to satisfy marketing requirement.


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 To monitor the material recipient as per delivery schedule indicated in purchase
order and co-coordinating with supplier.
 To monitor the material release for production in accordance with SRP/SCP/CCP.

FIC’S
 To plan the materials requirement.
 To order material and on approved supplied and supply in the quantity necessary
to satisfy marketing requirement.
 To monitor the material release for production in accordance with SRP/SCP/CCP
 To follow with supplier for supplier for supplying, required material at required
time of manufacturing.
 To keep the manufacturing division and other functional divisions other than the
manufacturing informed of related activities to facilitate overall coordination
related activities include information regarding material availability supplier
training programs reasoning for user training for supplier products etc.
 To determine the need of stock replacement through use of daily material receipt
perpetual inventory.
 To monitor and reconcile materials issued to suppliers.

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ORGANIZATION CHART OF MMD

SIC ACM
SHOP3 S3

CEO HOD OFFICE
MMD ASSISTANT

SIC SHOP V FIC
ACG EXECUTIVE
SHOPS

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FINANCE DEPARTMENT

Finance department is the blood of any business organization to survive. Any
organization handicapped by finance will never complete an ultimately results in failure
and a burden to economy. Finance department is concerned with planning and controlling
of company financial resources.
The company policy is formulated and credit worthiness of the customer is evaluated
audits such as cash audit, internal audit, cost audit is done per month. In the finance
department of KEC UNIT-II, there are 26 staff members contributing towards the
effective functioning of the department.

ORGANISATIONAL HIERARCHY OF FINANCE DEPARTMENT

CORPORATE FINANCE

CHIEF EXECUTIVE

GRADE 8 AND ABOVE

M.R.E’s up to GRADE 7

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KEC UNIT-II, is characterized by the fact that all the collaboration are sent to corporate
office at Bangalore and the expenditure of the particular day are sent to the unit as per the
requirement of the units.

FUNCTIONS:-
FINANCING FUNCTIONS
It includes cash payments, receipts, bank receipts and payments.
CREDIT MANAGEMENT:
Due to the competition, now a day’s credit is a means to achieve the target without credit
sale any organizational can fulfill their targets.
COSTING
Costing relates to calculation of production cost per unit and it tries to minimize the cost
of production and helps in the function of pricing with marketing department.
AUDITS:-
Audit is a way to confirm about the accountancy of the functions and records of all over
activities. It has employed cost Audit and Internal Audit etc.
RECORDING AND MAINTAINING OF ACCOUNTS:-
These are the present and future reference of the company’s financial position. These are
useful for Shareholders, Creditors, Suppliers, and Bankers etc.

BANKERS OF K.E.C UNIT-II
K.E.C UNIT-II has the following Bankers:
1. Bank of Baroda
2. Bank of India
3. Canara Bank
4. Hong Kong Bank
5. State Bank of India
6. State Bank of Mysore.

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Financial Institutions:
Following are the financial Institutions of K.E.C UNIT-II:
1. Industrial Credit & Investment Corporation of India (ICICI)
2. Industrial Development Bank of India (IDBI)
3. Unit Trust of India (UTI)
K.E.C UNIT-II production per month is worth 10 crores. But now it attempting to
rise to Rs 11 to 11.5 crores, the raw materials is steel and copper. These are
procured from steel Authority of India Ltd., and Hindustan Copper Ltd. 1% of
the total turnover is used for welfare expenses and 6% of total turnover is
used for salary or expenditure.
On an average the KEC Unit-II is paying Rs.150 lakhs as excise duty/month, 6% of
total turnover is given as salary and 1% of the total turnover is spent on welfare activities.
The method of depreciation followed is straight-line method. The company has adopted
FIFO method for costing.

Listing on Stock exchanges:
• Bangalore Stock Exchange Ltd., (KIRELECRRI)
• Madras Stock Exchange Ltd.(KRL)

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ENGINEERING DEPARTMENT
Quality Policy of Engineering:
The quality policy of K.E.C UNIT-II shall be continuously improving the quality
management system in design, manufacture, market and service at competitive prices.
Product of such quality, resulting in customer satisfaction, quality, reputation and market
leadership, The role of engineering department is to design and develop products and
components taking into consideration the cost, product ability, usability, and maintenance
of the product.
Scope:
Applicable to quality objectives identified for improvement in design and
development of products manufactured in KEC UNIT-II.
Responsibility:
The head of the engineering department is responsible for receiving the objectives.
Procedure:
Objectives shall be derived from the organizational quality policy and need to
meet customer and product requirement.
Quality objectives by engineering department will lead to
• Simplification in design
• Standardization of components
• Reduction in reworking of design
• Reduction cost of production.
• For achieving or reworking quality objectives appropriate statistical quality
control technique shall be used.
Functions:
• Preparation revision and release of engineering and electrical specifications.
• Preparation, revision and control of drawings and release of material risk.
• Validation of design of products.
• Effective implementation of the design changes.

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PRODUCTION DEPARTMENT
In many manufacturing unit production department forms the most important
department of all the whole running of the unit depends upon this department the proper
and timely functioning of this department helps in products reaching the customers end at
right time. Slight difference in timing and quality upsets the cycle. Thus the production
department we can say is the heart of the firm.

K.E.C UNIT-II philosophy has always been to excel in what one knows best in
the process of development. KEC UNIT-II has laid great emphasis on adopting
technology to suit the environment in which it has to operate K.E.C UNIT-II’s production
process are continuously of upgraded from time to time by the latest technology.
Objectives:
• To follow up the production schedule as per the plan.
• To maintain the close and coordinated relationship with other department.
• To upgrade technical efficiency of production.

K.E.C UNIT-II there is six shops in this department all of which have got
different functions to perform. The product moves from first to sixth shop and
then to the dispatch.
H.O.D Production heads the production department with a total shop of 600.
The whole shop is divided into among six shops.
The department is divided into 2 groups.
1. Feeder shop (Shop I and Shop II)
2. Assembly Shop (Shop III and Shop V)
3. Shop IV is used as Research and Development Center is also called as
“Invotech Center” and Shop VI is painting section.

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Brief description of shops:
SHOP I:
The matching functions are carried out in this shop which has 5 lines engaged in
production namely welding section, sub assembly, labor section, tools and jigs crib and
tool room.
There are totally 80 machines and 100 workers in shop I. The raw materials
arrived in this shop where the metal drilling, milling and shaft fixing is done and sent to
the next process. The winding are also done in the shop I.
Here the process of Bodies – KH 100 to LD 225 frames.
Covers – KH 63 to LD 225 frame.
Shaft – KH 63 to LD 180 frame.
Gear cases – MGH 100 to MGH 225 frame.

Gears/pinions for Geared motors are done and also undertake manufacturing JIGS and
FIXTURES and DIE-CASTING dies.

ROTOR SUB ASSEMBLY:
Rotor is the static part in the ACM’s and dynamic that is moving in the ACG’s.
The rotor goes through the following process.
1) Sinking:
The roots are treated in the solution for convenience of inserting the shaft so that
they expand and make it easy for insertion of the shaft.
2) Turning:
The correct turning and made according to the specification.
3) Fan Shop Drilling:
This is the process where in the fan is to be fixed and for this purpose drilling is
done and then locks are fixed for safety.
4) Balancing:
This step involves balancing the rotor properly.

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WINDING:
Winding is the most important functional part of the machine. It has to be done
manually and precisely. This is the only process, which is totally manual. The motor is
wound with correct rating wires.
SHOP II
Shop II is die cast shop. Here in this shop only die-casting is done. That is the
shapes of body and nameplates final shape. The shop II has two machines, one for
nameplate pressing and another for body.
It houses the router section, here stampings are received and die casting of the
metal stamping is carried in a furnace heated at 675 degrees Celsius 755 degree Celsius

ROTOR SECTION:
Here processing of rotor sub assembling for KH 63 to 180 frames, SD 71 flange
machine is undertaken.
DIE-CASTING SECTION:
Here die-casting for motor for 63 to 225 frame motors and die-casting of bodies,
flanges, covers, and terminal boxes from KH 63 to 10 frames.
SHOP-III
This shop can be called as assembly shop because the products here will get upto
90% only, final finishing will be at this stage.
The assembling of motors of the frame size motors are assembled in this shop in
three different assembly lines namely:
• The non-standard line for custom mode and is operated manually.
• The standard line for this standard motor is also called verticals assembly line
where the motors are assembled mechanically by various stations in the machines
acquired for the specific purposes.
• The export line is where the motors have to be exported assembled with due care
and is done manually. After assembling the motors they are sent to the painting
section, which is housed in the same shop.

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SHOP IV:
It works as research and development center for the company. It keeps its eye
on the changes that are taking place in the electrical world and tries to adopt those
changes in their manufacturing process. So it acts as research and development in the
company.
SHOP V:
Here assembling of medium and large motors generators and MGU’s under
separate bays like ACM bay, ACG bay and MGUU bay.

Product Rating
A.C Motors Frame 200 to 225 15 KW to 75 K W
A.C Generator Frame and DS-DL-CMA 2.5KVA to 90KVA
180 & 250
Motorized gear units 90 to 225 0.75 KW to 22 KW

Painting and testing is also done here.
SHOP VI :
In this section, components used in the motors are pre treated and painted.

K.E.C UNIT-II has to its credit the pioneering of the latest technology called
“Unibake” system. Earlier this system was applied to all the products but recently it has
been restricted only for export orders. The domestic products are painted in conventional
manner.

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ORGANISATION CHART OF FEEDER SHOPS

CEO

HOD
Production

SIC – FEEDER SHOPS

FIC, T FIC, Shaft FIC DIE FIC
ROOM Body CASTING SHOP6
AND T
CRIB

K.E.C has its corporate and marketing office at Bangalore. National Offices are divided
into 4 zones.
1. North Zone : Delhi, Ludhiana, and Jaipur
2. East Zone : Kolkatta, Jamshedpur, Guwahati, Bhubaneshwar and Ranchi.
3. West Zone : Mumbai, Nagpur, Pune, Ahmedabad, Surat and Indore.
4. South Zone : Chennai, Coimbatore, Cochin, Hyderabad, Bangalore, Belgaum,
Pondichery

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QUALITY ASSURANCE
Quality is the fitness to end-use, it is all persuasive. In this modern and
competitive world each and every company is trying hard to introduce to quality and
every defect free product K.E.C has a full fledge quality assurance department headed by
highly qualified professionals committed to developing products that keep phase with the
changing desires and needs of the consumers. Quality plays important role in K.E.C
UNIT-II because its products are used for industrial customer applications. Hence it must
satisfy and come upto the customer expectations.
Objective:
The role of QA division is to assist all functional division in achieving and
maintaining level of specified quality requirement economically.
This unit being ISO-9001, certified unit, has to follow the stringent quality
specification. This department facilitates the total quality management (TQM) in all the
departments, by adopting process controls at all stages.
The quality assurance department follows a definite set of systems and
procedures, which are incorporated in the manuals. The manuals are drafted to the lines
of the standards as specified by the ISO-9000 series of clause for quality documentation.
Functions:
The functional responsibilities of different sections of QA divisions are as follows:
• Releasing of accepted products for further process.
• Evaluating quality rating of suppliers.
• Generation of NC reports for analysis/ review and initiating corrective action and
preventive action.
• Quality information and reporting.
• Maintaining documents and records as per procedures.

FEEDER SHOPS QA:
Feeder shops QA is responsible for:

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• Inspection/ Testing of parts, sub assembly as per appropriate quality plan/
documents procedures/ inspection plans other documents.
• Ensuring proper identification and inspection status.
• Updating, revising inspection plans procedure as and when found necessary.
• Generation of Non-conformance reports for analysis, revive and collective action,
preventive action.
• Ensuring that calibrated instruments are used for measurements and coordinating
with calibration section for periodic calibration.
FINAL INSPECTION AND TESTING
Conduction routing/ type/ engineering tests on products to specified requirements as per
documented procedures:
• Maintaining test records and providing test certificates.
• Ensuring tested products and conforming to specified requirements and complete
in all respects.
• Providing inspection/ tests stating for confirming products.
• Providing engineering test results for design modification where necessary.
• Assisting in customer inspection.
QUALITY LABORATORY:
• Periodic calibration of instruments as per documented process.
• Arranging for repair/ rectification/ disposal of measuring instruments.
• Planning for new instruments/ organizing calibration function from external
agencies.
• Maintaining documents/ records as per procedures.

QUALITY SYSTEMS:
• Maintaining quality systems as per ISO 9001-2000
• Assisting HOD QA for conduction quality related training programs.
•

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• Analysis and reporting of customer complaints internal non-conformance
reports.
• Conducting systems audits, monitoring corrective actions, preventive actions.
• Implementing of corrective actions and preventive actions.
ORGANIZATION CHART OF QUALITY ASSURANCE

CEO

HOD Q.A

FIC-QS SIC-Final SIC Final SIC-QA IMI 7
Inspection Shop 3 Inspection & Feeder Shop
` Testing Shop5 7 QA (Shop 1&2)
QA Lab

FIC –Final
FIC-Final FIC inspection &
Inspection Customer Testing &
& Testing Inspection Customer
Shop 3 Inspection Shop5

FIC-QA Lab
FIC
Winding FIC-Winding
Inspection Inspection

FIC-QA IMI FIC Shop 1 FIC-Shop 6
& 2 QA QA

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PROCESS FLOW CHART

Customer
cuuu
-Requirements

Marketing
-EnquryHandling
-Order execution
-Customer Feedback

Engineering
-Release of specification

MMD
Planning & Procurement of material

Stores
-Receipt & Issueof materials
Personnel &
Computer
- Supporting
Services QA
-Supporting
Central Planning Services
-Scheduling

MSD Production MED
-Supporting -Feeder Shop 1,2,&6 -Supporting
Services -Product shop 3&5 services

Packing & Forwarding

After Sales & services

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COMPUTER DIVISION
We are into technology revolution where process and manual jobs have been
atomized or computerized. So getting along with revolution K.E.C UNIT-II has also
steeped into the field of computers and has computerized its various departments of the
unit.
Objective:
The computer division is responsible for software developments, maintenance of
computer hardware accessories, using appropriate methods.
Scope:
This is applicable to all the functions performed by the computer divisions of
K.E.C UNIT-II, Hubli.
The head of computer division has overall responsibility and delegate works to
other staff as appropriate.
FUNCTIONS:
• Maintenance of computer hardware accessories:
User department raises requisition for hardware breakdown. The call is
attended enclosed after acknowledge for the user.

• Preventive maintenance of computers and accessories:
Preventive maintenance is carried out for computer hardware every half
yearly and every quarterly and updated in the history card. This activity is
acknowledged with the preventive maintenance sticker and stuck on the
computer accessories.
• Software Revalidation:
Software revalidation is done annually as per the procedure defined in
software revalidation and records are maintained.
• Back – Ups:
Regular backup is ensured department wise as per the procedure defined.

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• Document Control:
Records files are updated and maintained in the document control register.
GENERAL FUNCTIONS:
Computer department works as a supporting device for all department and all the
functional activities like payroll preparation and accounts receivables management is
done with the help of computer department. In production field, it will help in planning,
investment management etc. The company also has CMAN and ERP procedure to
strengthen their production activities.

ORGANIZATION OF COMPUTER DEPARTMENT

CEO

HOD CD

SIC-Software Devlopment/ SIC-Software
modification/Heardware/Ba Development/Revalidation
ckup Maintenance

FIC- FIC-
Hardware/Electrical Software
Maintenance Development/Maintenanc
e

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CENTRAL PLANNING
Objective:
To describe the quality management system process & procedures followed in
production department.
Scope:
• Applicable to Central Planning Department.
• To demonstrate product manufactured meets requirements by following
applicable process.
• For effective application, implementation, continued improvement in the different
areas of work.
Approach:
Activities in the department are carried out with required resources. Resources
include Building, Personnel, Manufacturing equipments, Test equipment etc. the
available resources are managed to make quality products. The department, Organization,
Process & Other activities followed for QMS requirements is given.
Functions:
• Release of material against SR/SCP to all departments.
• Plan on basis of material availability.
• Sub-contract is given.
• Re-planning of material against the non-conformance.
• Maintain of product identification and tractability.
• Corrective action.
• Maintain quality records.

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ORGANISATION CHART OF CENTRAL PLANNING

CEO

HOD CP

SIC-Planning SIC-component
manufacturing/sub
contract FIC

FIC-
FIC-Die- FUC-Sub FIC-
Assembly
casting& Rotor contract Records
planning
sub- assembly

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MANUFACTURING ENGINEERING DEPARTMENT
(MED)
Functions:
• Preparation general assembly drawings of jigs, fixtures, dies, tooling, storage
devices & gauges.
• Recession of drawing with design changes.
• Coordinating with production for finalizing the manufacturing process.
• Preparation of process sheets.
Job Responsibilities: HOD
• Overall administration of MED.
• Development around organization to achieve the required objectives of the
department.
• Coordinate with other department to carry out the department activities.
• Monitor the activities of the department through proper documentation.
• Planning & procurement of Capital equipment.
• Establish quality objective for the department function.
• Design of jigs/ fixtures/ tooling.
• Determining and defining of process for manufacturing activities process sheets.
• Assisting process determination at supplier for component machining activities &
release of process sheets wherever required.
• Organizing for procurement of capital required for manufacturing activities.

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ORGANISATIONAL CHART OF MED

CEO

HOD MED

SIC MED

FIC
Jigs/Fixtures/Dies & Tooling &
Preparation & Release of Process Sheets

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GENERAL STORES
To describe the process and procedure followed in stores department. A guide for
effective,
ORGANIZATION CHART OF STORES

CEO HOD Stores SIC Stores

Objective:
The role of stores is to maintain accountability of the materials received, stored
and issued as per the specified requirements.
Scope: Applicable to stores activities.
Responsibility:
The head of stores division is responsible for overall function of the stores with
duties delegated to SIC/FIC as applicable.
Functions:
• Receive material as per delivery Chilean/ Invoice/ Credit Reports.
• Ensure identification, inspection status, and supplier identification on the
components vendor code/ material code in the delivery challan/ invoice.
DUTIES AND RESPONSIBILITIES OF HOD:
• Overall administration of stores.
• Establishment of inventory norms & controls.
• Establishing & maintaining quality systems in stores division.
DUTIES & RESPONSIBILITIES OF SIC STORES:
• Overall administration of stores.
• Ensuring that all components / products received in stores are inspected and tested
as per the applicable specification/procedures.
• Ensure receipt, storage & issue of materials.

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DUTIES AND RESPONSIBILITIES OF FIC STORES
• Receive and stores materials as per delivery Challan/ Invoice/ Audit
reports.
• Ensure identification & inspection status for the components/ products.
• Preparation of receipt memos.
• Storing of outstanding in specified areas like mobile racks/ pallets etc.,
• Issue of materials to shops/ suppliers as per indents.

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INTRODUCTION

Financial Ratios are used in the evaluation of the financial condition
and profitability of a company. The ratios are calculated from the financial information
provided in the balance sheet and income statements. While analyzing the financial
statements you should keep in mind the principles/practices that accountants use in
preparing statements to examine at the financial condition and preference of a company.
RATIO ANALYSIS
Ratio Analysis is one of the techniques of financial analysis where ratios
are used as a yardstick for evaluating the financial condition and performance of a firm.
Analysis and interpretation of various accounting ratios gives a skilled and experienced
analyst a better understanding of the financial condition and performance of the firm.
MEANING AND DEFINITION:-
A ratio is a simple arithmetic expression of the relationship of one number
to another. Ratio is relationships expressed in mathematical terms between figures which
are connected with each other in some manner.
DEFINITION:-
Ratio analysis is defined as, “The systematic use of ratios to interpret the financial
statements so that the strengths and weaknesses of the firm as well as its historical
performance and current financial condition can be determined.
This relationship can be expressed as: 1) Percentages:- For example,
Assuming that net profits of Rs 25,000 and Sales of Rs 1,00,000. Then the net profits are
25% of sales. 2) Fraction:- net profit is ¼ of sales. 3) Proportion:- the relationship
between net profits and sales is 1:4.
To take managerial decision the ratio of such items reveals the soundness of
financial position. Such information will be useful for creditors, shareholders
management and all other people who deal with company.

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IMPORTANCE OR SIGNIFICANCE OF RATIO ANALYSIS:
The ratio analysis is one of the most powerful tools of financial analysis.
It is used as a device to analyze and interprets the financial health of enterprise. Just like a
doctor examines his patient by recording his body temperature, blood pressure etc. before
making his conclusion regarding the illness and before giving his treatment, a financial
analyst analyses the financial statements with various tools of analysis before
commenting upon the financial health or weaknesses of an enterprise. Following are the
uses of ratio analysis:
• Liquidity position
• Long term solvency
• Operating efficiency
• Overall profitability
• Inter firm comparison
• Trend analysis.
Liquidity Position
With the help of ratio analysis conclusions can be drawn regarding the
liquidity position of a firm. It would be satisfactory if it is able to meet its current
obligations when they become due. A firm can be said to have the ability to meet its short
term liabilities if it has sufficient liquid funds to pay the interest on its short maturing
debt usually within a year as well as to repay the principal. This ability is reflected in the
liquidity ratios of a firm. The liquidity ratios are particularly useful in credit analysis by
banks and other suppliers of short term loans.
Long term solvency:
Ratio analysis is equally useful for assessing the long term financial
viability of a firm. This aspect of the financial position of a borrower is of concern to the
long term creditors, security analysts and the present and potential owners of a business.
The long term solvency is measured by the leverage/capital structure and profitability

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ratios which focus on earning power and operating efficiency. Ratio analysis reveals the
strengths and weakness of a firm in this respect.

Operating efficiency
Yet another dimension of the usefulness of the ratio analysis, relevant
from the viewpoint of management, is that it throws light on the degree of efficiency in
the management and utilization of its assets. The various activity ratios measure this kind
of operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis,
dependent upon the sales revenues generated by the use of its assets total as well as its
components.
Overall profitability:
Unlike the outside parties which are interested in one aspect of the
financial position of a firm, the management is constantly concerned about the overall
profitability of the enterprise. That is, they are concerned about the ability of the firm to
meet its short term as well as long term obligations to its creditors, to ensure a reasonable
return to its owners and secure optimum utilization of the assets of the firm. This is
possible if an integrated view is taken and all the ratios are considered together.
Inter- firm comparison
Ratio analysis not only throws light on the financial position of a firm but
also serves as a stepping stone to remedial measures. This is made possible due to inter-
firm comparison and comparison with industry averages. A single figure of a particular
ratio is meaningless unless it is related to some standard or norm. One of the popular
techniques is to compare the ratios of a firm with the industry average. It should be
reasonably expected that the performance of a firm should be in broad conformity with
that of the industry to which it belongs. An inter-firm comparison would demonstrate the
firm’s position vis-à-vis its competitors.
Trend Analysis

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Finally, ratio analysis enables a firm to take the time dimension into
account. In other words, whether the financial position of a firm is improving or

deteriorating over the years. This is made possible by the use of trend analysis. The
significance of a trend analysis of ratios lies in the fact that the analysts can know the
direction of movement, that is, whether the movement is favorable or unfavorable. For
example, the ratio may be low as compared to the norm but the trend may be upward. On
the other hand, though the present level may be satisfactory but the trend may be a
declining one.
LIMITATION OF RATIO ANALYSIS:-
Ratio analysis is a widely used tool of financial analysis. Though ratios are simple to
calculate and easy to understand, they suffer from some serious limitations:
 Limited use of Single Ratio:-
A single ratio usually does not convey much of a sense. To make a
better interpretation a number of ratios have to be calculated which is likely to confuse
the analyst than help him in making any meaningful conclusion.
 Lack of Adequate Standards:-
There are no well accepted standards or rules of thumb for all ratios
which can be accepted as norms. It renders interpretation of the ratio difficult.
 Change Of Accounting Procedure:-
Change in accounting procedure by a firm often makes ratio analysis
misleading e.g. a change in the valuation of methods of inventories, from FIFO to LIFO
increases the cost of sales and reduces considerably the value of closing stocks which
makes stock turnover ratio to be lucrative and an unfavorable gross profit ratio.
 Window Dressing:-
Financial statements can easily can be window dressed to present a
better picture of its financial and profitability position to outsiders. Hence one has to be
very careful in making a decision from ratios calculated from such financial statements.
But it may be very difficult for an outsider to know about the window dressing made by
a firm.

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 Personal Bias:-

Ratio is only means of financial analysis and not an end in itself. Ratios have
to be interpreted and different people may interpret the same ratio in different ways.

Incomparable:-
Not only industries differ in their nature but also the firms of the similar
business widely differ in their size and accounting procedure etc.. It makes comparison
of ratios difficult and misleading. Moreover, comparisons are made difficult due to
differences in definitions of various financial terms used in the ratio analysis.
 Absolute Figures Distortive:-
Ratios devoid of absolute figures may prove distortive as ratio analysis is
primarily a quantitative analysis and not a qualitative analysis.
 Price Level Changes:-
While making ratio analysis, no consideration is made to the changes in price
levels and this makes the interpretation of ratios invalid.
 Ratios No Substitutes:-
Ratio analysis is merely a tool of financial statements. Hence, ratios become
useless if separated from the statements from which they are computed.
CLASSIFICATION OF RATIOS:
1) LIQUIDITY RATIO
♦ Current Ratio
♦ Quick Acid Ratio

2) CAPITAL STRUCTURE RATIO
♦ Debt-equity Ratio
♦ Proprietary Ratio.
♦ Interest Coverage Ratio

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3) ACTIVITY RATIO:
♦ Inventory Turnover Ratio
♦ Debtors Turnover Ratio
♦ Creditors Turnover Ratio
♦ Capital Turnover Ratio
♦ Working Capital Turnover Ratio
♦ Fixed Assets Turnover
4) PROFITABILITY RATIO:
♦ Gross Profit Ratio
♦ Net Profit Ratio
♦ Operating Profit Ratio
♦ Operating Expenses Ratio Or Operating Ratio
♦ Return on Investment Ratio
Liquidity Ratios:
These ratios are also termed as ‘working capital’ or ‘short term solvency ratio’.
The importance of adequate liquidity in the sense of the ability of a firm to meet
current/short term obligations when they become due for payment can hardly be
overstressed. In fact, liquidity is a prerequisite for the very survival of a firm. The short
term creditors of the firm are interested in the short term solvency or liquidity of a firm.
But liquidity implies, from the viewpoint of utilization of the funds of the firm that funds
are idle or they earn very little
Leverage/capital structure ratios:
The second category of financial ratios is leverage or capital structure ratios.
These ratios explain how the capital structure of a firm is made up or the debt-equity mix
adopted by the firm. The long term solvency ratio of a firm can be examined by using

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leverage or capital structure ratios. The leverage or capital structure ratios may be defined
as financial ratios which throw light on the long term solvency of a firm as reflected in its
ability to assure the long term creditors with regard to: (1) Periodic payment of interest

during the period of the loan and (2) Repayment of principal on maturity or in pre
determined instalments at due dates.
Activity Ratios:
Activity ratios are concerned with measuring the efficiency in asset management.
These ratios are also called efficiency ratios or assets utilization ratios. The efficiency
with which the assets are used would be reflected in the speed and rapidity with which
assets are converted into sales. The greater is the rate of turnover or conversion, the more
efficient is the utilization/management, other things being equal. For this reason, such
ratios are also designated as turnover ratios.
Profitability Ratios:
Profitability is indication of the efficiency with which the operations of the
business are carried on. Poor operational performance may indicate poor sales and hence
poor profits. A lower profitability may arise due to the lack of control over the expenses.
Bankers, financial institutions and other creditors look at the profitability ratios as an
indicator whether or not the firm earns substantially more than it pays interest for the use
of borrowed funds and whether ultimate repayment of their debt appears reasonably
certain. The Management of the firm is naturally eager to measure its operating efficiency
of a firm and its ability to ensure adequate return to its shareholders depends ultimately
on the profits earned by it. The profitability of a firm can be measured by its profitability
ratios.
In other words, the profitability ratios are designed to provide answers to
questions such as: (1) Is the profit earned by the firm adequate? (2) What rate of return
does it represent? (3) What is the rate of profit for various divisions and segments of the
firm? (4) What is the rate of return to equity holder.

BABASAB PATIL 59


1) CURRENT RATIO:
This ratio is an indicator of firm’s commitment to meet its short- term
liabilities. Higher ratio, better the coverage. 2:1 ratio is treated as standard ratio. This
ratio is also called as solvency / working capital ratio.
The current ratio is the ratio of the current assets and current liabilities. It is
calculated by dividing current assets by current liabilities.
Formula:
Current Ratio= Current assets
Current liabilities
Table-1
(Amount in Lakhs)

Year 2004-05 2005-06 2006-07 2007-08
Current Assets 14,11,798 17,37,753 24,09,647 31,59,775
Current 12,86,103 15,76,507 18,05,200 22,14,785
Liabilities
Current Ratio 1.09 1.10 1.33 1.43

SOURCE: ANNUAL REPORTS OF COMPANY

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Interpretation: - The current ratio of last four years is less than ideal ratio 2:1, i.e.
fluctuating. This indicates that firm’s commitment to meet its short liabilities was not so
good. In 2007-08 and 2006-07 the current ratios are good compare to 2004-05, 2005-06.

2) QUICK / ACID TEST / LIQUID RATIO:
Liquid ratio is indication of availability of quick assets to honor its
immediate claims. Higher the ratio betters the coverage. And the standard ratio is 1:1.An
asset is liquid if is can be converted into cash immediately without loss of value. Hence
cash is most liquid assets after assets which are considered to be relatively liquid are;
Debtor’s balance, marketable securities etc. inventories considered to be less liquid
therefore they require some time form relishing into cash and their value also has
tendency to fluctuate.
Formula:
Quick ratio = Current Assets- Inventories / Current Liabilities
Table-2 (Amount in Lakhs)
Year 2004-05 2005-06 2006-07 2007-08

Quick Assets 12,84,269 15,19,792 21,79,920 27,03,911

Current 12,86,103 15,76,507 18,05,200 22,14,785
Liabilities
Quick Ratio .99 .96 1.20 1.22


Interpretation: The ideal ratio is 1:1. The quick ratio is also fluctuating. In 2007-08 the
ratio is satisfactory because it is higher than 1. And it is also good in 2006-07 and

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2007-08.Because it is more than 1.But it has decreased in 2005-06 and 2004-05 i.e. 0.96
and 0.99 respectively. Overall the quick ratio is satisfactory, means liquidity position of
the company is good.

CASH RATIO:
An asset which converts suddenly without doubtful is called as cash ratios. Here
cash balance included trade investment or marketable securities that are equivalent to
cash.
Formula:
Cash Ratio=Cash +Marketable Securities /Current Liabilities.

Table- 3: ( Amount in lakhs)
Year 2004-05 2005-06 2006-07 2007-08

Cash+ 2,17,773 1,39,434 4,13,668 5,24,749
marketable
securities

Current 12,86,103 17,37,753 18,05,200 22,14,785
Liabilities

Cash Ratio .17 .08 .22 .23


Interpretation: In Cash ratio there is no standard ratios for maintained the cash balance
because now a days nothing to be worried about the lack of cash if the company has

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reserve borrowing power for its day to days activities. Holding of Cash in the year
2007-08 was 23% of current liabilities in the 2005-06 it came down to 8%, in the
2006-07 it again increased to 23%.

INTERVAL MEASURES RATIO: The ratio which assesses a firm’s ability to meet its
regular cash expenses is the interval measures. An interval measure relates to liquid asset
and average daily operating cash flows.
Formula:
Interval Measure ratio = current assets-inventories/average daily operating expenses /360
Table-4 (Amount in lakhs)
Year 2004-05 2005-06 2006-07 2007-08
Current asset – 12,84,269 15,19,792 21,79,920 27,03,911
inventories
Average daily 585 644 762 919
operating exp
Interval 2,195 2,360 2,860 2,942
Measures

Interpretation: Interval measure is said to be good if No of days are sufficient liquid
asset to finance its operations. This chart Indicates that KEC have sufficient Liquid assets

BABASAB PATIL 63

to finance its operations for 2942 days even though it does not receive any cash for 2942
days.

LEVERAGE RATIO
LEVERAGE RATIO is also called as capital structure ratio. It relates to the study
of various types of capital structure of firm. The long- term solvency of a company can
be examined by using leverages or capital structure ratios. These ratios are for long-term
creditors to judge the long-term financial strength of the company.
THE DIFFERENT LEVERAGE RATIOS ARE:
1. Debt Equity Ratio
2. Proprietary Ratio
3. Interest Coverage Ratio

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1) DEBT RATIO
Debt ratios are use to analyze the long term solvency of firm. It is the proportion of
the interest bearing debt in the capital structure. Debt ratio is Calculated by total debt by
total debt by capital employed or net asset of the firm.
Formula:
Total debt /Total debt +Net worth
Year 2004-05 2005-06 2006-07 2007-08
Long term debt 2,03,121 1,93,574 3,16,343 4,41,152
Shareholders 13,11,350 13,01,803 11,08,229 12,52,506
Funds
Debt-equity .15 .14 .28 .35
ratio

Interpretation: The debt ratio for the 2007-08 was .35 or 35% of the capital employed.
It indicates owners have provide the remaining finance that is 1-35=65% of capital
employed. From above analysis the firm has lower risk in the year 2004-05 &
2005-06.But afterwards it has increased its risk in the year 2006-07 &2007-08.

BABASAB PATIL 65


2) DEBT-EQUITY RATIO
It measures the relation between debt and equity in the capital structure of the firm.
In other words, this ratio shows the relationship between the borrowed capital and
owner’s capital.
Formula:
Debt equity ratio= Long term debt/Net worth
Year 2004-05 2005-06 2006-07 2007-08
Long term 2,03,121 1,93,574 3,16,343 4,41,152
debt
Net 11,08,229 11,08,229 11,08,229 12,52,506
worth
Debt-Equity .18 .17 .28 .35
Ratio

Interpretation:- The ratio is high in 2007-08. It shows that a large share of financing by
the creditors of the firm and it is more risky to the creditors. In 2004-05 and 2005-06 it
has declined to .18 and 0.17 respectively. In 2005-06 and 2006-07 the ratio is low i.e.,
0.18 and 0.17. It indicates that the firm finance point of view, the company has low risk.

BABASAB PATIL 66

It means that the company is in safer side of finance and a margin of safety to the
creditors.

3) PROPRIETORY RATIO: It establishes relationship between the propitiator or
shareholders funds & total tangible assets. The ratio indicates properties stake in total
assets. Higher the ratio lowers the risk and lower the ratio higher the risk. Debt –equity
ratio & current ratio affects the proprietary ratio.
Formula:
Proprietary Ratio=Shareholder’s Funds
Total Assets
Year 2004-05 2005-06 2006-07 2007-08
Shareholder’s 4,32,688 4,32,688 4,32,688 4,52,688
Fund
Total Assets 15,39,264 18,56,702 25,25,498 32,92,946
Proprietary .28 .23 .17 .13
Ratio(%)


Interpretation: The equity ratio is high in 2004-05 i.e. 28%. It indicates that a high
proprietary ratio relatively little danger to the creditors and it is better for long-term

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solvency position of the company. But it has been decreased to 13% and 17% in the year
2006-07 and 2007-08 respectively. A ratio below 50% is dangerous to the creditors at the
time of winding up of a company.

4) EQUITY RATIO:
Equity Ratio is calculated by dividing capital employed (CE) by Net worth
(NW)
Formula:
Equity Ratio= Capital employed (CE)/Net worth
Year 2004-05 2005-06 2006-07 2007-08
Capital 4,32,688 4,32,688 4,32,688 4,52,688
employed
Net worth 11,08,229 11,08,299 11,68,229 12,52,506
Equity Ratio .39 .39 .37 .36

Interpretation: There are no standard rules for maintaining equity ratio. It differs
according to the nature of the business. The lower performance in maintain Net worth in
2004-05 & 2005-06 but in 2006-07 &2007-08 good performance maintaining of capital
employed to net worth.

BABASAB PATIL 68


TURNOVER / ACTIVITY RATIOS OF THE COMPANY
Introduction:
Activity ratios are employed to evaluate the efficiently with which the
firm manages and utilizes its assets. These ratios are also called as turnover ratio.
Therefore they indicate the speed with which assets are being converted / turned over in
to sales.
Thus an activity ratio involves relationship between sales and assets. A proper balance
between sales and assets generally reflects that assets are managed well.
In other words, turnover ratio indicates the efficiency with which the capital employed is
rotated in the business.
Higher the ratio of rotation, the greater will be the profitability

DIFFERENT TURNOVER RATIOS:
1) Inventory stock turnover Ratio
2) Debtors (Accounts Receivable) Turnover Ratios.
3) Creditors (Account Payable) Turnover Ratios
4) Fixed Assets turnover Ratio
5) Current Assets turnover Ratio
6) Working capital turnover Ratio
7) Total Assets turnover Ratio
8) Net Assets turnover Ratio

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1) INVENTORY / STOCK TURNOVER RATIO (ITR/STR).
It indicates the efficiency of firm in producing and selling its products. High Ratio is
good from the view point of liquidity and vice versa. A low ratio would signify that
inventory does not sell fast and stably in the warehouse for a longtime.
Formula:
Cost of Goods Sold OR Sales
________________ __________
Avg. Inventory Inventory
Year 2004-05 2005-06 2006-07 2007-08
Sales 31,20,434 41,40,246 59,13,957 72,77,768
Inventory 1,27,529 2,17,961 2,29,727 4,55,864
Inventory 24.4 18.9 25.74 15.96
turnover ratio


Interpretation:- In the above chart, the inventory turnover ratio is high in 2006-07,
2004-05, i.e. 25.7, 24.4 respectively. But it is low in 2007-08 and 2005-06 i.e. 15.9 and

BABASAB PATIL 70

18.9 respectively. Usually, a high inventory turnover indicates efficient management of
inventory because more frequently the stocks are sold.

DAYS OF INVENTORY HOLDING:
Formula: Inventory*360/Sales
Table -10 (Amount in lakhs)
Year 2004-05 2005-06 2006-07 2007-08
Inventory 1,27,529 2,17,961 2,29,727 4,55,864
Sales 31,20,434 41,40,246 59,13,957 72,77,768
Days of 14.7 18.95 13.98 22.5
inventory
holding


Interpretation:- In the year 2004-05, 2006-067 due to increase in sale of inventory, the
inventory holding period is less i.e. the inventory has been disposed off or sold on an
average in 14.7, 13.9 and in 2007-08 the days have increased .

BABASAB PATIL 71


2) DEBTORS TURNOVER RATIO:
Debtors constitute an important constituent of current assets and therefore
the quality of debtors to great extent determines that firm’s liquidity. There are two ratios.
They are:
1) Debtors turnover Ratio
2) Debtors collection period Ratio
Debtors’ turnover ratio:
Formula:
Debtors turnover ratio = Creditor Sales

Debtors
Higher the ratio is better, since it indicate that debts are being collected more promptly.
Year 2004-05 2005-06 2006-07 2007-08
Sales 31,20,434 41,40,246 59,13,957 72,77,768
Debtors 8,25,008 11,26,390 13,78,923 15,98,625
Debtors 3.78 3.67 4.2 4.5
turnover

BABASAB PATIL 72

Analysis of financial statement @ kirloskar project report mba finance

Analysis of financial statement @ kirloskar project report mba finance

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