CHAPTER 1

INTRODUCTION TO THE STUDY

1
1.1 INTRODUCTION

The project titled “Financial Statement Analysis of Kerala Khadi &

Village Industries Association, Avanissery” is based on the study of financial

performance and position of this institution. KK & VIA, Avanissery is a well

known institution placed in the A+ category by the KVIC along with fifteen other

institutions all over India. Main activity of the Association is Khadi production and

marketing. And hence, the financial prospects of the institution vary from year to

year. The study conducted has taken into consideration financial statements of the

institution that covers a period of last 5 years. A comparison of the financial

statements has been carried out that helps the project portray the institution’s

financial position, growth, profitability, solvency etc. Financial analysis is the

process of determining financial strengths and weaknesses of the institution by

establishing strategic relationship between the components of Balance Sheet and

Profit and Loss account and other operative data. It is thus an attempt to dissect the

financial statements into their components so as to analyze financial growth and

potential of the enterprise.

Financial analysis seeks to spotlight the significant facts and relationships

concerning managerial performance, efficiency, financial strengths and weaknesses

and creditworthiness of the institution. Various tools of analysis are used to study

accounting data so as to determine the continuity of operating policies, investment

value, credit rating and efficiency of operations. These tools of analysis are

immensely helpful in carrying out planning and controlling functions.

2
1.2 OBJECTIVES OF THE STUDY

 To analyze the financial statements of Kerala Khadi &Village

Industries Association, Avanissery for a period of 5 years

 To evaluate the overall performance of KK&VIA, Avanissery.

 To ascertain the financial growth and prospects of KK & VIA, Avanissery.

 To ascertain the profitability solvency of the institution.

 To ascertain the liquidity of the institution.

 To ascertain the efficiency of the institution’s performance.

3
1.3 SIGNIFICANCE OF THE STUDY

The analysis of financial statements refers to the treatment of the

information contained in the financial statements in a way so as to afford a full

diagnosis of the profitability and financial position of the firm concerned. The

analysis and interpretation of financial statements is essential to bring out the

mystery behind the figures in financial statements.

Financial statement analysis is an attempt to determine the significance and

meaning of the financial statement data so that forecast may be made of the future

earnings, ability to pay interest and debt maturities etc. And hence, the project

conducted during the period dated November 18th to January 18th is based on the

study of financial performance and position of KK & VIA, Avanissery. The

financial statement of the institution that covers a period of last 5 years has been

taken into consideration. A comparison of the financial statements has been carried

out that helps the project in portraying the institution’s financial performance and

growth, profitability, solvency etc.

1.4 METHODOLOGY

4
 Research methodology refers to the various sequential steps to be adopted by

a researcher while studying a topic with certain objectives in view. It includes

certain typical proceedings of enquiry about something to get a conclusion. It’s a

scientific approach to inquest something. Research may be defined as the objective

and systematic method of finding solution to a problem i.e., systematic collection,

recording, analysis and recording of information about various facts of a

phenomenon under study.

DATA COLLECTION

The data can be collected through various methods. Primary and secondary

methods of data collection are available for concerned data collection. The

classification of data is based on the source of data. Primary data means first hand

information collected for the first time and, secondary data means second hand

information collected already by somebody, processed and reported in the right

time.

The study and analysis conducted for this project is based on the secondary

data received. It’s based on the relevant information available through the

institution’s Annual Reports, accounting records etc., which covers a period of last

5 years. Various statistical tools and Excel, Word etc., are used for presentation,

analysis and interpretation of data.

1.5 LIMITATIONS OF THE STUDY

5
 Analysis of financial statements is a powerful mechanism to ascertain

strengths and weaknesses in the operations and financial position of an enterprise.

However, it suffers from certain limitations. Some of the major limitations are as

under:

 Financial analysis is subject to limitations inherent in the financial

statements like following of different accounting principles or practices

regarding depreciation methods, inventory valuation and pricing.

 Financial analysis is based upon only monetary information and

non-monetary factors are ignored.

 The continuous and rapid changes in the value of money, present

day economy etc., reduce the validity of the analysis.

 As financial statements reflect values in terms of historical costs,

analysis of financial statements wouldn’t portray the effect of price level

changes over the period.

 The results or indications derived from the analysis of these

statements may be differently interpreted by different users.

6
 CHAPTER 2

ABOUT THE INSTITUTION

7
 2.1INDUSTRY PROFILE

KHADI - AN OVERVIEW:

Khadi has an extremely important connection with Indian freedom

movement and has become virtually symbolic to the struggle for freedom. It was at

the time of the Nagpur session (1920) that the Indian National Congress decided to

encourage “Khadi”. The first Khadi production center was established at

Kathiawad, Gujarat. Mahatma Gandhi used to refer to Khadi as “The livery of

freedom”. In fact Khadi was introduced in 1920 as a political weapon and as the

best instrument for giving concrete expression to the Swadeshi spirit to boycott

foreign goods.

Khadi means any cloth woven on handlooms in Kerala from cotton, silk or

woolen yarn handspun in India or from a mixture of any two or all such yarns.

Village Industries means any industry located in a rural area which

produces any goods or renders any service with or without the use of power in

which the fixed capital investment per head of an artisan or a worker doesn’t

exceed one lakh rupees or such other sum as may, by notification in the Official

Gazette, be specified from time to time by the Central Government.

INDUSTRIAL SCENARIO:

The Khadi market stands today is medium and it is growing. As a result, the

globalization of the fabrics trade has opened up highly demanding and evolving

8
requirement for outsourcing in Khadi industry. During the last 10 years the Khadi

industry is loosing its markets, because of global market entered in domestic

market and Mill made fabric available in global market entered with low cost.

NATIONAL SCENARIO:

The Indian Khadi industry has an overwhelming presence in economic life

of the country. Apart from providing one of the basic necessities of life, Khadi

industry also plays a pivotal role through its contribution to industrial output,

employment generation and the export earning of the Country. It provides direct

and indirect employment to the people and largest it’s the largest employment

sector after agricultural sector. Thus, the growth and all round development of

Khadi industry have a direct bearing on the improvement of the nation.

CURRENT SCENARIO:

Khadi industry faces stiff competition from power loom and hand loom

sector. Cost of Khadi depends on the human involvement in both the spinning and

weaving stages of Khadi production. As such the cost of Khadi cloth is a bit higher

when compared to handloom.

KHADI AND VILLAGE INDUSTRIES IN KERALA

Khadi industry in Kerala assumes a vital role in the State’s economy. Khadi

industry has been implemented in Kerala by KVIC and KKVIB through its directly

assisted institutions as a solution for rural unemployment rather than of

9
underemployment. The Khadi industry is concentrated mainly in the northern and

southern Districts of the State namely Trivandrum in the South and Kannur in the

North. In Thrissur, the industry is dominated mostly by aided and certified

institutions.

The total number of job seekers registered at employment exchanges in

Kerala during the year 2000 was nearly 42 lakh of which 55 percentage were

women. Khadi Sector is unable to attract enough workers to operate even their

existing charkas and looms. In a State like Kerala where the physical qualities of

life are comparable to that of any developed countries of the world, people prefer

to be unemployed rather than to seek employment in Khadi. Though spinning and

weaving activities are run as shed based programme with scheduled working hours

and holydays, not many people are attracted to this sector.

A majority of Khadi workers are women below the age of 30 who consider

it as an engagement till marriage. Of the entire spinners, 93 percent of the weavers

and 84 percent of the workers are women. Male ascendancy is witnessed only in

the salaried class.

A perusal of Khadi sale in Kerala reveals that more than 90 percentages of

the sales are made in semi-urban and urban areas through the 160 outlets run by the

Board. Nearly 74 to 88 percentages of the annual sales are made during special

rebate seasons (Onam, Bakreed, and Christmas and Gandhi Jayanthi weeks).

Cotton Khadi is the main variety produced in Kerala though above 50

percentages of sales in the state is constituted of muslin and silk items. The huge

pile of stock with the Board includes yarn and cloth made of cotton.

10
 2.2 COMPANY PROFILE

INTRODUCTION:

The Kerala Khadi and village Industries Association was registered under

the Cochin Literary Scientific and Charitable Societies Act as No.1 of 1955.The

Head Office is at Avanissery of Thrissur district. The Association started with 150

Traditional charka spinners and 6 staff members. Only Khadi work was done in the

beginning.

Main activity of the Association is Khadi production and marketing. A mini

dye house and printing section is working at Avinisserry Head Quarters. Apart

from Khadi, the institution is engaged in village oil industry with 4 power Ghanies

(oil extraction unit-wooden chakku), washing soap making unit and honey

processing unit. A fully equipped carpentry and black smithy workshop is

functioning at Avanissery complex for the manufacture and repairing of charkas

,looms, other implements connected to weaving\spinning, furniture and wooden

handicraft. They are pioneers in the production of 8 spindles wooden muslin

charkas, approved by the Khadi & Village Industries Commission and acclaimed

by the institutions all over India.

The Association has the privilege of organizing four All India Khadi &

Village Industries Exhibitions in 1956, 1957, 1960 and 1980. Kuppadam weaving

11
is an art of Kerala Khadi weaving. KVI’s have such 3 weaving centers and the

products of these centers attract the market all over India.

The Association provides direct employment to 1424 rural artisans, mostly

women artisans. There are 31 production centers and 15 showrooms cum retail

outlets spread over the district of Malapuram, Palakkad, Thrissur and Ernakulam.

The affairs of the Association are managed by 112 administrative staff including

President, Secretary and a General Manager. There are 17 members in the

executive committee including 2 artisans’ members and 8 workers.

SALIENT FEATURES

The Association is one of the major institutions directly aided by Khadi and

Village Industries Commission in Kerala State. KVIC is pioneers in the field of

muslin Khadi. One of the 10 muslin pilot centers started through out India in 1970-

71 was at Aryannur near Guruvayur, which topped the list of all the centers in

production and quality.

The Association is placed A+ (top most) category by Khadi &Village

Industries Commission along with 15 other institutions all over India. Main activity

of the Association is Khadi production and marketing.

The Association at present has a capacity of bleaching and dyeing of

clothes of 30 meters per day only and is not able to meet the huge demand. The

Association is the only place in Thrissur District where Khadi bleaching and

dyeing is carried out.

12
 In 2006-07, institution had a production of Khadi worth 257.20 crores. The

total sale during the year was 380.98 lakh. There are 110 regular employees and

1158 rural artisans. Mostly woman are getting regular employment opportunity

through these activities. The Association has earned all India reputation in the

production of muslin Khadi, Kuppadam varieties and in the manufacture of 8

spindle charkas. The other activities are silk Khadi production, carpentry and

blacksmith, agmarked honey production, Ghani oil, Cane Furniture etc. There are

31 production centers and 15 sales centers under the Institution spread over the

district of Malapuram, Palakkad, Thrissur and Ernakulam. The Institution has its

own land and building worth Rs.5.78 crores located in 31 places in 24 Panchayath.

The own capital of the Association is Rs.71.68 lakh.

OBJECTIVES OF THE ASSOCIATION:

 To establish or spread Khadi production and sales.

 To organize and establish Village Industries.

 To spread Sarvodaya ideology amongst the people through

establishing libraries, holding meetings, conference, exhibitions etc.

 To acquire by purchase, take on lease or otherwise lands and

buildings and all other movable and immovable property which the Association

for the purpose there off may from time to time think proper to acquire.

 To sell, improve, manage, develop, exchange lease or let, under-

lease sublet, mortgage dispose of, turned to account or otherwise deal with all

or any part of the property of the Association.

13
 To serve the people in Kerala in accordance with the principles

underlying the various items of the constructive program as laid down in the

teaching of Gandhi.

 To construct upon any premises acquired for the purpose of the

Association any building or buildings for the purpose of the Association and to

alter, add to, or remove, any building upon such premises.

 To borrow or raise any money required for the purpose of the

Association, upon such terms and in such a manner and on such securities as

many be determined by the executive committee

UNITS WORKING UNDER THE ASSICIATION

 Khadi Gramodyog Bhavan (RGB) Avanissery

 KGB Chalakudy

 KGB Guruvayur East

 KGB Guruvayur West

 KGB Kodungallur

 KGB Kunnamkulam North

 KGB Kunnamkulam South

 KGB Nattika

 KGB Ottupara

 KGB Thrissur North

 KGB Thrissur West

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 KGB Peringottukara

 KGB Thripunithura

 Production Center (PC) Avanissery

 PC Choorakattukara

 PC Erumapetty

 PC Kadavallur

 PC Kodakara

 PC Mayannur

 PC Peringottukara

 PC Trichur

 PC Trikkur

 Central Vastralaya

 Central Store

 Soap Unit

 Oil Unit

 Honey Unit

 Cane Unit

 Sliver Unit

 Saranjan Karyalaya

 Readymade Unit

 Dye House

15
 SUPPLY CHAIN

The supply of cotton to this institution is mainly from the Cotton Growers

co-operative Marketing Societies in Pollachi and Thirupur in Tamil Nadu. This

cotton is processed at KVIC’s Central Sliver Plant at Kuttoor and sliver rovings are

supplied to Khadi institutions. However cotton for NMC 50 count is processed at

Avanissery sliver unit. Association is also purchasing slivers from KVIC Kuttoor

directly. Slivers are converted into yarn by the spinners of the Association.

MAJOR ISSUES & CONSTRAINTS

Major issues, constraints and problems faced by the KK&VIA and other

Khadi institutions were relating to labour, non-remunerative prices, insufficient

work place, irregular supply of raw material etc., which are summarized below:

 The charkas and looms are more than 20 years old.

 Work sheds are very old and in rainy season it becomes very

difficult to do the activities due to the leakage and other problems.

 Supply of ready made warp is irregular which creates loss of time in

weaving.

 Lack of spare parts for charkas.

16
 In spinning units, due to inhalation of cotton dust particles, health

problems may occur.

 Lack of persons for repairing of maintenance.

 Due to the low wages skilled manpower is not available for taking

up spinning and weaving and pre-loom activities.

CHAPTER 3

17
CONCEPT OF FINANCIAL

STATEMENT ANALYSIS

18
3.1 CONCEPT OF FINANCIAL STATEMENTS

Financial statements also called financial reports are the end products

of business transactions. It comprises primarily the position statement or the balance

sheet and the income statement or the profit and loss account. These statements are

the outcome of summarizing process of accounting and are; therefore the sources of

information on the basis of which conclusions are drawn about the profitability and

the financial position of a concern. Financial statements are the basis for decision

making by the management as well as all other outsiders who are interested in the

affairs of the firm such as investors, creditors, customers, suppliers, financial

institutions, employees, potential investors, government and the general public.

A financial statement is a collection of data organized according to

logical and consistent accounting procedures. In the words of john m Myer,” financial

statement provides a summary of the accounts of a business enterprise, the balance

sheet reflecting the assets, liabilities and the capital as on a certain date and the

income statement showing the results of operations during a certain period.”

19
NATURE OF FINANCIAL STATEMENTS

Financial statements are prepared for the purpose of presenting a

periodical review or report by the management and deals with the state of investment

in business and result achieved during the period under review. It reflects a

combination of recorded facts, accounting concepts and conventions and personnel

judgments.

The following points explain the nature of financial statements:

 The figures in the financial statements, as a combination of

recorded facts, which are not based on replacement costs, do not show current

financial position of the concern.

 The use of accounting conventions makes financial statements

more comparable, simple and realistic.

 The assumptions made by the accountant, while making the

records, make the preparation of financial statements comparatively easy.

 These statements are influenced by the personal judgments of the

accountant though he is expected to be more objective in his approach.

20
OBJECTIVES

Financial statements are the source of information on the basis of which

conclusions are drawn about the profitability and financial position of a concern. The

primary objective of financial statement is to assist in decision making. The

accounting principle board of America states the following objectives of financial

statements:

 To provide reliable financial information about economic resources and

obligations of a business firm.

 To provide other needed information about changes in such economic

resources and obligations.

 To provide reliable information about changes in net resources arising out of

business activities.

 To provide financial information that assist in estimating the potential of

business.

 To disclose, to the extent possible, other information related to the financial

statements that is relevant to the needs of the users of these statements.

21
USES & SIGNIFICANCE

The financial statements are mirror which reflects the financial position and

operating strength or weakness of the concern. These statements are useful to

management, investors, creditors, bankers, employees, government, research scholars

and public at large. The major uses of financial statements can be point out as follows:

 As a report stewardship;

 As a basis for fiscal policy;

 As a guide to advice dividend action;

 As a basis for the granting of credit;

 As informative for prospective investors in an enterprise;

 As a guide to the value of investment already made;

 As an aid to government supervision;

 As a basis for price or rate regulation;

22
 3.2 ANATOMY OF FINANCIAL STATEMENTS

Financial statements comprise two basic statements, viz.

1. The position statement or the balance sheet; and

2. The income statement or the profit and loss account.

These statements are the record of operating performance with its impact on financial

position and progress of the enterprise.

1. Balance sheet:

The balance sheet also called statement of financial position depicts the

financial strength of the concern. Its purpose is to show the resources that the

company has, i.e., its assets, and from where those resources come from, i.e., its

liabilities and investments by owners and outsiders. Thus the balance sheet delineates

the firm’s holdings and obligations.

The important features of balance sheet are as under:

 Balance sheet is prepared as of a specific date. Hence, it portrays financial

position of the enterprise on that date.

 Balance sheet is usually written in two columns which illustrates the

relationship between assets and liabilities. The assets are shown on the right hand

side, while the sources of the assets on the left hand side. Total of both sides will

always tally.

23
 Financial position is not based absolutely on facts but to some extent

accounting procedures, assumptions and personal judgments also influence.

Balance sheet provides useful information about the firm’s resources and

obligations. It reflects economic results of management policies. It contains

information about liquidity as well as solvency position of the firm.

2. Income statements:

Income statement, also called profit and loss account, is a performance report

which records changes in income, expenses profits and losses as a result of business

operations during the year between the two balance sheet dates. This statement

measures the progress of a business in carrying out the function of delivering services

and products to its customers for which the enterprise was set up.

Income statement is commonly divided into four sections:

 Gross profit section

 Operating profit section

 Final net profit

 Appropriation section

Income statement is the “store board” of the company’s performance during a

particular period of time since it reflects the results of operations for a period of time.

Income statement also portrays the repaying capacity of the company and can also

measure the profitability of the company. On the basis of this statement the
24
management can evaluate the effectiveness of its past policies and decisions. They

can also take decisions with respect to present production capacity, change in

advertisement policies, and change in sale price, diversification, merger plan etc; on

the basis of income statement.

LIMITATIONS:

The following are the main drawbacks of financial statements:

 Financial statements do not depict the exact position and are essentially

interim reports.

 Financial statements may not be realistic because these are prepared by

following certain basic concepts and conventions.

 Personal decision or judgments of the accountant may adversely affect the

preparation of financial statements.

 Financial statements discloses only monetary factors and avoids those

factors which can not be measured in monetary terms

 These statements do not give a real and correct report about the worth of the

assets and their loss of value as these are shown on historical cost basis.

 These statements are drawn after the real happening of the events.

3.3 FINANCIAL STATEMENT ANALYSIS

Financial statements play a dominant role in setting the framework of

managerial decisions. But the information provided in the financial statements is not

an end in itself as no meaningful conclusions can be drawn from these statements

25
alone. However the information provided in the financial statement is of immense use

in making decisions through analysis and interpretation of financial statements.

Analyzing financial statements is a process of evaluating relationship between

component parts of financial statement to obtain a better understanding of firm’s

position and performance.

The term ‘financial analysis’ ,also known as analysis and interpretation of

financial statements, refers to the process of determining financial strength and

weaknesses of the firm by establishing strategic relationship between the items of the

balance sheet, profit and loss account and other operative data. Financial analysis is

an attempt to determine the significance and meaning of the financial statement data

so that forecast may be made of the future earnings, ability to pay interest and debt

maturities and profitability of a sound dividend policy.

The term ‘financial analysis’ includes both ‘analysis’ and ‘interpretation’.

While the term ‘analysis’ is used to mean the simplification of financial data,

methodical classification of data given in financial statements; ‘interpretation’ means,

explaining the meaning and significance of data so simplified.

OBJECTIVES

Financial analysis is helpful in assessing the financial position and profitability

of a concern. This is done through comparison by ratios for the same concern over a

period of years; or for one concern against the industry as a whole; or for one concern

against the predetermined standards; or for one department of a concern against other

departments of the same concern.

26
In short, the main objectives of analysis of financial statement are to assess:

 The present and future earning capacity or profitability of the concern,

 The operational efficiency of the concern as a whole and of its various parts or

departments,

 The short term and long term solvency of the concern for the benefits of the

debenture holders and trade creditors,

 The comparative study in regard to one firm with another firm or one

department,

 The possibility of developments in the future by making forecasts and

preparing budgets,

 The financial stability of a concern,

 The real meaning and significance of financial data,

 The long term liquidity of its funds,

 Managerial efficiency of the firm,

 The debt capacity of the firm.

TYPES OF FINANCIAL ANALYSIS

Various types of financial analysis can be classified into different categories

depending upon;

i. the nature of the analyst and the materials used by him ;

ii. the objectives of the analysis; and

iii. the modus operandi of the analysis.

27
 Types of financial analysis

On the basis of nature of

On the basis of On the basis of
analyst and the materials
objective of analysis. modus operandi.
used by him.

External Internal Short Horizontal Vertical

Long term
analysis analysis term analysis analysis
analysis
analysis

These are discussed one by one.

I. According to the nature of analysis and the materials

used by him:

On this basis, the financial analysis can be external and internal analysis.

a) External analysis:

It is made by those persons who are not concerned with the enterprise.

They are outsiders who do not have access to the enterprise. They do not have

access to the detailed internal accounting records of the company and have to

depend mostly on published statements. Such type of analysis is made by

investors, credit agencies, government agencies and research scholars.

28
b) Internal analysis:

Internal analysis is done by persons who have access to the internal

accounting records. Such an analysis can , therefore, be performed by

executives and employees of the organization as well as government agencies

which have statutory powers vested in them. Financial analysis for managerial

purposes is the internal type of analysis that can be affected depending upon

the purpose to be achieved. The internal analyst can give more reliable result

than the external analyst because every type of information is at his disposal.

II. According to the objective of the analysis:

On this basis the analysis can be long term analysis and short term analysis.

a) Long term analysis:

This analysis is made in order to study the long term financial stability,

solvency, and liquidity and earning capacity of a concern. The purpose of

making such type of analysis is to know whether in the long run the concern

will be able to earn a minimum amount which will be sufficient to maintain a

reasonable rate of return on the investment so as to provide the funds required

for modernization, growth and development of the concern and to meet its

cost and capital.

b) Short term analysis:

The purpose of this analysis is to know whether in the short run a business

concern will have adequate funds readily available to meet the short term
29
 requirements and sufficient borrowing capacity to meet contingencies in the

nearer future. This analysis is made with reference to items of current assets

and current liabilities to have fairly sufficient knowledge about the company’s

current position which may helpful for short term financial planning.

III. According to the modus operandi of the analysis:

On this basis the analysis may be horizontal analysis and vertical analysis.

a) Horizontal (or dynamic) analysis:

This analysis is made to review and analyze financial statement of a number

of years and, therefore, based on financial data taken from several years. This

is very useful for long term trend analysis and planning. Comparative

financial statement is an example of this type of analysis.

b) Vertical (or static) analysis:

This analysis is made to review and analyze the financial statement of one

particular year only. Ratio analysis relating to a particular accounting year is

an example of this type of analysis.

3.4 TECHNIQUES OF FINANCIAL ANALYSIS

The analysis and interpretation of financial statements is used to determine the

financial position and results of operations as well. A number of methods or devices

30
are used to study the relationship between different statements. The following

methods of analysis are generally used:

I. Comparative statements;

II. Common-size statements;

III. Fund flow analysis;

IV. Cash flow analysis;

V. Ratio analysis;

VI. Trend analysis;

VII. Cost-volume-profit-analysis.

I. Comparative statements:

These statements are prepared in such a way so as to provide time

perspective to the consideration of various elements of financial position embodied in

such statements. This is done to make the financial data more meaningful. The

statement of two or more years are prepared to show absolute data two or more years,

increase or decrease in absolute data in value and in terms of percentages.

Comparative statements can be prepared for both income statements and position

statement.

i. Comparative income statement:

This statement discloses the net profit or net loss resulting from the business

operations. Such statement shows the operating results of a number of

accounting periods so that changes in absolute data from one period to another

period may be stated in terms of absolute change or in terms of percentages.

31
 This statement helps in deriving meaningful conclusions as it is very easy to

ascertain the changes in sales volume, administrative expenses, selling and

distribution expenses etc.

ii. Comparative balance sheet:

This statement, prepared in two or more different dates, can be used for

comparing assets and liabilities and to find out any increase or decrease in

these items. This facilitates the comparison of figures of two or more periods

and provides necessary information which may be useful in forming an

opinion regarding the financial position as well as progressive outlook of the

concern.

Advantages of comparative statements:

 These statements indicate trends in sales, cost of production, profits etc.

helping the analyst to evaluate the performance, efficiency and financial

condition of the undertaking.

 Comparative statements can also be used to compare the position of the firm

with the average performance of the industry or with other firms. Such a

comparison facilitates the identification of weaknesses and remedying the

situation.

Disadvantages:

32
  Inter-firm comparison may be misleading if the firms are not of the same

age and size, following different accounting policies in relation to

depreciation, valuation of stock etc. and do not cater to the same market.

 Inter-period comparison will also be misleading if the period has witnessed

frequent changes in accounting policies.

II. Common size financial statements:

Common size financial statements are those in which figures reported are

converted to some common base. Items in the financial statements are presented as

percentages or ratios to total of these items and a common base for comparison is

provided. Here vertical analysis becomes the relation of individual items to its

respective total. Common size statements may be used for balance sheet as well as

income statement.

i. Common size balance sheet:

A statement in which balance sheet items are expressed as the ratio of each

asset to total assets and the ratio of each liability as the ratio of total liabilities is

called common size balance sheet. If it is prepared for different firms in an

industry, it facilitates to judge the relative soundness and helps in understanding

their financial strategy.

ii. Common size income statement:

In such a statement, the items can be shown as percentages of sales to show

the relation of each item to sales. Common size income statement for different

periods helps to establish a significant relationship between sales and other

33
 items in income statement and this relationship is helpful in evaluating

operational activities of the enterprise.

III. Fund flow analysis:

The fund flow statement is a financial statement which reveals the methods by

which the business has been financed and how it has used its funds between the

opening and closing balance sheet dates. This statement is known by different titles

such as, statement of sources and application of funds, summary of changes in

financial position, where came in and where gone out statement, where got where one

statement, movement of working capital statement etc.

In the words of Anthony, “the fund flow statement describes the sources from

which additional funds were derived and uses to which these funds were put.” Thus

the analysis of such statements over periods of time clearly shows the sources from

which past activities have been financed and brings to highlight the uses to which

such funds have been put.

Objectives:

The main purposes of fund flow statements are;

 To help to understand the changes in assets and asset sources which are not

readily evident in the income statement or the financial position statement.

 To inform as to how the loans to the business have been used; and

 To point out the financial strengths and weaknesses of the business.

Uses & significance:

34
 The fund flow statement is used for estimating the amount of funds needed for

growth, improving the rate of income on assets, planning the temporary investment of

idle funds etc. the uses of fund flow statement can be listed as under.

 It explains the financial consequences of business operations.

 It answers intricate queries.

 It acts as an instrument of resources.

 It is a test as to effective or otherwise use of working capital.

 It helps in lending or borrowing operations and policies.

Disadvantages:

The fund flow statement has a number of uses; however, it has certain limitations

also, which are listed below:

 Fund flow statement is not a substitute of an income statement or a balance

sheet. It provides only some additional information as regards changes in

working capital.

 It can’t reveal continuous changes.

 It is not an original statement but simply is arrangement of data given in the

financial statements.

 It is historic in nature and projected funds flow statement can not be prepared

with much more accuracy.

 Changes in cash are more relevant for financial management than the working

capital.

35
IV. Cash flow statement:

The management of cash assumes importance because it is difficult to predict

cash inflows and outflows. Cash flow statement is one important tool of cash

management because it throws light on cash inflows and outflows of a particular

period.

Cash flow statement is based on a narrower concept of funds. It can be defined

as a statement which summarizes sources of cash inflows and uses of cash outflows of

a firm during a particular period of time, say a month or a year. Such a statement can

be prepared from the data made available from comparative balance sheet, profit and

loss account and additional information.

Uses & significance:

Cash flow statement is very useful to the management for short term planning

due to the following reasons.

 It predicts future cash flows on the basis of what happened in the past.

 It helps to determine the ability to pay dividend and other commitments.

 It shows the relationship of net income to the changes in the business cash.

 It helps in evaluating financial policies and cash position.

 It discloses movement of cash.

 It discloses success or failure of cash planning.

 It provides cash flow information to investors and creditors which help them

to evaluate management decisions.

36
  It enhances the comparability of the reporting of operating performance by

different enterprises, because it eliminates the effect of using different

accounting treatments for the same transactions and events.

Limitations:

Despite a number of uses, cash flow statement suffers from the following

limitations.

 It is difficult to precisely define the term ‘cash’. There are controversies

over a number of items like cheques, stamps etc.

 It excludes near cash items from cash obscures the true reporting of the firm’s

liquidity position.

 Working capital being a wider concept of funds, a fund flow statement

presents a more complete picture than cash flow statement.

V. Ratio analysis:

Ratio is an expansion of one number in relation to another. It may be defined

as the indicated quotient of two mathematical expressions. According to Accountant’s

Handbook by Wixon, Kell and Bedford, a ratio is “an expression of the quantitative

relationship between two numbers.” In simple language, ratio is one number

expressed in terms of another. A financial ratio is the relationship between two

accounting figures expressed mathematically.

Ratio analysis provides clues to the financial position of a concern. These are

the pointers or indicators of financial soundness, position etc of an enterprise. With

37
the use of ratio analysis one can measure the financial position of a firm and can point

out whether the condition is strong, questionable or poor. The conclusions can be

drawn as to whether the performance of the firm is improving or deteriorating. Thus

ratios have wide applications and are of immense use today.

Uses & significance

The ratio analysis is one of the most powerful tools of financial analysis. It is

used as a device to analyze and interpret the financial health of enterprise. It is with

the help of ratios that the financial statements can be analyzed more clearly and

decisions made from such analysis.

There are different parties interested in the ratio analysis for knowing the

financial position of a firm for different purposes. These are discussed below:

a) Managerial uses of ratio analysis:

 Helps in decision-making

 Helps in financial forecasting and planning

 Helps in communicating

 Helps in co-ordination

 Helps in control

 Helps in budgetary control and standard costing

b) Utility to shareholders\investors:

 Helps in assessing the financial position of the concern

 Helps in determining profitability position

38
  Helps in deciding the accurate time for investment

c) Utility to creditors:

 Helps in assessing the financial position that warrants their payments at a

specified time

 Helps in knowing about the current financial position through current and

acid-test ratios.

d) Utility to employees:

 Helps to know the firm’s financial position which in turn will affect their

fringe benefits.

 Various profitability ratios relating to operating profit, net profit etc enables

employees to put forward their viewpoints for the increase of wages.

e) Utility to Government:

 Helps to assess the overall strength of the industry

 Helps to prepare the profitability indexes

 Helps to form successful plans and policies on the basis of

industrial information available from various units

Classification of ratios

In view of various users of ratios, there are different types of ratios which can

be calculated from the information given in the financial statements. The particular

39
purpose of the user determines the particular ratios that might be used for financial

analysis

Various accounting ratios can be classified as follows:

Ratios

(A) (B) (C)

Traditional classification Functional classification Significance ratios

Or Or Or

Statement ratios Classification according Ratios according to

to test importance

1) Balance sheet ratios 1) Liquidity ratios 1) Primary ratios

2) Profit and loss account 2) Leverage ratios 2) Secondary ratios

ratios 3) Activity ratios

3) Inter statement ratios 4) Profitability ratios

(A) Traditional Classification or Statement Ratios

Traditional classification or classification according to the statement, from

which these ratios are calculated, is as follows:

40
 Traditional classification or statement ratios

Balance Sheet ratios Profit and Loss account ratios Composite ratios

1) Current ratio 1) Gross profit ratio 1)Stock turnover

2) Liquid ratio 2) Operating ratio ratio

3) Absolute liquid ratio 3) Operating profit ratio 2)Debtors turnover ratio

4) Debt equity ratio 4) Net profit ratio 3)Payable turnover ratio

5) Proprietary ratio 5) Expense ratio 4)Fixed asset turnover ratio

6) Capital gearing ratio 6) Interest coverage 5)Return on equity

7) Assets-proprietary ratio ratio 6)Return on shareholders

8) Capital inventory to fund

Working Capital Ratio 7) Return on capital

9) Ratio of Current Assets employed

to Fixed Assets 8) Capital turnover ratio

9) Working Capital

turnover ratio

10) Return on total resources

11) Total assets turnover

B) Functional classification or classification according to

test:

41
 Functional Classification or Classification according to Tests

Liquidity Ratios Long-Term Solvency & Activity Ratios Profitability Ratios

Leverage Ratios

(A)1) Current Ratio 1) Debt Equity 1)Inventory Turn- (A) In relation to

2) Liquid Ratio Ratio over sales

3) Absolute Liquid 2) Debt to total 2) Debtors Turnover 1) Gross Profit Ratio

Ratio capital Ratio 3) Fixed Asset 2) Operating Ratio

(B) 1) Debtors Turn- 3) Interest Coverage Turnover Ratio 3) Operating Profit

over Ratio 4) Cash Flow/Debt 4) Total Asset Ratio

2) Creditors 5) Capital Gearing Turnover 4) Net profit Ratio

Turnover 5) Working Capital 5) Expense Ratio

Ratio Turnover Ratio (B) In relation to

3) Inventory 6) Payables Turnover investments

Turnover 7) Capital Employed 1) Return On

Ratio Turnover Investments

2) Return on

Capital

3) Return on Total

Resources

4) Earning Per Share

5) Price-Earning Ratio

42
(B) Classification according to Significance or

Importance:

The ratios have also been classified according to their significance or

importance. Classification of ratios according to importance is made for inter-

firm comparison. For inter firm comparison the ratios may be classified as

primary and secondary ratios. The other ratios which support or explain the

primary ratios are called secondary ratios, e.g., the relationship of sales to total

assets of the firm.

Limitations:

The ratio analysis is one of the most powerful tools of financial management.

Though ratios are simple to calculate and easy to understand, they suffer from

some serious limitations:

 A single ratio, usually, doesn’t convey much of a sense.

 Lack of well accepted standards which can be accepted as norms renders

interpretation of the ratios difficult.

 Ratios suffer from inherent weaknesses of accounting records such as their

historical nature.

 Ratios of past are not indicators of future.

43
 Change of accounting procedure by a firm often makes ratio analysis

misleading.

 Ratios have to be interpreted and different people may interpret the same

ratio in different ways.

 Ratios devoid of absolute figures may prove distort as ratio analysis is

primarily a quantitative analysis and not a qualitative analysis.

 Avoidance of price level changes makes the interpretation of ratios invalid.

VI. Trend analysis:

This analysis is an important tool of horizontal financial analysis. This

method is immensely helpful in making a comparative study of the financial

statements of several years. Under this method trend percentages are calculated for

each item of the financial statements taking the figures of the base year as 100. The

trend percentages show the relationship of each item with its preceding year’s

percentages. This will exhibit the upward or downward trend to which the concern

is proceeding. These trend ratios may be compared with the industry in order to

know the strong or weak points of a concern.

Limitations:

 Trend percentages or ratios become incomparable if accounting

practices reflected in accounts have not been consistently followed year after

year.

44
 A change in price level makes comparisons out of tune.

 Trend percentages must not be real without considering the absolute

data on which they are based.

VII. Cost-volume-profit analysis:

Cost-volume-profit analysis is a technique for studying the relationship

between cost, volume and profit. In the words of Herman C. Heiser, “the most

significant single factor in profit planning of the average business is the

relationship between the volume of business, cost and profits”.

The three factors of CVP analysis are interconnected and dependent on one

another. In cost-volume-profit analysis an attempt is made to analyze the

relationship between variations in cost with variations in volume. The cost-

volume-profit relationship is of immense utility to management as it assists in

profit planning, cost control and decision making.

45
 CHAPTER 4

DATA ANALYSIS

AND

INTERPRETATION

46
4.1 FINANCIAL HIGHLIGHTS

CURRENT ASSETS

YEAR Rs (in lakh)

2005 590.00

2006 692.21
2007 730.93
2008 675.21
2009 721.88
Source: Annual Report

BAR CHART OF CURRENT ASSETS

VALUE (in lakh)

800

600

400

200

0
2005 2006 2007 2008 2009
YEAR

CURRENT ASSETS

Inference:

Current Asset shows an increasing trend during the period 2003-05 and a slight fall

in the year 2006 and again an increase in the year 2007

CURRENT LIABILITIES

47
 YEAR Rs (in lakh)

2005 286.25
2006 409.73
2007 460.18
2008 408.89
2009 464.73
Source: Annual Report

BAR CHART OF CURRENT LIABILITIES

VALUE (in lakh)

500
400
300
200
100
0
2005 2006 2007 2008 2009
YEAR

current liabilities

Inference:

Current liabilities show a constant increase till the year 2005 and a slight fall in the

year 2009 and again an increase in the year 2009.

48
 NET SALES

YEAR Rs (in lakh)

2005 481.52

2006 496.77

2007 512.84

2008 631.65

2009 635.53

Source: Annual Report

BAR CHART OF SALES

VALUE (in lakh)

700
600
500
400
300
200
100
0
2005 2006 2007 2008 2009
YEAR

sales

Inference:

The amount of sales shows an increasing trend till the year 2009.

49
4.2 RATIO ANALYSIS
The ratio analysis is one of the most powerful tools of financial management.

It is used as a device to analyze and interpret the financial health of enterprise.

Conclusions can be drawn as to whether the performance of the firm is improving

or deteriorating.

Following are the ratios applied in this project study:

1. Profitability ratio:

Net profit ratio establishes a relationship between net profit and sales and

indicates the efficiency of the management in manufacturing, selling,

administration and other activities of firm.

Profitability ratio = Net Profit *100

Net Sales

2. Gross Profit Ratio:

Gross profit ratio indicates the extent to which selling price of

goods per unit may decline without resulting in losses on operations of a firm.

It reflects the efficiency with which a firm produces its products.

Gross Profit Ratio = Gross Profit *100

Net Sales

3. Operating Ratio:

Operating ratio establishes the relationship between cost of goods

sold and other operating expenses on the one and sales on the other. The two

basic elements of this ratio are operating cost and net sales.

50
 Operating Ratio = Operating Cost *100

Net Sales

4. Current Ratio:

Current ratio may be defined as the relationship between current assets

and current liabilities. This ratio, is a measure of general liquidity and is most

widely used to make the analysis of a short-term financial position and liquidity

of a firm.

Current ratio = Current Assets

Current liabilities

5. Stock Turnover Ratio:

Stock Turnover ratio also known as stock velocity, indicates the number

of times the stock has been turned over during the period and evaluate the

efficiency with which a firm is able to manage its inventory. The purpose is to

see whether only the required minimum funds have been locked up in inventory.

Stock Turnover Ratio = Cost of Goods sold

Average Inventory

6. Debtors Turnover Ratio:

Debtor’s turnover ratio indicates the velocity of debt collection of firm. In

simple words it indicates the number of times average debtors are turned over

during a year.

Debtors Turnover Ratio = Net Credit Sales

Average Debtors

51
 7. Creditors Turnover Ratio:

In the course of business operations, a firm has to make credit

purchases and incur short term liabilities. The analysis for creditor’s turnover

is basically the same as of debtor’s turnover ratio.

Creditors Turnover Ratio = Net Credit Purchase

Average Creditors

8. Working Capital Turnover Ratio:

Working capital turnover ratio indicates the velocity of the

utilization of net working capital. Avery high working capital turnover ratio is

not a good situation for any firm and hence care must be taken while

interpreting the ratio.

Working Capital Turnover Ratio = Cost of Sales

Average Working

Capital

9. Fixed Asset Turnover Ratio:

Fixed asset turnover is the relationship between sales or cost of

goods sold and fixed / capital assets employed in a firm. It is calculated by

dividing net fixed assets by sales.

Fixed Asset Turnover Ratio = Sales

Net Fixed Assets

The analysis and interpretation of these ratios is given below.

52
 1. Profitability Ratio:

Rs (in lakh)
YEAR NET SALES RATIO
PROFIT

2005 11 481.52 2.28

2006 2.07 496.76 0.42
2007 3.21 512.84 0.62
2008 4.57 631.65 0.72
2009 10.06 635.53 1.58
Source: Annual Report

Profitability Ratio Chart

2.5
2
Value

1.5
1
0.5
0
2005 2006 2007 2008 2009
Year

RATIO

Inference:

During the period 2006-07 the profitability position of this institution was high.

Then it faced a sudden fall in the year 2009. By implementing new production

strategies, technologies etc the institution revived its financial position.

53
 2. Gross profit ratio:

Rs (in lakh)
YEAR GROSS NET RATIO
PROFIT SALES

2005 113.08 481.52 23.48

2006 114.43 496.76 23.03

2007 130.42 512.84 25.43

2008 149.22 631.65 23.62

2009 180.30 635.53 28.37

Source: Annual Report

Gross Profit Ratio Chart

30
25
Value

20
15
10
5
0
2005 2006 2007 2008 2009
Year
RATIO

Inference:

Gross profit shows an increasing trend. By adopting new production and

marketing strategies the institution is now efficient in producing its products. The

gross profit is sufficient to cover operating charges and to provide for fixed

charges.

54
 3. Operating ratio:

Rs (in lakh)
YEAR OPERATING NET SALES RATIO
COST

2005 94.87 481.52 96.22

2006 99.54 496.76 97
2007 122.97 512.84 98.55
2008 113.37 631.65 94.32
2009 133.22 635.53 92.59
Source: Annual Report

Operating Ratio Chart

100
98
Value

96
94
92
90
88
2005 2006 2007 2008 2009
Year
RATIO

Inference:

Operating ratio shows an increasing trend till the year 2007 and then it declines

and shows a positive position.

55
 4. Current ratio:

Rs (in lakh)
YEAR CURRENT CURRENT RATIO

ASSETS LIABILITIES
2005 590.00 286.25 2.06
2006 692.21 409.73 1.68
2007 730.93 460.18 1.59
2008 675.21 408.89 1.65
2009 721.88 464.73 1.55
Source: Annual Report

Current Ratio Chart

2.5
Value

1.5

0.5

0
2005 2006 2007 2008 2009
Year

RATIO

Inference:

During the year 2005, the current ratio of the institution is relatively high which

indicates good liquidity position. It shows a declining trend and there is a slight

increase in the year 2008 and again decline in the year 2009.

56
 5. Stock Turnover ratio:

Rs (in lakh)
YEAR COST OF AVERAGE RATIO
SALES STOCK

2005 368.44 405.89 0.9

2006 382.34 448.19 0.85

2007 382.42 503.3 0.75

2008 482.42 520.28 0.93

2009 455.23 542.87 0.83

Source: Annual Report

Stock Turnover Ratio Chart

0.8

0.6

0.4

0.2

0
2005 2006 2007 2008 2009
Year

RATIO

Inference:

Stock Turnover ratio shows a fluctuating trend. It decline till the year

2007 and increase in 2008 and again decline in the year 2009.

57
 6. Debtors Turnover ratio:

Rs (in lakh)
YEAR NET TRADE RATIO
SALES DEBTORS

2005 481.52 51.54 9.34

2006 496.76 37.28 13.33

2007 512.84 42.07 12.19

2008 631.65 33.77 18.71

2009 635.53 50.75 12.52

Source: Annual Report

Debtors Turnover Ratio Chart

20

15
Value

10

0
2005 2006 2007 2008 2009
Year

RATIO

Inference:

Debtors’ turnover ratio is low in the year 2005. It increases in the year

2006 and again a slight fall can be seen in 2007. It shows a sudden increase in

the year 2008 indicating the efficient management of debtors/sales. Then it

declines due to the absence of liquid debtors.

58
 7. Creditor’s Turnover ratio:

Rs (in lakh)
YEAR NET TREDE RATIO

PURCHASE CREDITORS

2005 295.91 65.13 4.54

2006 483.45 117.48 4.12
2007 421.03 142.31 2.96
2008 450.12 133.32 3.37
2009 399.21 150.37 2.65
Source: Annual Report

Creditors Turnover Ratio Chart

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2005 2006 2007 2008 2009

Year

RATIO

Inference:

During the year 2009 creditors’ turnover ratio is very low, indicating

the better liquidity position of the institution.

59
 8. Working Capital Turnover Ratio:

Rs (in lakh)
YEAR COST OF WORKING RATIO
SALES CAPITAL

2005 368.44 303.76 1.21

2006 382.34 343.88 1.11

2007 382.42 270.74 1.41

2008 482.42 266.31 1.81

2009 455.23 257.15 1.77

Source: Annual Report

Working Capital Turnover Ratio Chart

1.5
Value

0.5

0
2005 2006 2007 2008 2009
Year
RATIO

Inference:

Working capital turnover ratio is increasing till the year 2008, and a

slight fall is there in the year 2009. it indicates the efficient utilization of

working capital.

60
 9. Fixed Asset Turnover Ratio:

Rs (in lakh)
YEAR SALES NET RATIO
FIXED
ASSETS
2005 481.52 186.16 2.58
2006 496.76 210.86 0.86
2007 512.84 235.38 2.17
2008 631.65 734.47 2.36
2009 635.53 749.96 2.58
Source: Annual Report

Fixed Asset Turnover Ratio Chart

3
2.5
Value

2
1.5
1
0.5
0
2005 2006 2007 2008 2009
Year
RATIO

Inference:

New machineries were introduced in the year 2005 and due to

depreciation a sudden fall occurred in the next year. Then it shows a constant

increase till the year 2009

61
4.3 TREND ANALYSIS

Financial data can be presented for a number of years. Such a data is

helpful in looking at the trend increase or decrease in various financial items.

The objective in doing so is to reveal the direction and nature of change in

enterprise position in terms of progress or otherwise. The financial data in

absolute rupees can also be expressed in percentages to indicate and analyze

the trend in various years. Such analysis is called Trend Analysis.

Trend Analysis is one of the most useful forms of horizontal analysis.

It is helpful in revealing the proportionate change, and emphasizes changes in

the financial data from year to year and enables the analyst to study horizontal

data.

The trend percentage enables the analyst to inter prêt growth pattern

and to determine the pattern of change from year to year. Trend calculations as

an approach for financial analysis are made in relation to a base year.

62
 Rs (in lakh)
YEAR SALES PROFIT CURREN WORKING FUND
T ASSET CAPITAL FROM
OPERATIO
N

2005 481.52 3.01 590.01 303.76 106.79

2006 496.77 2.07 692.22 343.87 92.91
2007 512.84 3.21 730.93 270.74 112.23
2008 631.65 4.57 675.21 266.31 598.53
2009 635.53 100.56 721.88 257.15 647.81
Source: Annual Report

In the table above of Trend Analysis, monetary details regarding

sales, profit, current asset, working capital and fund from operation are taken

into consideration for carrying out a trend analysis of the past 5 years, starting

from 2005-2009.

1. Trend analysis of sales:

63
 YEAR SALES TREND
Rs (in lakh) RATIO

2005 481.52 100

2006 496.77 103

2007 512.84 106

2008 631.65 131

2009 635.53 132

Source: Annual Report

TREND ANALYSIS OF SALES

800
600
SALES
400 TR(S)
200
0
2005 2006 2007 2008 2009
YEAR

Inference:

Amount of sales is comparatively low till the year 2007. the

management applied new marketing strategies and consequently sales shows

an increasing trend.

2. Trend analysis of Profit:

64
 YEAR PROFIT TREND
(Rs. In lakh) RATIO
2005 3.01 100
2006 2.07 68.77
2007 3.21 106.64
2008 4.57 151.82
2009 100.56 3340.7
Source: Annual Report
VALUE (in lakh)

TREND ANALYSIS OF PROFIT

4000
3000
PROFIT
2000
TR(P)
1000
0
20052006200720082009
YEAR

Inference:

The profit trend is low in the year 2005. By the adoption of new

techniques and marketing strategies they successfully achieved the increasing

profit trend.

3. Trend analysis of Current Assets:

65
 YEAR CURRENT ASSET TREND
Rs (in lakh) RATIO

2005 590.01 100

2006 692.22 117.32

2007 730.93 123.88

2008 675.21 114.44

2009 721.88 122.35

Source: Annual Report

TREND ANALYSIS OF CURRENT ASSETS

VALUE (in lakh)

800

600

400 CURRENT
ASSET
200 TR(CA)

0
2005 2006 2007 2008 2009
YEAR

Inference:

The trend analysis of current assets shows only a slight variation in

the level of current assets.

4. Trend analysis of Working Capital:

66
 YEAR WORKING TREND
CAPITAL RATIO
Rs (in lakh)

2005 303.76 100

2006 343.87 113.20

2007 270.74 89.13

2008 266.31 87.67

2009 257.15 84.64

Source: Annual Report

TREND ANALYSIS OF WORKING CAPITAL

VALUE (in lakh)

400
350
300
WORKING
250
CAPITAL
200
TR(WC)
150
100
50
0
2005 2006 2007 2008 2009
YEAR

Inference:

Trend analysis of working capital shows a decreasing trend.

5. Trend analysis of Fund from Operation:

67
 YEAR FUND FROM TREND
OPERATION RATIO
Rs (in lakh)

2005 106.79 100

2006 92.91 87

2007 112.23 105.09

2008 598.53 560.45

2009 647.81 606.59

Source: Annual Report

TREND ANALYSIS OF FUND FROM OPERATION

VALUE (in lakh)

700
600
500 FUND FROM
400 OPERATION
300 TR
200
100
0
2005 2006 2007 2008 2009
YEAR

Inference:

The fund from operation shows an increasing trend. It’s in a

constant level till 2007 and a sudden increase can be seen till 2009.

68
 4.4 COMMON SIZE BALANCE SHEET

1. Common size percentages of fixed assets and current assets:

YEAR COMMON SIZE COMMON SIZE

PERCENTAGE OF PERCENTAGE OF
FIXED ASSETS CURRENT ASSETS

2005 23.98 76.02

2006 23.35 76.65
2007 24.36 75.64
2008 51.93 48.07
2009 50.95 49.05

Source: Annual Report

FIXED ASSETS AND
CURRENT ASSETS

COMMON SIZE PERCENTAGE OF CURRENT ASSETS AND FIXED

ASSETS
100%
80%
60%
40%
20%
0%
2005 2006 2007 2008 2009
Common size percentage
YEAR of current assets
Common size percentage of fixed assets

Inference:

The common size percentage of fixed assets is almost constant till the

year 2007 and then it increases. Common size percentage of current assets is

also in a constant level till 2007 and increases till 2009

69
 2. Common Size percentages of capital & reserves, fixed

and Current Liabilities

YEAR COMMON SIZE COMMON SIZE COMMON SIZE

PERCENTAGE PERCENTAGE PERCENTAGE
OF CAPITAL OF FIXED OF CURRENT
&RESERVES LIABILITIES LIABILITIES

2005 25.38 37.74 36.88

2006 22.58 31.95 38.57

2007 22.93 29.45 47.62

2008 50.59 20.3 29.11
2009 50.85 17.57 31.57
Source: Annual Report

COMMON SIZE PERCENTAGE OF

PERCENTAGES
COMMON SIZE

CAPITAL&RESERVES,FIXED,CURRENT
LIABILITIES
100%
80% COMMON SIZE
PERCENTAGE OF
60% CURRENT LIABILITIES
40% COMMON SIZE
PERCENTAGE OF
20%
FIXED LIABILITIES
0% COMMON SIZE
2005 2006 2007 2008 2009 PERCENTAGE OF
CAPITAL &RESERVES
YEAR

Inference:

The common size percentages of capital & reserves are almost constant

till the year 2007 and then it increases till 2009. Fixed liabilities increase

during the period 2008-09 followed by a fall till 2009. A common size

percentage of current liabilities falls till 2008 and increases in 2009.

70
 CHAPTER 5

FINDINGS

SUGGESTIONS

&

CONCLUSION

71
5.1 FINDINGS

1) The increasing trend of profits can be seen from the trend analysis of

profits. The management is successful in sustain the goodwill of this

Khadi institution.

2) From the fixed asset turnover ratio it can be seen that the acquisition

rate of fixed assets is low. The machineries used are few; the work is

mainly based on hand made.

3) Khadi products make no compromise with the quality. KK& VIA has

experience of producing and marketing products for the last 53 years.

They still have ready market and demand for their products.

4) From the common size percentage, it can be seen that the level of

capital and reserves is increasing.

5) The institution has all the required infrastructure facility including

water, electricity, road etc.

6) Creditors’ turnover ratio is decreasing year after year and reaches 2.67

in the year 2007. The number of days they take to pay off the creditors

will be low. This indicates the sufficient liquidity position of the

institution.

7) Khadi products have steady demand. Good export potential is there.

8) Good quality raw material is available. Seasonal raw materials are

stored in their own store rooms. Non availability of these items in the

market may not affect their production procedure.

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 5.2 SUGGESTIONS AND PERCEPTIONS

 Provision for new charkas and looms will enable to increase the

production and profitability can also be increased.

 Replacement of old charkas with 8 spindle muslin charka will

enhance the production of hanks to 36 from the present level of 18-20 per

day.

 Better working atmosphere in the renovated work sheds and

better wages will definitely attract more people to Khadi industry.

 Capacity building programs like training in spinning and

weaving etc.will increase skill and efficiency of the spinners and weavers

and exposure visits to other units will bring in the weavers\spinners more

enthusiasm in their activities.

 Common facility centre for ready made warp units for supply

to ready-to-use warp for weavings will help weavers to increase their

production as they do not have to engage themselves in the pre-loom

activities.

 Post-loom facilities, viz., dyeing and printing training will

provide new opportunities.

 The work sheds are to be renovated as most of them are more

than 20 years old and are in a very bad condition due to leakage, poor

maintenance etc and this is affecting the production very badly.

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 Organizing regular health medical camps for artisans and

medical insurance coverage will help to mitigate the problem of artisans.

 Provision of testing lab will ensure quality of finished products.

 Improved and new designs will result in better market of Khadi

products.

 To increase the sale of Khadi products, there is a need to

renovate, upgrade the existing marketing outlets of the institutions and

opening of few new outlets in strategic places. This will ensure marketing of

Khadi products regularly.

 The setting up of new production centers at various places

should be continued as it has a favorable brand image, and hence

introducing new products into the market would achieve faster market,

acceptability and demand.

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5.3 CONCLUSION

The project titled “FINANCIAL STATEMENT ANALYSIS” of

Kerala Khadi & Village Industries Association, Avanissery, is based on the

study of financial performance and position of this institution. The study

conducted has taken into consideration the financial statements of the

institution that covers a period of last five years. The objective of the project

study was to analyze and evaluate the overall performance of Kerala Khadi &

Village Industries Association, Avanissery. Khadi products have a good brand

image. This study reveals that the management is efficient in tackling with the

competitive market. By improving the production quality they are now in a

satisfactory position.

To conclude, this study was very useful to gather knowledge regarding

the practical implication of the theoretical aspects. The study also helped to

know and study the actual working of a reputed institution.

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