A Project Report On

RATIO ANALYSIS
At

Kirloskar pneumatic co.ltd., Pune.

In Partial Fulfillments of the Requirement for the award of

Master of Business Administration

By Chetan v. Phapale Under guidline Ptof.Yuvraj Lahoti

The Director,

Vishwakarma Institute of Management PUNE, Maharashtra.

2005 - 2007.

ACKNOWLEDGEMENT
It is a matter of great satisfaction and pleasure to present this report on Summer Training in KIRLOSKAR PNUEMATIC CO. LTD. (KPCL), Pune 411013. I take

this opportunity to owe my thanks to all those involved in my training.

I thanks to Mrs. VINEETA KAPOOR (MANAGER HRD) for given me opportunity to work at KPCL, as a FINANCE TRAINEE.

I am thankful to Mr. R.B. SHALIGRAM and Mr. R.R. TAVERGIRI for his encouragement and able guidance at every stage of my training work.

I also express my gratitude towards my project guide Mr.Y. LAHOTI (sir), who have helped me on every step in completing the training.

CERTIFICATE CERTIFICATE
This is certify that Mr.Chetan v. Phapale is a bonafide student of this Institute studying in M.B.A.

He

has

completed

project

report

Entitled

RATIO

ANALYSIS in Kirloskar pneumatic co. ltd., Pune. For the

partial fulfillment of the requirement of M.B.A. program for 20052007.

To the best of my knowledge, it is his original work. I wish him all the best in his future career and success at every step he takes in his life.

Mr. Yuvraj Lahot Dr.Shrad joshi

Project guide Director

NUMBER PARTICULAR
1 2 3 4 5 Executive summary Company profile Objective Research methodology Ratio analysis Theory Calculaion with graph Working capital Suggestion Conclusion

6 7 8

EXECUTIVE SUMMARY

INTRODUCTION:
Company being established as Kirloskar Pneumatics Company Limited in 1958, made an entry with manufacture of air compressor and Pneumatic tools and soon diversified by including air conditioning and transmission equipments.

At Kirloskar Pneumatic up to date manufacturing facilities, including CNC machines, stringent quality control procedures and systems, research and development, foundry, screw rotor machines, greal grinding machines, metallurgical and metrological laboratories, tool room and an integrated computer system, have all been set up with the sole idea of achieving the highest standards of quality and performance.

Kirloskar Pneumatic has the distinction of acquiring advance technologies from world over, adopting them to suit Indian conditions and continuously updating them to maintain the highest standards of quality and reliability. Kirloskar

Pneumatic is among the first few companies in India, to secure the ISO 9001 certification, in all its operations. It was certified for ISO 9001 quality system by the Indian quality systems, (IRQS) in February 1993 and re-certified in 1996 and again in 1999 and in 2003.

Company s products are manufactured under

Survey of renowned inspection

agencies such as Lloyd s, MMD, IRS, NTPL, EIL, PDIL, DGS&D, RITES, and may more, and are well accepted not only in India but also in the countries of South East Asia, Africa, Bulf, the Middle East, West United States of America Asia, Europe, and the

AN OVERVIEW OF COMPANY
Company being established as Kirloskar Pneumatics Company Limited in 1958, made an entry with manufacture of air compressor and Pneumatic tools and soon diversified by including air conditioning and transmission equipments.

At Kirloskar Pneumatic up to date manufacturing facilities, including CNC machines, stringent quality control procedures and systems, research and development, foundry, screw rotor machines, greal grinding machines, metallurgical and metrological laboratories, tool room and an integrated computer system, have all been set up with the sole idea of achieving the highest standards of quality and performance.

Kirloskar Pneumatic has the distinction of acquiring advance technologies from world over, adopting them to suit Indian conditions and continuously updating them to maintain the highest standards of quality and reliability. Kirloskar

Pneumatic is among the first few companies in India, to secure the ISO 9001 certification, in all its operations. It was certified for ISO 9001 quality system by the Indian quality systems, (IRQS) in February 1993 and re-certified in 1996 and again in 1999 and in 2003.

Company s products are manufactured under

Survey of renowned inspection

agencies such as Lioyd s, MMD, IRS, NTPL, EIL, PDIL, DGS&D, RITES, and may more, and are well accepted not only in India but also in the countries of South East Asia, Africa, Bulf, the Middle East, West United States of America. Asia, Europe, and the

Kirloskar Pneumatic Company Limited started with the manufacturing of Air Compressors and Pneumatic Tools, Immediately thereafter, the company

expanded its activities in the field of Air

Conditioning and Refrigeration

machinery. Further diversification in the manufacture of Hydraulic Power Transmission Equipment followed.

Kirloskar Pneumatic is held in high esteem for Process System Engineering and Turnkey Project expertise. The result of its success in this area is reflected in Company s association with virtually every project and industry in the country.

At Kirloskar Pneumatic, up-to-date manufacturing facilities, including CNC Machines, Stringent Quality Control Procedures and Systems, Research and Development, Foundry, Heat Treatment Facilities, Screw Rotor Machines, Gear Grinding Machines, Metallurgical & Metrogical Laboratories, Tool Room and an Integrated Computer System, have all been set up with the sole idea of achieving the highest standards of quality and performance.

Kirloskar Pneumatic is among the first few companies in India. It was certified for ISO 9001 Quality Systems by the Indian Quality Systems (IRQS) in February 1993, and re-certified in 1996, 1999 and most recently in 2003.

Company s products are manufactured under the survey of renowned inspection agencies such as, Lloyd s, MMD, IRS, NTPC, EIL, PDIL, DGS&D, RITES and many more, and are well accepted not only in India but also in the countries of South East Asia, Africa, Gulf, the Middle East, West, West Asia, Europe and United States of America.

COMPANY PROFILE

1.

History :

Kirloskar Pneumatic Company Limited was incorporated by late. Shri Shantanurao, l.Kirloskar in the year 1958.

We are a 600 Million US Dollars engineering conglomerate driving critical industries. We are century old pioneers in our areas of specialization like power, construction and mining, agriculture, industry and transport, oil and gas and environment protection with a range of world-class industrial products and turnkey services. We are made up of 8 major group companies, each led by the best engineering and managerial talent in India. In addition to engineering, we have interests in civic utility systems and in Information Technology and communication. Our multi-unit, multi-product, multi-location conglomerate is built on the plinths of Experience, Expertise, Quality, Innovation and Values in the business. Our best play is successful work and creation of a new industrial order where we can provide tailor made solutions to the customers. At Kirloskar, listening to the customer and his needs is a tradition as old as the group itself. For it is they who drive us further, make us reach higher, and engineer better solutions. In the customer's often unspoken wish for better implements lies the seed for a new invention, a path-breaking industrial conc

We are the Kirloskar Group of Companies.

Business for us is the best service, customer care and a lifelong relationship. Where are we headed? We believe in synergy and its limitless power of unifying. It is not limited to our group. It extends to the realms of customer/collaborator relations, investor interactions and into market trends analyses and technological advances. It is the only way we ensure that when an endeavor is made by several different elements, the result is of a far higher quality than what could have been achieved by each element acting alone. Our policies and practices help in treating the customer as the most important part of our family. We do work for profit but our profits are guided by the motives which suit best the customer needs.

How do we plan to reach there?

For the Kirloskar Group, engineering excellence is not an end, but a journey. An array of business solutions stand testimony to the fact, that good business values, pillared by expertise can work wonders. Solutions, which are crafted from a solid base of developing and manufacturing, generate reliable products and superior service. Through which, continual measurement of customer satisfaction is offered. It's a commitment rather than a ritual. From our early agricultural implements to our hi-tech engineering products, we've been always weaving our corporate goals into our clients' expectations by providing expertise and delivering technology that they can benefit from and rely on us at globally competitive prices. Today, we are in the process of concentrating our collective energies on core industry sectors to give us a sustainable competitive edge in terms of both quality and price. The Kirloskar Group's customer base currently ranges from heavy industries like power generation, steel and chemicals to the mechanic in his workshop and the

farmer in the fields. Across this wide spectrum of clients, many of whom are overseas, the one thing that remains consistent is that they all matter to us and call us for more of our service, products and better solutions.

The Kirloskar story unfolds

It has now been more than a century since the Kirloskar story started. We started with an aim of becoming the pioneers in fields in which our country needed innovation. In the 100 years and more that we have been in existence as a family and as an organisation, we've been seminal to Indian agricultural and industrial development. We gave India its first iron plough, pump and engine; inventions that were born from the need of the hour and went on to become signs of the time. That is why our group history can in many ways be considered a history of the economic and industrial revolution in India. The Kirloskar story Landmarks in the Kirloskar Saga

The Kirloskar Story

It has now been more than a century since the Kirloskar story started. We started with an aim of becoming the pioneers in fields in which our country needed innovation. In the 100 years and more that we have been in existence as a family and as an organisation, we've been seminal to Indian agricultural and industrial development. We gave India its first iron plough, pump and engine; inventions that were deviced from the need of the hour and went on to become signs of the time. Which is why our group history can in many ways can be considered a history of the economic and industrial revolution in India. The founder and the first factory village

The Kirloskar story starts with Laxmanrao Kirloskar, the founder. A man who believed that an understanding of one's environment and reality was essential to the manufacture of path-breaking industrial implements. From this steadfast belief was born the iron plough, the first Kirloskar product. Originally intended as an essential aid to agriculture, the plough soon became an icon of reform and revolution. A highlight of the early history of the group is Kirloskarvadi, India's first industrial township. A model factory-village created by Laxmanrao and his band of dedicated workers. In January 1910, when the Kirloskar were being ousted from Belgaum to make room for a new suburb, they found themselves in dire need of a place to live and work. Sensing this need, the Raja of the princely state of Aundh, who admired and respected Laxmanrao Kirloskar, offered the latter all the land he needed in Aundh state. Two months later, Laxmanrao Kirloskar set foot on 32 acres of barren land strewn with cacti and infested with cobras. Driven by his faith in human ability, Laxmanrao banded together 25 workers and their families and succeeded in transforming the barren expanse into his dream village. Ramuanna, Laxmanrao's brother, planned and administered the township, Shamburao Jambhekar doubled as engineer and all-round healing man, K.K.Kulkarni, an unsuccessful student, became a manager, treasurer and odd jobs man, Mangeshrao Rege was the clerk and chief accountant, Anantrao Phalnikar, a school drop-out flowered into an imaginative engineer. Such was our founder's faith in the human being that, Tukaram Ramoshi and Pirya Mang, both convicted dacoits, became the trusted guards of Kirloskarvadi!

The first Kirloskar Group Company

Kirloskar Brothers Limited (KBL) - the first Kirloskar venture at Kirloskarvadi was to become the base for all of the Kirloskar Group's subsequent enterprises. It began as the only Indian company with its own standard products - the fodder cutter and the iron plough, which competed with the British products. KBL also manufactured groundnut shellers, sugarcane crushers and pumps, which were to usher in a new economic order in the Indian industry. To power these machines, diesel engines, coal gas generators and electric motors were developed at Kirloskarvadi. In a display of great versatility, KBL then shifted its focus to fluid handling and control. As India's largest manufacturer of pumps and valves, and also the group's flagship company, KBL lends its strength and expertise to every new venture of the Kirloskar Group. Playing a part in the War

The intensified boycott of the British goods and the approaching World War threatened to stop imports of machine tools into India. The Kirloskar, with characteristic foresight began making machine tools. This paradigm shift of sorts, from farm implements to machine tools, created a new company - The Mysore Kirloskar Limited. This company, situated in Harihar, benefited greatly from the patronage of yet another Raja - the Maharaja of Mysore. In the first month of production, Mysore Kirloskar sold all of manufactured seven lathes. The new generation -Innovation, creation, tradition

From colonialism to independence An important change, for the country, and for one of its premier industrial houses, the Kirloskar Group. The altered political climate of the 1940s heralded the end of the princely patronage for enterprise.The policy shifts and changes in authority were the order of the day. This marked a turning point for the group.

Shantanurao Kirloskar, the eldest son of the founder travelled to Pune to initiate a new aspect of the group's activities - diesel engines. His experience of trying to secure the land for his factory in Pune was quite different from his father's in Kirloskarvadi. There was no benevolent ruler here to bestow acres gratis. Shantanurao had to face the tangle of red tape and public resistance to acquisition of land for industrial purposes. Finally, after arguing that factories have a longer life than human beings Shantanurao Kirloskar won a place for Kirloskar Oil Engines Ltd. (KOEL), twelve months after signing an agreement of collaboration with Associated British Oil Engines Export Ltd. of UK. This collaboration, incidentally, was the first of its kind between an Indian and a foreign company, and signified a bridging of the technological gap between east and west. The KOEL factory was incorporated in 1946, and soon after that gave India her first vertical high-speed engine. Brijlal Sarda, who reported its satisfactory running for over 4 decades, bought this first engine!

To electric motors and pneumatics The making of the electrical motor. This was the second of Laxmanrao Kirloskar's long cherished dreams, the first being the making of an engine. This task was brought to completion by Ravi Kirloskar, his youngest son, in 1946. Way back then, the authorities whom Ravi Kirloskar had approached for land were astonished by the request for 25 acres. Today, Kirloskar Electric Company Limited (KECL) has four plants occupying several times that acreage.

KECL's logo in the 40's The setting up of KECL and other Kirloskar companies saw a major role being played by Nanasaheb Gurjar, a lawyer who made industry his sole area of operation. Though the development of air compressors was an established activity at Kirloskarvadi, a full-fledged plant to manufacture the same was set up at Pune in 1958, under the eventual management of Shreekant Kirloskar, Shantanurao's youngest son. In collaboration with Broom and Wade of England, Kirloskar Pneumatic Company Limited began the manufacture of air

compressors and pneumatic tools. Today, its turnkey expertise is sought in almost every major industrial project in India. Collaboration with Twin Disc Inc. of the USA has taken the company into torque invertors, marine gearboxes and rail traction transmissions. A new direction - services The phenomenal success of the Kirloskar name prompted entrepreneurs and businessmen of the time to approach the group for guidance and expertise. This gave birth to the concept of formalised engineering consultancy and a new company - Kirloskar Consultants Limited (KCL) in 1963. Marking an extension of

the group's repertoire from manufacturing to services, KCL, in its 25 years of operation, has contributed to critical areas such as defence, irrigation, roads and environment. This paradigm shift saw the setting up of yet another service company - Pune Industrial Hotels Limited in 1964, the Kirloskar Group's first foray into hospitality. This company set up Hotel Blue Diamond in Pune and began to manage Hotel Pearl in Kolhapur. The Baker's Basket confectionery chain and the Hotel and Catering Consultancy Services (HOCON) were also set up. The dawn of a new millennium

To meet the changing demands of a global business environment and emerging economic trends, the Kirloskar Group has refocused and restructured its direction by concentrating on its core segment of agriculture, water supply, power, and air conditioning. By consciously opting out of hospitality, advertising and unreal services, the Group has channeled its potential in these core sectors.

The Group aims at unlocking the strength and value in the Kirloskar brand and distribution to enhance returns for its stakeholders. It has identified and is implementing processes that would bring greater customer focus and competitiveness. Today, the Kirloskar Group is a conglomerate with interests across a diverse range of industries. It is still spurred by the simple yet profound ethic born with Laxmanrao Kirloskar that where there is will there are many ways

The Kirloskar Group Of Companies

We are made up of 8 major group companies, who are players in major sectors like manufacturing, oil and gas, power, construction and mining, agriculture, industry and transport each led by the best engineering and managerial talent in India. In addition to engineering, we also have interests in civic utility systems and in Information Technology and communication. These 8 companies form the core of Kirloskar group. Each company is a renowned name in its own area of operation and is respected world wide for its services and products. For us manufacturing is just not limited to our factory premises and our products. It is also about world class service. Kirloskar Brothers Limited. (KBL) Kirloskar Ferrous Industries Limited. (KFIL) Kirloskar Middle East FZE. (KMEF) Kirloskar Oil Engines Limited. (KOEL) Kirloskar Pneumatic Company Limited. (KPCL) Kirloskar Proprietary Limited. (KPL) We are also proud partners in joint ventures with companies as Copeland Limited. This is a joint venture between Kirloskar Brothers Limited, India's leading engineering company and Copeland Corporation of the USA, the world leader in air-conditioning and refrigeration compressors. Also Kirloskar Ebara and Toyota Kirloskar Motors are other prestigious joint ventures. Kirloskar Copeland Limited. (KCL) Kirloskar Ebara Pumps Limited. (KEPL) We take equal pride in shaping capable managers and dedicated human beings at Kirloskar Institute of Advanced Management Studies. It is our education center for imparting knowledge to the managers of tomorrow.

Kirloskar Institute of Advanced Management Studies (KIAMS) Infrastructure Production As history has it, the Kirloskar dream started taking shape on 32 acres of barren land strewn with cacti and infested with cobras. Driven by the faith in human ability, Laxmanrao Kirloskar banded together 25 workers and their families and went to transforming the barren expanse into his dream village. Since then a century had passed and there has been no looking back. Those 32 acres has expanded into 350,000 m. sq of developed land with state of art facilities. Customising engineering to the needs of India's core industries means a comprehensive production infrastructure that includes process support facilities and specialised machine building competencies. The Kirloskar Group's manufacturing facilities are spread over 350,000 m. sq. Each plant is highly modern, state-of-the-art and ISO certified. And geared to roll out high precision products that are tailor made to meet customer requirements to the very last detail. These include products with a high degree of specialisation for applications like pumps, engines, alternators and compressors, which demand a high level of accuracy. Today, while constant facility modernisation and upgradation occur in the background, the Kirloskar Group's operations grow to span the spectrum of world-class engineering. At the base of our production infrastructure we have grey iron foundries that provide the basic raw material. Then comes the sophisticated pattern shops and metal working facilities. And world-class processes and management practices. The Kirloskar Group's worldwide network consists of over 1,200 distribution points and over 800 service points in India. This ensures easy product availability, fast and efficient after-sale service and minimum equipment downtime for the customers. Over 150 company offices operate in perfect synergy across urban and rural areas in the country and abroad.

We also train our dealers and service professionals to ensure our customers receive quality service in addition to the benefits of easy accessibility. Thanks to our efforts in this direction, there is no sector in Indian industry that has been left unattended by a Kirloskar company. The Kirloskar ranks amongst the top engineering business houses of India. We at Kirloskar provide you with the widest range of products to meet all your requirements. We ensure that our products make your job easier and help in yielding better results. The Kirloskar product line consists of more than 200 series. We have a group turnover of Rs. 2,000 Cr. Approx. The Kirloskar Group makes equipment, machinery and high-precision engineering products for the transport sector, including shipbuilding, railways, roads and cargo. We also have a major presence in auto components, process industries, rubber and plastics, textiles and also consumer goods industries. Browse through our Industry Solutions section and you'll see why we at Kirloskar claim to be the best. In the areas we function we provide the best choice for all your equipment and engine needs. Over 100-year-old tradition of excellence in engineering endows us with knowledge and experience to meet all the challenges that come our way

2. Core Competences:

Kirloskar Pneumatic Company Limited has a distinction of acquiring technologies from world over and adapting them to maintain highest standards of quality and reliability.

The company is also specialized in Systems Engineering and Turkey project expertise.

3. Business Division :

The company has two major business segments viz. Compression Systems and Transmission products.

The compression systems division compresses of Air and Gas compressors, Air conditioning and Refrigeration compressors, etc. Where as Transmission equipment division comprises of Power transmission equipments, Reverse reduction gears for marine gear engineers etc.

KPCL s operations are sub- grouped into following three major Strategies Business Units (SUBs).

At Hadapsar: ACD : TRM

Air Compressor Division, Transmission division.

At Saswad: ACR

Air conditioning & refrigeration division.

PRODUCT LINE
PRODUCT LINE TRANSMISSION PRODUCTS

COMPRESSION SYSTEMS

AIR COMPRESSION DIVISION

AIR CONDITION & REFRIGERATION

Air Compressor Division (ACD): includes:

1. Centrifugal Air Compressors :

2. Reciprocating, Horizontal, Balanced Opposed, Piston Compressors

3. Electric Screw Compressor Packages

4. Rotary, Twin-Screw, Diesel Engine Driven Compressors

5. Reciprocating, Vertical, Water-Cooled Compressors

6. Compressors and Expressors for Railway brake System:

7. Packaged Balanced Opposed Piston Compressors:

8. Packaged Vertical Reciprocating Air Compressors:

Air Condition & Refrigeration Compressors Includes:

1. Heavy Duty Refrigeration Compressors:

2. Air

Conditioning Compressors

3. Refrigeration and Air XRV series:

Conditioning Screw Compressors - WRV &

4. Transport Air

Conditioning units:

Transmission Division Includes:

1. Kirloskar Forward / Reverse Turbo Transmission for Locomotives: Application: a. Model L4 r 2 U 2

b. Model

L4r2U

c. Model

L4r4zU2

2. Reverse Reduction Hydraulic Marine gear Boxes:

3. Power Pack Equipment for Self Propelled Rail vehicles:

4. Multirex Reduction gear Units & Custom Built Gear Boxes:

Roadrailer Division Includes:

1. Kirloskar roadrailer:

2. Kirloskar Autorailer:

Design Collaborations:

Voith

Getriebe

K.G.

(Germany)

for

Forward

Reverse

Turbo

Transmissions and Axie Drives.

Ateliers Et Chantiers De bretange (ACB), (France), for Large Horse power Marine Gear Boxes in range of 1500 to 4000 HP

Engrenages ET Reduteurs Citroen Messian Durand (CMD), (France) for Industrial Gear Boxes.

Wabash National Corpn. (USA), for Road Railer.

Cooper Industries,(USA), for Joy Centrifugal Air Compressors.

Grasso Ltd, Holland for Air

Conditioning and Refrigeration Compressors.

Joint ventures Companies.

Subsidiary Companies:

Kirloskar McQuay Ltd

KPCL has promoted a joint venture in October 1997 with McQuay International, USA. McQuay, who is leaders in Heating, Ventilation & Air Conditioning world wide have shared state of art technology in Kirloskar McQuay Ltd. This company manufactures and market International Exposure

The company has been exporting most of the products all over the world specially, in middle East and far Eastern countries. Our products are well accepted not only by developing countries but also by pace setters like USA & UK. in the international market and achieving approximately 10 % of the their earning from the exports.

Presence in Gulf Area:

Kirloskar Group has been an office in Ajman, UAE known as Kirloskar Middle East Free Zone Limited, whereby covering middle east market. This is a well represented Sales & Services setup with Warehouse facilities manned by proper Engineering Personnel to serve Middle East Market independently. Entire range of HVAC Equipments

-: OBJECTIVES :-

To identify the financial strengths and weakness of the company.

Through the net profit ratio and other profitability ratio, understand the profitability position of the company.

Evaluating company s performance relating to Financial Statement Analysis.

To know the liquidity position of the company, with the help of Current ratio.

To find out the utility of financial ratio in credit analysis and determining the financial capability of the firm.

From the analysis of Cash Flow Statement, knowing the cash management of the company.

From the analysis of Fund Flow Statement, knowing manage the funds of company s.

From the analysis of working Capital Management, knowing how to manage the cash for day to day requirement.

Objectives of Financial Statements :

The Objective of Financial Statement is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions. Financial Statements are prepared for this purpose to meet the common needs of most users.

METHODOLOGY

Sources of Data Collection :

Data for this project is collected through two sources

a. Primary Sources. b. Secondary Sources

-: Primary Sources:-

This data is generated specifically for the purpose of working out the project. This data means the first hand information, which is collected through various sources e.g. Questionnaires, Interviews, Schedules and Formal / Informal information.

Information relating to the project was collected during formal and informal discussions with the Deputy General Manager (Finance).

Queries arising in due course of the project brought into the notice of concerned authority and necessary explanation and solutions are adapted.

-: Secondary Sources:-

Secondary data is generated with the help of following:

Annual Report: Majority of information gathered from data exhibited in the annual reports of the company. These include annual reports of the year 2001-02, 2002-03, 2003-04 and 2004-05,

Induction Manual: Information relating to company history and profile gathered from the induction manual of KPCL.

Reference Books: Theory relating to the subject matter and various concepts taken up from various financial reference books.

CMA statement: Information relating to estimation of funds and format of reporting, taken from CMA(Credit Monitoring Arrangement) statement of the company.

Loan Agreement: Information relating to various rules and regulations for bank finance taken up from loan agreement between KPCL and consortium banks.

1. Providing information for economic decision :

The economic decisions that are taken by users of financial statements require an evaluation of the ability of an enterprise to generate cash and cash equivalents and of the timing and certainty of their generation. This ability ultimately determines the capacity of an enterprise to pay its employees and suppliers, meet interest payments, repay loans and make distributions to its owners.

2. Providing information about financial position :

The financial position of an enterprise is effected by the economic resources it controls, its financial structure, its liquidity and solvency and its capacity it adopt to changes in the environment in which it operates.

Information about the economic resources controlled by the enterprise and its capacity in the past to modify these resources is useful in predicting the ability of the enterprise to generate cash and cash equivalents in the future.

Information about financial structure is useful in predicting future borrowing needs and how future profits and cash flow will be distributed among those with an interest in the enterprise.

Information is useful in predicting how successful the enterprise is likely to be in raising further finance.

Information about liquidity and solvency is useful in predicting the ability of the enterprise to meet the financial commitments as fall due. Liquidity refers to the availability of cash in the near future after taking account of financial commitments over this period. Solvency refers to the availability of cash over the longer term to meet financial commitments as they fall due.

3. Providing information about performance of an enterprise :

Another important objective of the financial statements is that it provides information about the performance and in particular its profitability, which is required in order to access potential changes in the economic resources that are likely to control in future.

4. Providing information about changes in financial position:

The financial statements provide information concerning changes in the financial position of an enterprise, which is useful in order to access its investing, financing and operating activities during the reporting period.

Product groups Screw compressors diesel driven at 10KG/CM2 Screw compressors electric motor driven at 7 to 10KG/CM2. Balanced opposed piston compressor driven at 3 to 9 KG/CM2. Vertical reciprocating

Major customers well drilling operation.

Major competitors Atlas Copco, ELGI.

Textile, granites industries.

Atlas copco, ELGI

Power, Petrochemical, Cement, Steel Industries.

CPT, Ingersol rand.

All small-scale

IR, ELGI

water culled. Driven at industries. 7 to 9 KG/CM2 Centrifugal compressor Driven by 7 KG/CM2 & above. Railways brake compressor. All railways. ELGI Cement, Steel, Textile industries. Atlas copco, Demag.

RATIO ANALYSIS
The Balance Sheet and the Statement of Income are essential, but they are only the starting point for successful financial management. Apply Ratio Analysis to Financial Statements to analyze the success, failure, and progress of your business. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare your ratios with the average of businesses similar to yours and compare your own ratios for several successive years, watching especially for any unfavorable trends that may be starting. Ratio analysis may provide the all-important early warning indications that allow you to solve your business problems before your business is destroyed by them.

Balance Sheet Ratio Analysis

Important Balance Sheet Ratios measure liquidity and solvency (a business's ability to pay its bills as they come due) and leverage (the extent to which the business is dependent on creditors' funding). They include the following ratios:

Liquidity Ratios
These ratios indicate the ease of turning assets into cash. They include the Current Ratio, Quick Ratio, and Working Capital.

Current Ratios
The Current Ratio is one of the best known measures of financial strength. It is figured as shown below: Current Ratio = Total Current Assets / Total Current Liabilities The main question this ratio addresses is: "Does your business have enough current assets to meet the payment schedule of its current debts with a margin of safety for possible losses in current assets, such as inventory shrinkage or collectable accounts?" A generally acceptable current ratio is 2 to 1. But whether or not a specific ratio is satisfactory depends on the nature of the business and the characteristics of its current assets and liabilities. The minimum acceptable current ratio is obviously 1:1, but that relationship is usually playing it too close for comfort. If you feel your business's current ratio is too low, you may be able to raise it by: Paying some debts. Increasing your current assets from loans or other borrowings with a maturity of more than one year. Converting non-current assets into current assets. Increasing your current assets from new equity contributions. Putting profits back into the business.

Quick Ratios
The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best measures of liquidity. It is figured as shown below: Quick Ratio = Cash + Government Securities + Receivables / Total Current Liabilities

The Quick Ratio is a much more exacting measure than the Current Ratio. By excluding inventories, it concentrates on the really liquid assets, with value that is fairly certain. It helps answer the question: "If all sales revenues should disappear, could my business meet its current obligations with the readily convertible `quick' funds on hand?" An acid-test of 1:1 is considered satisfactory unless the majority of your "quick assets" are in accounts receivable, and the pattern of accounts receivable collection lags behind the schedule for paying current liabilities.

Working Capital
Working Capital is more a measure of cash flow than a ratio. The result of this calculation must be a positive number. It is calculated as shown below: Working Capital = Total Current Assets - Total Current Liabilities Bankers look at Net Working Capital over time to determine a company's ability to weather financial crises. Loans are often tied to minimum working capital requirements. A general observation about these three Liquidity Ratios is that the higher they are the better, especially if you are relying to any significant extent on creditor money to finance assets.

Leverage Ratio
This Debt/Worth or Leverage Ratio indicates the extent to which the business is reliant on debt financing (creditor money versus owner's equity): Debt/Worth Ratio = Total Liabilities / Net Worth

Generally, the higher this ratio, the more risky a creditor will perceive its exposure in your business, making it correspondingly harder to obtain credit.

Income Statement Ratio Analysis

The following important State of Income Ratios measure profitability:

Gross Margin Ratio

This ratio is the percentage of sales dollars left after subtracting the cost of goods sold from net sales. It measures the percentage of sales dollars remaining (after obtaining or manufacturing the goods sold) available to pay the overhead expenses of the company. Comparison of your business ratios to those of similar businesses will reveal the relative strengths or weaknesses in your business. The Gross Margin Ratio is calculated as follows: Gross Margin Ratio = Gross Profit / Net Sales Reminder: Gross Profit = Net Sales - Cost of Goods Sold

Net Profit Margin Ratio

This ratio is the percentage of sales dollars left after subtracting the Cost of Goods sold and all expenses, except income taxes. It provides a good opportunity to compare your company's "return on sales" with the performance of other companies in your industry. It is calculated before income tax because tax rates and tax liabilities vary from company to company for a wide variety of reasons, making comparisons after taxes much more difficult. The Net Profit Margin Ratio is calculated as follows:

Net Profit Margin Ratio = Net Profit Before Tax / Net Sales

Management Ratios
Other important ratios, often referred to as Management Ratios, are also derived from Balance Sheet and Statement of Income information.

Inventory Turnover Ratio

This ratio reveals how well inventory is being managed. It is important because the more times inventory can be turned in a given operating cycle, the greater the profit. The Inventory Turnover Ratio is calculated as follows: Inventory Turnover Ratio = Net Sales / Average Inventory at Cost

Accounts Receivable Turnover Ratio

This ratio indicates how well accounts receivable are being collected. If receivables are not collected reasonably in accordance with their terms, management should rethink its collection policy. If receivables are excessively slow in being converted to cash, liquidity could be severely impaired. Getting the Accounts Receivable Turnover Ratio is a two step process and is is calculated as follows:

Daily Credit Sales = Net Credit Sales Per Year / 365 (Days) Accounts Receivable Turnover (in days) = Accounts Receivable / Daily Credit Sales

Return on Assets Ratio

This measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of firms in a similar business. A low ratio in comparison with industry averages indicates an inefficient use of business assets. The Return on Assets Ratio is calculated as follows: Return on Assets = Net Profit Before Tax / Total Assets

Return on Investment (ROI) Ratio

The ROI is perhaps the most important ratio of all. It is the percentage of return on funds invested in the business by its owners. In short, this ratio tells the owner whether or not all the effort put into the business has been worthwhile. If the ROI is less than the rate of return on an alternative, risk-free investment such as a bank savings account, the owner may be wiser to sell the company, put the money in such a savings instrument, and avoid the daily struggles of small business management. The ROI is calculated as follows: Return on Investment = Net Profit before Tax / Net Worth These Liquidity, Leverage, Profitability, and Management Ratios allow the business owner to identify trends in a business and to compare its progress with the performance of others through data published by various sources. The owner may thus determine the business's relative strengths and weaknesses.

Acid Test Ratio

QUICK ASSETS Acid Test Ratio = ------------------------------QUICK LIABILITIES

Particulars Q.A. Q.L. A.T.R.

2001-02 12,136.80 8385.47 1.45

2002-03 12051.57 7917.32 1.52

2003-04 10880.77 8431.19 1.29

2004-05 10423.08 8605.39 1.21

2005-06 10996.5 9336.43 1.17

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2001-02 2002-03 2003-04 2004-05 2005-06

AR

Interpretation: A quick ratio of 1:1 or more is considered as satisfactory or of sound liquidity position. In the year 2002-03, compared to previous year, quick assets and current assets decreased but the decreased rate of current liabilities is greater than the decreased rate of quick ratios, so quick ratio increased from 1.45 to 1.52. In 2003-04 and 04-05 there was a decrease in quick assets and increase in

current liabilities, so quick ratio decreased from 1.52 to 1.29 and 1.29 to 1.21 in 2003-04 and 04-05 respectively. And It has further decreased to 1.17 in 2005-06.

Inventory Holding Period: 12 MONTHS Inventory Holding Period = ---------------------------------------------INVENTORY TURNOVER RATIO

Particulars I.T.R Rs. (in Lacs) Period in Month Rs. (In Lacs) I.H.P

2001-02 6.26 12.00

2002-03 5.30 12.00

2003-04 4.94 12.00

2004-05 5.26 12.00

2005-06 3.31 12.00

1.92

2.26

2.43

2.28

3.63

4 3.5 3 2.5 2 1.5 1 0.5 0 2001-02 2002-03 2003-04 2004-05 2005-06 I.H.P

Interpretation: In the year 2002-03 there was a decrease in inventory turnover ratio. This shows an increase in inventory holding period. In 2003-04 there was an increase in holding period and in 2004-05 it was 2.28 that suggests that there was an increase in sales and decrease in inventory turnover ratio. In the year 2005-06 it is 3.63.

Debtors Collection Period: 12 MONTHS Debtors collection period = ------------------------------------------DEBTORS TURNOVER RATIO

Particulars Period in month DT ratio D.C.P in month

2001-02 12 1.8 6.59

2002-03 12 2.15 5.58

2003-04 12 2.4 5

2004-05 12 3 4.04

2005-06 12 3 4

7 6 5 4 3 2 1 0

6.59 5.58 5 4.04 4 D.C.P in month

2001-02

2002-03

2003-04

2004-05

2005-06

Interpretation: There is an increase in both debtors and sales, so avg. collection period is decreasing year by year. That shows that recovery from debtors is improving.

Creditors Turnover Ratio: 12 MONTHS Creditors payment period = ------------------------------------------CREDITOR TURNOVER RATIO

Particulars Period in months C.T.R C.P.P

2001-02 12 1.10 10.90

2002-03 12 1.49 8.05

2003-04 12 2.24 5.35

2004-05 12 2.95 4.07

2005-06 12 3.43 3.50

12 10 8 6 4 2 0

10.9 8.05 5.35 4.07 3.5 cpp

2001-02

2002-03

2003-04

2004-05

2005-06

Interpretation: In case of KPCL, There is continuous increase in purchases and continuous decrease in creditors, so payment period is decreasing year by year.

Interest Coverage Ratio: EBIT Interest coverage ratio = --------------------------INTEREST Particulars INTEREST EBT EBIT I.C.R 2001-02 1458.92 -916.57 542.35 0.37 2002-03 852.91 55.07 907.98 1.06 2003-04 587.35 96.00 683.35 1.16 2004-05 521.07 155.81 676.88 1.30 2005-06 488.42 1222.41 1710.83 3.50

4 3.5 3 2.5 2 1.5 1 0.5 0 2001-02 2002-03 2003-04 2004-05 2005-06 I.C.R

Interpretation: In case of KPCL, in the year 2002-03 there was a decrease in interest and increase in EBIT so ratio increased from 0.37 to 1.16, in the year 2003-04. There was a decrease in interest as well as EBIT but the decrease rate is higher than the decrease rate of EBIT, so the ratio increased from 1.06 to 1.16 and in the year 2004-05 there was decrease in interest and increase in EBIT so the ratio increased from 1.16 to 1.30 and further it is increasing from 1.30 to 3.50 in 2005-06 because EBIT has increased with a substantial amount.

Debt to Equity Ratio: TOTAL DEBTS Debt to Equity Ratio = -----------------------------------------EQUITY (SH. CAP. + R & S)

Particulars Equity Total Debt D.T.E.R.

2001-02 3323.58 7696.52 2.32

2002-03 3360.63 7377.36 2.20

2003-04 3446.27 6599.12 1.91

2004-05 3586.83 5421.08 1.51

2005-06 4636.39 4003.93 0.86

2.5 2 1.5 1 0.5 0 2001-02 2002-03 2003-04 2004-05 2005-06 D.T.E.R.

Interpretation: The D/E ratio is 1:1; it implies that for every rupee of outside liability. In case of our organization there is an improvement in the D/E ratio year by year. There is continuous decrease in total debt and there is continuous increase in shareholder s equity (i.e. Reserves and Surpluses) with increasing rate so the ratio is decreasing from 2.32 to 2.20 in 2002-03, to 1.91 in 2003-04 and to 1.51 in 2004-05, and to 0.86 in 2005-06.

Gross Profit Margin: GROSS PROFITS Gross Profit Margin = --------------------------- x 100 SALES

Particulars G/P SALES G/P Margin

2001-02 265.74 17267.61 1.54

2002-03 339.70 19396.94 1.75

2003-04 376.53 21646.75 1.74

2004-05 386.67 26173.86 1.48

2005-06 1489.78 30365.16 4.90

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2001-02 2002-03 2003-04 2004-05 2005-06

G/P Margin

Interpretation: In the year 2002-03 there was an increase in sales as well as increase in gross profit so ratio of GP increased from 1.54 to 1.75, in the year 2003-04 there was decrease in sales and in gross profit, (percentage of increase in gross profit is lower than the percentage of increase in sales), so the ratio of GP and sales has slightly decreased from 1.75 to 1.74 and in the year 2004-05 similar to 2002-03 there was an increase in sales and a decrease in gross profit, so ratio of GP has decreased from 1.74 to 1.48 and in the year 2005-06 it has shot up to 4.90

Net Profit Ratio: NET PROFIT (AFTER TAX & INTEREST) Net Profit Ratio = -------------------------------------------------------- X 100 SALES

Particulars PAT Sales N. profit (loss) margin

2001-02 (918.77) 17267.61 (5.32)

2002-03 48.99 19396.94 0.250

2003-04 95.31 21646.75 0.440

2004-05 152.78 26414.22 0.578

2005-06 1066.20 30365.16 3.500

4 3 2 1 0 -1 -2 -3 -4 -5 -6 2001- 2002- 200302 03 04 2004- 200505 06

N. profit (loss) margin

Interpretation: Net profit ratio is increasing year after year, except for 2001-02, where there was a loss. After that there is a continuous increase in PAT as well as in sales from 2002-03 to 2005-06. Therefore, it shows a continuous increase.

Total Assets Turnover Ratio: NET SALES Total Assets Turnover ratio: ---------------------------------------AVERAGE TOTAL ASSETS

Particulars TOTAL F.A (OP+CL) AVERAGE F.A (A) TOTAL C.A (OP+CL) AVG CURRENT ASSETS (B) AVG. TOTAL ASSETS SALES T.A.T.R

(2001-02) 3036.27

(2002-03) 4295.38

(2003-04) 3895.62

(2004-05) 3821.93

(2005-06) 4486.98

1518.14

2147.693

1947.81

1910.97

2243.49

22574.65

30223.54

30170.04

29790.71

29277.35

11287.33

15111.77

15085.02

14895.36

14638.67

12805.46

17259.46

17032.83

16806.32

8441.08

17267.61 1.35

19396.94 1.12

21646.75 1.27

26173.86 1.56

30365.16 3.59

(2001-02) (2005-06) (2002-03)

(2003-04) (2004-05)

Interpretation: There is a continuous increase in sales. In the year 2002-03 there was an increase in average total assets, so the ratio decreased from 1.35 to 1.12, in 2003-04 and 2004-05 there is a change in average assets and decrease in average total assets, so ratio increased from 1.12 to 1.27 and from 1.27 to 1.55 respectively. For the year 2005-06 ratio is 3.59.

Fixed Assets turnover ratio: NET SALES Fixed Assets turnover ratio: - --------------------------------AVG. FIXED ASSETS

Particulars TOTAL OF FA (OP+CL) AVG. FIXED ASSETS SALES F.A.T.R

(2001-02)

(2002-03)

(2003-04)

(2004-05)

(2005-06)

3036.27

4295.38

3895.62

3821.93

4486.98

1518.14

2147.69

1947.81

1910.97

2243.49

17267.61 11.37

19396.94 9.03

21646.75 11.11

26173.86 13.70

30365.16 13.53

13.7 14 12 9.03 10 8 6 4 2 0 11.37 11.11

13.53

(2001-02) (2002-03) (2003-04) (2004-05) (2005-06)

(2001-02) (2002-03) (2003-04) (2004-05) (2005-06)

Interpretation: Here we have seen there has been a continuous increase in sales. In the year 200203, there was an increase in average fixed assets as well as in sales but the growth rate of average fixed assets was higher, so ratio decreased from 11.37 to 9.03. In the year 200304 and 2004-05 there was a decrease in average fixed assets and an increase in sales, so ratio increased from 9.03 to 11.11 and from 11.11 to 13.70 respectively. But it is slightly decreasing in 2005-06.

Current Assets turnover ratio: SALES Current assets turnover ratio: ------------------------------------AVG. CURRENT ASSETS

Particulars SALES CURRENT ASSETS AVG. CURRENT ASSETS C.A.T.R

(2001-02) 17267.61 22574.65

(2002-03) 19396.94 30223.54

(2003-04) 21646.75 30170.04

(2004-05) 26173.86 29790.71

(2005-06) 30365.16 29277.35

11287.33

15111.77

15085.02

14895.36

14638.67

1.53

1.28

1.43

1.76

2.07

2.5 2 1.5 1 0.5 0 1.53 1.28 1.43 C.A.T.R 2.07 1.76

Interpretation:A better current assets turnover ratio is always good for a firm and in case of our organization, the turnover ratio is moving positively during the past 4 years. Current assets had decreased in 2002-03 and 2004-05 and increased in 2003-04, but as the growth rate of sales is higher when compared to decreased rate of current assets so the ratio has decreased from 1.53 to 1.28 in 2001-02 to 2002-03. Further it has increased to 1.43 in 2003-04 and to 2.07 in 2005-06.

Working Capital turnover ratio

NET SALES Working Capital turnover ratio = ----------------------------------NET WORKING CAPITAL

Particulars Sales WORKING CAPITAL W.C.T.R.

2001-02 17,267.61 6846.03

2002-03 19,396.94 7074.72

2003-04 21,646.75 6746.81

2004-05 26,173.86 6007.32

2005-06 30365.16 5328.20

2.52

2.74

3.21

4.36

5.7

6 5 4 3 2 1 0 2001-02 2002-03 2003-04 2004-05 2.52 2.74 3.21 4.36

5.7

W.C.T.R.

2005-06

Interpretation:A high working capital turnover ratio indicates efficiency in utilization of resources and the ratio has improved from 2.52 in 2001-02 to 5.7 in 2005-06. Hence we can see that the component of working capital is consistently reducing which is considered as a positive sign from the point view of the firm

WHAT IS WORKING CAPITAL?

Working capital refers to the investment by the company in short terms assets such as cash, marketable securities. Net current assets or net working capital refers to the current assets less current liabilities.

Symbolically, it means, Net Current Assets = Current Assets Current Liabilities.

DEFINITIONS OF WORKING CAPITAL:

The following are the most important definitions of Working capital:

1)

Working capital is the difference between the inflow and outflow of funds. In other words it is the net cash inflow .

2) Working capital represents the total of all current assets. In other words it is the Gross working capital , it is also known as Circulating capital or Current capital for current assets are rotating in their nature.

3) Working capital is defined as The excess of current assets over current liabilities and provisions . In other words it is the Net Current Assets or Net Working Capital .

TYPES OF WORKING CAPITAL

The working capital may be classified into four main types as follows: 1) 2) 3) 4) Net Working Capital. Gross Working Capital. Permanent Working Capital. Variable Working Capital.

There are two concepts as regards to working capital CAPITAL and NET WORKING CAPITAL.

GROSS WORKING

GROSS WORKING CAPITAL refers to the amount of funds invested in current assets, which are employed in a business. If a firm gets the highest return on its investment it should see that the management at the proper time provides the correct amount of working capital.

NET WORKING CAPITAL refers to the difference between the current assets and current liabilities. The importance of this concept lies in the fact that the company has to determine the amount and nature of the current assets to be used in meeting current liabilities, when they become due for payment. Further the amount to be used in the business for operational needs is the amount of current assets left after payment of liabilities

DETERMINANTS OF WORKING CAPITAL

There are no set rules or formula to determine the working capital requirements of firms. A large number of factors, each having a different importance, influence working capital needs of firms. Also the importance of the factors changes for a firm over the period of time. Therefore, an analysis of relevant factors should be made in order to determine the total investment in working capital. The following is the description of factors that generally influence the working capital requirements of firms.

Nature of Business Sales and Demand Conditions Technology and Manufacturing Policy Credit Policy Availability of Credit Operating Efficiency Price Level Changes.

WORKING CAPITAL

A firm requires many years to recover initial investment in fixed assets. On contrary the investment in current asset is turned over many times a year. Investment in such current assets is realized during the operating cycle of the firm.

Each component of working capital (namely inventory, receivables and payables) has two dimensions ... TIME ......... and MONEY. When it comes to managing working capital TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect dues from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales. It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plughole, they remove liquidity from the business.

REQUIREMENTS OF FUNDS
Funds Requirements of company

Fixed Capital

Working Capital

Preliminary Expenses

Raw Material

Purchase of Fixed Assets

Inventories

Establishment work exp.

Goods in Process

Fixed working capital

Others

Every company requires funds for investing in two types of capital i.e. fixed capital, which requires long-term funds, and working capital, which requires short-term funds.

SOURCES OF WORKING CAPITAL

Long-term source (Fixed working capital) a) Loan from financial institution b) Floating of Debentures c) Accepting public deposits d) Issue of shares

Short-term source (Temporary working capital) a) Factoring b) Bill discounting c) Bank overdraft d) Trade credit e) Cash credit f) Commercial paper

Sources of additional working capital include the following:

Existing cash reserves Profits (when you secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit Term loans

Late payments erode profits and can lead to bad debts.

HANDLING RECEIVABLES (DEBTORS)

Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every business needs to know.... who owes them money.... how much is owed.... how long it is owing.... for what it is owed.

Slow payment has a crippling effect on business, in particular on small businesses that can least afford it. If you don't manage debtors, they will begin to manage your business as you will gradually lose control due to reduced cash flow and, of course, you could experience an increased incidence of bad debt. The following measures will help manage your debtors:

1. Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves. 2. Establish clear credit practices as a matter of company policy. 3. Make sure that these practices are clearly understood by staff, suppliers and customers. 4. Be professional when accepting new accounts, and especially larger ones.

5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank references, industry sources etc. 6. Establish credit limits for each customer... and stick to them. 7. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector. 8. Keep very close to your larger customers. 9. Invoice promptly and clearly. 10. Consider charging penalties on overdue accounts. 11. Consider accepting credit /debit cards as a payment option. 12. Monitor your debtor balances and ageing schedules, and don't let any debts get too large or too old. Recognize that the longer someone owes you, the greater the chance you will never get paid. If the average age of your debtors is getting longer, or is already very long, you may need to look for the following possible defects: Weak credit judgment Poor collection procedures Lax enforcement of credit terms Slow issue of invoices or statements Errors in invoices or statements Customer dissatisfaction. Debtors due over 90 days (unless within agreed credit terms) should generally demand

immediate attention. Look for the warning signs of a future bad debt. For example......... Longer credit terms taken with approval, particularly for smaller orders Use of post-dated checks by debtors who normally settle within agreed terms

Evidence of customers switching to additional suppliers for the same goods New customers who are reluctant to give credit references Receiving part payments from debtors. The act of collecting money is one, which most people dislike for many reasons and therefore put on the long finger because they convince themselves there is something more urgent or important that demands their attention now. There is nothing more important than getting paid for your product or service. A customer who does not pay is not a customer. Here are a few ideas that may help you in collecting money from debtors: Develop appropriate procedures for handling late payments. Track and pursue late payers. Get external help if your own efforts fail. Don't feel guilty asking for money.... its yours and you are entitled to it. Make that call now. And keep asking until you get some satisfaction. In difficult circumstances, take what you can now and agree terms for the remainder. It lessens the problem. When asking for your money, be hard on the issue - but soft on the person. Don't give the debtor any excuses for not paying. Make it your objective is to get the money - not to score points or get even. Their range of financial planners, Exl-Plan and Cash flow Plan, contain extensive facilities for exploring alternative payment scenarios for receivables.

MANAGING PAYABLES (CREDITORS)

Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position.

Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Consider the following: Who authorizes purchasing in your company - is it tightly managed or spread among a number of (junior) people? Are purchase quantities geared to demand forecasts? Do you use order quantities, which take account of stock holding and purchasing costs? Do you know the cost to the company of carrying stock? Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around for the best discounts, credit terms, and reduce dependence on a single supplier. How many of your suppliers have a returns policy? Are you in a position to pass on cost increases quickly through price increases to your customers? If a supplier of goods or services lets you down can you charge back the cost of the delay? Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-time basis?

There is an old adage in business that if you can buy well then you can sell well. Management of your creditors and suppliers is just as important as the

management of your debtors. It is important to look after your creditors - slow payment by you may create ill feeling and can signal that your company is inefficient (or in trouble!). Remember, a good supplier is someone who will work with you to enhance the future viability and profitability of your company.

Their range of financial planners, Exl-Plan and Cash flow Plan, contain extensive

facilities for exploring alternative payment scenarios for payables

INVENTORY MANAGEMENT
Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the cash resources of a business. Insufficient stocks can result in lost sales, delays for customers etc.

The key is to know how quickly your overall stock is moving or, put another way, how long each item of stock sit on shelves before being sold. Obviously, average stock-holding periods will be influenced by the nature of the business. For example, a fresh vegetable shop might turn over its entire stock every few days while a motor factor would be much slower as it may carry a wide range of rarelyused spare parts in case somebody needs them.

Nowadays, many large manufacturers operate on a Just-In-Time (JIT) basis whereby all

the components to be assembled on a particular today, arrive at the factory early that morning, no earlier - no later. This helps to minimize manufacturing costs as JIT stocks take up little space, minimize stock holding and virtually eliminate the risks of obsolete or damaged stock. Because JIT manufacturers hold stock for a very short time, they are able to conserve substantial cash. JIT is a good model to strive for as it embraces all the principles of prudent stock management.

The key issue for a business is to identify the fast and slow stock movers with the objectives of establishing optimum stock levels for each category and, thereby, minimize the cash tied up in stocks.

Factors to be considered when determining optimum stock levels include: What are the projected sales of each product?

How widely available are raw materials, components etc.? How long does it take for delivery by suppliers? Can you remove slow movers from your product range without compromising best sellers? Remember that stock sitting on shelves for long periods of time ties up money, which is not working for you. For better stock control, try the following: Review the effectiveness of existing purchasing and inventory systems. Know the stock turn for all major items of inventory. Apply tight controls to the significant few items and simplify controls for the trivial many. Sell off outdated or slow moving merchandise - it gets more difficult to sell the longer you keep it. Consider having part of your product outsourced to another manufacturer rather than make it yourself. Review your security procedures to ensure that no stock "is going out the back

door!" Higher than necessary stock levels tie up cash and cost more in insurance, accommodation costs and interest charges.

Their range of financial planners, Exl-Plan and Cash flow Plan, contain extensive facilities for exploring alternative stock-holding strategies Other working capital measures include the following: Bad debts expressed as a percentage of sales. Cost of bank loans, lines of credit, invoice discounting etc. Debtor concentration - degree of dependency on a limited number of customers.

Once ratios have been established for your business, it is important to track them over time and to compare them with ratios for other comparable businesses or industry sectors. When planning the development of a business, it is critical that the impact of working capital be fully assessed when making cash flow forecasts. Their financial planning software packages - Exl-Plan and Cash flow Plan - can facilitate this task as they provide for the setting of targets for receivables, payables and inventory.

Conclusion
In project period all company member give many information in this project I calculate Some ratio this ratio is useful interpreat company financial position

Company in improvement stage company know in some profit from last 2 year Company make payment of more loan those taken in loss year

Defence sales order of Rs. 9 cr was not there for the first quarter of 200506, so the sales has decreased. But other many small order take & completed without major order company near to goal in this year

Standard current ratio is 2:1 and for industry it is 1.33:1. KPCL s ratios satisfactory.

Acid test ratio is more than one but it does not mean that company has excessive liquidity.

Debtors of the company were high; they were increasing year by year, so more funds were blocked in debtors. But now recovery is becoming faster.

Inventory turnover ratio is improving from 2001-02 to 2005-06, which means inventory is used in better way so it is good for the company.

Debtors turnover ratio is improving from 2001-02 to 2005-06.increase in ratio is beneficial for the company because as ratio increases the number of days of collection for debtors decreases.

Working capital turnover ratio is continuously increasing that shows increasing needs of working capital.

SUGGESTIONS

1) Net operating cycle is increasing that means there is a need to make improvements in receivables/debtors management.

2) Company should stretch the credit period given by the suppliers.

3) Company should not rely on Long-term debts and should try to repay the debts.

4) Company should try to increase Volume based sales so as to stand in the competition.

5) Production capacity is not utilized to the full extent.

BIBLOGRAPHY : 1`) 2) 3)

FINANCIAL MANAGEMENT FINANCIAL MANAGEMENT WWW. KIRLOSKAR.COM

- Khan & Jain - Satish Inamdar

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