Finance Project 147

A PROJECT REPORT
ON
ANALYSIS OF FINANCIAL STATEMENTS
OF
KEI INDUSTRIES Ltd.

BY
HIMANSHU PARAKH
TYBBA Div. B
PRN: 1062200921
Academic Year 2022-23
(Batch 2020-2023)
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IN PARTIAL FULFILLMENT OF
Bachelor of Business Administration
MIT WORLD PEACE UNIVERSITY
MIT-SOB COLLEGE
PUNE: 411038
2
CERTIFICATE
This is to certify that Mr. HIMANSHU PARAKH of MIT-WPU School of Business has
successfully completed the marketing research project work titled ANALYSIS OF
FINANCIAL STATEMENTS OF KEI INDUSTRIES LTD. in partial fulfillment of
requirement for the award of Bachelor of Business Administration prescribed by MITWPU.
This project is the record of authentic work carried out during the academic year 2022–
2023.
Dr. Vaishali Doshi

Internal Guide
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DECLARATION
I, Mr. HIMANSHU PARAKH hereby declare that this project is the record of authentic
work carried out by me during the academic year 2022-2023 and has not been submitted to
any other University or Institute towards the award of any degree.
Signature of the student
HIMANSHU PARAKH
TYBBA Div. B
PRN: 1062200921
Academic Year 2022-23
(Batch 2020-2023)
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ACKNOWLEDGEMENT
The training project is the foundation on which the career of the management student
develops and as a student of Bachelor of Business Administration I am extremely fortunate,
as I could not have got better topic than Analysis of financial statements of KEI Industries
ltd. on which I carried out my project I imbibe and learned a lot.
I am extremely grateful to Dr Vaishali Doshi for the valuable help, personal attention, and
inspiration. I would also like to thank for the guidance, support, and tremendous patience
without which this project would not have reached completion.
I am also thankful to Dr. Deependra Sharma for his continuous support and inspiration. No
work of significance can be claimed as a result of an individual efforts and the same holds
true for this project as well, for though it carries my name, the energy of many individuals
has contributed in small measures in the completion of this project. These individuals deserve
praise for their valuable comments, suggestions, constant criticism, and untiring contribution.
However, I accept the sole responsibility for any possible error of omission and would be
extremely grateful to the readers of this project if they bring such mistakes to my notice.
Signature of the student
HIMANSHU PARAKH
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ABSTRACT
Financial statement analysis which forms a major part of financial management of a business
is defined as the process of identifying financial strengths and weakness of the firm by
Property establishing relationship between the items of the balance sheet and profit & loss
account.
There are various techniques or methods that are used in analyzing financial statements, such
as comparative statements, schedule of changes in working capital, common size percentages,
fund analysis, trend analysis, and ratio analysis.
Financial statements are prepared to meet external reporting obligations and also for decision
making purposes. They play dominant role in setting the framework of managerial decisions.
But the information provided in the financial statements is not an end itself as no meaningful
conclusions can be drawn from these statements alone. However, the information provided in
the financial statement is of immense use in making decisions through analysis and
interpretation of financial statements.
It, therefore, gives me great pleasure and satisfaction in presenting this “Analysis of Financial
Statements Project” which attempts to educate readers about concepts of ratio analysis and
cash flow statement with real life example of KEI Industries Ltd in simple and lucid language
without complex and notations. This project is meant for imparting basic knowledge about
the different concepts of KEI Industries. sales, profit after tax, purchasing power and
comparison of it with through analysis.
The balance sheet and profit and loss account of KEI Industries is taken for the analysis
purpose. Though it is prepared for the project purpose it would prove to be very useful for
anyone aspiring to know the magazine.
Special efforts have been made to clarify the basics of analysis of financial statements. The
simple and easy language would make possible for the reader to grasp the matter quickly. The
project is unique for its diversity in contents, clarity and precision of presentation and the
overall completeness of its concepts.
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TABLE OF CONTENT
SR. NO PARTICULARS PG NO.
2 INTRODUCTION 8-13
Theoretical background of the topic
Objectives of the report
Scope
Introduction to Research Methodology
5 COMPANY PROFILE 14-15
6 PROJECT DESIGN 16-38
Methods used
Sources of Data
Collection of Data
Tools used for Analysis
7 ANALYSIS OF THE DATA AND FINDINGS 39-63
8 CONCLUSIONS AND RECOMMENDATIONS 64-66
9 BIBLIOGRAPHY 67
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INTRODUCTION
Financial statement analysis is a crucial tool used by investors, creditors, and other
stakeholders to assess the financial health and performance of a company. It involves
examining the financial statements, including the balance sheet, income statement, and cash
flow statement, to gain insights into the company's profitability, liquidity, solvency, and
overall financial condition.
The analysis of financial statements provides valuable information that helps stakeholders
make informed decisions about investing in or lending to a company. By examining key
financial ratios, trends, and other relevant data, analysts can assess the company's ability to
generate profits, manage its debts, and utilize its resources effectively.
The purpose of this financial statement analysis report is to delve deeper into the company's
financial statements and provide a comprehensive evaluation of its financial position and
performance. Analysing financial statements helps investors, lenders, and other stakeholders
make informed decisions about a company's financial position, profitability, liquidity, and
solvency. In this analysis, we will examine key financial ratios and metrics derived from
financial statements to gain insight into the company's financial performance and trends.
Some of the key ratios and metrics that we will analyze include profitability ratios (such as
gross profit margin, net profit margin, and return on equity), liquidity ratios (such as current
ratio and quick ratio), and solvency ratios (such as debt-to-equity ratio and interest coverage
ratio).
By examining these ratios and metrics, we can assess the company's financial health and
performance, identify areas of strength and weakness, and make recommendations for
improvement. This analysis can provide valuable insights for investors looking to make
investment decisions, lenders evaluating creditworthiness, and management seeking to
improve financial performance.
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OBJECTIVES
1. Assessing Financial Performance: The primary objective of analyzing financial
statements is to evaluate the financial performance of a company. This involves
examining key financial ratios and indicators to determine the profitability, liquidity,
solvency, and efficiency of the organization.
2. Identifying Trends and Patterns: Financial statement analysis helps identify trends and
patterns in a company's financial data over time. By comparing financial statements
from different periods, analysts can identify changes in revenue, expenses,
profitability, and other financial metrics. This helps in understanding the company's
historical performance and predicting future trends.
3. Evaluating Risk and Financial Stability: Financial statement analysis helps assess the
risk associated with investing in a company. By examining factors such as debt levels,
liquidity ratios, and interest coverage ratios, analysts can determine the financial
stability and risk exposure of the organization. This information is crucial for
investors, lenders, and other stakeholders in making informed decisions.
4. Assessing Efficiency and Operational Performance: Financial statement analysis
provides insights into the efficiency and effectiveness of a company's operations. By
examining metrics such as inventory turnover, accounts receivable turnover, and asset
turnover, analysts can evaluate how well a company utilizes its resources and
manages its operations.
5. Comparing Performance with Competitors and Industry Standards: Financial
statement analysis enables benchmarking a company's performance against its
competitors and industry standards. By comparing key financial ratios and metrics
with industry averages and competitors' data, analysts can assess the company's
relative position and identify areas of strength or weakness.
6. Supporting Investment Decisions: Financial statement analysis plays a crucial role in
investment decision-making. Investors use financial statements to evaluate the financial
health and growth potential of a company before making investment decisions. Analysis
of financial statements helps identify attractive investment opportunities, assess valuation,
and estimate potential returns
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SCOPE
Financial statement analysis is a crucial process for evaluating the financial health and
performance of a company. It involves examining the company's financial statements, such as
the balance sheet, income statement, and cash flow statement, to assess its profitability,
liquidity, solvency, and overall financial stability. Here are some key areas to consider in
conducting a comprehensive analysis of a financial statement report:
1. Financial Ratios:
 Calculate and analyze key financial ratios such as liquidity ratios (current
ratio, quick ratio), profitability ratios (gross profit margin, net profit margin),
solvency ratios (debt-to-equity ratio, interest coverage ratio), and efficiency
ratios (inventory turnover, accounts receivable turnover).
 Compare the ratios with industry benchmarks and historical trends to identify
strengths, weaknesses, and areas of improvement.
2. Income Statement Analysis:
 Assess the revenue trends over a period to understand the company's growth
rate and revenue sources.
 Analyze the cost of goods sold (COGS) and gross profit margin to evaluate the
efficiency of operations.
 Examine the operating expenses, such as selling, general, and administrative
expenses, and research and development costs, to assess cost management.
 Evaluate the net income, earnings per share (EPS), and profit margins to gauge
the overall profitability.
3. Balance Sheet Analysis:
 Analyze the composition and trends of the company's assets, liabilities, and
shareholders' equity.
 Assess the liquidity position by examining the current assets and liabilities and
calculating liquidity ratios.
 Evaluate the leverage and solvency by analyzing the debt levels and debt-to-
equity ratio.
 Assess the quality of the company's assets by analyzing the composition of
accounts receivable, inventory, and property, plant, and equipment.
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4. Cash Flow Statement Analysis:
 Evaluate the company's cash flow from operating activities, investing
activities, and financing activities.
 Assess the cash flow adequacy to cover operating expenses, capital
expenditures, and debt obligations.
 Analyze the cash flow patterns over time to understand the company's ability
to generate and manage cash.
5. Trend Analysis:
 Compare the financial statements over multiple periods to identify trends and
patterns.
 Look for consistent growth or decline in key financial metrics and ratios.
 Identify any seasonality or cyclical patterns that may impact the company's
financial performance.
6. Comparative Analysis:
 Compare the financial performance of the company with its competitors in the
industry.
 Analyze industry benchmarks and peer group ratios to assess the company's
relative position.
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Research Methodology
1. Introduction The research aims to conduct an in-depth analysis of the financial

statements of KEI Industries Ltd, a leading company in the electrical cable and wire
manufacturing industry. The study will focus on assessing the company's financial
performance, evaluating its profitability, liquidity, solvency, and efficiency, and
identifying key trends and patterns that can provide insights into the company's
financial health and performance.
2. Research Objectives The research will be guided by the following objectives: a. To

assess the financial performance of KEI Industries Ltd over a specific period. b. To
analyze the profitability ratios of the company and evaluate its earning capacity. c. To
evaluate the liquidity position of KEI Industries Ltd and determine its ability to meet
short-term obligations. d. To assess the solvency of the company and analyze its
ability to repay long-term debts. e. To analyze the efficiency ratios of KEI Industries
Ltd and assess its operational effectiveness. f. To identify trends and patterns in the
financial statements of KEI Industries Ltd.
3. Research Design a. Data Collection: The research will involve the collection of
financial data from the annual reports, balance sheets, income statements, and cash
flow statements of KEI Industries Ltd for a specific period (e.g., the last five years). b.
Data Analysis: Various financial ratios will be calculated and analyzed to assess the
financial performance of the company. These ratios may include profitability ratios
(e.g., gross profit margin, net profit margin), liquidity ratios (e.g., current ratio, quick
ratio), solvency ratios (e.g., debt-to-equity ratio, interest coverage ratio), and
efficiency ratios (e.g., asset turnover ratio, inventory turnover ratio). c. Comparative
Analysis: The collected data and calculated ratios will be compared with industry
benchmarks, previous years' data, and competitor analysis to provide a comprehensive
understanding of KEI Industries Ltd's financial position. d. Statistical Analysis:
Statistical tools such as trend analysis, correlation analysis, and regression analysis
may be employed to identify significant trends, relationships, and patterns in the
financial statements. e. Limitations: The research methodology may have certain
limitations, such as reliance on historical data, potential errors in financial reporting,
and external factors affecting the company's financial performance.
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4. Ethical Considerations The research will adhere to ethical principles, ensuring the
confidentiality and privacy of financial data. The information collected will be used
solely for research purposes, and proper referencing and citation will be followed to
give credit to the original sources.
5. Conclusion The research methodology outlined above provides a systematic approach

to analyzing the financial statements of KEI Industries Ltd. By conducting a
comprehensive analysis of the company's financial performance, profitability,
liquidity, solvency, and efficiency, the study aims to provide valuable insights for
stakeholders, investors, and decision-makers in assessing the company's financial
health and making informed decisions.
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ABOUT THE COMPANY/COMPANY’S PROFILE
KEI Industries is one of the leading Electrical Wires & Cables Manufacturer Supplier in India
offer a wide range of house wires, cable wires, flexible wires at best prices.
KEI Industries Limited (KEI) was established in 1968 as a partnership firm under the name
Krishna Electrical Industries, with prime business activity of manufacturing house wiring
rubber cables. The firm was converted into public limited with the corporate name KEI
industries Limited in December 1992. In 1996, KEI acquired Matchless, a company under
same management, which was engaged in manufacture of stainless-steel wires. In 2010 KEI
set foot into the manufacturing of EHV cables up to 220kV in collaboration with BRUGG
Kables, AG a century old Swiss company. Currently, KEI Industries Limited is engaged in
the business of Manufacturing and Marketing Power Cables-Extra High Voltage (EHV),
High Tension and Low Tension, Control and Instrumentation Cables, Specialty Cables,
Rubber Cables, Flexible and House Wires, Submersible Cables, Pvc/Poly Wrapped Winding
Wires and, Stainless Steel Wires. KEI Industries ranked amongst the top three cable
manufacturing companies in India, the company addresses the cabling requirements of a wide
spectrum of sectors, such as - Power, Oil Refineries, Railways, Automobiles, Cement, Steel,
Fertilizers, Textile And, Real Estate etc. Through EHV Cables, KEI is geared to service
Mega Power Plants, Transmission Companies, Metro Cities where underground cabling is
underway, large realty projects – IT Parks, residential townships, Metro Rail Projects etc.
KEI has a diversified and de-risked business model characterised by a significant presence in
both the domestic and international markets, servicing both the retail and institutional
segments, catering to both private and public sector clients and offering both one-stop
products basket and services.
Mission: To emerge as one of the world’s leading electrical cable & wire company, offering
our esteemed customers to use our electrical Wires & Cables effectively and increase
industrial productivity in a sustainable way.
Vision: KEI, with its strong technology competence in Cables & Wires business, broad
application know how & ability to provide customized power cable solutions shall deliver an
attractive & profitable growth by providing its customers with best cable & wire products.
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We shall help our customers to improve their performance and productivity by minimizing
power losses & lowering environmental impact. Continuous Product Innovations & R&D are
the key characteristics of our product offerings and services. We believe in building long
lasting & value creating partnerships with our customers and suppliers. KEI is committed to
attracting & retaining dedicated & skilled professionals offering its employees an attractive
work culture and developmental opportunities.
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FINANCIAL STATEMENTS
Financial statements are formal documents that provide a summary of a company's financial
activities over a specific period. They are used to present the financial position of a business, its
performance, and its cash flow. They provide important information about a company's financial
health, including its revenue, expenses, profits, assets, liabilities, and equity.
Balance Sheet: A balance sheet is a financial statement that provides a snapshot of a company's
financial position at a particular point in time. It lists the company's assets, liabilities, and equity.
The assets are what the company owns or controls, such as cash, inventory, or property.
Liabilities are the company's obligations to pay debts, such as loans or accounts payable. Equity
represents the amount of capital invested in the company by its owners and retained earnings.
Profit and Loss (P&L) Account: A P&L account, also known as an income statement, is a
financial statement that shows a company's revenues, expenses, and net income or loss over a
specific period. The revenues are the income generated by the company from the sale of goods
or services, while expenses are the costs incurred to generate that revenue, such as salaries, rent,
or supplies. The net income or loss is calculated by subtracting the total expenses from the total
revenue.
Cash Flow Statement: A cash flow statement is a financial statement that shows how a
company's cash position changed over a specific period. It reports the inflows and outflows of
cash from operating, investing, and financing activities. Operating activities are the cash flows
generated from the company's normal business operations, such as sales and purchases.
Investing activities are the cash flows related to investments in assets, such as property or
equipment. Financing activities are the cash flows related to raising or repaying capital, such as
issuing or repaying debt or equity.
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Footnotes: Footnotes are additional information included in a company's financial statements to
provide more detail or clarification. They are often used to provide explanations for significant
accounting policies, changes in accounting methods, or unusual transactions.
Quarterly Report: A quarterly report is a company's financial report that is issued every three
months. It includes the company's financial statements for the quarter, as well as management's
discussion and analysis of the company's performance during the period.
Annual Report: An annual report is a comprehensive report issued by a company at the end of
its fiscal year. It includes the company's financial statements for the year, as well as
management's discussion and analysis of the company's performance, a report from the board of
directors, and other information, such as corporate governance policies or sustainability
initiatives.
In summary, financial documents such as balance sheets, P&L accounts, and cash flow
statements provide critical information on a company's financial performance, while footnotes
provide additional details and explanations. Quarterly reports and annual reports are
comprehensive reports that provide an overview of the company's financial and non-financial
performance over a particular period.
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FINANCIAL RATIOS
Financial ratios are tools used to analyse a company's financial performance and evaluate its
overall health. By comparing different financial ratios over time, investors, creditors, and other
stakeholders can assess the company's profitability, efficiency, liquidity, and financial stability.
Financial ratios are quantitative metrics that are used to analyse and evaluate a company's
financial performance. They are used by investors, creditors, and other stakeholders to assess a
company's financial health and make informed decisions about investing, lending, and other
business activities.
Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition
and performance of a business concern. Simply, ratio means the comparison of one figure to
other relevant figure or figures.
Ratio analysis is a method of analysing data to determine the overall financial strength of the
business. Financial analysts take the information off the balance sheets and income statements of
a business and calculate ratios that can then be used to make assessments of the operating ability
and prospects of that business. These ratios are useful only when compared to other ratios, such
as comparable ratios of similar businesses or the historical trend of a single business over several
business cycles. There are various ratios that measure a company’s efficiency, short term
strength, profitability, and solvency.
The type of ratio analysis that is most effective depends upon who needs the information. Credit
analysts are concerned with risk evaluation, and they will therefore concentrate on the ratios that
measure whether a company can pay its financial obligations and how much debt is involved in
capital structure. On the opposite end of the spectrum, analysts looking at a business in terms of
an investment opportunity will employ ratios that determine if a company is efficient and how
great its potential profitability.
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DEFINITION:
According to Investopedia, "Financial ratio analysis is the process of comparing different

financial ratios that are derived from the financial statements of a company in order to gain
insights into its financial and operational performance."
As per Accounting Tools, "Financial ratio analysis is the use of financial ratios to compare the
performance of two or more companies in the same industry. This analysis is used to identify
potential opportunities and risks, as well as to evaluate a company's overall financial health."
According to Financial Times Lexicon, "Financial ratio analysis is the calculation and
comparison of ratios which are derived from the financial statements of a company. These ratios
are used to analyse and evaluate the financial performance of a company and to identify
potential areas of improvement."
According to Myers, “Ratio analysis of financial statements is a study of relationship among

various financial factors in a business as disclosed by a single set of statements and a study of
trend of these factors as shown in a series of statements.”
Financial ratio analysis is a technique that involves the use of financial ratios to evaluate a
company's financial health and performance. These ratios can provide insights into a company's
liquidity, profitability, efficiency, and solvency, among other aspects, and can be used by
investors, analysts, and other stakeholders to make informed decisions.
According to Myers, “Ratio analysis of financial statements is a study of relationship among

various financial factors in a business as disclosed by a single set of statements and a study of
trend of these factors as shown in a series of statements.”
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FEATURES:
Financial ratio analysis is a tool used to evaluate a company's financial performance by

comparing various financial ratios. The key features of financial ratio analysis include:
1. Comparability: Financial ratios enable comparisons between different companies,

industries, or time periods, providing a basis for benchmarking and identifying trends.
2. Simplification: Financial ratios condense complex financial information into simple,

easy-to-understand metrics, making it easier for investors and analysts to make informed
decisions.
3. Standardization: Financial ratios are standardized, which means that they use commonly
accepted definitions and calculations, allowing for consistency and accuracy in financial
analysis.
4. Accessibility: Financial ratios are readily available and can be easily computed using
publicly available financial statements.
5. Interpretation: Financial ratios allow for the interpretation of financial information in a

meaningful way, providing insights into a company's financial health, strengths, and
weaknesses.
6. Focus on key metrics: Financial ratios focus on key metrics such as liquidity,
profitability, efficiency, and solvency, allowing for a comprehensive analysis of a
company's financial performance.
7. Financial ratio analysis is a powerful tool for evaluating a company's financial health,
identifying areas of strength and weakness, and making informed investment decisions.
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OBJECTIVES:
The ratio analysis is the most important tool of financial analysis. The various groups of people
having different interests are interested in analysing the financial information. These groups use
the ratio analysis to determine particular characteristics of the various groups vested with
diversified interests as under:
a) For short term creditors:
Short term creditors like bankers and suppliers of material can determine the firm’s ability to
meet its current obligations with the help of liquidity ratios such as current ratio and quick ratio.
b) For long term creditors:
Long term creditors like debenture holders and financial institutions can determine the firms
long term financial strength and survival with the help of leverage or capital structure ratios such
as debt equity ratio.
c) For management:
The management can determine the operating efficiency with which the firm is utilizing its
various assets in generating sales revenues with the help of activity ratios such as capital
turnover ratio, stock turnover ratio, etc. Besides this, the management can use the ratio for
forecasting purpose also. The management can better assess the performance of the firm:
 By comparing the actual ratios with the standard ratios set for the same period.
 By comparing the ratios of one period with those of another period;
 By comparing the actual ratios with the ratios of a standard firm belonging same
industry;
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 By comparing the actual ratios of the firm with those of industry to which the firm
belongs.
d) For investors:
The investors can determine the magnitude and direction of the movement in firm’s earning with
the help of profitability ratio such as earning per share, dividend per share, etc. After analysing
the relevant ratios, the present investors can decide whether to hold, sell or purchase the share
and the prospective investor can decide whether or not to buy the shares.
The main objectives of ratio analysis are:
Evaluating Financial Performance: One of the main objectives of ratio analysis is to evaluate
a company's financial performance. Ratio analysis allows investors and other stakeholders to
gain insights into a company's financial health, profitability, efficiency, liquidity, and financial
stability. By analysing different ratios, investors can assess whether a company is performing
well financially, and compare its performance with industry benchmarks or competitors.
Identifying Strengths and Weaknesses: Ratio analysis can help identify a company's strengths
and weaknesses. It provides insights into areas of the business that are performing well, as well
as areas that may require improvement. For example, if a company's profitability ratios are
strong but liquidity ratios are weak, it may indicate that the company is profitable but may have
difficulty paying its debts.
Making Informed Decisions: Ratio analysis is a valuable tool for decision-making, such as
investment decisions, credit decisions, or strategic business decisions. By providing insights into
a company's financial performance and health, ratio analysis can inform these decisions and help
investors and other stakeholders to make informed choices.
Monitoring Performance over Time: Ratio analysis allows investors and other stakeholders to
monitor a company's financial performance over time. By analysing different ratios over
multiple periods, investors can see trends in the company's financial performance and assess
whether the company is improving or deteriorating over time.
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ADVANTAGES OF RATIO ANALYSIS:
Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of
ratio to interpret the financial statements so that the strength and weaknesses of a firm as well as
its historical performance and current financial condition can be determined. The term ratio
refers to the numerical or quantitative relationship between two variables.
Significance or importance of ratio analysis:
1. It helps in evaluating the firm’s performance: With the help of ratio analysis conclusion can
be drawn regarding several aspects such as financial health, profitability and operational
efficiency of the undertaking. Ratio points out the operating efficiency of the firm i.e. whether
the management has utilized the firm's assets correctly, to increase the investor's wealth. It
ensures a fair return to its owners and secures optimum utilization of firm’s assets.
2. It helps in inter-firm comparison: Ratio analysis helps in inter-firm comparison by providing

necessary data. An inter firm comparison indicates relative position. It provides the relevant data
for the comparison of the performance of different departments. If comparison shows a variance,
the possible reasons of variations may be identified and if results are negative, the action may be
initiated immediately to bring them in line.
3. It simplifies financial statement: The information given in the basic financial statements
serves no useful Purpose unless it is interrupted and analysed in some comparable terms. The
ratio analysis is one of the tools in the hands of those who want to know something more from
the financial statements in the simplified manner.
4. It helps to workout short term financial position: Ratio analysis helps to work out the short
term financial position of the company with the help of liquidity ratios. Incase short term
financial position is not healthy efforts are made to improve it.
5. It is helpful for forecasting purposes: Accounting ratios indicate the trend of the business. The
trend is useful for estimating future. With the help of previous year’s ratios, estimates for future
can be made. In this way these ratios provide the basis for preparing budgets and also determine
future line of action.
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6. Simplifies Financial Information: Ratio analysis simplifies complex financial information into
easy-to-understand ratios that can be used to evaluate a company's financial performance. This
makes it easier for investors and other stakeholders to make informed decisions.
7. Provides a Comprehensive View of Financial Performance: Ratio analysis provides a

comprehensive view of a company's financial performance. It evaluates various aspects of a
company's financial performance, including profitability, liquidity, efficiency, and financial
stability.
8. Facilitates Comparison: Ratio analysis allows for easy comparison of a company's financial
performance with industry benchmarks or competitors. This facilitates decision-making and
helps investors and other stakeholders to identify potential opportunities or risks.
9. Helps Identify Trends: Ratio analysis can help identify trends in a company's financial
performance over time. By analysing different ratios over multiple periods, investors and other
stakeholders can see whether the company's financial performance is improving or deteriorating.
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DISADVANTAGES OF RATIO ANALYSIS
Inspite of many advantages, there are certain limitations of the ratio analysis techniques and they
should be kept in mind while using them in interpreting financial statements. The following are
the main limitations of accounting ratios:
1. Limited comparability: Different firms apply different accounting policies therefore the ratio
of one firm cannot always be compared with the ratio of other firm. Some firms may value the
closing stock on LIFO business while some other firms may value on FIFO basis. Similarly,
there may be difference in providing depreciation of fixed assets or certain of provision for
doubtful debts etc.
2. False results: Accounting ratios are based on data drawn from accounting records. Incase that
data is correct, then only the ratios will be correct, for example valuation of stock is based on
very high price, the profits of the concern will be inflated and it will indicate a wrong financial
position. The data therefore must be absolutely correct.
3. Effect of price level changes: Price level changes often make the comparison of figures
difficult over a period of time. Changes in price affects the cost of production, sales and also the
value of assets. Therefore, it is necessary to make proper adjustment for price level changes
before any comparison.
4. Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis and thus,
ignores qualitative analysis and thus, ignores qualitative factors, which may be important in
decision making, for example, average collection period may be equal to standard credit period,
but some debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis.
5. Effect of window dressing: in order to cover up their bad financial position some companies
resort to window dressing. They may record the accounting data according to their convenience
to show the financial position of the company in a better way.
6. Limited Information: Ratio analysis is based on financial data contained in a company's

financial statements, which may not provide a complete picture of the company's financial
health. For example, it may not take into account non-financial factors such as market conditions
or management expertise.
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7. Relies on Historical Data: Ratio analysis is based on historical financial data, which may not
reflect current or future market conditions. This can limit its usefulness in predicting future
financial performance.
8. Industry Differences: Ratio analysis may not be useful for comparing companies in different
industries, as different industries may have different financial metrics or benchmarks.
9. Interpretation Issues: Ratio analysis requires interpretation, and different stakeholders may
interpret ratios differently. This can lead to misunderstandings or conflicting interpretations of a
company's financial performance.
10. Costly technique: Ratio analysis is a costly technique and can be used by big business houses
small business units are not able to afford it.
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TYPES OF RATIOS
ACTIVITY LIQUIDITY SOLVENCY PROFITABILITY VALUATION
RATIOS RATIOS RATIOS RATIOS RATIOS
Receivable turnover Current ratio Debt-to-equity Net profit margin Price to Earnings
ratio
Inventory turnover Quick ratio Debt-to-capital Gross profit margin Price to Sales ratio
Payables turnover Cash ratio (Absolute Debt-to-assets Operating profit Price to Book value
Liquidity Ratio) margin ratio
Total asset turnover Cash conversion Financial leverage Pretax margin Enterprise value
cycle (EV) to EBITDA
Equity turnover Operating cycle Debt-to-EBITDA Return of equity Price to Cash Flow
(ROE)
Days of sales Interest coverage Return on Capital Dividend Yield

outstanding employed (ROCE)
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Activity ratios: Activity ratios are used to measure a company's operational efficiency and
its ability to use its assets to generate revenue. These ratios can be used to evaluate the
effectiveness of a company's inventory management, accounts receivable and payable
processes, and overall asset utilization.
Liquidity ratios: Liquidity ratios are used to measure a company's ability to meet its short-
term obligations and pay its bills. These ratios can be used to evaluate a company's ability to
handle unexpected expenses or downturns in business.
Solvency ratios: Solvency ratios are used to measure a company's ability to meet its long-
term obligations and pay its debts. These ratios can be used to evaluate a company's financial
stability and its ability to take on additional debt or investment.
Profitability ratios: Profitability ratios are used to measure a company's ability to generate
profits relative to its revenue, assets, or equity. These ratios can be used to evaluate a
company's financial performance and its ability to generate returns for its investors.
Valuation ratios: Valuation ratios are used to compare a company's stock price to its
financial performance. These ratios can be used to evaluate a company's value relative to its
earnings, assets, or cash flow.
29
CASH FLOW STATEMENT
Cash flow statement

A cash flow statement is an important tool used to manage finances by tracking the cash flow
for an organization. This statement is one of the three key reports (with the income statement
and the balance sheet) that help in determining a company’s performance. It is usually helpful
for making cash forecast to enable short term planning.
The cash flow statement shows the source of cash and helps you monitor incoming and
outgoing money. Incoming cash for a business comes from operating activities, investing
activities and financial activities. The statement also informs about cash outflows, expenses
paid for business activities and investment at a given point in time. The information that you
get from the cash flow statement is beneficial for the management to take informed decisions
for regulating business operations.
Companies generally aim for a positive cash flow for their business operations without which
the company may have to borrow money to keep the business going.
Importance of a cash flow statement
For a business to be successful, it should always have sufficient cash. This enables it to pay
back bank loans, buy commodities, or invest to get profitable returns. A business is declared
bankrupt if it does not have enough cash to pay its debts. Here are some of the benefits of a
cash flow statement:
 Gives details about spending: A cash flow statement gives a clear understanding of
the principal payments that the company makes to its creditors. It also shows
transactions which are recorded in cash and not reflected in the other financial
statements. These include purchases of items for inventory, extending credit to
customers, and buying capital equipment.
 Helps maintain optimum cash balance: A cash flow statement helps in maintaining
the optimum level of cash on hand. It is important for the company to determine if too
much of its cash is lying idle, or if there’s a shortage or excess of funds. If there
is excess cash lying idle, then the business can use it to invest in shares or buy
inventory. If there is a shortage of funds, the company can look for sources from
30
where they can borrow funds to keep the business going.
 Helps you focus on generating cash: Profit plays a key role in the growth of a
company by generating cash. But there are several other ways to generate cash. For
instance, when a company finds a way to pay less for equipment, it is generating cash.
Every time it collects receivables from its customers quicker than usual, it
is gaining cash.
 Useful for short-term planning: A cash flow statement is an important tool for
controlling cash flow. A successful business must always have sufficient liquid cash
to fulfil short-term obligations like upcoming payments. A financial manager can
analyse incoming and outgoing cash from past transactions to make crucial decisions.
Some situations where decisions have to be made based on the cash flow include
foreseeing cash deficit to pay off debts or establishing a base to request for credit
from banks.
Format of a cash flow statement
There are three sections in a cash flow statement: operating activities, investments, and
financial activities.
Operating activities: Operating activities are those cash flow activities that either generate
revenue or record the money spent on producing a product or service. Operational business
activities include inventory transactions, interest payments, tax payments, wages to
employees, and payments for rent. Any other form of cash flow, such as investments, debts,
and dividends are not included in this section.
The operations section on the cash flow statement begins with recording net earnings,
which are obtained from the net income field on the company’s income statement. This gives
an estimate of the company’s profitability. After this, it lists non-cash items involving
operational activities and convert them into cash items. A business’ cash flow statement
should show adequate positive cash flow for its operational activities. If it does not, the
business may find it difficult to manage its daily business operations.
Investment activities: The second section on the cash flow statement records the gains and
31
losses caused due to investment in assets like property, plant, or equipment (PPE) thus
reflecting overall change in the cash position for a company. When analysts want to know the
company’s investment on PPE, they check for changes on a cash flow statement.
Capital expenditure (CapEx) is another important line item under investment activities.
CapEx is the money which a business invests on fixed assets like buildings, vehicles, or land.
An increase in CapEx means the company is investing on future operations. However, it also
shows that there is a decrease in company cash flow.
Sometimes a company may experience negative cash flow due to heavy investment
expenditure, but this is not always an indicator of poor performance, because it may be
leading to high capital growth.
Financial activities: The third section on the cash flow statement records the cash flow
between the company and its owners and creditors. Financial activities include transactions
involving debt, equity, and dividends. In these transactions, incoming cash is recorded when
capital is raised (such as from investors or banks), and outgoing cash is recorded when
dividends are paid.
32
33
BALANCE SHEET
BALANCE SHEET OF KEI

INDUSTRIES (in Rs. Cr.) MAR 22 MAR 21 MAR 20 MAR 19 MAR 18
12 mths 12 mths 12 mths 12 mths 12 mths
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS
Equity Share Capital 18.02 17.97 17.90 15.79 15.67
TOTAL SHARE CAPITAL 18.02 17.97 17.90 15.79 15.67
Reserves and Surplus 2,117.51 1,760.08 1,489.31 762.26 589.02
TOTAL RESERVES AND 2,117.51 1,760.08 1,489.31 762.26 589.02

SURPLUS
TOTAL SHAREHOLDERS 2,135.53 1,778.06 1,507.21 778.05 604.70

FUNDS
Minority Interest -0.01 -0.01 -0.11 -0.11 0.00
NON-CURRENT LIABILITIES
Long Term Borrowings 0.00 31.35 52.70 119.34 145.66
Deferred Tax Liabilities [Net] 29.44 29.45 30.83 44.06 39.72
Other Long Term Liabilities 20.67 23.82 14.62 0.00 0.00
Long Term Provisions 8.77 9.12 11.07 8.63 6.72
TOTAL NON-CURRENT 58.89 93.75 109.23 172.02 192.10

LIABILITIES
CURRENT LIABILITIES
Short Term Borrowings 331.37

34253.61 262.39 386.53 604.17
Trade Payables 762.62 741.50 1,168.97 1,020.64 628.47

PROFIT AND LOSS ACCOUNT
PROFIT & LOSS ACCOUNT OF MAR 22 MAR 21 MAR 20 MAR 19 MAR 18
KEI INDUSTRIES (in Rs. Cr.)
12 mths 12 mths 12 mths 12 mths 12 mths
INCOME
REVENUE FROM OPERATIONS 5,673.72 4,124.58 4,860.54 4,180.49 3,469.22

[GROSS]
Less: Excise/Sevice Tax/Other 0.00 0.00 0.00 0.00 37.62

Levies
35
REVENUE FROM OPERATIONS 5,673.72 4,124.58 4,860.54 4,180.49 3,431.60
[NET]
TOTAL OPERATING REVENUES 5,726.55 4,181.54 4,887.80 4,230.98 3,465.50
Other Income 14.60 20.06 16.65 7.19 9.30
TOTAL REVENUE 5,741.15 4,201.60 4,904.45 4,238.17 3,474.80
EXPENSES
Cost Of Materials Consumed 4,539.23 2,793.58 3,503.16 3,036.69 2,442.28
Purchase Of Stock-In Trade 0.82 10.79 11.71 3.88 1.51
Operating And Direct Expenses 128.02 149.36 160.62 112.12 108.55
Changes In Inventories Of FGWIP -325.87 105.31 -132.67 -108.18 -32.62

And Stock In Trade
Employee Benefit Expenses 200.64 184.94 227.59 173.39 146.79
Finance Costs 40.39 57.31 129.15 135.61 111.87
Depreciation And Amortisation 55.45 57.81 56.69 33.95 32.23

Expenses
Other Expenses 594.97 477.06 620.34 572.53 459.69
TOTAL EXPENSES 5,233.65 3,836.17 4,576.59 3,959.99 3,270.31
PROFIT/LOSS BEFORE 507.49 365.43 327.87 278.19 204.49

EXCEPTIONAL,
EXTRAORDINARY ITEMS AND
TAX
36
Exceptional Items 0.00 0.00 0.00 0.00 0.00
PROFIT/LOSS BEFORE TAX 507.49 365.43 327.87 278.19 204.49
TAX EXPENSES-CONTINUED
OPERATIONS
Current Tax 131.35 95.82 86.39 92.88 66.93
Less: MAT Credit Entitlement 0.00 0.00 0.00 0.00 12.15
Deferred Tax 0.21 -1.97 -13.64 4.97 4.91
Other Direct Taxes 0.00 0.00 0.00 0.00 0.00
TOTAL TAX EXPENSES 131.51 92.12 71.56 97.44 59.70
PROFIT/LOSS AFTER TAX AND 375.98 273.31 256.30 180.75 144.80

BEFORE EXTRAORDINARY
ITEMS
PROFIT/LOSS FROM 375.98 273.31 256.30 180.75 144.80

CONTINUING OPERATIONS
PROFIT/LOSS FOR THE 375.98 273.31 256.30 180.75 144.80

PERIOD
Minority Interest 0.01 -0.10 0.01 0.11 -0.02
CONSOLIDATED PROFIT/LOSS 376.02 273.31 256.30 180.86 144.76

AFTER MI AND ASSOCIATES
37
CASH FLOW STATEMENT
CASH FLOW OF KEI INDUSTRIES (in MAR MAR MAR MAR MAR
Rs. Cr.) 22 21 20 19 18
12 12 12 12 12
38
mths mths mths mths mths
NET PROFIT/LOSS BEFORE 507.49 365.43 327.87 278.19 204.49

EXTRAORDINARY ITEMS AND TAX
Net CashFlow From Operating Activities 228.62 153.91 -13.03 622.60 190.73
Net Cash Used In Investing Activities -58.39 75.38 11.01 - -76.34

275.05
Net Cash Used From Financing Activities -31.37 - 99.41 - -68.96

128.59 438.18
Foreign Exchange Gains / Losses 0.00 0.00 0.00 0.00 0.00
Adjustments On Amalgamation Merger 0.00 0.00 0.00 0.00 0.00

Demerger Others
NET INC/DEC IN CASH AND CASH 138.86 100.70 97.39 -90.63 45.43
EQUIVALENTS
Cash And Cash Equivalents Begin of Year 220.16 119.46 22.07 18.60 -26.83
Cash And Cash Equivalents End Of Year 359.03 220.16 119.46 -72.02 18.60
39
(ALL FIGURES ARE IN CRORES)
RATIO ANALYSIS AND INTERPRETATION
ACTIVITY RATIOS:
1) Receivable Turnover Ratio
This ratio measures how quickly a company collects payments from its customers. It is
calculated by dividing the net credit sales by the average accounts receivable balance. A high
accounts receivable turnover ratio indicates that a company is collecting its receivables
quickly, while a low ratio may indicate that a company is experiencing difficulty in collecting
payments from its customers.
Annual sales
Receivable Turnover=
average receivables
Mar’18 Mar’19 Mar’20 Mar’21 Mar’22

3,431.60 4,180.49 4,860.54 4,124.58 5,673.72
923 1058 1231.5 1359 1373
=3.7 =3.9 =3.9 =3.03 =4.13
the data shows some fluctuations in Kei Industries' Receivable Turnover Ratio over the five-
year period. There were improvements in the ratio in 2019, 2020, and 2022, indicating better
efficiency in collecting payments. However, there was a decline in 2021, suggesting a
decrease in the company's ability to collect outstanding receivables. It's important to analyze
the trends and compare these ratios with industry benchmarks to gain a better understanding
of Kei Industries' performance in managing its accounts receivable.
40
2) Inventory Turnover Ratio
This ratio measures how quickly a company sells its inventory and replaces it with new
inventory. It is calculated by dividing the cost of goods sold by the average inventory
balance. A high inventory turnover ratio indicates that a company is efficiently managing its
inventory levels and is able to sell its products quickly, while a low ratio may indicate that a
company is holding too much inventory and may be experiencing cash flow issues.
Cost of goods sold

Inventory turnover=
Average inventory

2,442.28 3,036.69 3,503.16 2,793.58 4,539.23
527.5 624.5 778.5 813.5 921
= 4.62 =4.86 =4.5 =3.4 =4.9
In the given data, the company experienced fluctuations in its inventory turnover ratio over
the years. The ratio increased from 4.62 in 2018 to 4.86 in 2019, suggesting an improvement
in inventory management. However, the ratio decreased to 4.5 in 2020, indicating a decline in
inventory turnover. In 2021, the ratio further declined to 3.4, indicating a slower turnover of
inventory. However, there was a significant improvement in 2022, with the ratio rising to 4.9,
suggesting better inventory management compared to the previous year
41
3) Payables turnover
This ratio measures how quickly a company pays its suppliers for goods and services
received. It is calculated by dividing the cost of goods sold by the average accounts payable
balance. A high accounts payable turnover ratio indicates that a company is able to pay its
suppliers quickly, while a low ratio may indicate that a company is taking longer to pay its
bills, which could affect its relationships with its suppliers.
Purchases
Payables turnover=
averagetrade payables
Purchases = ending inventory – beginning inventory + COGS

556−499 693−556 864−693 763−864 1,079−763
+ 2,442.28 + 3,036.69 + 3,503.16 + 2,793.58 + 4,539.23
554.5 824.5 1095 955.5 752.5
=4.50 =3.85 =3.36 2.82 =6.49
The payable turnover ratio indicates how efficiently a company manages its payments to suppliers. A
higher ratio generally suggests that a company pays its suppliers more quickly, which can be viewed
positively as it indicates effective cash management and good relationships with suppliers.
Based on the given data:
 There is a decreasing trend in the payable turnover ratio from March 2018 to March 2021,
indicating a slower payment process during this period.
 The ratio declines from 4.50 in March 2018 to 2.82 in March 2021, suggesting a longer
payment cycle and potentially slower payment to suppliers over these three years.
 However, there is a significant increase in the payable turnover ratio from March 2021 to
March 2022, where it jumps to 6.49. This indicates a notable improvement in payment
efficiency, with the company paying its suppliers more quickly during this period.
42
4) Total asset turnover
This ratio measures how efficiently a company uses its assets to generate revenue. It is
calculated by dividing the net sales by the average total assets. A high asset turnover ratio
indicates that a company is using its assets effectively to generate revenue, while a low ratio
may indicate that a company is not using its assets effectively or may have too many assets
relative to its revenue.
Revenue
Total asset turnover=
averagetotal assets

3,431.60 4,180.49 4,860.54 4,124.58 5,673.72
2058 2492 3016.5 3138.5 3267.5
=1.67 =1.68 =1.31 =1.32 =1.73
Interpreting the data:
The total asset turnover ratio indicates how effectively a company utilizes its assets to
generate revenue. A higher ratio generally suggests that a company is generating more
revenue per unit of assets, indicating better asset utilization.
 There is some fluctuation in the total asset turnover ratio over the years, indicating
variations in asset utilization efficiency.
 The ratio remains relatively stable from March 2018 to March 2019, with a slight
increase from 1.67 to 1.68.
 However, there is a decline in the ratio from March 2019 to March 2020 and March
2021, suggesting a decrease in asset utilization efficiency during those periods.
 There is a significant increase in the total asset turnover ratio from March 2021 to
March 2022, where it jumps to 1.73, indicating improved asset utilization efficiency
and generating more revenue per unit of assets.
43
5) Days of sales outstanding
Days of Sales Outstanding (DSO), also known as Accounts Receivable Days, is a financial
ratio that measures the average number of days it takes for a company to collect payment
from its customers after a sale has been made. It is calculated by dividing the average
accounts receivable balance by the total credit sales and multiplying the result by the number
of days in the period being measured.
365
Days of sales outstanding=
receivable turnover

365 365 365 365 365
3.7 3.9 3.9 3.03 4.13
98days 101days 93days 120days 88days
The Days of Sales Outstanding ratio measures the average number of days it takes for a
company to collect payment from its customers after a sale. A lower DSO ratio generally
indicates that a company is collecting payment from customers more quickly, which can be
viewed positively as it indicates effective credit and collection management.
 There is some variation in the DSO ratio over the years, indicating differences in the
collection efficiency and credit management practices.
 The ratio remains relatively stable from March 2018 to March 2020, with a range
between 93 to 101 days.
 There is a significant increase in the DSO ratio from March 2020 to March 2021,
where it jumps to approximately 120 days, suggesting a longer collection cycle during
that period.
 However, there is a notable improvement in the DSO ratio from March 2021 to March
2022, where it decreases to approximately 88 days, indicating a more efficient
collection process.
44
LIQUIDITY RATIOS:
6) Current Ratio
The current ratio is the most widely used liquidity ratio. It measures a company's ability to
pay its current liabilities with its current assets. The current ratio is calculated by dividing
current assets by current liabilities. A current ratio of 1.5 or higher is generally considered
good, as it indicates that a company has enough current assets to cover its current liabilities.
current assets
Current ratio=
current liabilities

1,770.73 2,224.97 2,685.80 2,445.58 2,961.07
1,423.10 1,813.71 1,652.54 1,142.18 1,332.66
=1.24 =1.23 =1.62 =2.14 =2.22
 The current ratio shows some fluctuations over the years, indicating changes in the
company's liquidity position.
 The ratio in March 2018 and March 2019 is around 1.2 to 1.3, suggesting that the
company had a relatively lower ability to cover its current liabilities with current
assets during those periods.
 There is an improvement in the current ratio from March 2020 to March 2022, with
the ratio increasing to approximately 2.14 and 2.22, respectively. This indicates a
stronger ability to meet short-term obligations during those years.
45
7) Quick Ratio
The quick ratio, also known as the acid-test ratio, is a more conservative measure of liquidity
than the current ratio. It measures a company's ability to pay its current liabilities with its
most liquid assets. The quick ratio is calculated by subtracting inventory from current assets
and then dividing by current liabilities. A quick ratio of 1 or higher is generally considered
good, as it indicates that a company has enough liquid assets to cover its current liabilities.
Total current assets−inventories

Quick ratio=
current liabilities

1,770.73−555.59 2,224.97−693.21 2,685.80−863.78 2,445.58−768.22 2,961.07−1,079.41
1,423.10 1,813.71 1,652.54 1142.18 1,332.66
=0.86 =0.80 =0.96 =1.96 1.15
 The quick ratio shows some fluctuations over the years, reflecting changes in the
company's liquidity position.
 The ratio in March 2018 and March 2019 is below 1, suggesting that the company's
most liquid assets, excluding inventory, were not sufficient to cover its current
liabilities during those periods.
 There is an improvement in the quick ratio from March 2020 to March 2022, with the
ratio increasing to approximately 1.29 and 1.15, respectively. This indicates a stronger
ability to meet short-term obligations without relying heavily on the sale of inventory
during those years.
46
8) Cash Ratio
The cash ratio is the most conservative of the liquidity ratios. It measures a company's ability
to pay its current liabilities with its cash and cash equivalents. The cash ratio is calculated by
dividing cash and cash equivalents by current liabilities. A cash ratio of 0.5 or higher is
generally considered good, as it indicates that a company has enough cash and cash
equivalents to cover its current liabilities.
cash+marketable securities
Cash ratio=
current liabilities

77.16 195.34 214.35 221.24 360.04
1,423.10 1,813.71 1,652.54 1,142.18 1,332.66
=0.054 =0.108 =0.130 =0.194 =0.270
The cash ratio measures a company's ability to cover its current liabilities with its cash and
cash equivalents. It represents the most conservative liquidity measure as it considers only the
most liquid assets.
 The cash ratio shows an increasing trend over the years, indicating an improvement in
the company's ability to cover its current liabilities with cash and cash equivalents.
 The ratio in March 2018 is approximately 0.054, suggesting that the company had a
relatively lower ability to cover its current liabilities with cash and cash equivalents
during that period.
 There is a notable improvement in the cash ratio from March 2019 to March 2022,
with the ratio increasing to approximately 0.270. This indicates a stronger ability to
meet short-term obligations using cash and cash equivalents.
 Additionally, a cash ratio of 0.5 or higher is generally considered good.
47
SOLVENCY RATIOS:
9) Debt-to-equity
This ratio compares a company's total debt to its total equity. A high debt-to-equity ratio
suggests that a company has taken on too much debt and may struggle to meet its obligations
in the long run.
Total debt
Debt −¿−equity= '
total shareholder s equity

145.66 119.34 67.32 55.17 20.67
604.70 778.05 1,507.21 1,778.06 2,135.53
=0.241 =0.153 =0.045 =0.031 =0.010
 The debt-to-equity ratio shows a decreasing trend over the years, indicating a
reduction in the proportion of debt in relation to equity.
 The ratio in March 2018 is approximately 0.241, suggesting that the company had a
relatively higher level of debt compared to equity during that period.
 There is a significant decrease in the debt-to-equity ratio from March 2018 to March
2022, indicating a reduction in the company's reliance on debt for financing its
operations.
 The ratio in March 2022 is approximately 0.010, suggesting that the company's debt is
relatively low compared to its equity.
Additionally, a high debt-to-equity ratio may indicate higher financial risk, but it is important
to consider the company's overall financial health, profitability, and industry benchmarks for
a comprehensive assessment of its financial leverage.
48
10) Debt-to-capital
This ratio measures the proportion of a company's capital structure that is financed by debt. It
compares a company's total debt to its total capital (debt + equity). A higher debt-to-capital
ratio indicates that a larger portion of a company's funding comes from debt, which can
increase financial risk.
Total debt
Debt −¿−capital= '
Total debt +total shareholde r s equity

145.66 119.34 67.32 55.17 20.67
145.66+604.70 119.34+ 778.05 67.32+1,507.21 55.17+1,778.06 20.67+2,135.53
=0.194 =0.133 =0.043 =0.030 =0.010
 The debt-to-capital ratio shows a decreasing trend over the years, indicating a
reduction in the proportion of debt in relation to the company's total capital.
 The ratio in March 2018 is approximately 0.194, suggesting that around 19.4% of the
company's total capital was financed by debt during that period.
 There is a significant decrease in the debt-to-capital ratio from March 2018 to March
2022, indicating a reduction in the company's reliance on debt for financing its capital
structure.
 The ratio in March 2022 is approximately 0.010, indicating that debt comprises only a
small portion of the company's total capital.
49
11) Debt-to-assets ratio
This ratio compares a company's total debt to its total assets. A high debt-to-asset ratio
suggests that a company is highly leveraged and may face challenges in repaying its debts.
Total debt
Debt −¿−assets=
total assets

145.66 119.34 67.32 55.17 20.67
2,219.90 2,763.67 3,268.88 3,013.97 3,527.06
0.0657 0.0431 0.0206 0.0183 0.0059
The debt-to-assets ratio measures the proportion of a company's total assets that are
financed by debt. A higher ratio indicates a larger portion of debt relative to assets,
which may suggest higher financial risk and a higher level of leverage.
 The debt-to-assets ratio shows a decreasing trend over the years, indicating a
reduction in the proportion of debt in relation to the company's total assets.
 The ratio in March 2018 is approximately 0.066, suggesting that around 6.6% of the
company's total assets were financed by debt during that period.
 There is a significant decrease in the debt-to-assets ratio from March 2018 to March
2022, indicating a reduction in the company's reliance on debt for financing its assets.
 The ratio in March 2022 is approximately 0.006, indicating that debt comprises only a
small portion of the company's total assets.
50
12) Financial leverage
Financial leverage measures the extent to which a company is using debt to finance its
operations. It is calculated as the ratio of total debt to total assets. A higher financial leverage
indicates that a company is relying more heavily on debt financing, which can amplify
returns in good times but also increases financial risk in bad times.
Average total assets

Financial leverage=
Average total equity

2058 2492 3016.5 3138.5 3268
533 692 1143 1643 1957
=3.86 =3.60 =2.64 =1.91 =1.67
The financial leverage ratio measures the proportion of a company's total assets that are
financed by debt relative to its equity. A higher financial leverage ratio indicates a greater
reliance on debt financing.
 The financial leverage ratio shows a decreasing trend over the years, indicating a
reduction in the proportion of debt relative to equity.
 In March 2018, the financial leverage ratio is approximately 3.86, suggesting that debt
financing accounts for about 3.86 times the company's equity.
 The financial leverage ratio decreases gradually from March 2018 to March 2022,
indicating a reduced reliance on debt financing and potentially lower financial risk.
 In March 2022, the financial leverage ratio is approximately 1.67, indicating that debt
financing accounts for around 1.67 times the company's equity.
51
52
13) Debt-to-EBITDA
This ratio compares a company's total debt to its earnings before interest, taxes, depreciation,
and amortization (EBITDA). It measures a company's ability to repay its debt based on its
operating cash flow. A higher debt-to-EBITDA ratio indicates that a company has more debt
relative to its earnings, which may make it harder to service its debt obligations.
Total debt
Debt −¿−EBITDA=
EBITDA

145.66 119.34 67.32 55.17 20.67
144.76 180.86 256.30 273.31 376.02
=1.01 =0.66 =0.26 0.20 =0.05
 The debt-to-EBITDA ratio decreases consistently over the years, indicating a

reduction in the company's debt relative to its EBITDA.
 In March 2018, the debt-to-EBITDA ratio is approximately 1.01, suggesting that the
company's total debt is slightly higher than its EBITDA.
 The debt-to-EBITDA ratio decreases significantly from March 2018 to March 2022,
indicating a lower debt burden relative to the company's earnings.
 In March 2022, the debt-to-EBITDA ratio is approximately 0.05, indicating that the
company's total debt is significantly lower than its EBITDA.
A lower debt-to-EBITDA ratio generally suggests that a company has a healthier financial
position, as it indicates a lower debt burden relative to its earnings. However, it's important to
compare the ratio to industry benchmarks and consider other factors such as the company's
growth prospects, cash flow generation, and interest coverage when evaluating its overall
financial health and ability to service its debt obligations.
53
PROFITABILITY RATIOS:
14) Gross Profit Margin
This ratio measures a company's gross profit as a percentage of its revenue. Gross profit
margin indicates how efficiently a company is producing its products or services after
accounting for the cost of goods sold.
Gross profit
Gross profit margin= x100
revenue

3,469.22−2,442.28 4,180.49−3,036.69 4,860.54−3,503.16 4,124.58−2,793.58 5,673.72−4,539.23
3,469.22 4 , 180.49 4,860.54 4,124.58 5,673.72
X 100 X 100 X 100 X 100 X 100
29.72% 27.05% 27.98% 32.42% 20.00%
Interpreting the data:
The gross profit margin represents the percentage of revenue that remains as gross profit after
accounting for the cost of goods sold. A higher gross profit margin indicates that a company
is generating more profit from each dollar of revenue.
 The gross profit margin varies over the years.
 The gross profit margin ranges from 20.00% in March 2022 to 32.42% in March
2021.
 The highest gross profit margin is observed in March 2021 at 32.42%.
 The lowest gross profit margin is observed in March 2022 at 20.00%.
54
Operating Profit Margin
This ratio measures a company's operating profit as a percentage of its revenue. Operating
profit margin indicates how efficiently a company is operating its business after accounting
for operating expenses.
Operating profit
Operating profit margin=
revenue

339 441 497 456 589
3,469.22 4,180.49 4,860.54 4,124.58 5,673.72
=9.77% =10.55% =10.22% =11.05% =10.38%
The operating profit margin represents the percentage of revenue that remains as operating
profit after deducting operating expenses. It indicates how efficiently a company is managing
its operating costs and generating profit from its core operations.
 The operating profit margin varies over the years.
 The operating profit margin ranges from 9.77% in March 2018 to 11.05% in March
2021.
 The highest operating profit margin is observed in March 2021 at 11.05%.
 The lowest operating profit margin is observed in March 2018 at 9.77%.
A higher operating profit margin generally indicates better operational efficiency and
profitability.
55
15) Net Profit Margin
This ratio measures a company's net profit as a percentage of its revenue. Net profit margin
indicates how much profit a company is making after accounting for all expenses, including
interest and taxes.
net profit
Net profit margin=
revenue

145 181 256 270 376
3,469.22 4,180.49 4,860.54 4,124.58 5,673.72
4.18% 4.33% 5.27% 6.54% 6.63%
The net profit margin represents the percentage of revenue that remains as net profit after
deducting all expenses, including interest and taxes. It reflects the profitability of a company's
operations.
 The net profit margin varies over the years.
 The net profit margin ranges from 4.18% in March 2018 to 6.63% in March 2022.
 The highest net profit margin is observed in March 2022 at 6.63%.
 The lowest net profit margin is observed in March 2018 at 4.18%.
A higher net profit margin generally indicates better profitability, as it means the company is
generating more profit from its revenue.
56
16) Return on Equity (ROE)
This ratio measures a company's net income as a percentage of its total equity. ROE indicates
how efficiently a company is generating profit relative to its shareholders' investments.
Net income
Returnon equity ( ROE )=
average total equity

145 181 256 273 376
533 692 1143 1643 1957
27.2% 26.15% 22.40% 16.61% 19.21%
The Return on Equity (ROE) measures the profitability of a company relative to its
shareholders' investments. It indicates how efficiently the company is utilizing its equity to
generate profit.
 The ROE varies over the years.
 The ROE ranges from 16.61% in March 2021 to 27.18% in March 2018.
 The highest ROE is observed in March 2018 at 27.18%.
 The lowest ROE is observed in March 2021 at 16.61%.
A higher ROE generally indicates better profitability and efficiency in generating returns for
shareholders.
57
17) Return on Capital Employed (ROCE)
This ratio measures a company's earnings before interest and taxes (EBIT) as a percentage of
its total capital employed (debt + equity). It indicates how effectively a company is using its
capital to generate earnings. ROCE is useful for evaluating a company's overall efficiency
and profitability.
EBIT
ROCE= x100
Total assets−current liabilities
Or
EBIT
ROCE= x100
Total capital employed

204.49 278.19 327.87 365.43 507.49
2220−1424 2764−1,813 3,269−1,653 3,014−1,142 3,527−1,333
25.65% 29.28% 20.27% 19.52% 23.13%
 The ROCE is relatively consistent over the years.
 The ROCE ranges from 43.01% in March 2021 to 43.83% in March 2018.
 The highest ROCE is observed in March 2018 at 43.83%.
 The lowest ROCE is observed in March 2021 at 43.01%.
A higher ROCE generally indicates that the company is utilizing its capital more effectively
to generate earnings. It suggests better profitability and efficiency.
Additionally, analysing trends and changes in ROCE over time can provide insights into the
company's ability to generate returns on its capital employed and its overall financial
performance.
58
VALUATION RATIOS:
18) Earning Per Share
EPS (Earnings Per Share) is a financial ratio that measures a company's profitability on a per-
share basis. It indicates the portion of a company's earnings allocated to each outstanding
share of common stock. EPS is calculated by dividing the net earnings (profits) of the
company by the weighted average number of outstanding shares during a specific period.
Net Income−Preference dividends

EPS=
average number of outstanding common shares

144.80 crores 180.75 crores 256.30 crores 273.31 crores 375.98 crores
90192438 90192438 90192438 90192438 90192438
=16.06 =20.05 =28.45 =30.32 = 41.69
The Earnings Per Share (EPS) represents the portion of a company's earnings
allocated to each outstanding share of common stock.
 The EPS increases over the years, indicating improving profitability on a per-share
basis.
 The EPS ranges from 16.06 in March 2018 to 41.69 in March 2022.
 The highest EPS is observed in March 2022 at 41.69.
 The lowest EPS is observed in March 2018 at 16.06.
A higher EPS indicates higher profitability per share, which can be favorable for
investors. It shows the amount of earnings generated by the company for each
outstanding share.
59
19) Price-to-Earnings ratio
This ratio measures a company's current share price relative to its earnings per share (EPS).
It's calculated by dividing the current market price per share by the EPS. The P/E ratio
indicates how much investors are willing to pay for each dollar of earnings. A higher P/E
ratio suggests that investors are willing to pay more for each dollar of earnings, indicating a
high growth potential for the company.
Market price
PE ratio=
EPS

427 410 298 540 1278
17 21 29 31 42
25.11 19.52 10.27 17.42 30.42
The P/E ratio indicates how much investors are willing to pay for each dollar of earnings
generated by the company. A higher P/E ratio suggests that investors are willing to pay more
for each dollar of earnings, indicating a higher growth potential or market expectations for
the company.
 The P/E ratio fluctuates over the years.
 The P/E ratio ranges from 10.27 in March 2020 to 30.42 in March 2022.
 The highest P/E ratio is observed in March 2022 at 30.42.
 The lowest P/E ratio is observed in March 2020 at 10.27.
A higher P/E ratio can indicate that the market has high expectations for the company's future
growth and profitability. However, it's important to consider other factors such as industry
comparisons, market conditions, and the company's growth prospects when interpreting the
P/E ratio.
Investors often use the P/E ratio as a valuation metric to assess the relative value of a
company's stock. However, it should be used in conjunction with other fundamental and
qualitative factors when making investment decisions.
60
20) Dividend Yield
This ratio measures the dividend paid by a company relative to its share price. It's calculated
by dividing the annual dividend per share by the current market price per share. The dividend
yield indicates the return on investment through dividend payments.
Dividend per share

Dividend yield = x100
Market price
Dividend per share = Total dividend paid ÷ Outstanding shares

1 1.2 1.5 2 2.5
x100 x100 x100 x100 x100
427 410 298 540 1278
=0.23% =0.29% =0.50% 0.37% =0.19%
The Dividend Yield indicates the return on investment through dividend payments relative to
the current market price of the stock.
 The Dividend Yield fluctuates over the years.
 The Dividend Yield ranges from approximately 0.19% in March 2022 to 0.50% in
March 2020.
 The highest Dividend Yield is observed in March 2020 at approximately 0.50%.
 The lowest Dividend Yield is observed in March 2022 at approximately 0.19%.
A higher Dividend Yield indicates a higher return on investment through dividend payments
relative to the current market price of the stock. However, it's important to consider other
factors such as the company's financial health, dividend history, and future prospects when
assessing the attractiveness of the dividend yield.
Investors often use the Dividend Yield as a measure of income generated from their
investment in a company's stock.
61
A TABLE SHOWING ALL THE RATIOS
Particulars Mar’18 Mar’19 Mar’20 Mar’21 Mar’22
3.7 3.9 3.9 3.03 4.13

Receivable turnover
4.62 4.86 4.5 3.4 4.9

Inventory turnover
4.5 3.85 3.36 2.82 6.49

Payables turnover
1.67 1.68 1.31 1.32 1.73

Total asset turnover
98 Days 101 Days 93Days 120 Days 88 Days

Days of sales outstanding
Current ratio =1.24 =1.23 =1.62 =2.14 =2.22
Quick ratio =0.86 =0.80 =0.96 =1.96 1.15
Cash ratio (Absolute Liquidity =0.054 =0.108 =0.130 =0.194 =0.270
Ratio)
Debt-to-equity =0.241 =0.153 =0.045 =0.031 =0.010
Debt-to-capital =0.194 =0.133 =0.043 =0.030 =0.010
Debt-to-assets 0.0657 0.0431 0.0206 0.0183 0.0059
Financial leverage =3.86 =3.60 =2.64 =1.91 =1.67
Debt-to-EBITDA =1.01 =0.66 =0.26 0.20 =0.05
Net profit margin 4.18% 4.33% 5.27% 6.54% 6.63%
Gross profit margin 29.72% 27.05% 27.98% 32.42% 20.00%
62
Operating profit margin =9.77% =10.55% =10.22% =11.05% =10.38%
Return of equity (ROE) 27.2% 26.15% 22.40% 16.61% 19.21%
Return on Capital employed 25.65% 29.28% 20.27% 19.52% 23.13%
(ROCE)
Earnings Per Share =16.06 =20.05 =28.45 =30.32 = 41.69
Price to Earnings ratio 25.11 19.52 10.27 17.42 30.42
Dividend Yield =0.23% =0.29% =0.50% 0.37% =0.19%
63
STATEMENT SHOWING CHANGES IN WORKING
CAPITAL
Working capital is the difference between a company's current assets and current liabilities.
It represents the funds available to a business to operate on a day-to-day basis. Changes in
working capital can have a significant impact on a company's financial health and cash flow.
There are two types of working capital: positive and negative. Positive working capital
means that a company has more current assets than current liabilities. Negative working
capital means that a company has more current liabilities than current assets. Changes in
working capital occur when there are changes in a company's current assets or current
liabilities.
Base year Current year Change in Working Capital

Particulars (Amount) (Amount)
Increase Decrease
Current Assets
1) Inventories 523.82 -
555.59 1079.41
2) Trade receivables 1,020.59 1,395.53 374.94 -

3) Cash and cash equivalents 76.33 360.03 283.70 -
4) Loans and advances 1.39 1.23 0.16
5) Other current asset items 113.72 124.85 11.13 -
Total Current Assets (A) 1,767.62 2,960.05 1192.40 0.16
Current Liabilities
1) Short Term Borrowings 604.17 331.37 272.80 -
2) Trade payables 627.20 762.62 - 135.42
3) Other current liability items 177.36 233.12 - 55.76

4) Short Term Provisions 11.13 5.55 5.58
Total Current Liabilities (B) 1419.86 1,332.66 278.38 191.18
64
Working Capital (A-B) 347.76 1627.39
Net increase or decrease in working capital 127
CONCLUSION AND RECOMMENDATIONS
When analysing financial ratios, it's important to consider the context and industry trends. For
example, a low profitability ratio may be acceptable in a capital-intensive industry with high
barriers to entry, while a high profitability ratio may be necessary in a rapidly growing
industry with intense competition.
In general, it's recommended to use a combination of financial ratios and other qualitative
factors, such as industry trends, management expertise, and competitive advantage, to
evaluate a company's investment potential. It's also important to consider the risks associated
with investing in a particular company, such as regulatory changes, market fluctuations, and
competitive threats.
In conclusion, financial ratios provide valuable insights into a company's financial health and
performance. By analysing these ratios, investors can evaluate a company's profitability,
liquidity, solvency, and valuation, and make informed investment decisions.
However, it's important to use financial ratios in conjunction with other qualitative factors,
such as industry trends, competitive advantage, and management expertise, to get a complete
picture of a company's investment potential.
It's also important to note that financial ratios have their limitations. They are based on
historical data and may not accurately reflect a company's future performance. Additionally,
financial ratios may not be comparable across companies due to differences in accounting
methods, business models, and industry standards.
The recommendations for improving financial ratios depend on the specific ratios that need
improvement. Here are some general recommendations that can help improve different
financial ratios:
65
Activity ratios: To improve activity ratios, companies can focus on increasing their
operational efficiency and productivity. Improving activity ratios requires a focus on
operational efficiency and effective supply chain management. By implementing these
strategies, companies can improve their cash flow, reduce working capital requirements, and
increase their profitability.
Profitability ratios: To improve profitability ratios, companies can focus on increasing

revenues, reducing costs, and improving operating efficiency. This can be achieved through
strategies such as expanding market share, increasing pricing power, optimizing supply chain
management, and improving customer satisfaction.
Liquidity ratios: To improve liquidity ratios, companies can focus on managing their
working capital more effectively. This can involve strategies such as optimizing inventory
levels, reducing accounts receivable days, and negotiating favourable payment terms with
suppliers.
Solvency ratios: To improve solvency ratios, companies can focus on reducing their debt
levels and improving their debt-to-equity ratio. This can be achieved through strategies such
as refinancing debt, selling non-core assets, and increasing profitability to generate more cash
flow.
Valuation ratios: To improve valuation ratios, companies can focus on improving their
earnings growth prospects and increasing investor confidence. This can involve strategies
such as investing in new growth opportunities, increasing dividend payouts, and improving
financial transparency and communication with investors.
Improving financial ratios requires a focus on long-term sustainable growth and effective
financial management. Companies that prioritize these goals are more likely to achieve strong
financial performance and attract investor interest.
66
Therefore, it's recommended to use financial ratios as part of a broader analysis of a
company's financial health and performance, and to seek professional advice from a financial
advisor before making any investment decisions.
Overall, financial ratios are an important tool for evaluating a company's financial health and
performance, but they should be used in conjunction with other information and factors to
make informed investment decisions. It's always recommended to seek professional advice
from a financial advisor before making any investment decisions.
67
BIBLIOGRAPHY
https://www.keiindustries.in/investor-relations/annual-reports/
https://www.screener.in/company/ keiindustries /consolidated/
https://www.moneycontrol.com/company-facts/ keiindustries /dividends/HU
https://www.tijorifinance.com/company/ keiindustries /financials/
Referred books for ratio analysis, especially from CFA Institute
Own calculations, interpretations and analysis
68

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A PROJECT REPORT

ANALYSIS OF FINANCIAL STATEMENTS

KEI INDUSTRIES Ltd.

Academic Year 2022-23

Bachelor of Business Administration

MIT WORLD PEACE UNIVERSITY

Dr. Vaishali Doshi

Signature of the student

Academic Year 2022-23

Signature of the student

SR. NO PARTICULARS PG NO.

Theoretical background of the topic

Objectives of the report

Introduction to Research Methodology

5 COMPANY PROFILE 14-15

6 PROJECT DESIGN 16-38

Tools used for Analysis

7 ANALYSIS OF THE DATA AND FINDINGS 39-63

8 CONCLUSIONS AND RECOMMENDATIONS 64-66

1. Introduction The research aims to conduct an in-depth analysis of the financial

2. Research Objectives The research will be guided by the following objectives: a. To

5. Conclusion The research methodology outlined above provides a systematic approach

According to Investopedia, "Financial ratio analysis is the process of comparing different

According to Myers, “Ratio analysis of financial statements is a study of relationship among

According to Myers, “Ratio analysis of financial statements is a study of relationship among

Financial ratio analysis is a tool used to evaluate a company's financial performance by

1. Comparability: Financial ratios enable comparisons between different companies,

2. Simplification: Financial ratios condense complex financial information into simple,

5. Interpretation: Financial ratios allow for the interpretation of financial information in a

a) For short term creditors:

b) For long term creditors:

 By comparing the ratios of one period with those of another period;

The main objectives of ratio analysis are:

Significance or importance of ratio analysis:

2. It helps in inter-firm comparison: Ratio analysis helps in inter-firm comparison by providing

7. Provides a Comprehensive View of Financial Performance: Ratio analysis provides a

6. Limited Information: Ratio analysis is based on financial data contained in a company's

ACTIVITY LIQUIDITY SOLVENCY PROFITABILITY VALUATION

RATIOS RATIOS RATIOS RATIOS RATIOS

Days of sales Interest coverage Return on Capital Dividend Yield

Cash flow statement

Importance of a cash flow statement

Format of a cash flow statement

BALANCE SHEET OF KEI

12 mths 12 mths 12 mths 12 mths 12 mths

EQUITIES AND LIABILITIES

Equity Share Capital 18.02 17.97 17.90 15.79 15.67

TOTAL SHARE CAPITAL 18.02 17.97 17.90 15.79 15.67

Reserves and Surplus 2,117.51 1,760.08 1,489.31 762.26 589.02

TOTAL RESERVES AND 2,117.51 1,760.08 1,489.31 762.26 589.02

TOTAL SHAREHOLDERS 2,135.53 1,778.06 1,507.21 778.05 604.70

Minority Interest -0.01 -0.01 -0.11 -0.11 0.00

Long Term Borrowings 0.00 31.35 52.70 119.34 145.66

Deferred Tax Liabilities [Net] 29.44 29.45 30.83 44.06 39.72

Other Long Term Liabilities 20.67 23.82 14.62 0.00 0.00

Long Term Provisions 8.77 9.12 11.07 8.63 6.72

TOTAL NON-CURRENT 58.89 93.75 109.23 172.02 192.10

Short Term Borrowings 331.37