Mini Project

A Study On Financial Performance By Ratio Analysis
CHAPTER-1
INTRODUCTION OF THE STUDY
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1.1 INTRODUCTION
KERALA STATE FINANCIAL ENTERPRISES LTD came into existence in 1969 as a

miscellaneous non-banking finance company wholly owned by the government of Kerala. It is
the first public sector company to conduct chit business in whole of India. It was created with
the objective of providing an alternative to the private chitty fund business, so as to save the
public from the clutches of unscrupulous fly-by-night chit and operators. It works with the
motto “save and grow with KSFE”. A striking point is that all the funds mobilized by KSFE
through it is various deposit schemes and chitties are advanced wholly to the public in Kerala
itself, whereas other financial institutions and bank channel their deposits collected in Kerala
for advances outside the state.
The project is conducted in KERALA STATE FINANCIAL ENTERPRISES LTD and is

based on “A STUDY ON FINANCIAL PERFORMANCE BY RATIO ANALYSIS”. The
study is for analyzing the financial performance of KSFE by using ratio methods. Prime factor
of the study is to analyze the factors of financial performance.
Financial statements are the end products of financial accounting. They are the statements
containing financial information of a business enterprise. They are the summarized periodical
reports of financial and operative data contained in the books of accounts known as general
ledger. Financial statements may be defined as a the statements as they containing summaries
of detailed information about the financial position and performance of an enterprise. The
basic purpose of preparing financial statement is to convey to owners, creditors and investors
about financial position of the enterprise. It includes balance sheet, income sheet, statement of
retained earnings, fund flow statement and cash flow statement.The purpose of financial
analysis is to diagnose the information contained in the financial ststements so as to judge the
profitability and financial soundness of the firm.
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The analysis provide valuable information for managerial decision. Ratios are the tools that
represents value of one number expressed in terms of another number. It shows numerical
relationship between two figures. Accounting ratio refers to relationship between two
accounting figures expressed mathematically. The term accounting ratio is used to describe
the significant relationship which exist between figures shown in a balance sheet, profit and
loss account, in a budgetary control system or in any other part of the accounting
organization.
1.2 STATEMENT OF THE PROBLEM
The study is about demonstrating the use of ratios to examine the financial health of the firm.
This method allows evaluator to understand a firm’s financial statement in order to point out
the strengths and weakness of the firm, and the areas that need improvement. Study of
financial performance involves comparing a firm’s performance with that of other firms in the
same industry, as well as evaluating trends in a firm’s position over time.
Analysts, investors and lenders analyze the financial health of a business by calculating
financial ratios. They use the numbers on financial statements to calculate the ratios. While
financial ratios provide a good indication of the company’s financial status, since there may
some problem and limitations to using financial ratio analysis.
1.3 SCOPE OF THE STIUDY
The study was conducted in KSFE LTD, Thrissur, mainly focuses on the “Financial
Performance”. Now a days financial performance analysis is very important because firm
largely depends upon financial policies and activities. Financial performance is a crucial
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factor for all organization, for its well being. The financial analysis helps the organization to
improve the performance by understanding its strength and weakness. This study aims to
analyze the financial performance of KSFE LTD.
1.4 OBJECTIVE OF THE STUDY
The major objective of this study is to know about the financial strength and weakness of
KSFE LTD, through financial ratio analysis.
Also;
 To study the present financial system of KSFE LTD.

 To determine the profitability, liquidity ratios
 To analyze the capital structure of the company with the help of the Leverage
Ratio
 To offer appropriate suggestions for the better performance of the organization.
 To analyze the short term and long term financial position of the firm.
1.5 METHODOLOGY
The information is collected through secondary sources during the project. That information
was utilized for calculating performance evaluation and based on that, interpretations were
made. The secondary data required for the study has been collected from the published and
unpublished records, annual reports also from financial statements of the KSFE LTD. In order
to elicit more information a casual conversation has been made with the officials and guide of
concern to express their view.
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1.6 TOOLS FOR THE STUDY

This project is to analyze the financial performance of KSFE LTD. This project completed by
using ratio analysis, graphs, diagram, chart, tables, etc. Different types of accounting ratios
are used to analyze the financial performance of KSFE LTD. Accounting ratio simply refers
to relationship between two accounting figures mathematical.
1.7 LIMITATIONS OF THE STUDY
 The financial analysis mainly depends upon secondary data.

 The analysis is done by comparing the data of five years only. So the data cannot compare
to the longer life of the KSFE LTD.
 Time is most important limiting factor.
 One of the factors of the study was lack of availability of ample information. Most of the
information has been kept confidential and as such as not assessed as art of policy of
company.
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CHAPTER 2
REVIEW OF THE LITERATURE
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2.1 REVIEW OF LITERATURE

“Shameera” (2012) conducted a study on “profitability analysis of KSFE LTD”. The main
objective of the study is to find out the trends of profitability and analysis the liquidity
position of KSFE LTD. Study reveals the profitability and analysis the liquidity position of
company is good. The study suggests the company to take steps to improve the current ratio.
In order to meet its short term obligations as and when required. The timely collection of
debtors and effective utilization of assets will enable the company to earn more returns.
“ASSOCHAM” (2009) Conducted a study on Indian Bank V/S NBFCs; Profitability analysis.
The ASSOCHAM Research Bureau (ARB) has analyzed in total 29 banks and 7 NBFCs. The
ASSOCHAM Financial pulse study has examined and compared the profitability of banks
with NBFCs during the financial year 2008-2009. Simple average and profitability ratio of the
two segments have been studied. The ARB study titled “Indian bank V/S NEFCs, Profitability
Analysis” reveals that during the financial year 2008-2009, non-banking financial companies
(NBFCs) average profitability stood higher at 18.90 % as compared to the banks with 10.08%.
“Nazir Ahmed Gilkar” (2008) in the books “Profitability Analysis on Exploratory Studies”
highlights the role of profitability in a business enterprise operating in a competitive
environment and discuss the various techniques of profitability analysis. It reflects the
signature of cost effectiveness for a business enterprise and focuses on the strategies needed
to meet the challenges posted by liberalized economy
“Sanitha” (2006) in her studies made the following conclusion, in ana era of dynamic
economy and hectic competition, the performance of a financial institution with respect to
numbers of branches and numbers of employees the growth of KSFE LTD is tremendous. As
a public sector institution it has to contribute towards the social and economic goal. Reasons
behind the commencement of KSFE LTD itself , is to save the public from exploitation from
the achievement of KSFE LTD, it is very clear that the performance of the company is good.
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“Baburaj” (1999) conducted a study on the working of KSFE LTD an analysis of the
following parameter to asset its performance. The selected parameters were volume of
business, profitability, recovery performance, self sufficiency in financial resources, number
of branches, number of employees, per employee productivity, extent of target achieved,
number of services offered.
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CHAPTER 3
PROFILE
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3.1 INDUSTRY PROFILE

Non-Banking Financial Institutions (NBFIS) plays an important role in the Indian Financial
System given their unique position of providing complimentary and competitiveness to banks.
They score over the traditional banks by providing enhanced equity and risk-based products.
The Hierarchy of NBFCs in India- NBFIs
 Development Finance
 Non-Banking Finance
 Investment Company
 Hire Purchase
 Equipment Leasing
 Loan Company
 Insurance Company
 Primary Dealers
 Mutual Funds
A non-banking financial institution (NBFC) is a financial institution that does not have a full
banking license or is not the supervised by a national or international banking regulatory
agency. Non-banking finance company is a business entity whether incorporated under the
companies Act 1956 or not which devotes its resources in providing to the society the
financial services of various descriptions which are different from and uncompaired to normal
banking services.
Non-Banking Financial Companies(NBFC) also known as non-banks are financial

institutions that provide banking services without meeting the legal definition of the bank ie
,one that does not hold banking license operations are regardless of this still exercised under
the banking regulations.
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A Non-Banking Financial Company (NBFC) can be defined as “Any hire purchase finance,
investment, loan or mutual benefit financial company, land and equipment leasing company,
but does not include any insurance company or stock exchange or stock broking.”
Non-banking financial institutions frequently act as a supplier of loans and credit facilities.
They market their products like any other marketing organizations. They are not allowed to
raise deposits from the general public and to find other means of funding their operations such
as issuing debt instrument. In India, most NBFCs raise their capital through marketing their
chit funds.
RBI DEFINITION OF NBFC
NBFC has been defined under clause (1) of paragraph 2(1) of Non Banking Financial
Companies (RBI Direction) as under “Non-Banking Financial Company” means any hire
purchase finance ,investment, loan or mutual benefit financial company or land and
equipment leasing company but does not include any insurance company or a stock exchange
or a stock broking company.
Non-Banking Financial Companies are engaged in variety of fund based and non fund based
activities. The main fund based activities are leasing, hire purchasing, and bill discounting and
the main non fund based activities are issue management, co- corporate advisory services,
loan syndication and fore advisory services.
The NBFCs activities have certain limitations.RBI directions, 1997 in the Para 2(1)(1)
specifically excludes business of insurance, stock exchange or stock broking activities from
the purview of NBFC activities.
In India, the major difference in regulation between the banks and NBFCs are;
 Low capital requirement for NBFC Rs.20 million as against Rs.200 million for banks.
 Low Statutory Liquidity Ratio (SLR) for NBFCs.
 No Cash Reserve Ratio (CRR) For NBFC.
 Higher Capital Adequacy Ratio (CAR) For NBFC changing from 12 to 15 percent
depending on the type of the business.
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3.2 COMPANY PROFILE
Type Public sector

Industry NBFC(Non-banking financial companies in India)
Founded 6th November 1969

Head office Thrissur
Products Chitty,loans,savings
No of employees 6000
Owner Government of kerala
Total equity Rs.20 crore
HISTORY
Kerala State Financial Enterprises Limited (KSFE) is a public sector non-banking

financial company based in Thrissur city, Kerala, India. It started functioning on November 6,
1969, with Thrissur city as its headquarters. It started with a capital of Rs 2,00,000, 45
employees and 10 branches. It has now 500 branches. KSFE is a Miscellaneous Non-Banking
Financial Company (MNBFC) and is fully owned by the Government of Kerala. KSFE is the
only chitty Company owned by the Government in the whole of India.
1. KSFE was created by the Government of Kerala on 6 November 1969.

2. The Paid up capital then was Rs. 2 Lakhs.
3. Total number of employees at the start was 45.
4. The number of branches KSFE began with was 10.
5. The Head Office of KSFE is placed in Thrissur, the hub of Chitty business in Kerala.
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ORGIN OF KSFE
In 1967, The Government of Kerala took a policy decision to the effect that Chitties should be
conducted under state auspices as a means for the collection of small savings. The then
Finance Minister, in his budget speech for the financial year 1967-68 made the following
announcement on the floor of the Kerala Assembly. "I view this decision as a bold step
forward along the path towards socialism, aimed at bringing banks and other financial
institutions under social control".
As the follow-up, the Government of Kerala, appointed a Special Officer in the year 1967, to
look into the feasibility and desirability of starting Chit Funds in the public sector and also to
prepare a comprehensive scheme for starting Chits under government control. One of the
objectives of starting Chit Funds in the public sector was to control the mushroom growth of
private Chit Funds and to restrain their growth by offering effective competition. The Special
Officer, who presented his Report on 7th October 1967, recommended strongly the entry of
the Government into the field of Chits. Though the recommendation was for conducting Chit
as an adjunct of the Registration Department, the Government took a different view and
decided to bring within its purview and control, not only Chitties or Kuries, but also certain
other financial transactions for which socialization was felt necessary. Accordingly the
Government decided to organize a public sector undertaking with the name "The Kerala State
Financial Enterprises Ltd." (KSFE) for the purpose of conducting Chits, hire purchase and
insurance business under Government control. This apart, the Government of Kerala had a
progressive vision for generating non-revenue income through such public sector ventures.
Thus, KSFE Ltd. was incorporated as a Government Company on 6th November 1969 with its
Head Office at Trichur with the objective of serving as a discipline factor to private Chit
Funds". The first Board of Directors was constituted as per G.O. (Rt.) 4876/69/Fin dated 26th
November 1969. KSFE comes under the group of Miscellaneous Non-Banking Financial
Intermediaries. KSFE has the unique status of being the only public sector undertaking in
India, which runs Chits and also one of the few profit making companies owned by the
Government of Kerala.
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MISSION OF KSFE
The mission of KSFE Ltd is well being of public by its different products like chitties,
loans, deposits etc. for the welfare of the society. The chitties are come under the Kerala
Chitties Act 1975, which brought into force with effect from 25th august 1975. The act is to
give adequacy and safety to the funds of the society and gave good returns to them. It also
ensures lesser rate of interest for loans and advances.
VISION OF KSFE
 Providing a whole range of quality services and products.

 Adopting technology and benchmark standards in customer service and performance
 Spreading our wings beyond the borders of Kerala, on a global level
 Retaining the pre-eminent role in Chitty business.
 Focus on extending resources to the Govt. of Kerala
 Sustaining commitment to the weaker sections of society, as the neighborhood.
institution for support, trust and security
OBJECTIVES OF KSFE
The following are the important objectives
 To start, conduct, promote, manage and carry on the business of chitties in India or
elsewhere.
 To promote, undertake, organize, conduct and carry on the business of general and
miscellaneous insurance of any kind in India or elsewhere
 To start, promote, conduct, operate, carry on and manage the business of dealers
agents and traders under hire purchase system of articles, vehicles, machinery,
materials goods and tools of all capital goods and consumer goods and property of all
nature and description for personal, domestic, office, commercial, industrial and
community use and consumption as a business of the company or as agents of
government, state or central, or anybody or organization there under or any other
company.
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Besides these, there are many other objectives which are incidental to the main objectives.
They are :-
 To advance, deposit or lend money
 To received or grant or concession of the nature
MANAGEMENT OF KSFE LTD
The Management of the company is vested in the Board of Directors constituted by Governor
from time to time. The number of Directors shall not be less than 2 and shall not the more
than 9. The maximum number has been subsequently raised to 15. The Directors shall hold
office during the pleasure of the Governor. The Governor may, from time to time, appoint 2
Directors other than the Managing Director as Chairman and Vice Chairman of the Board.
The first Board was constituted as per Government Order No.G.O. (Rt) 4876/69/Fin. Dated
26th November 1969 and they assumed charge on 28th November 1969. The Managing
Director is appointed by the Governor on such terms and remuneration as he may think fit
from among the Directors for the conduct and Management of the business of the company
subject to the control and supervision of the Board of Directors.
SCHEMES OF KSFE LTD
1.Chitty
Chitty is the main product of KSFE. It is a unique financial product, which blends the
advantages of both investment and advance. It is a risk free safe haven for the public as KSFE
conducts only chitties fully governed by the provisions of Central Chit Fund Act 1982. The
installment per month for chitties range from Rs. 1,000 to Rs. 5,00,000 and the usual duration
of chitties are 30 months, 40 months, 50 months, 60 months and 100 months.
2. Loans & Advances:
Although Chitty is in essence a loan/advance scheme, for subscribers whose chitties
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are not getting prized and, at the same time they are in need of money, relief has been
provided by two loan schemes built within the chitty scheme, viz. Chitty Pass Book Loan and
New Chitty Loan. KSFE offers other loan/advance schemes, comparable to those given by
banks and other financial institutions, and the same includes:
Gold Loan Scheme, Reliable Customer Loan, Consumer/Vehicle Loan, Special Car Loan,
New Housing Finance Scheme, Flexy Trade Loan, Tax Planning Loan Scheme, Fixed Deposit
Loan Scheme ,Sugama (Akshaya) Overdraft Scheme, Vidyadhanam Education Loan Scheme
and KSFE Haritham Loan Scheme.
Deposit schemes:
Fixed Deposit, Short Term Deposit, Sugama Deposit (which is similar to the
savings deposit in Banks), Chitty Security Deposit-in-Trust and Sugama Security Account.
4. Fee Based Activities of KSFE:
Western Union Money Transfer - as sub agent of Paul Merchants Ltd, Life insurance
as a corporate agent of LIC, General insurance as a corporate agent of NIC and Xpress Money
Transfer.
5. Securities:
From chitty subscribers and customers who avail loans/advances of KSFE, KSFE
accepts various types of securities which include:
Fixed Deposits with KSFE or approved Banks, Bank Guarantee, NRI Deposits, LIC Policies,
National Savings Certificate (NSC), Kisan Vikas Patra (KVP), Chitty Pass Book of Non-
prized Chitties, Gold Security, Personal surety and Property Security.
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FUTURE PLAN OF KSFE
1. Centralized Chitty Registration.
2. Online Chitty Auction.
3. Chitty payments at the Door step of subscribers.
4. Opening Branches outside Kerala.
5. Spreading weekly chitties to all the KSFE branches.
6. e-remittance facilities for all customers.
7. Foray into the field of M-commerce.
8. Introducing ATM facilities and any time anywhere transaction facilities.
9. Implementation of core solutions software in the company.
10. Going for CRISIL rating to obtain FAAA.
11. Undertaking trading of Gold.
PRODUCT PROFILE
Product mainly mobilizes savings by instruments like chits and deposit schemes and
channelizes them to acquire house and household durables, motor vehicles, equipment for self
employment and provides finance for augmenting working capital needs for small traders.
1.Chitty
Chitty is the main product of KSFE .It is a unique financial product, which blends the
advantages of investment. It is a risk free safe haven for the public as KSFE conducts only
chitties fully governed by the provisions of Central Chit Fund Act 1982.The instalment per
month for chitties range from Rs. 1,000 to Rs. 5, 00,000 and the usual duration of chitties are
30,40,50,60 and 100 months respectively.
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2. New Chitty Loan
New Chitty loan is introduced to bridge the gap between the real need of the subscriber and
the uncertain point of time in future, when the tickets are priced. The principal of advance is
settled by adjustment from the chitty prize money and the interest has to be remitted every
month.
3.Consumer vehicle loan(CVL)
If you have been customer of KSFE, with a good track record ,for one year or more you are
eligible for the advance. The maximum amount of advance is Rs.1,00,000/- on personal
security, and property security and Rs.5,00,000/- on financial documents security. The
maximum duration of advance is 48 months.
4.Gold Loan Scheme
This was launched by the company on 16-10-1979. Under this scheme short term loans are
provided on the security of gold ornaments. Gold coins bullions, etc will not be accepted by
the company for granting gold loan. The rules of the company for the time being relating to
the pledge of ornaments shall be binding on the borrower. This scheme starting short term
loan for a maximum period of 12 months provided in security of gold ornaments.
5.Passbook loan
A non-prized chitty subscriber, without any default in remittances of installments is eligible

for a passbook loan, the ceiling of which is based on certain discounts from the paid up
amount in the respective chitty. No security, other than the passbook is required for the
advance.
6.Trade finance
Trade Finance Scheme is arrived at providing financial assistance to small and medium
traders, businessmen, lottery agents and the like. The repaying period extends from 12 months
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to 60 months.
7.Housing finance
This scheme is intended to provide loans to individuals

 For the purpose of purchase of a dwelling site.
 For purchase of dwelling house other than flats.
 For construction of dwelling house.
 For reservations (repair and maintenance) of existing house.
 For extensions/additional construction of existing house.
8.Sugama deposit scheme
This isn’t a term deposit scheme. This scheme is quite comparable to the savings bank
deposits in banks, but of the course, with marked difference in interest rates. This is
undoubtedly the best offer in the financial service sector, among the deposit schemes
belonging to the Savings bank account category.
9.Fixed Deposit
Fixed Deposit has many features of the FDs in banks. The returns are much higher than that
the offered by any reputed financial institution, the highest interest rate offered by
nationalized and scheduled banks.
10.Car loan
For enabling salaried persons and self employed professional or businessmen or income tax
assesses to acquire new cars availing of advances, with moderate rates of interest. This loan is
intended to provide the following categories.
 Salaried persons having a net monthly pay exceeding Rs.10,000. Husband and wife
can be considered as one unit. Net salary of spouse if employed can be considered for
arriving at the net pay.
 Self employed professionals or businessmen or income tax assesses having an average
annual total income exceeding Rs.2,00,000 for the last 3 years.
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The proof of same such as PAN card / Electoral identity card / Driving License / Passport /
identity card issued by the employer.
11. Reliable Customer Loan (RCL)
This scheme is intended to provide easy credit facility to the customers. All the customers of
KSFE, regardless of the scheme in which he / she is a client, whether employed or not, can be
considered for Reliable Customer loan. He should not be a defaulter at the time of applying
for the loan. The period of the loan extends from 12 to 36 months.
12.Sugama Security Scheme
The Sugama Security Scheme is intended for accepting amount outstanding in Sugama
Deposits as security towards future liability in chitty and other schemes. The advantage under
this scheme is that the advance will be secured and the monthly installments can be adjusted
from the account and at same time the customers can enjoy interest income on the Sugama
deposit.
13.Safe Deposit Locker
Company has just introduced Safe Deposit Locker facility in some units in order to give more
service to the public. Lockers may be hired in the names of:
 Individuals single or joint
 Firms
 Companies
 Association of persons or clubs
 Trustees
 NRI’s
 Government departments
 Co-operative societies
 Body of individuals

14.Tax Planning Loan Scheme(TPLS)
This is a novel loan scheme whereby any income tax payee can avail loan for the purchase of
National Saving Certificates which will entail them for claiming deduction up to Rs.1 lakh
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from the total income of the year. Loan will be given up to 80% of the face value of the
certificate intended to be purchased.
Balance amount has to be remitted by the customer. The amount of loan should be repaid as
principal plus interest in equal monthly installment.
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CHAPTER 4
THEORETICAL FRAMEWORK
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4.1 THEORETICAL FRAMEWORK

RATIO ANALYSIS
Ratio analysis was introduced by Alexander Wall in the year 1919.Ratio analysis is a
technique used by management in studying the relationship between two figures. Probably the
most widely used financial analysis technique is ratio analysis, the analysis of relationships
between two or more line items on the financial statement. Financial ratios are usually
expressed in percentage or times. Computation of ratios involves only a simple arithmetic
operation, but its interpretation is a difficult exercise. The analysis of a ratio disclose
relationships as well as bases of comparison that reveals conditions or trends that cannot be
detected by going through the individual components of ratio . The usefulness of ratios
ultimately depends on their intelligent and skilful interpretation.
MEANING AND DEFINITION OF RATIOS
The relationship between two figures expressed mathematically is called ratio. It is a

numerical relationship between two numbers which are related in some manner. It is
calculated by dividing one by another. Ratios are relationships expressed in mathematical
terms between figures which are connected with other in some manner. Obviously, no
purpose will be served by comparing two sets of figures which are not all connected with each
other. A ratio can be computed from any pair of numbers. Given the large quantity of
variables included in financial statements, a very long list of meaningful ratios can be derived.
A standard list of ratios or standard computation of them does not exist. The following ratio
presentation includes ratios that are most often used when evaluating the credit worthiness of
a customer. Ratio analysis becomes a very personal or company driven procedure. Analysts
are drawn to and use the ones they are comfortable with and understand
ADVANTAGES OF RATIO ANALYSIS
 Simplifies Financial Statements

 Facilitate Intra firm Comparison
 Facilitate Inter firm Comparison
 Helps in Forecasting & Planning
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 Helps in Co-ordination
 Helps in Control
LIMITATIONS OF RATIO ANALYSIS
 Ratios can some time misleading if an analyst does not know the reliability and
soundness of figures.
 Ratios are only preliminary steps in interpretation.
 Ratios can never be substitute if raw figurers.
 Price level changes make ratio analysis difficult.
SIGNIFICANCE OF RATIO ANALYSIS
Ratio analysis is a powerful tool of financial analysis. It is used as a device to analyze &
interpret the financial health of a firm. Analysis of financial statements with the aid of ratios
helps the management in decision making & control.
The use of ratio analysis is not confined to financial managers only. Different parties are
interested in knowing financial position for different purposes. Ratio analysis is used by
creditors, banks, financial institutions, investors and shareholders. It helps them in making
decision regarding the grading of credit and making investments in the firm. Thus Ratio
Analysis has wide applications and is of immense use.
CLASSIFICATION OF RATIOS
1) Liquidity ratios
2) Leverage ratios
3) Profitability ratios
1. Liquidity Ratios
Liquidity ratios measure a firm's ability to meet its current obligations. Liquid assets are those
that can be converted into cash quickly. The short-term liquidity ratios show the firm’s ability
to meet its short-term obligations. Thus a higher ratio would indicate a greater liquidity and
lower risk for short-term lenders. While high liquidity means that the company will not
default on its short-term obligations, one should keep in mind that by retaining assets as cash,
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valuable investment opportunities may be lost. Obviously, cash by itself does not generate any
return. Only if it is invested will we get future return.
a) Current Ratio:
Current Ratio is the relationship between Current Assets and Current liabilities. The Rules of
Thumb for acceptable values are: Current Ratio (2:1) i.e. for every one rupee of current
Liability there must be current assets of Rs.2/-.If the ratio is less than two it is difficult for a
firm to pay current liabilities. If the ratio is more than two, it is an indication of ideal funds.
But a very high current ratio is not desirable, since it means less efficient use of available
funds.
Current Ratio = Current Assets/ Current Liabilities
Current Assets means assets that will be either be used up or converted in to cash within a
year’s time or normal operating cycle of business cycle whichever is longer. Current
Liabilities means Liabilities payable within a year or operating cycle, whichever is longer, out
of the existing current assets or by creation of current Liabilities.
b) Quick Ratio/Acid Test Ratio/Liquid Ratio:
Quick Ratio is the relationship between Quick Assets and Current liabilities. It is also called
acid test ratio because it is the Acid test of a concerns financial soundness.
The Rules of Thumb for acceptable values are: Current Ratio (1:1) i.e. for every one rupee of
current Liability there must be current assets of Rs.1/-.
Quick Ratio= (Current Assets-Inventories)/Current Liabilities
Quick Ratio= Liquid Assets/Current Liabilities
Quick Asset = Total Current Assets–[Inventories + prepaid Expenses]
Quick Liabilities=Total Current Liabilities – Bank overdraft
In the quick ratio, we subtract inventories and prepaid expenses from total current assets,
since they are the least liquid among the current assets. We subtract Bank overdraft from total
current Liabilities, since they are the least Liquid among the current liabilities.
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2. Leverage ratios or Long Term Solvency Ratios
It measures the degree of protection of suppliers of long-term funds and can also aid in
judging a firm's ability to raise additional debt and its capacity to pay its liabilities on time.
a. Debit Equity Ratio:
It shows the relation between total debts and owned capital. It is the ratio of amount invested
by outsiders to the ratio of amount invested by shareholders. Here the rule of thumb is1:1.It
establishes the relationship between share holders fund and out side’s fund. It was calculated
to measure the extents to which debt financing has been used in the business.
Debt Equity Ratio = (Debt / Equity) or (External Equity / Internal Equity)
It is an index of degree of protection the creditors have. A high ratio shows that creditors have
invested more in business than shareholders. A low ratio indicates smaller claim of creditors.
b. Debt ratio/Solvency ratio:

This ratio is the small variant of equity ratio and can be calculated as 100% equity ratio.0.25:1
is the rule of thumb. The ratio indicates the relationship between the total liabilities to
outsiders to total asset of a firm.
DR = Total Assets/ Total Liabilities
3. Profitability Ratio:-
Generally Profitability ratios are calculated either in relation to sales or in relation to
investment. Profitability ratios measure management's ability to control expenses and to earn
a return on the resources committed to the business.
The profitability ratios are
1. Earnings per share ratios

2. Profit margin ratio
3. Foreman’s commission ratio
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4. Interest income ratio

5. Return on asset ratio
Earnings per share ratio (EPS ratio)
The overall profitability can also be judged by calculating earnings per share with the help of
following formula
EPS = Net Profit available to shareholders/Number of equity shares
Foreman’s commission ratio
Foreman’s commission is the main source of income to the KSFE. The foreman is entitled to
certain percentage of the chitty amount (not more than 5% of the chitty amount) as his
commission from each member. This ratio shows the relationship between foreman’s
commission and total income. The ratio calculated as
Foreman’s commission ratio= Foreman’s Commission/ Total Income
Interest income ratio
KSFE offers different loan schemes to the public. It includes gold loan, vehicle loan, chitty
loan, housing loan etc. It is a main source of income to KSFE. This ratio shows the
relationship between total interests received and total income. The ratio is calculated as
Interest income ratio = (Interest Received/ Total Income)*100
Return on asset ratio
Return on assets is also called as Return on Investment (ROI) or Return on Gross Capital
Employed. It is calculated by dividing operating profit by total assets.
Return on asset ratio = (Net Profit after Tax/ Total Assets)*100
27
CHAPTER 5
ANALYSIS AND INTERPRETATION
28
5.1 DATA ANAYSIS AND INTERPRETATION
The data after collection has to be processed and analyzed in accordance with the
outline laid down for the purpose at the time of developing the research plan. This is essential
for the scientific study and for ensuring the researcher has all relevant data for making
contemplated comparison analysis.
Analysis of Financial Statement means a detailed study of Financial Statements by
breaking and rearranging them into a simple format. The analysis of statements will help the
management at self appraisal and the vary statements help the shareholders to judge the
performance of management.
Interpretation is the process of understanding terms of analyzed Financial
Statements and forming opinions about the financial health profitability, efficiency of the
undertaking. According to F. Wood, “interpreting means to put out the meaning of a statement
into simple terms for the benefit of a person”.
Interpretation and Analysis are closely interconnected because interpretation is
impossible without analysis. At the same time, analysis is of no use without interpretation.
RATIO ANALYSIS
Current Ratio:
Current ratio may be defined as the relationship between current assets and current
liabilities. It is the most common ratio for measuring liquidity.
CR = Current Assets/ Current Liability
29
CURRENT ASSETS CURRENT CURRENT

YEAR
(C.A) LIABILITIES (C.L) RATIO
2008-2009 502510.58 263979.01 2.53894
2009-2010 691911.56 379473.32 1.82335
2010-2011 828365.10 497915.45 1.66366
2011-2012 993873.86 600582.84 1.65485
2012-2013
Average 1.93638
Table 3.1.Current ratio
(Source; balance sheet and profit & loss account of KSFE LTD Thrissur 2007-2012)
CURRENT RATIO
3
2.53894
2.5
2.00109
2 1.82335
1.66366 1.65485
1.5
CURRENT RATIO
1
0.5
0
2008 2009 2010 2011 2012
Chart.3.1.Current ratio
Interpretation
As a conventional rule
As a conventional rule a current ratio of 2:1 or more is considered to be best. The current ratio of
the firm for the five years is just satisfactory. The average is showing 1.93638:1.
30
The ratio indicates an average liquidity position of the firm.
Quick Ratio:
This is the ratio of liquid assets to liquid liabilities. Liquid assets are those which can be easily
converted into cash within a short period. It shows a firm’s ability to meet current liabilities
with its most liquid (quick) assets. The ideal liquid ratio is 1:1.
QR = Quick Assets/ Quick Liabilities
Quick Asset = Total Current Assets–[Inventories + prepaid Expenses]
Quick Liabilities=Total Current Liabilities – Bank overdraft
CURRENT QUICK
YEAR QUICK ASSETS
LIABILITIES (C.L) RATIO
2008-2009 499258.25 263979.01 1.89
2009-2010 690241.29 379473.32 1.81
2010-2011 828361.54 497915.45 1.66
2011-2012 993872.44 600582.84 1.65
2012-2013
AVERAGE 1.80
Table 3.2.Quick ratio
31
QUICK RATIO
2.5
1.99
2 1.89
1.81
1.66 1.65
1.5
QUICK RATIO
1
0.5
0
2008 2009 2010 2011 2012
Chart 3.2.Quick ratio
Interpretation
As a conventional rule a quick ratio of 1:1 or more is considered to be best. KSFE achieved
this ratio for all years. The ratio indicates a good liquidity position of the firm.
LEVERAGE RATIO
Debit Equity Ratio:
It shows the relation between total debts and owned capital. It is the ratio of amount invested
by outsiders to the ratio of amount invested by shareholders. Here the rule of thumb is1:1. It
establishes the relationship between share holders fund and out side’s fund. It was calculated
to measure the extents to which debt financing has been used in the business.
Debit equity ratio = Debt/Equity
32
DEBT EQUITY
YEAR DEBT EQUITY
RATIO
2008-2009 22595036291 1344332026 16.81
2009-2010 29729090952 1678665632 17.71
2010-2011 31356021004 1911285525 16.41
2011-2012 36977461462 2592019617 14.27
2012-2013
AVERAGE 16.32
Table 3.3.Debit equity ratio
(Source; balance sheet and profit & loss account of KSFE LTD Thrissur 2007-2012
DEBT EQUITY RATIO

20
17.71
18 16.41 16.81 16.41
16 14.27
14
12
10
DEBT EQUITY RATIO
8
6
4
2
0
2008 2009 2010 2011 2012
Chart 3.3.Debit equity ratio
Interpretation
Debt Equity ratio measures the long term financial solvency of the firm, by relating
between fund and equity. The Debt equity ratio for 2012 is lowest one of previous four
years. There are no norms for any maximum or minimum debt equity ratio. The lower the
debt to equity ratio, the higher the degree of protection felt by the lenders. The ratio
showed a mixed trend. Increasing trend isn’t good.
33
Solvency ratio
The ratio indicates the relationship between the total liabilities to outsiders to total asset of a
firm.
Solvency ratio = Total Assets/ Total outside liability
TOTAL OUTSIDE SOLVENCY

YEAR TOTAL ASSETS
LIABILITIES RATIO
2008-2009 50337228197 26397901015 1.91
2009-2010 69355047843 37947332394 1.83
2010-2011 83058810479 49791545085 1.67
2011-2012 99627724132 60058284188 1.66
2012-2013
AVERAGE 1.81
Table 3.4.Solvency ratio
SOLVENCY RATIO
2.50
2.00
2.00 1.91
1.83
1.67 1.66
1.50
SOLVENCY RATIO
1.00
0.50
0.00
2008 2009 2010 2011 2012
Chart 3.4.Solvency ratio
34
Interpretation
Generally higher the solvency ratio the stronger is the firm’s ability to meet the outside
liabilities. Solvency ratio represents the firm’s ability to pay the outside liabilities. In KSFE
solvency ratios shows a steadily decreasing position from 2008-2012.
PROFITABILITY RATIO
Profitability ratios are best indicators of overall efficiency of the business concern because
they compare return of value over and above the values put into a business with sale or
service carried on by the firm with the help of asset employed. Generally Profitability ratios
are calculated either in relation to sales or in relation to investment. Profitability ratios
measure management's ability to control expenses and to earn a return on the resources
committed to the business.
The profitability ratios are
1. Earnings per share ratios

2. Profit margin ratio
3. Foreman’s commission ratio
4. Interest income ratio
5. Return on asset ratio
Earnings per share ratio (EPS ratio)
The overall profitability can also be judged by calculating earnings per share with the
help of following formula
EPS = Net profit available to shareholder/ Number of equity shares
NET PROFIT AVAILABLE NO.OF EQUITY

YEAR EPS
TO SHAREHOLDER SHARES
2008-2009 1258.22 20 62.911
2009-2010 3813.23 20 190.6615
2010-2011 5224.95 20 261.2475
2011-2012 10955.61 20 547.7805
35
Table 3.5.Earnings per share

EPS
600
547.7805
500
400
300
261.2475 EPS
200 190.6615
100
54.386 62.911
0
2008 2009 2010 2011 2012
Chart 3.5.Earnings per share
Interpretation
EPS shows the profitability of the firm on a per share basis. From 2008 to 2012, the numbers
of share holders have increased from 10 lakhs to 20 lakhs. In the year 2012 has more than
EPS ratio compared to other years. KSFE is more focus to the profitability.
Profit Margin Ratio

Profit margin is very useful when comparing companies in similar industries. Net profit
margin is an indicator of how efficient a company is how well it controls its costs. The higher
margin is, the more effective the company is in converting revenue into actual profit. A higher
profit margin indicates a more profitable company that has better control over its costs
compared to its competitors.
Profit margin ratio= (Net profit after tax/ Total income) *100
36
(Rs.In lakhs )
NET PROFIT AFTER PROFIT MARGIN

YEAR TOTAL INCOME
TAX RATIO
2008-2009 1258.22 43278.35 2.90
2009-2010 3813.23 59394.89 6.42
2010-2011 5224.95 71740.73 7.28
2011-2012 10955.61 84772.29 12.92
Table 3.6.Profit margin ratio

PROFIT MARGIN RATIO

14
12.92
12
10
8
7.28 PROFIT MARGIN
6 6.42
RATIO
4
2.90
2
1.56
0
2008 2009 2010 2011 2012
Chart 3.6.Profit margin ratio
Interpretation
The ratio shows profitability of the firm. Profit margin ratio shows steadily growth trend
throughout the year. So KSFE profit margin is healthy indication.
37
Foreman’s commission ratio
Foreman’s commission is the main source of income to the KSFE. The foreman is entitled to
certain percentage of the chitty amount (not more than 5% of the chitty amount) as his
commission from each member. This ratio shows the relationship between foreman’s
commission and total income. The ratio calculated as
Foreman’s commission ratio = Foreman’s commission / Total Income
(Rs.In lakhs )
FOREMAN'S FOREMAN'S
YEAR NET WORTH
COMISSION COMISSION RATIO
2008-2009 16298.98 13443.32 1.21
2009-2010 23449.23 16786.65 1.39
2010-2011 31393.43 19112.85 1.64
2011-2012 37425.81 25920.19 1.44
AVERAGE 1.334
Table 3.7.Foreman’s commission ratio
38
FOREMAN'S COMISSION RATIO

1.8 1.64
1.6 1.44
1.39
1.4 1.21
1.2
0.99
1
FOREMAN'S
0.8
COMISSION RATIO
0.6
0.4
0.2
0
2008 2009 2010 2011 2012
Chart 3.7.Foreman’s commission ratio
Interpretation
Foreman’s commission is the main source of income to the KSFE. From 2007-08 to 2011-12
the ratio shows a increasing trend. But 2012 foreman’s commission ratio shows a decreasing
trend. But from 2012 KSFE isn’t good for an organization.
Interest Income Ratio
KSFE offers different loan schemes to the public. It includes gold loan, vehicle loan, chitty
loan, housing loan etc. It is a main source of income to KSFE. This ratio shows the
relationship between total interests received and total income. The ratio is calculated as
Interest income ratio = Interest received / Total income x 100
39
(Rs.In lakhs )
INTEREST INTEREST
YEAR TOTAL INCOME
RECEIVED INCOME RATIO
2008-2009 23887.68 43278.35 55.19
2009-2010 32038.67 59394.89 53.94
2010-2011 36452.42 71740.73 50.81
2011-2012 41338.05 84772.29 48.76
Table 3.8.Interest income ratio

INTEREST INCOME RATIO

58
56.97
56
55.19
54 53.94
52
50.81 INTEREST INCOME
50 RATIO
48.76
48
46
44
2008 2009 2010 2011 2012
Chart 3.8.Interest income ratio
Interpretation
Interest income to total income ratio tries to reflect the relation between interest income and
total income the chart shows is due that the fluctuating trend. The ratio shows a decreasing
trend this to changing proportion of total income. Both are increasing but interest income
increasing at a lower value.
40
Return on asset ratio
Return on assets is also called as Return on Investment (ROI) or Return on Gross Capital
Employed. It is calculated by dividing operating profit by total assets.
Return on asset ratio = Net profit after tax/Total assets x100
(Rs.In lakhs )
NET PROFIT RETURN ON

YEAR TOTAL ASSET
AFTER TAX ASSET RATIO
2008-2009 1258.22 503372 0.249
2009-2010 3813.23 693550 0.549
2010-2011 5224.95 830588 0.629
2011-2012 10955.61 996277 1.099
Table 3.9.Return on asset ratio

RETURN ON ASSET RATIO

1.2 1.099
0.8
0.629
0.6 0.549
RETURN ON ASSET
RATIO
0.4
0.249
0.2 0.137
0
2008 2009 2010 2011 2012
Chart 3.9.Return on asset ratio
41
Interpretation
Return on asset ratio shows in graph a increasing trend. It is mainly because of Net profit after
tax comes up from 5224.95 to 10955.61 lakhs of rupees (2010-11 to 2011-12)
42
CHAPTER 6
FINDINGS AND CONCLUSION
43
6.1 FINDINGS
 As a conventional rule a current ratio of 2:1 or more is considered to be best. The

current ratio of the company isn’t enough for paying of current liabilities. The current
ratio of the firm for the five years is just satisfactory.
 As a conventional rule a quick ratio of 1:1 or more is considered to be best. KSFE
achieved this ratio for all years. The ratio indicates a good liquidity position of the
firm.
 There are no norms for any maximum or minimum debt equity ratio. The lower the
debt to equity ratio, the higher the degree of protection felt by the lenders. The ratio
showed a mixed trend. Increasing trend isn’t good.
 Solvency ratio represents the firm’s ability to pay the outside liabilities. In KSFE
solvency ratios shows a steadily decreasing position from 2007-2013. EPS shows the
profitability of the firm on a per share basis. From 2007 to 2008-2012, the numbers of
share holders have increased from 10 lakhs to 20 lakhs. In the year 2012 has more than
EPS ratio compared to other years. KSFE is more focus to the profitability.
 Profit margin ratio shows steadily growth trend throughout the year. So KSFE profit
margin is healthy indication.
 Foreman’s commission is the main source of income to the KSFE. From 2007-2011
the ratio shows a increasing trend. But 2012 foreman’s commission ratio shows a
decreasing trend. But from 2012 KSFE isn’t good for an organization.
 Interest income to total income ratio tries to reflect the relation between interest
income and total income the chart shows that the fluctuating trend. The ratio shows a
decreasing trend this is due to changing proportion of total income. Both are
increasing but interest income increasing at a lower value.
 Return of asset ratio shows a steadily increasing trend. So the company’s performance
is satisfactory
44
 In comparative income statements, the overall performance of income sources such as

foreman’s commission, interest income etc shows an increasing trend. The
expenditure also shows increasing trend. We could find that the total income of the
firm is more than the total expenditure. And also the operating profit shows an
increasing trend during the five years. But KSFE is making profit continuously.
 On comparing the balance sheet for various years, we could find that the relationship
between current assets and current liabilities is satisfactory. This is a healthy
indication of KSFE.
 The trend analysis of working capital shows an increasing trend during the year 2012
compared to 2007, which is taken as the base year ie approximately. Thus overall
working capital position is good and indicates an improvement in the financial
position of the organization.
45
6.2 RECOMMENDATIONS
 The company’s liquidity position has to improved by the way of increasing the volume of
business.
 The company should efficiently utilize its working capital to profitable businesses such
as chitty, loans etc
 The company should adopt new marketing tools to know much about its products to
customers.
 Company should remit loans and advances as early as possible.
 The firm can balance liquidity and profitability by reducing the current liabilities.
 The company should take necessary steps to improve their promotional activities.
 An estimate of cash requirement should be prepared in order to understand the future
cash needs.
 Suitable techniques should be introduced for the better management of assets.
 The firm should take adequate care while applying the funds in purchase of fixed assets,
redemption of share etc.
 The firm should not depend more on long term funds for purchasing the fixed assets.
 For the better management of working capital in future, proper techniques should be
introduced.
 Since the competition is becoming so tight, the firm should give prime importance to its
competitors.
 KSFE should reduce the unproductive expenses
 By introducing core banking system it makes easy payment and speed up collection
 The company can increase its profitability by giving due care to housing finance sector.
46
6.3 CONCLUSION
The study considered on the financial performance analysis of KSFE LTD, Thrissur. The
journey of KSFE LTD started out slowly in small scale basis, but today KSFE LTD has got a
great role in the financial market of Kerala.
It is based on the published study annual report of the company. Various financial tools are
used in this study. It can conclude that the liquidity position of the firm is not satisfactory.
During the period of study there is no enough current assets to meet the current liabilities of
the firm. The expenditure of the firm shows an increasing trend. It is not good situation. Profit
of the company in a fluctuating trend but KSFE is a profit making company. Earnings per
share of the company are in a increasing trend. It is a good situation. The analysis and
findings about the financial performance will be an indicator of the weak points was the
company should more concentrate. The chit fund as an innovative access of finance to low
and medium income people, from the analysis done it is determined that the profitability of
KSFE LTD is increasing over the years and the chit funds act as an innovative access of
finance for low and medium income people by providing immediate fund for them.
Finally the study helped me to acquire practical knowledge that was only over by books and
papers alone. I take up this opportunity to thank one and all for making this study a complete
one.
47

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A Study On Financial Performance By Ratio Analysis

KERALA STATE FINANCIAL ENTERPRISES LTD came into existence in 1969 as a

The project is conducted in KERALA STATE FINANCIAL ENTERPRISES LTD and is

1.2 STATEMENT OF THE PROBLEM

1.3 SCOPE OF THE STIUDY

1.4 OBJECTIVE OF THE STUDY

 To study the present financial system of KSFE LTD.

1.6 TOOLS FOR THE STUDY

1.7 LIMITATIONS OF THE STUDY

 The financial analysis mainly depends upon secondary data.

2.1 REVIEW OF LITERATURE

3.1 INDUSTRY PROFILE

The Hierarchy of NBFCs in India- NBFIs

Non-Banking Financial Companies(NBFC) also known as non-banks are financial

RBI DEFINITION OF NBFC

3.2 COMPANY PROFILE

Type Public sector

Founded 6th November 1969

Kerala State Financial Enterprises Limited (KSFE) is a public sector non-banking

1. KSFE was created by the Government of Kerala on 6 November 1969.

 Providing a whole range of quality services and products.

The following are the important objectives

MANAGEMENT OF KSFE LTD

SCHEMES OF KSFE LTD

2. Loans & Advances:

Although Chitty is in essence a loan/advance scheme, for subscribers whose chitties

4. Fee Based Activities of KSFE:

FUTURE PLAN OF KSFE

1. Centralized Chitty Registration.

2. Online Chitty Auction.

3. Chitty payments at the Door step of subscribers.

4. Opening Branches outside Kerala.

5. Spreading weekly chitties to all the KSFE branches.

6. e-remittance facilities for all customers.

7. Foray into the field of M-commerce.

8. Introducing ATM facilities and any time anywhere transaction facilities.

9. Implementation of core solutions software in the company.

10. Going for CRISIL rating to obtain FAAA.

11. Undertaking trading of Gold.

2. New Chitty Loan

3.Consumer vehicle loan(CVL)

4.Gold Loan Scheme

A non-prized chitty subscriber, without any default in remittances of installments is eligible

This scheme is intended to provide loans to individuals

8.Sugama deposit scheme

11. Reliable Customer Loan (RCL)

12.Sugama Security Scheme

14.Tax Planning Loan Scheme(TPLS)

4.1 THEORETICAL FRAMEWORK

MEANING AND DEFINITION OF RATIOS

The relationship between two figures expressed mathematically is called ratio. It is a

ADVANTAGES OF RATIO ANALYSIS

 Simplifies Financial Statements

LIMITATIONS OF RATIO ANALYSIS

SIGNIFICANCE OF RATIO ANALYSIS

b) Quick Ratio/Acid Test Ratio/Liquid Ratio:

Quick Ratio= (Current Assets-Inventories)/Current Liabilities

Quick Ratio= Liquid Assets/Current Liabilities

Quick Asset = Total Current Assets–[Inventories + prepaid Expenses]

Quick Liabilities=Total Current Liabilities – Bank overdraft

2. Leverage ratios or Long Term Solvency Ratios

a. Debit Equity Ratio:

Debt Equity Ratio = (Debt / Equity) or (External Equity / Internal Equity)

b. Debt ratio/Solvency ratio: