Hetal Sip Final.docx

CHAPTER I INTRODUCTION

1

Financial statement analysis is the process of analyzing a company's financial statements for decision-making purposes and to understand the overall health of an organization. Financial statements record financial data, which must be evaluated through financial statement analysis to become more useful to investors, shareholders, managers, and other interested parties. Analysis and interpretation of financial statements are an attempt to determine the significance and meaning of the financial statement data so that a forecast may be made of the prospects for future earnings, ability to pay interest, debt maturities, both current as well as long term, and profitability of sound dividend policy Financial statement analysis is an evaluative method of determining the past, current, and projected performance of a company.

Need and Significance of Ratio Analysis. The analysis and interpretation of financial statements is useful in achieving several objectives: 

The evaluation of past performance.



The assessment of current status.



The prediction of future potential.



Take the right decisions to maximize profits and resources.

Being basically historical in nature, the financial statements are more convenient for the first two purposes. However, most readers of the financial statements are interested in the future, i.e. by the Company’s ability to grow and prosper and the availability of the company to adapt to varying conditions. Properly used, the analysis of financial statements can provide a basis for projecting future and clues about how the company will respond to these future situations. In short, financial analysis serves the following purposes •

Measuring the profitability

•

Indicating the trend of achievements

•

Assessing the growth potential of the business

•

Comparative position in relation to other firms 2

•

Assess overall financial strengths

•

Assess solvency of the firm

From an external perspective, allows presenting the situation and possible evolution of the entity to all external users: Interested Parties are as follows•

Investors

•

Management

•

Trade unions

•

Lenders

•

Suppliers and trade creditors

•

Tax authorities

•

Researchers

•

Employees

•

Govt. and their agencies

•

Stock exchange

3

CHAPTER II RESEARCH METHODOLOGY

4

2.1 Objectives of the Study:-

 To carry out trend analysis based on financial variables for last 3 years of Karda construction Ltd.  To compare the Financial Performance of Karda construction with its competitors.

5

2.2

RESEARCH METHODOLOGY:-

Research is an intellectual activity. It is responsible for bringing to light new knowledge. It is also responsible for correcting the present mistakes, removing existing misconceptions and adding new learning to the existing fund of knowledge. Researchers are considered as a combination of those activities which are removed from day to day life and are pursued by those persons who are gifted in intellect and sincere in pursuit of knowledge.

Research Methodology is a way to find out the result of a given problem on a specific matter or problem that is also referred as research problem. In Methodology, researcher uses different criteria for solving/searching the given research problem. Different sources use different type of methods for solving the problem. The process used to collect information and data for the purpose of making business decisions. The methodology may include publication research, interviews, surveys and other research techniques, and could include both present and historical information. A researcher requires many data gathering tools or techniques. Tests are the tools of measurement and it guides the researcher in data collection and also in evaluation. Tools may vary in complexity, interpretation, design and administration. Each tool is suitable for the collection of certain type of information.

One has to select from the available tools those which will provide data he seeks for testing hypothesis. It may happen that existing research tools do not suit the purpose in some situation, so researcher should modify them or construct his own.

Different tools used for data collection may be:6

1. Questionnaires 2. Interviews 3. Schedules 4. Observation Techniques 5. Rating Scales

Research framework: This study is based on the data about KARDA CONSTRUCTION LTD. for a detailed study of its financial statements, documents and ratios and finally to recognize and determine the position of the company. Types of data which used to prepare this report: PRIMARY DATA: - First type is the primary data which was collected personally to be used and studied to prepare and reach the objectives already mentioned. SECONDARY DATA: - The secondary data which was already prepared so these data was only used to reach the aims and objectives of this project. These data has been collected from the financial reports of the company.

How the data was collected: The source of collecting the primary data was through interviews, observation and questionnaire. It was collected from the discussion and interaction with the senior employees and executives in the organization from the accounts and finance department, however the secondary one was collected from the financial statements already available to the employees of the company and some of which was published. Personal Interview:Personal Interview method requires a person known as the interviewer asking questions generally in a face to face contact to the other person or persons. 7

In some cases, I had the chance to ask my questions personally from the Head of Accounts department and Head of HR Department regarding the information I needed. Different questions and information I could collect during these methods are: 1. The beginning and history of the Karda Construction Ltd. 2. Numbers of staff working for different departments. 3. The mission & vision of the company. 4. Areas of operations. 5. Other company related information.

Printed and Digital Sources:The secondary data I collected was through the study of the financial statements already existed in the company in form of printed files or digital files reserved in the company for further references. I had chosen these files because of the reliability and suitability of this information which I was also sure about the accuracy of them. These files consist of: 1. Annual report of the company 2. Financial balance sheets 3. Income statements 4. Financial reports

8

2.3LIMITATIONS OF THE STUDY:The ratios analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, they suffer from serious limitations. 1. Limitations of financial statements: Ratios are based only on the information which has been recorded in the financial statements. Financial statements themselves are subject to several limitations. Thus ratios derived, there from, are also subject to those limitations. For example, non-financial changes though important for the business are not relevant by the financial statements. Financial statements are affected to a very great extent by accounting conventions and concepts. Personal judgment plays a great part in determining the figures for financial statements. 2. Comparative study required: Ratios are useful in judging the efficiency of the business only when they are compared with past results of the business. However, such a comparison only provide glimpse of the past performance and forecasts for future may not prove correct since several other factors like market conditions, management policies, etc. may affect the future operations. 3. Problems of price level changes: A change in price level can affect the validity of ratios calculated for different time periods. In such a case the ratio analysis may not clearly indicate the trend in solvency and profitability of the company. The financial statements, therefore, be adjusted keeping in view the price level changes if a meaningful comparison is to be made through accounting ratios. 4. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are no well accepted standards or rule of thumb for all ratios which can be accepted as norm. It renders interpretation of the ratios difficult. 5. Limited use of single ratios: A single ratio, usually, does not convey much of a sense. To make a better interpretation, a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any good decision. 6. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to interpret and different people may interpret the same ratio in different way. 7. Incomparable: Not only industries differ in their nature, but also the firms of the similar business widely differ in their size and accounting procedures etc. It makes comparison of ratios difficult and misleading.

9

CHAPTER III REVIEW OF LITERATURE AND THEORETICAL BACKGROUND OF THE STUDY

10

REVIEW OF LITERATURE

Krishna Prasad Upadhyay (2004) used different types of financial ratios to check up the financial performance of the selected finance companies. Basically in this study he used solvency ratio, liquidity ratio, efficiency ratio, profitability ratio and valuation ratio. Different measures like return on investment, return on equity, return on assets, earning per share, dividend per share, and asset utilization ratio are used to assess the profitability of the companies. He concluded his study stating that the solvency position of both companies is not sound and credit creation capacity is good in both the companies in aggregate.

Chidamburam Ramesh Kumar, Dr. N. Anbumani (2006) argue that ratio analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this compare your ratios with the average of busin4esses similar to yours and compare your own ratios for several successive years, watching especially any unfavorable trends that may be starting. Ratio 67 analysis may provide the all-important early warning indications and it enables to sort out your business problems and the same from distress.

11

FINANCIAL ANALYSIS Financial statements are final result of accounting work done during the accounting period. Financial statements normally include Trading, Profit and Loss Account and Balance Sheet. The users of accounting information may not be able to get direct reply to certain questions from the above statements. However, by expressing the items in the financial statements, in relation to each other we can get meaningful information. Analysis of financial statement has been defined as “a process of evaluating the relationship between the component parts of the financial statements to obtain a better understanding of a firm’s position and performance”. Financial statement analysis is an important part of the overall financial assessment. The different users look at the business concern from their respective view point and are interested in knowing about its profitability and financial condition. A detailed cause and effect study of the profitability and financial condition is the overall objective of financial statement analysis. Financial analysis is the process of identifying the financial strengths and weaknesses of the firm and establishing relationship between the items of the balance sheet and profit & loss account. Financial ratio analysis is the calculation and comparison of ratios, which are derived from the information in a company’s financial statements. The level and historical trends of these ratios can be used to make inferences about a company’s financial condition, its operations and attractiveness as an investment. The information in the statements is used by:1) Trade creditors, to identify the firm’s ability to meet their claims i.e. liquidity position of the company. 2) Investors, to know about the present and future profitability of the company and its financial structure. 3) Management, in every aspect of the financial analysis. It is the responsibility of the management to maintain sound financial condition in the company. Types of financial statements include:12

 The Income statement / Profit and loss statement.  The balance sheet/ statement of assets and liabilities.  The statement of cash flows.

Ratio Analysis: Ratio is an expression of one number in relation to another. Ratio analysis is the process of determining and interpreting the numerical relationship between figures of financial statements. A ratio is a mathematical relationship between two items expressed in a quantitative form. An absolute figure does not convey much meaning. Generally, with the help of other related information the significance of the absolute figure could be understood better.

Ratios are relative figures reflecting the relation between variables. They enable analyst to draw conclusions regarding financial operations. They use of ratios as a tool of financial analysis involves the comparison with related facts. This is the basis of ratio analysis. The basis of ratio analysis is of four types. 

Past ratios, calculated from past financial statements of the firm.



Competitor’s ratio, of the some most progressive and successful competitor firm at the same point of time.



Industry ratio, the industry ratios to which the firm belongs to.



Projected ratios, ratios of the future developed from the projected or pro forma financial statements

Ratios are expressed in three ways: 1. Time: In this type of expression one number is divided by another number and the quotient is taken as number of times. For example, expressing the attendance of 40 students present in a class of 80students would be: 13

40 —— = 0.5 times 80

2. Percentage: It is expressed in Percentage. When the above example is expressed as percentage, it would be as under 40 —— x 100 = 50% 80

3. Pure: It is expressed as a proportion. In the above example, this would be as under 40 1 —— = —— = 0.5 80 2 This may also be expressed as 0.5:1.

The study of relationships between various items or groups ofitems in financial statements is known as ‘Financial Ratio Analysis’.

14

CLASSIFICATION OF RATIOS:-

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ARE:_

15

A) Liquidity ratio:Liquidity Ratios measure the firms’ ability to pay off current dues i.e., repayable within a year. Liquidity ratios are otherwise called as Short Term Solvency Ratios. The important liquidity ratios are 1. Current Ratio 2. Liquid Ratio 3. Absolute Liquid Ratio

1. Current Ratio: This ratio is used to assess the firm’s ability to meet its current liabilities. The relationship of current assets to current liabilities is known as current ratio.

CURRENT RATIO =

𝑪𝒖𝒓𝒓𝒆𝒏𝒕𝑨𝒔𝒔𝒆𝒕𝒔 𝑪𝒖𝒓𝒓𝒆𝒏𝒕𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

Current Assets are those assets, which are easily convertible into cash within one year. This includes cash in hand, cash at bank, sundry debtors, bills receivable, short term investment or marketable securities, stock and prepaid expenses.

Current Liabilities are those liabilities which are payable within one year. This includes bank overdraft, sundry creditors, bills payable and outstanding expenses.

2. Liquid Ratio: This ratio is used to assess the firm’s short term liquidity. The relationship of liquid assets to liquid liabilities is known as liquid ratio. It is otherwise called as Quick ratio or Acid Test ratio.

16

Quick / Acid Test Ratio =

𝑸𝒖𝒊𝒄𝒌𝑨𝑺𝒔𝒆𝒕

𝑸𝒖𝒊𝒄𝒌𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

Liquid assets mean current assets less stock and prepaid expenses. Liquid liabilities mean current liabilities less bank overdraft. This ratio is a better tool to measure the ability to honour day-to-day commitments. It indicates whether the firm has the ability to pay its short term liabilities or not.

3. Absolute Liquid Ratio:

It is a modified form of liquid ratio. The relationship of absolute liquid assets to liquid liabilities is known as absolute liquid ratio. This ratio is also called as ‘Super Quick Ratio’.

Absolute Liquidity Ratio= Cash/bank+ Short term investments Current liabilities

Absolute liquid assets mean cash, bank and short term investments. Liquid liabilities mean current liabilities less bank overdraft.

B) Solvency Ratios:Solvency refers to the firm’s ability to meet its long term indebtedness. Solvency ratio studies the firm’s ability to meet its long term obligations. The following are the important solvency ratios: 1. Debt-Equity Ratio 2. Proprietary Ratio

17

1. Debt Equity Ratio: This ratio helps to ascertain the soundness of the long term financial position of the concern. It indicates the proportion between total long term debt and shareholders’ funds. This also indicates the extent to which the firm depends upon outsiders for its existence.

Debt Equity Ratio =

𝑳𝒐𝒏𝒈−𝑻𝒆𝒓𝒎𝑫𝒆𝒃𝒕 𝑺𝒉𝒂𝒓𝒉𝒐𝒍𝒅𝒆𝒓𝒔′ 𝑭𝒖𝒏𝒅∗

Shareholders’ Fund = Share Capital + Reserves and Surplus. This ratio is calculated to measure the comparative proportion of borrowed funds and shareholders’ funds invested in the firm. Total long term debt includes Debentures, long term loans from banks and financial institutions. Shareholders’ funds include Equity share capital, Preference share capital, Reserves and surplus. The proportion between the two sources should be properly balanced; otherwise the firm may face problems.

2. Proprietary Ratio This ratio shows the relationship between proprietors or shareholders’ funds and total tangible assets.

𝒑𝒓𝒐𝒑𝒓𝒊𝒆𝒕𝒐𝒓𝒚𝒇𝒖𝒏𝒅

Proprietary ratio =

𝒕𝒐𝒕𝒂𝒍𝒂𝒔𝒔𝒆𝒕𝒔

X 100

Tangible assets will include all assets except goodwill, preliminary expenses etc.It provides a rough estimate of the amount of capitalization currently used to support a business. If the ratio is 18

high, this indicates that a company has a sufficient amount of equity to support the functions of the business, and probably has room in its financial structure to take on additional debt, if necessary. Conversely, a low ratio indicates that a business may be making use of too much debt or trade payables, rather than equity, to support operations (which may place the company at risk of bankruptcy).

C) Activity/Turnover ratio:Activity ratios indicate the performance of the business. The performance of a business is judged with its sales (turnover) or cost of goods sold. These ratios are thus referred to as turnover ratios. A few important activity ratios are discussed below:

1. Capital turnover ratio 2. Fixed assets turnover ratio 3. Stock turnover ratio 4. Debtors turnover ratio 5. Creditors turnover ratio

1. Capital Turnover Ratio This shows the number of times the capital has been rotated in the process of carrying on business. Efficient utilization of capital would lead to higher profitability. The relationship between Sales and Capital employed is known as Capital Turnover Ratio.

Capital turnover ratio= Net sales Capital employed

Where Sales means Sales less sales returns and Capital employed refers to total long term funds of the business concern i.e., 19

Equity share capital, Preference share capital, Reserves and surplus and Long term borrowed funds.

2. Fixed Assets Turnover Ratio: This shows how best the fixed assets are being utilized in the business concern. The relationship between Sales and Fixed assets is known as fixed assets turnover ratio.

Fixed assets turnover ratio =

𝒄𝒐𝒔𝒕𝒐𝒇𝒔𝒂𝒍𝒆𝒔

𝒏𝒆𝒕𝒇𝒊𝒙𝒆𝒅𝒂𝒔𝒔𝒆𝒕𝒔

Fixed assets mean fixed assets less depreciation. This ratio specifically measures how able a company is to generate net sales from fixed-asset investments, namely property, plant and equipment (PP&E), net of depreciation. In a general sense, a higher fixed-asset turnover ratio indicates that a company has more effectively utilized investment in fixed assets to generate revenue.

3. Stock Turnover Ratio:

This ratio is otherwise called as inventory turnover ratio. It indicates whether stock has been efficiently used or not. It establishes a relationship between the cost of goods sold during a particular period and the average amount of stock in the concern. The ratio is calculated as:

Inventory turnover ratio=

𝒄𝒐𝒔𝒕𝒐𝒇𝒈𝒐𝒐𝒅𝒔𝒔𝒐𝒍𝒅 𝒔𝒕𝒐𝒄𝒌

If information to calculate average stock is not given then closing stock may be taken as average stocK 20

4. Debtors Turnover Ratio This establishes the relationship between credit sales and average accounts receivable. Debtors turnover ratio indicates the efficiency of the business concern towards the collection of amount due from debtors. The ratio is calculated as:

Debtors turnover ratio =

𝒏𝒆𝒕𝒔𝒂𝒍𝒆𝒔 𝒂𝒗𝒈.𝒅𝒆𝒃𝒕𝒐𝒓𝒔

Accounts receivable includes sundry debtors and bills receivable . In case credit sales are not given, total sales can be taken as credit sales.

5. Creditors Turnover Ratio: This establishes the relationship between credit purchases and average accounts payable. Creditor’s turnover ratio indicates the period in which the payments are made to creditors. The ratio is calculated as:

Creditors turnover ratio= Net credit purchases Average Creditors

Accounts payable include sundry creditors and bills payable. In case a credit purchase is not given total purchases can be taken as credit purchases.

21

D) Profitability ratio:Efficiency of a business is measured by profitability. Profitability ratio measures the profit earning capacity of the business concern. The important profitability ratios are discussed below: 1. Gross Profit Ratio 2. Net Profit Ratio 3. Operating Profit Ratio 4. Operating Ratio

1. Gross Profit Ratio This ratio indicates the efficiency of trading activities. The relationship of Gross profit to Sales is known as gross profit ratio. This ratio is calculated as:

Gross Profit Ratio =

𝑮𝒓𝒐𝒔𝒔𝑷𝒓𝒐𝒇𝒊𝒕 𝑵𝒆𝒕𝑺𝒂𝒍𝒆𝒔

X 100

Gross profit is taken from the Trading Account of a business concern. Otherwise Gross profit can be calculated by deducting cost of goods sold from sales. Sales mean Net sales. Gross Profit = Sales –– Cost of goods sold

Cost of goods sold = Opening Stock + Purchases–– Closing Stock (Or) Sales –– Gross Profit

22

2. Net Profit Ratio: This ratio determines the overall efficiency of the business. The relationship of Net profit to Sales is known as net profit ratio. The ratio is calculated as:

Net Profit Ratio =

𝑵𝒆𝒕𝑷𝒓𝒐𝒇𝒊𝒕 𝑵𝒆𝒕𝑺𝒂𝒍𝒆𝒔

X 100

Net profit is taken from the Profit and Loss account of the business concern or the gross profit of the concern less administration expenses, selling and distribution expenses and financial expenses.

3. Operating Profit Ratio: This ratio is an indicator of the operational efficiency of the management. It establishes the relationship between Operating profit and Sales. The ratio is calculated as:

Operating Profit Ratio =

𝑶𝒑𝒆𝒓𝒂𝒕𝒊𝒏𝒈𝑷𝒓𝒐𝒇𝒊𝒕 𝑵𝒆𝒕𝑺𝒂𝒍𝒆𝒔

X 100

Where operating profit is Net profit + Non-operating expenses –– Non-operating income.

Where, Non-operating expenses are interest on loan and loss on sale of assets.

23

Non-operating incomes are dividend, interest received and profit on sale of asset. (Or) Operating profit = Gross profit –– Operating expenses.

Operating expenses include administration, selling and distribution expenses. Financial expenses like interest on loan are excluded for this purpose.

4. Operating Ratio:

This ratio determines the operating efficiency of the business concern. Operating ratio measures the amount of expenditure incurred in production, sales and distribution of output. The relationship between Operating cost to Sales is known as Operating Ratio.

Operating ratio= Cost of goods sold + Operating ExpensesX 100 Net sales The profitability related to investments includes: 1. Return on capital employed. 2. Price earnings ratio. 3. Earnings per share. 4. Dividend payout ratio 5. Dividend yield ratio.

1. Return on capital employed: Return on capital employed or ROCE is a profitability ratio that measures how efficiently a company can generate profits from its capital employed by comparing net operating profit to capital

24

employed. In other words, return on capital employed shows investors how many dollars in profits each dollar of capital employed generates.

Capital employed= Equity capital + Preference capital + Reserves & surplus + Long term debt – Fictitious assets

Return on capital employed =

𝑵𝒆𝒕𝑷𝒓𝒐𝒇𝒊𝒕 𝒃𝒆𝒇𝒐𝒓𝒆 𝒊𝒏𝒆𝒓𝒆𝒔𝒕 𝒂𝒏𝒅 𝒕𝒂𝒙 𝒄𝒂𝒑𝒊𝒕𝒂𝒍 𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅

X 100

ROCE is a long-term profitability ratio because it shows how effectively assets are performing while taking into consideration long-term financing.This ratio is based on two important calculations: operating profit and capital employed. Net operating profit is often called EBIT or earnings before interest and taxes. EBIT is often reported on the income statement because it shows the company profits generated from operations. EBIT can be calculated by adding interest and taxes back into net income if need be.

2. Price earnings ratio:The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its current shareprice relative to its per-share earnings.

Price earnings ratio=

𝑴𝒂𝒓𝒌𝒆𝒕 𝒑𝒓𝒊𝒄𝒆 𝒑𝒆𝒓 𝒆𝒒𝒖𝒊𝒕𝒚 𝒔𝒉𝒂𝒓𝒆 𝒆𝒂𝒓𝒏𝒊𝒏𝒈 𝒑𝒆𝒓 𝒔𝒉𝒂𝒓𝒆

3. Earnings per share: 25

This is one of the important indicators of performance of a company. Earnings per share indicate the amount of profit available for distribution amongst the equity shareholders.

Earnings per share =

𝑵𝒆𝒕 𝒑𝒓𝒐𝒇𝒊𝒕 𝒂𝒇𝒕𝒆𝒓 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕,𝒕𝒂𝒙 𝒂𝒏𝒅 𝒑𝒓𝒆𝒇𝒆𝒓𝒆𝒏𝒄𝒆 𝒅𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒆𝒒𝒖𝒊𝒕𝒚 𝒔𝒉𝒂𝒓𝒆

4. Dividend payout ratio: The dividend payout ratio is the amount of dividends paid to stockholders relative to the amount of total net income of a company. The amount that is not paid out in dividends to stockholders is held by the company for growth. The amount that is kept by the company is called retained earnings.

Dividend payout ratio =

𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝒑𝒆𝒓 𝒔𝒉𝒂𝒓𝒆 𝑬𝒂𝒓𝒏𝒊𝒏𝒈 𝒑𝒆𝒓 𝒔𝒉𝒂𝒓𝒆

X 100

5. Dividend Yield ratio: The dividend yield or dividend-price ratio of a share is the dividend per share, divided by the price per share. It is also a company's total annual dividend payments divided by its market capitalization, assuming the number of shares is constant. It is often expressed as a percentage.

Dividend yield ratio =

𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝒑𝒆𝒓 𝒔𝒉𝒂𝒓𝒆 𝑴𝒂𝒓𝒌𝒆𝒕 𝒑𝒓𝒊𝒄𝒆 𝒑𝒆𝒓 𝒔𝒉𝒂𝒓𝒆

X

100 26

CHAPTER IV ORGANISATIONAL PROFILE

27

INDUSTRY PROFILE INDIA’S REAL ESTATE SECTOR Overview: The real estate sector in India is at a crucial juncture of its evolution. While a significantly large portion of the industry is still dominated by unorganized and marginal players; there has been a consistent rise in share of organized players with number of listed companies growing over the recent years. Arrival of foreign direct investment, spreading national or regional footprints of organized players from their traditional city or region of dominance, development breaching the confinement of metropolitan cities to get reach tier I and tier II cities, rise of commercial and retail segments together with already residential segment, and fast emergence of holiday or second home as a category have contributed to a faster transformation of real estate sector in India over the past decade.

While India continues to be one of the fastest growing economies, this pace of growth is unlikely to sustain unless it is supported by an equally robust development of its infrastructure. Key requirements in order to achieve a GDP growth rate exceeding 8-9% include roads, power, ports as well as urban infrastructure. The last couple of budgets have taken steps in the right direction for growth of the sector. An allocation of Rs. 200 billion towards infrastructure projects under the 2013 budget is an attempt to achieve the Government’s target for growth of Infrastructure under the Eleventh Plan.

Slowdown in the global economy along with consistent increase in policy rates by the Reserve Bank of India (RBI) finally seems to be impacting the domestic economy with the GDP growth cooling down since past few quarters.

The GDP growth recorded during first quarter of financial year 2014 has slowed down to 7.7percent as against 9.3 per cent during first quarter of financial year 2013.Even the projected GDP growth for financial year 2014 has been revised downward to 7.9 per cent from 8.2 percent by the RBI. 28

The real estate sector in India is being recognized as an infrastructure service that is driving the economic growth engine of the country. In fact, Foreign Direct Investment (FDI) in the sector is expected to increase to US$ 25 billion in the next 10 years, from present US$ 4 billion. The country's urban population will soar to 590 million by 2030, from 340 million in 2010.India's cities could generate 70 percent of the net new jobs created by 2030, produce more than70 percent of the country's Gross Domestic Product (GDP), and stimulate a near four-fold increase in per capita income. It also says that India needs to invest US$ 1.2 trillion over next 20years to modernize urban infrastructure and keep pace with the growing urbanization.

Non-resident Indians and foreign citizens who are Persons of Indian Origin (PIO) are allowed to purchase immoveable property in India. Residential property prices have stabilized now and are deemed attractive for the NRI home buyer. Industry experts feel that with attractive pricing and innovation in construction technology and variety of designs, NRIs are taking a fresh look at India as a unique market in which they can invest.

Driving Forces 

Stated below are the reasons that have led to the real estate boom in the country:  Booming economy; accelerated GDP to 8% p.a.  India’s emergence as an attractive offshoring destination and availability of pool of highly skilled technicians and engineers; Development of large captive units of major players include GE, Prudential, HSBC, Bank of America, Standard Chartered and American Express • Rise in disposable income and growing middle class, increasing the demand for quality residential real estate and real estate as an investment option.  Entry of professional players equipped with expertise in real estate development;  Relaxation of legal rulings and processes by the governing bodies encouraging investments in real estate  Improvement in infrastructure facilities

Major challenges for Real Estate India: 29

1. Raising funds is the most difficult challenge for the real estate projects. Indian real estate has suffered from plummeting inflow of funds in the past year. The inflow has been hurt by Eurozone crisis and low performing global economy. 2. Input cost has been rising steeply due to inflation. Real estate is a capital and labor intensive industry and rise in cost of construction materials as well as in labor makes it harder for realty developers to reduce prices of the unsold units. Cost of cement has gone up by as high as 50% in few states and cost of steel per ton has gone up to Rs. 52,000 from Rs. 40,000 per ton till the first quarter of 2012-13 year. Labor prices have risen by 40%50% during the same period. 3. Financing cost is also on the rise for developers. As the number of defaulters increases, commercial banks have become more restrictive in lending money to the developers. Developers have to rely on lending from alternate sources at high rate of interests which again pushes up property prices. As a result, prices go above the buyer’s range, making it difficult for the units to get sold. 4. There is a huge gap between the demand and supply of affordable homes across the country. Ministry of Housing and Urban Poverty Alleviation (MHUPA) estimates the urban housing shortage in the country to be 24.71 million at the end of the 10th Five-Year Plan. Recent allowance of external commercial borrowing in to the affordable housing brings in a sign of relief to the developers. It opens up avenue to the developers who are constructing affordable homes to avail loans at lower interest rate. 5. However, there is a downside to emphasis on affordable housing in India. The government has urged the developers to reserve 20% of a developed project for affordable housing, which would mean that the increased burden on the developer could very well be passed on to the rest of the 80%. 6. There is a need to look beyond the IT/ITeS industry when it comes to commercial office space. Any upset in the IT sector would inevitably have a huge impact on absorption of office spaces in cities like Bangalore, Noida and Gurgaon. 7. Speculation in property and land prices have led to the unreal price appreciation in Indian real estate market. Overpricing has been deterring customers from buying homes and as result there

30

exists a huge number of unsold units. Foreign Private Equity funds have been blamed for this to a certain extent as they look for a high return in a short period of time. 8. Lack of transparency also hampers the Indian real estate. Land encroachment, lack of regulation act as a deterrent to foreign investors looking to invest in Indian realty. An independent body appraising prices of lands as per international standard is needed in India to bring in the much needed transparency.

Road Ahead: Responding to an increasingly well-informed consumer base and, bearing in mind the aspect of globalization, Indian real estate developers have shifted gears and accepted fresh challenges. The most marked change has been the shift from family owned businesses to that of professionally managed ones. Real estate developers, in meeting the growing need for managing multiple projects across cities, are also investing in centralized processes to source material and organize manpower and hiring qualified professionals in areas like project management, architecture and engineering. The growing flow of FDI into Indian real estate is encouraging increased transparency. Developers, in order to attract funding, have revamped their accounting and management systems to meet due diligence standards.

Real estate in NASIK: Nasik has been developing rapidly over last fifteen years. This city's multiple economic drivers include its proximity to Mumbai and its strategic location on the Central Railway main line and the Mumbai-Agra National Highway. Nasik is now a new center of industries, commerce, administration, education, production and marketing. Basically, Nasik has a four-fold economic configuration - pilgrimage economy, industrial economy, defense sector economy and a strong agricultural economy. In terms of industry, Nasik has three well-developed industrial estates at Satpur, Ambad and Sinnar. The important industries situated in Nasik and its surroundings include 31

ABB India, Mahindra and Mahindra, Gabriel, Glaxo SmithKline, LG Electronics, Samsonite, Garware, Siemens, Blow Plast, Thyssen Krupp, Ceat, Atlas Copco and TI Cycles. Real estate development in Nasik has been taking place in a very collaborative manner. In many cases, landlords with sizable agricultural land holdings on Nasik's fringe areas have either sold their land or entered into joint venture agreements with developers and moved farther for their agriculture activity, thus infusing land as well as capital into Nasik's real estate market. Nasik offers very encouraging fundamentals for real estate investors. Some of the advantages it enjoys over other several major cities in Maharashtra include: Well-developed physical infrastructure, Adequate and good quality water supply, Located at one vertex of the major growth triangle of Mumbai, Pune and Nasik, Comparatively lower environmental pollution, Efficient intra and intercity commuting facilities, Excellent connection with other regional growth centres, Developed industrial estates such as Ozar, Sinnar, Satpur and Ambad in the immediate vicinity, The Software Technology Park at Ambad, Salubrious year-round climate, A well-established Defense Base that gives Nasik a safe and secure social environment and also interactive national positioning with other Indian cities, Air connectivity with national cities, Generous and increasing availability of skilled labour Numerous high-grade healthcare facilities and educational institutions, also for higher and professional education Nasik‟s future in terms of investments and economic growth is very promising, thanks to several projects underway or expected to confirm operations in Nasik in the near future. For instance, Hindustan Aeronautics has short-listed Nasik as the base for its Rs. 23000-crore manufacturing plant for Sukhoi jets for the Indian Air Force. Also, the IT/ITES sector in Nasik is rapidly becoming a force to reckon with. BPOs have begun recognizing Nasik as a very viable destination because of the lower real estate costs while at the same time being a good catchment of educated, English-speaking talent. Several information technology companies are now firming up their plans for establishing bases in Nasik. Nashik spans a length of 190 km and is part of the golden triangle along with Pune and Mumbai. The city has come a long way as far as residential development is concerned. If you are an investor looking to earn handsome returns in the steadily growing realty market of Nashik, then areas such as Gangapur Road, Govind Nagar and Indranagar can be good choices. The main reason behind buyer’s preference for these areas is the rapid development taking place here. Several corporate houses and industrial offices have set base in these upcoming areas. 32

Abhishek Kumar, a local broker of the area informs, “Gangapur Road, Govind Nagar and Indranagar are witnessing considerable development in terms of social infrastructure and connectivity. However, development of residential properties and availability of varied housing options such as plots, apartments, penthouses, villas and builder floor apartments work as the cherry on the cake”. Gangapur Road is one of the preferred and sought after residential destinations of Nashik. The locality has been undergoing a paradigm shift with several new upcoming projects. What makes Gangapur Road preferable for buyers? Families and students prefer the area as it is has a number of schools and colleges in close proximity. A considerable housing demand also comes from people working in the nearby Satpur Industrial Area at a distance of 6 km. Connectivity via local transportation such as buses and autos also makes it the first choice among buyers. Apartments are the most supplied housing type here. As per the listings on Magicbricks, a 2BHK apartment is available for Rs 25-65 lakh. The sizes vary from 700-1400 sq ft. Govind Nagar is another preferred area among homes buyers who wish to stay away from the hustle and bustle of the city. The locality is strategically located on the Mumbai-Agra Highway, ensuring quick access from Mumbai and other parts of the city. A significant demand is also generated from the IT professionals working in the nearby Vascon IT Park on the Wadala Road, 2.8 km away. A 2BHK apartment is available in the area in a budget of Rs 35-45 lakh with sizes varying from 800-1100 sq ft. For a 3BHK apartment you have to shell an amount of Rs 55-70 lakh, sized 1300-1700 sq ft. Indranagar is one area which is highly preferred due to affordable capital values as compared to Govind Nagar and Gangapur Road. The locality is in demand among people working in the industries across Gangapur Road, College Road and PathardiPhata. Indira Nagar majorly offers apartments in the price range of Rs 20-35 lakh and sizes of these vary from 700-1000 sq ft. Private banks have been major drivers for commercial real estate in Nasik, with ICICI, HDFC and HSBC having expanded their operations phenomenally. Moreover, the Government of Maharashtra is investing heavily into the already thriving Wine Parks industry in Nasik, which is already famous 33

for Sula Vineyard. The general real estate trend in Nasik has been accelerating growth even in while turbulent economic conditions slowed down the markets in most other cities. This is amply borne out by the steady rise in construction and development activities. Developers in the city are displaying remarkable vision, having taken Mumbai, Ahmedabad, Surat, Pune and Bangalore as development models, replicating what works in these cities and conscientiously steering clear of what does not. All these factors are boosting employment and prosperity in Nasik, which directly influences the demand for residential real estate. Little wonder, then, that more and more investors are now focusing on this city. They are attracted by the low property rates and excellent mid and long-term demand projections.

Top builders in Nasik:  Samraat Group  Karda Constructions  Ekta World  D S Kulkarni  BrijwasiBuilcon  Nirman Group  Orchid Builders and Developers  Deep Construction  Roongtha Group

34

COMPANY PROFILE Karda Constructions has been instrumental in touching the lives and enriching the lifestyles of more than 3500+ families over the last two decades in Nashik City. It is a First Generation Construction Company in Nashik with a disciplined and professional approach in its area of expertise i.e. Real-estate Development in Nashik since 1994. Karda Constructions has passionately strived to bring people under one roof and fostering a sense of brotherhood through the concept of ‘Group Housing’ within our customers. More than a business, it is a Dream, shared with everyone we work for and with. Nashik being the home ground, Karda Constructions shares a bond with every Nashikite since two decades. The venture has grown with the city while contributing to its growth proactively with its ambitious projects and has left no stone unturned to make the end customer happy. Karda provides everything ranging from a 1BHK flat to a Penthouse or from row houses to palatial bungalows you name it. Every deal is as transparent as air and everything that is promised is delivered end of the day. The referrals and repeat business generated from the existing customers is enough to reinforce their sincerity and commitment. The focus to provide cost effective abodes with luxurious amenities for each market segment with equal thought and dedication has brought Luxuries within the reach of common man. Everyone and everything that adds value to the brand is considered as an asset for Karda Constructions and rewarded well whether they are designers, onsite engineers, customers, consultants, or the labor which works while the project is on in order to create the home of your dreams. Karda Constructions is a recognized Brand in Nashik Road by now. Another salient feature which identifies with our brand name is the term ‘Hari’. The names of most all of our sole projects begin with ‘Hari’ as in ‘Hari Vihar’ or ‘Hari Sankul’. We believe it to be sacred for us as well as our customers wellbeing. After completion of so many ambitious projects in Nashik, we now look forward for further expansion both vertical & horizontal. We wish to capture all the markets and along with all their respective market segments available yet to be explored by us for real estate development. We are bound to serve all the segments. 35

Vision of the Company We wish to serve all the segments by achieving the highest possible standards of the real-estate market while establishing our firm as the most preferred company in Nashik

Mission of the Company To provide homes for everyone, by means of innovation and better performance of men and machinery. Creating projects based on the latest market trends with respect to the target segments. Ensuring timely delivery of projects & achieving scalability in order to provide more Dream homes.

36

Core Business Activities 

Real Estate Development - Residential Projects and Residential Projects cum office spaces



Construction Contracts for affordable housing and commercial shops.

CSR Activities:  Participated in the event “Save Water Save Life” to bring awareness in people about our Environment.  Working for the upliftment of blind students by offering Scholarships Programme in association with “The Blind Welfare organisation (India)” from 2014.  Started “Anganwadi& Crest centre” for children the of labours in association with Disha Foundation NGO, at our Hari Sanskruti Site at Nashik Road (E) presently around 30 students are coming to this Aanganwadi, food and Study material is provided by Karda Constructions. From year 2015  Started “Resource Centre for labours Welfare” in association with Disha Foundation NGO by providing facilities like Medical Camps, Training and development facilities for Providing Safety & accident prevention Education at work from year 2015  In Association with Credai Nasik distributed Water Tanks to Draught Prone Areas in Nashik District in 2013-2014.  Around 1500 Tree plantation done in Gulmohar Society at Nashik Road in 2004 out of which more than 1000 plants have grown 37

 To Start School for Physically Handicap & Mentally Retarded Children donated Rs. 5 lacs to Aadhar Foundation an NGO for Special ChildnearIgatpuri, Nashik from the year 2012  On the Occasion of World Environment Day, 2014 Karda Construction has distributed free plants to people for planting tree in front of their home. To make NEW NASIK, GREEN NASIK  In Association with Rotary Club Nasik done an event to for appealing People of Nasik to donate money for the Small Kids Heart Surgery, Karda Construction has also donated 50000 for this Noble cause.

Awards & Achievements:  Karda Constructions “Hari Sankul I” awarded as Best Group Housing Project in June 2012  Karda Constructions Group recognized as Mega Builder in June 2013  Mr. Naresh Karda has been awarded as “Business Icon of Nashik” by Lokmat in December 2014 by the hands of Chief Minister Devendra fadnavis  Ultratech Cement in collaboration with Association of consulting civil engineers[India](ACCE) Awarded Karda Constructions Ltd‟s CMD Shri Naresh Karda for "Outstanding Concrete Structure of Nashik 2015-16" Hari Sankalp Project in a glittering function held at Hotel Express Inn on 3rd June 2016.

38

COMPANY’S VALUES 

People first: Company values their employees who in turn treat their customers like their own family members. Company puts their people first, nurture them and assist them in giving the customers the best service.



Integrity: Company delivers all their services with utmost integrity and transparency. All their dealings bear the seal of trust and the promise of a brand name promoted via word-of mouth by their own customers.



Commitment: Company values commitment as the way of life in their organization. Company is committed to deliver their customers unparalleled service standards in the industry.



Leadership: Company cultivate ethos that promote leadership qualities in our team. Employees are encouraged to share their views and opinions on matters concerning them and our organization.



Excellence: Company strives for excellence in all the services that they offer to their customers. Excellence in the organization is manifested by the continuous improvement through focus on training and nurturing talents.



Innovation: Company promotes innovation by encouraging flow of ideas and exchange of thoughts in an interactive milieu aimed towards self-development of the individuals in the organization.

WHY IS KARDA CONSTRUCTIONS LTD DIFFERENT FROM OTHERS? 

Company has a strong presence across Nashik.



Company has a wide range of products.



Company has a very well cultured team of professional



Company is transparent in all their dealing.



They also assist in Home Loans.



Company believes in Technology.

39

ABOUT DIRECTORS AND PROMOTORS:  Mr. Naresh Karda Chairman & Managing Director He founded Karda Constructions in 1994. Starting as a small contracting firm, the company has achieved recognition as a Real Estate Developer in Nashik, under his revolutionary vision and impeccable leadership in past 19 years. He has a proven track record of delivering more than one and a half million square feet of residential space to the common Nashikite and still counting. Despite his standing in the real estate community he is known for his down to earth nature. He is always busy in formulating intelligent strategies for improving the brand Equity of Karda Constructions.

 Mr. Manohar Karda Director & Head Purchase He has been a major contributor in the companies standing right since its inception and played the crucial role of purchase management for company which positively influenced the cost of production. It would not have been possible for our group housing projects without his expert and prolonged participation in all the purchases till date. The purchase department always needs to ensure that their cost efficient purchases do not have any sort of bearing on the quality of the materials purchased and used in Constructions. So overall it is a challenging task which Mr. Manohar Karda has been successfully handling right from the earlier years as well as in the forming years of Karda Constructions.

40

 Mr.Prem Karda Director & Head Sales If you ask us the secret of our stable growth, we would surely point towards him since he represents us while dealing with interested clients and parties. He is the sole point of contact for our marketing and sales department. He is known for his extraordinary skills of handling a multitude of customers who enquire about us for a range of things concerning their real estate such as paper work, documentation, various amenities for different age groups and easy loan facilities. He has a very good market research and knows how to position his company with the ever changing needs of market. His marketing intelligence has been a boon for the company in all respects whether it is customer acquisition, customer retention or public relations.

❖SWOT

Analysis for Karda Constructions:

 Strengths: 

The organization is very old, establish in the year 1993 and the name is a brand in itself.



Highly profiled marketing team, technical staff and engineers.



Huge client base



Looks after both residential as well as commercial projects. 41



Provides 100% customization to its customer.



Maintaining proper database of customer follow-ups



A positive image in the eyes of existing customers.

 Weaknesses: 

Product offers to the customers are priced high in certain locations, due to which every one cannot afford it.



Company is limited to a basic city only. It should target other big cities.



Karda construction does not keep promises of giving the possession of the project on time.



After sales service are not properly rendered to some of the customers.



There is a low satisfaction level amongst the sales team

 Opportunities: 

The company Karda construction has gone public.



Rapid urbanization in Nashik city



Diversification in the project like residential and commercial project like shopping malls, flats, row houses.



Tie up with the international property consultants.

 Threats: 

Increasing competition in the market and arrival of the new competitors in the region.



Top level competitors like Rushiraj builders, Samrat group, Suyojit, Thakur builders and many more.



Unavailability of the barren land for development purpose, as there are many players in this market.



Stringent Government policies.

42

CHAPTER V DATA ANALYSIS AND INTERPRETATION

43

5.1 LIQUIDITY RATIOS

5.1.1 CURRENT RATIO:CURRENT RATIO = (In Crores) Current Assets Current Liabilities Current Ratio

𝑪𝒖𝒓𝒓𝒆𝒏𝒕𝑨𝒔𝒔𝒆𝒕𝒔 𝑪𝒖𝒓𝒓𝒆𝒏𝒕𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

MARCH’16 236,36,03,036 124,58,83,602 1.89:1

MARCH’17 226,73,94,443 124,58,36,817 1.80:1

MARCH’18 279,89,00,000 135,52,00,000 2.06:1

Current ratio 2.5 2 1.5

CURRENT RATIO 18 CURRENT RATIO 17

1

CURRENT RATIO 16 0.5 0 MARCH'16

MARCH'17

MARCH'18

Interpretation: 

This ratio indicates the coverage of current assets to current liabilities. The ideal ratio is 2:1.



In the year 2016 and 2017 the current ratio is 1.89:1 and 1.80:1 respectively, which is lower than the standard ratio of 2:1. It means that there are fewer amounts of current assets to meet the current liability obligations.



The chart shows that there is an incline trend from year 2016 to 2018.

44

5.1.2 Quick / Acid Test Ratio =

𝑸𝒖𝒊𝒄𝒌𝑨𝑺𝒔𝒆𝒕

𝑸𝒖𝒊𝒄𝒌𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔

(In Crores) Quick Assets Quick Liability Quick Ratio

MARCH’16 48,32,77,722 124,58,83,602 0.38:1

MARCH’17 55,65,15,779 125,48,36,817 0.44:1

MARCH’18 138,77,00,000 135,52,00,000 1.023:1

Quick ratio 1.8 1.6 1.4 1.2 1

QUICK RATIO 18

0.8

QUICK RATIO 17

0.6

QUICK RATIO'16

0.4 0.2 0 MARCH'16

MARCH'17

MARCH'18

Interpretation: 

The ideal liquid ratio is considered to be 1:1, which means that liquid current assets should be equal to liquid current liabilities. The ratio indicates whether the firm has the ability to pay its short-term liabilities or not.



In the year 2016 and 2017 the quick ratio is 0.38:1 and 0.44:1 respectively, which is lower than the standard ratio of 1:1.



It indicates that the business does not have enough liquid assets to meet its current financial obligations.

45

5.2 ACTIVITY/ TURNOVER/EFFICIENCY RATIOS:

5.2.1 Debtors turnover ratio =

𝒏𝒆𝒕 𝒄𝒓𝒆𝒅𝒊𝒕 𝒔𝒂𝒍𝒆𝒔 𝒂𝒗𝒈.𝒅𝒆𝒃𝒕𝒐𝒓𝒔

(In Crores)

MARCH’16

MARCH’17

MARCH’18

Net credit sales

100,71,57,922

105,37,88,619

126,79,00,000

Avg. debtors

94,74,394

69,49,104

16,70,00,000

Debtors turnover ratio

10.63 TIMES

151.6 TIMES

75.92 TIMES

Debtors turnover ratio 160

140 120 100 DTR'18 80

DTR'17

60

DTR'16

40 20 0 MARCH'16

MARCH'17

MARCH'18

46

DTR in (No. of Days) =

𝟑𝟔𝟓𝒅𝒂𝒚𝒔 𝑫𝑻𝑹(𝒊𝒏𝒏𝒐.𝒐𝒇𝒕𝒊𝒎𝒆𝒔)

(In Days)

MARCH’16

MARCH’17

MARCH’18

365 days

365

365

365

DTR in (no. of times) 10.63

151.6

75.92

DTR in (No. of Days) 34.33 DAYS

2.40 DAYS

4.8 DAYS

Interpretation: 

The ratio shows the number of times the receivables are turned over in a year in relation to sales. It shows the credit period enjoyed by the debtors.



In the FY 2016-17, the turnover ratio was the highest which indicates the presence of a strict credit policy, prompt collection of debts and also points out that recovery of revenue from sales was done at the correct time.



Ratio was lower in FY 2015-2016 which indicates delayed payment on the part of debtors.

47

5.2.2 Creditors turnover ratio =

𝑵𝒆𝒕𝒄𝒓𝒆𝒅𝒊𝒕𝒑𝒖𝒓𝒄𝒉𝒂𝒔𝒆𝒔 𝑨𝒗𝒆𝒓𝒂𝒈𝒆𝒄𝒓𝒆𝒅𝒊𝒕𝒐𝒓𝒔

(In Crores)

MARCH’16

MARCH’17

MARCH’18

Net credit purchases

54,61,98,673

37,34,03,415

85,57,00,000

Avg. creditors

18,93,89,803

6,54,67,242

14,55,00,000

Creditors turnover ratio

2.88 TIMES

5.70 TIMES

5.88 TIMES

Creditors turnover ratio 7 6 5 4

CTR'18 CTR'17

3

CTR'16 2 1 0

MARCH'16

MARCH'17

MARCH'18

48

CTR in (No. of Days) =

𝟑𝟔𝟓𝒅𝒂𝒚𝒔 𝑪𝑻𝑹(𝒊𝒏𝒏𝒐.𝒐𝒇𝒕𝒊𝒎𝒆𝒔)

(In Days)

MARCH’16

MARCH’17

MARCH’18

365 days

365

365

365

CTR in (no. of times)

2.88

5.70

5.88

CTR in (No. of Days)

126.7 DAYS

64 DAYS

62 DAYS

Interpretation:

 A high turnover ratio or shorter payment period shows the availability of less credit or early payments. It indicates not taking full advantage of the credit allowed by the creditors. 

In number of days the creditors are turned over in relation to purchases are 126.7 days, 64 days and 62 days for the financial year.

 The credit is paid back in quite a less number of days in financial year 2017-18.

49

5.2.3 Total assets turnover ratio=

(In Crores)

𝑵𝒆𝒕𝑺𝒂𝒍𝒆𝒔 𝑻𝒐𝒕𝒂𝒍𝑨𝒔𝒔𝒆𝒕𝒔

MARCH’16

Net sales 100,71,57,922 Total assets 245,62,80,461 Total assets turnover 0.41 TIMES ratio

MARCH’17

MARCH’18

105,37,88,619 235,80,42,907 0.44 TIMES

126,79,00,000 299,51,00,000 0.42 TIMES

Total assets turnover ratio 0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0

MARCH'16

MARCH'17

TOTAL ASSETS TURNOVER RATIO'18

0.42

TOTAL ASSETS TURNOVER RATIO'17

TOTAL ASSETS TURNOVER RATIO'16

MARCH'18

0.44 0.41

Interpretation: 

The total asset turnover ratio indicates the firm’s ability to generate sales from all financial resources. From the above chart the total asset turnover ratio was increased from 0.41times in FY 2015-16 to 0.44 times in FY 2016-17. And it decreased to 0.42 times in 2017-18.



The total asset turnover of the firm was 0.41 times implies that firm can generate a sell of Rs. 0.41 for one-rupee investment in fixed and current asset together.



It implies if there is no optimum utilization of all the assets put together. 50

5.2.4 Sales to capital employed ratio =

𝑵𝒆𝒕𝒔𝒂𝒍𝒆𝒔 𝑪𝒂𝒑𝒊𝒕𝒂𝒍𝑬𝒎𝒑𝒍𝒐𝒚𝒆𝒅∗

* Capital employed = shareholders funds + long term liabilities (In Crores) Net Sales Capital Employed Sales to capital employed ratio

MARCH’16 100,71,57,922 120,98,30,871 0.83:1

MARCH’17 105,37,88,619 110,26,37,617 0.95:1

MARCH’18 126,79,00,000 150,46,00,000 0.84:1

Sales to capital employed ratio 1 0.9 0.8 0.7 SALES TO CAPITAL EMPLOYED'18

0.6 0.5

SALES TO CAPITAL EMPLOYED'17

0.4

SALES TO CAPITAL EMPLOYED'16

0.3 0.2 0.1 0 MARCH'16

MARCH'17

MARCH'18

Interpretation: 

This ratio indicates sales per rupee of capital employed.



In financial year 2015-16 the ratio is 0.83:1 which implies that there will be 0.83 amount of sales if there is one rupee of capital employed.



Capital employed is not efficiently used and therefore there is lower amount of turnover. 51

5.2.5 Working capital turnover ratio =

𝒏𝒆𝒕𝒔𝒂𝒍𝒆𝒔

𝒏𝒆𝒕𝒘𝒐𝒓𝒌𝒊𝒏𝒈𝒄𝒂𝒑𝒊𝒕𝒂𝒍

Net working capital=current assets – current liabilities.

(In Crores) Net sales Net working capital Working capital turnover ratio

MARCH’16 100,71,57,922 111,77,19,434 0.90

MARCH’17 105,37,88,619 101,25,57,626 1.40

MARCH’18 126,79,00,000 144,37,00,000 0.88

Working capital turnover ratio 1.6 1.4 1.2 WORKING CAPITAL TURNOVER RATIO'18

1 0.8

WORKING CAPITAL TURNOVER RATIO'17

0.6

WORKING CAPITAL TURNOVER RATIO'16

0.4 0.2 0 MARCH'16

MARCH'17

MARCH'18

Interpretation: 

It measures how well a company is utilizing its working capital to support a given level of sales. The indication given by this ratio is the number of timesworking capital is turned around in a particular period. It shows the number of times a unit invested in working capital produces sales.



In the FY2016-17 if one rupee is invested in working capital it produces 1.40 amount of sales.



A higher ratio indicates efficient utilization of working capital. 52

5.2.6 Turnover to fixed assets ratio=

𝑵𝒆𝒕𝑺𝒂𝒍𝒆𝒔

𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒇𝒊𝒙𝒆𝒅 𝑨𝒔𝒔𝒆𝒕𝒔

MARCH’16

(In Crores)

Net sales 100,71,57,922 Average fixed assets 1,80,02,157 Turnover to fixed 55.5 TIMES assets ratio

MARCH’17

MARCH’18

105,37,88,619 1,97,72,955 53.3 TIMES

126,79,00,000 1,77,00,000 71.4 TIMES

80 70 60 50

TURNOVER TO FIXED ASSETS RATIO'18

40

TURNOVER TO FIXED ASSETS RATIO'17

30

TURNOVER TO FIXED ASSETS RATIO'16

20 10 0 MARCH'16

MARCH'17

MARCH'18

Interpretation: 

It indicates the efficiency in utilization of fixed assets like plant and machinery by management. From the above chart the ratio is decreasing and then increasing from 55.5 to 71.4.



We can say that a company has been successful to manage and utilize its assets.



Also a company has been more effective in using the investment in fixed assets to generate revenue in the last year.

53

5.3 PROFITABILITY RATIOS:

5.3.1 Gross Profit Ratio =

(In Crores) Gross Profit Net Sales GP Ratio

𝑮𝒓𝒐𝒔𝒔𝑷𝒓𝒐𝒇𝒊𝒕 𝑵𝒆𝒕𝑺𝒂𝒍𝒆𝒔

MARCH’16 9,36,57,652 100,71,57,922 9.3%

X 100

MARCH’17 12,36,31,743 105,37,88,619 11.7%

MARCH’18 18,87,00,000 126,79,00,000 14.9%

16.00% 14.00% 12.00% 10.00% GROSS PROFIT RATIO'18 8.00%

GROSS PROFIT RATIO'17 GROSS PROFIT RATIO'16

6.00% 4.00% 2.00% 0.00% MARCH'16

MARCH'17

MARCH'18

Interpretation: 

This ratio shows the margin left after meeting the purchases and manufacturing cost.



Here the GP ratio is high in the year 2018 with 14.9% which is enough to cover expenses like administrative, selling and distribution etc.



The ratio shows the average margin on goods sold.

54

5.3.2 Net Profit Ratio = (In Crores) Net Profit Net Sales Net Profit Ratio

𝑵𝒆𝒕𝑷𝒓𝒐𝒇𝒊𝒕 𝑵𝒆𝒕𝑺𝒂𝒍𝒆𝒔

X 100

March’16 6,32,23,732 100,71,57,922 6.2%

March’17 7,68,79,165 105,37,88,619 7.29%

March’18 13,01,00,000 126,79,00,000 10.2%

12.00% 10.00% 8.00% NET PROFIT RATIO'18

6.00%

NET PROFIT RATIO'17 NET PROFIT RATIO'16

4.00% 2.00% 0.00% MARCH'16

MARCH'17

MARCH'18

Interpretation: 

Net profit ratio indicates overall efficiency of the business. This ratio shows the earnings left for shareholders’, higher the ratio the better it is.



The profitability of the firm has increased from 6.2% in MARCH’16 to 10.2% in MARCH’18. It indicates improvement in the operational efficiency.

55

5.3.3 Return on Equity Ratio =

(In Crores) Net Profit Shareholders fund Return on equity

𝑵𝒆𝒕𝒑𝒓𝒐𝒇𝒊𝒕𝒂𝒇𝒕𝒆𝒓𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕,𝒕𝒂𝒙𝒂𝒏𝒅𝒑𝒓𝒆𝒇𝒆𝒓𝒓𝒆𝒏𝒄𝒆𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒕,𝒊𝒇𝒂𝒏𝒚

MARCH’16 6,32,23,732 22,66,26,889 27.9%

𝑬𝒒𝒖𝒊𝒕𝒚𝒔𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓𝒔𝒇𝒖𝒏𝒅

MARCH’17 7,68,79,165 30,35,06,055 25.33%

X 100

MARCH’18 13,01,00,000 83,37,00,000 15.6%

30.00%

25.00%

20.00% Return on Equity Ratio'18 15.00%

Return on Equity Ratio'17

Return on Equity Ratio'16 10.00%

5.00%

0.00% MARCH'16

MARCH'17

MARCH'18

Interpretation: 

The funds available for equity shareholders’ in March’16 was more than that in March’18. This ratio shows the productivity of the owned funds.



Here the productivity of the funds has decreased from the previous year.



This ratio is also known as return on net worth.

56

5.3.4 Return on total assets =

(In Crores) Net profit after tax Total Assets Return on total assets

𝑵𝒆𝒕𝒑𝒓𝒐𝒇𝒊𝒕𝒂𝒇𝒕𝒆𝒓𝒕𝒂𝒙 𝑻𝒐𝒕𝒂𝒍𝑨𝒔𝒔𝒆𝒕𝒔

MARCH’16 6,32,23,732 245,62,80,461 2.52%

X 100

MARCH’17 7,68,79,165 235,80,42,907 3.26%

MARCH’18 13,01,00,000 299,51,00,000 4.35%

5.00% 4.50% 4.00% 3.50% 3.00% Return on total assets'18 2.50%

Return on total assets'17

2.00%

Return on total assets'16

1.50% 1.00% 0.50% 0.00% MARCH'16

MARCH'17

MARCH'18

Interpretation: 

This ratio is also called return on investment. The ratio compares the net profit after tax with total assets. The above ratio shows inclining trend in terms of return on total asset.

57

5.4 SOLVENCY RATIO 5.4.1 Debt-Assets Ratio =

𝑫𝒆𝒃𝒕 𝑻𝒐𝒕𝒂𝒍 𝒂𝒔𝒔𝒆𝒕𝒔

MARCH’16 98,32,03,982 245,62,80,461 0.40:1

(In Crores) Debt Total assets Debt-Assets Ratio

MARCH’17 79,91,31,562 235,80,42,907 0.34:1

MARCH’18 67,09,00,000 299,51,00,000 0.22:1

0.45 0.4 0.35 0.3 0.25 0.2

0.4 0.34

0.15

0.22

0.1 0.05 0

MARCH'16 DEBT-ASSETS RATIO'16

MARCH'17

MARCH'18

DEBT-ASSETS RATIO'17

DEBT-ASSETS RATIO'18

Interpretation: 

The debt to total assets ratio is an indicator of financial leverage. It tells you the proportion of total assets that were financed by creditors, liabilities, debt.



The ratio of the firm is 0.40 in the year 2015-16 which implies that one part of the assets were financed by 0.40 of the debt.



Similarly, in the next two years the assets financed by debt were 34% and 22%.

58

5.4.2 Proprietary Ratio=

(In Crores) Proprietary funds Total assets Proprietary Ratio

𝑷𝒓𝒐𝒑𝒓𝒊𝒆𝒕𝒂𝒓𝒚 𝒇𝒖𝒏𝒅𝒔 𝑻𝒐𝒕𝒂𝒍 𝒂𝒔𝒔𝒆𝒕𝒔

MARCH’16 22,66,26,889 245,62,80,461 0.09:1

MARCH’17 30,35,06,055 235,80,42,907 0.13:1

MARCH’18 83,37,00,000 299,51,00,000 0.27:1

0.3 0.25 0.2 0.15 0.27 0.1 0.05

0.13 0.09

0 MARCH'16 PROPRIETARY RATIO'16

MARCH'17

MARCH'18

PROPRIETARY RATIO'17

PROPRIETARY RATIO'18

Interpretation: 

This ratio indicated the proportion of proprietors funds used for financing the total asset.



Its shows that the company is utilizing only 9 %, 13% and 27% of proprietors funds.

59

𝑳𝒐𝒏𝒈−𝑻𝒆𝒓𝒎𝑫𝒆𝒃𝒕

5.4.3 Debt-Equity Ratio =

𝑺𝒉𝒂𝒓𝒉𝒐𝒍𝒅𝒆𝒓𝒔′ 𝑭𝒖𝒏𝒅∗

*Shareholders’ Fund = Share Capital + Reserves and Surplus.

(In Crores) Debt Shareholders Fund Debt-Equity Ratio

MARCH’16 98,32,03,982 22,66,26,889 4.33:1

MARCH’17 79,91,31,562 30,35,06,055 2.63:1

MARCH’18 67,09,00,000 83,37,00,000 0.75:1

5 4.5

4 3.5 3 2.5 2

4.33

1.5

2.63

1 0.5

0.75

0 MARCH'16

MARCH'17

Debt-Equity Ratio'16

MARCH'18

Debt-Equity Ratio'17

Debt-Equity Ratio'18

Interpretation: 

Debt equity ratio assesses the long term financial position and soundness of the long term policies of the enterprise.



In 2016 the ratio was highest which indicates risky financial position.



It shows a declining trend from 2016 to 2018. 60

LIQUIDITY RATIOS

MARCH’16 1.89:1 0.38:1

CURRENT RATIO QUICK RATIO

MARCH’17 1.806:1 0.44:1

MARCH’18 2.06:1 1.023:1

2.5 2.06 2

1.89

1.806

1.5 1.023 1 0.38 0.44

0.5

0 CURRENT RATIO

QUICK RATIO MARCH'16

MARCH'17

MARCH'18

Interpretation: 

The overall liquidity of the company is better in the year 2018 as the current assets are sufficient enough to meet the current liabilities of the firm.



And the quick ratio shows the firm can pay the current obligations without relying on the realization of inventories.

61

TURNOVER RATIOS

Debtors turnover ratio Creditors turnover ratio Working capital turnover ratio Sales to capital employed ratio Total assets turnover ratio Turnover to fixed assets ratio

MARCH’16 10.63 times

MARCH’17 151.6 times

MARCH’18 75.92 times

2.88 times

5.70 times

5.88 times

0.90

1.40

0.88

0.83:1

0.95:1

0.84:1

0.41 times

0.44 times

0.42 times

55.5 times

53.3 times

71.4 times

TURNOVER RATIOS 160 140 120 100 80 60 40 20 0

DTR

TURNOVER TO FIXED ASSETS

MARCH'16

10.63

55.5

MARCH'17

151.6

53.3

MARCH'18

75.92

71.4

62

TURNOVER RATIOS 7 6 5

4 3 2 1 0 CTR

WC TURNOVER

SALES TO CAPITAL EMPLOYED

TOTAL ASSETS TURNOVER RATIO

MARCH'16

2.88

0.9

0.83

0.41

MARCH'17

5.7

1.4

0.95

0.44

MARCH'18

5.88

0.88

0.84

0.42

Interpretation: 

Turnover ratios are also known as performance ratios; judge how well the resources at the disposal of the enterprise have been utilized.



The effectiveness with which the company has utilized its resources is better in the year 2017.



And it is declining from 2017 to 2018.

63

PROFITABILITY RATIOS MARCH’16 GP Ratio 9.3% Net Profit Ratio 6.2% Return on Equity 27.9% Ratio Return on total 2.52%

MARCH’17 11.7% 7.3% 25.33%

MARCH’18 14.9% 10.2% 15.6%

3.26%

4.35%

assets

30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% GP RATIO

NP RATIO

Return on Equity Ratio

Return on total assets

MARCH'16

9.30%

6.20%

27.90%

2.52%

MARCH'17

11.70%

7.30%

25.33%

3.26%

MARCH'18

14.90%

10.20%

15.60%

4.35%

Interpretation: 

Profitability is a measure of business efficiency.



The overall profitability of the company has increased from 2016 to 2018.



In 2018 the Gross profit and Net profit ratio are highest.



Return on equity is declined in 2018 whereas return on total assets has increased.

64

SOLVENCY RATIOS MARCH’16

MARCH’17

MARCH’18

DEBT-ASSETS RATIO PROPRIETARY RATIO

0.40:1

0.34:1

0.22:1

0.09:1

0.13:1

0.27:1

Debt-Equity Ratio

4.33:1

2.63:1

0.75:1

5 4.33

4.5 4 3.5 3

2.63

2.5 2 1.5 0.75

1 0.5

0.4

0.34

0.22

0.09

0.13

0.27

0

DEBT-ASSETS RATIO

PROPRIETARY RATIO MARCH'16

MARCH'17

Debt-Equity Ratio

MARCH'18

Interpretation: 

Solvency implies ability of an enterprise to meet its long term obligations.



The enterprise is using proprietors fund more in comparison to borrowed funds.

65

5.5 KardA Constructions Ltd Financial Comparison with competitors on the basis of management efficiency. Management Efficiency

Karda Constructions Ltd

Competitor Average

Return on Equity (%)

15.65

-1.28

Trend

Better performer than its competitors on this ratio Return on Assets (%)

4.40

-238.61 Better performer than its competitors on this ratio

Return on capital Employed (%)

17.56

Fixed Assets Turnover

0.76

5.95 Better performer than its competitors on this ratio 0.75

Underperformer than its competitors on this ratio

(Source: - www.economictimes.com)

50.00 0.00 -50.00 -100.00 -150.00 -200.00 -250.00 -300.00

Return on Equity (%)

Return on Assets (%)

Fixed Assets Turnover

Return on total assets

Karda Constructions Ltd

15.65

4.40

17.56

0.76

Peer Average

-1.28

-238.61

5.95

0.75

66

Karda Constructions Ltd Financial Comparison with competitors on the basis of Profitability and Growth.

Profitability and Growth

Karda Constructions Ltd

Competitor Average

Gross Profit Margin (%)

14.9

-31.00

Trend

Better performer than its competitors on this ratio Operating Profit Margin (%)

24.54

Net Profit margin (%)

10.2

-22.91 Better performer than its competitors on this ratio -68554.18 Better performer than its competitors on this ratio

(Source: - www.economictimes.com)

Interpretation: 

Profitability wise Karda constructions ltd has best performance than its competitors.



Karda construction has achieved gross profit of 14.9% against the competitor average of -31%.



Net profit shows the net margin earned on sales by the enterprise. The net profit ratio was 10.2% as compared to the competitors -6855%.

67

Karda Constructions Ltd Financial Comparison with competitors on the basis of Liquidity.

Liquidity

Karda Constructions Ltd

Competitor Average

Quick Ratio

1.023

47.36

Current Ratio

2.06

55.35

Cash Ratio

0.80

28710.06

Trend

Underperformer than its competitors on this ratio Underperformer than its competitors on this ratio Underperformer than its competitors on this ratio

(Source: - www.economictimes.com)

Interpretation: 

Liquidity measures the short term solvency of the enterprise. It measures the ability to meet current liabilities timely.



Karda construction performance in quick, current, cash ratio is not good as compared to that of competitors.

68

Chapter VI FINDINGS & CONCLUSIONS

69

SR.NO

Ratios

2016

2017

2018

1.

Current Ratio

1.89:1

1.80:1

2.06:1

2.

Quick Ratio

0.38:1

0.44:1

1.023:1

3.

Debtors Turnover Ratio

10.63 Times

151.6Times

75.92 Times

4.

Creditors Turnover Ratio

2.88 Times

5.70 Times

5.88 Times

5.

Total Asset Turnover Ratio

0.41 Times

0.44 Times

0.42 Times

6.

Sales to Capital employed

0.83:1

0.95:1

0.84:1

0.90:1

1.40:1

0.88:1

55.5 Times

53.3 Times

71.4 Times

Ratio 7.

Working Capital Turnover Ratio

8.

Turnover to fixed assets Ratio

9.

Gross Profit Ratio

9.3%

11.7%

14.9%

10.

Net Profit Ratio

6.2%

7.3%

10.2%

11.

Return on Equity Ratio

27.9%

25.33%

15.6%

12.

Return on total assets

2.52%

3.26%

4.35%

13.

Debt-assets Ratio

0.40:1

0.34:1

0.22:1

14.

Proprietary Ratio

0.09:1

0.13:1

0.27:1

15.

Debt-Equity Ratio

4.33:1

2.63:1

0.75:1

70

FINDINGS 

The current ratio of the firm is 2.06:1 which means the company has enough current assets to pay off the current liabilities. It has the ability to meet the current liabilities.



The DTR indicates the company has short credit period and fast realization of payment from debtors.



The company has longer payment period which implies there is delay in payment to creditors.



It is found that there is no optimum utilization of assets.



Net profit of the company is increasing.



The debt equity ratio of the company in 2016 is highest which indicates risky financial position.



Through quick ratio it is understood that there is better short term financial position.

71

CONCLUSION 

It can be seen that Karda Construction is one of the most popular brands in Nasik.



After conducting financial analysis for Karda Constructions Pvt. Ltd. we came to know about how the companies manage their funds.



The company’s history, organizational profile, awards and accolades etc. were also learnt during the project.



During the course of study, the financial position of a company was analyzed and interpreted by using the technique of ratio analysis



The research gives an exemplary insight of the performance of the company.

72

CHAPTER VII SUGGESTIONS / RECOMMENDATIONS

73

SUGGESTIONS / RECOMMENDATIONS 



There should be optimum utilization of all the assets by the company. It can do so by:▪

By managing production

▪

Asset maintenance

▪

Operation planning

▪

Plant design and development.

The company is mostly using its proprietor funds for financing activities it should utilize the various external funds available. The proprietary ratio shows lesser dependence on external funds.



The CTR is increased from 2016 to 2018 and the credit period enjoyed by the company has reduced. The company should avail the maximum credit period available.



Capital employed should be effectively utilized so as to improve the turnover of the enterprise.



The total assets financed by the debt are less in last financial year. It should increase the financing of assets by debt.



Current assets of the company are higher in amounts than the fixed assets, this shows that the huge amount of fund need to be invested in fixed asset.

74

BIBLIOGRAPHY

75



Books referred:

1) Title : - Financial management Name of the Author : - I.M.PANDEY 2) Title : - T.S.Grewal’s Double entry book keeping. 3) Title : - Financial statement analysis Name of the Author : - Matrin S Fridson. 

Other sources:

1) News Paper 2) Magazines 3) Internet websites 4) Annual reports of Karda construction.



Websites Referred:

1) www.kardaconstruction.com 2) www.economictimes.com

76