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A Project Report ON COMPARATIVE RATIO ANALYSIS BETWEEN JK TYRE & INDUSTRY AND CEAT TYRE (STUDY AT J.K. TYRE & INDUSTRIES. LTD., KANKROLI) In the partial fulfillment of the Master of Business Administration Program 2012-2013 SITE Department of Management Studies Shrinathji Institute of Technology and Engineering

JK ND CEAT

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Page 1: JK ND CEAT

A

Project Report

ON

COMPARATIVE RATIO ANALYSIS BETWEEN

JK TYRE & INDUSTRY AND CEAT TYRE

(STUDY AT J.K. TYRE & INDUSTRIES. LTD., KANKROLI)

In the partial fulfillment of the

Master of Business Administration Program

2012-2013

SITE

Department of Management Studies

Shrinathji Institute of Technology and Engineering

Upali Oden, Nathdwara.

SUPERVISED BY: SUBMITTED BY:

Mr. ASHISH ADHOLIYA MONIKA BADALA

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DECLARATION

I do hereby declare that the dissertation title COMPARATIVE RATIO ANALYSIS

BETWEEN JK TYRE & INDUSTRY AND CEAT TYRE is a record of bonafide work

done by me under the supervision of ASHISH ADHOLIYA, SHREE NATH JI

INSTITUTE OF MANAGEMENT & BIOTECHNOLOGY.

MONIKA BADALA

(MBA III SEM)

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ACKNOWLEDGEMENT

I extend sincere thanks to my project supervisor MR. ASHISH ADHOLIYA whose

expertise paved the way for realization of the study objective. He helped me a lot any

each step of the project and pointed out of the areas, which needed more stress and

coverage.

I have also taken the advantages of Internet, especially for collecting the news. I am

grateful to all the respondents for giving us their valuable time in completing the lengthy

questionnaire.

Last but not least, I really appreciate how my family members and friends supported

me. While doing this report if there is any error of fact, omission and emphasis are

solely my responsibility, I would remiss and humbly acknowledge those who helped me

to prepare this report.

MONIKA BADALA

(MBA III SEM)

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INDEX

S.NO. CONTENTS

1. INTRODUCTION

2. REVIEW OF LITERATURE

3. RESEARCH & METHODOLOGY

4. DATA ANALYSIS & INTERPRETATION

5. SUGGESTION & RECOMMANDATION

6. CONCLUSION

7. REFRENCES & BIBLIOGRAPHY

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CHAPTER-1

INTRODUCTION

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HISTORY OF THE ORGANISATION

"Excellence comes not from mere words or procedures. It comes from an urge to strive

and deliver the best. A mindset that says, when it is good enough, improve it. It is a way

of thinking that comes only from a power within." - H.S.Singhania

The advent of JK Organization on the industrial landscape of India almost synchronizes

with the beginning of an era of industrial awareness - an endeavor for self reliance and

the setting up of a dynamic Indian industry. This was way back in the middle of the 19th

century. And the rest that followed is history.

JK Organization has been a forerunner in the economic and social advancement of

India. It always aimed at creating job opportunities for a multitude of countrymen and to

provide high quality products. It has striven to make India self reliant by pioneering the

production of a number of industrial and consumer products, by adopting the latest

technology as well as developing its own know-how. It has also undertaken industrial

ventures in several other countries.

JK Organisation is an association of industrial and commercial companies and

charitable trusts. Its member companies, employing nearly 50,000 persons are engaged

in the manufacture of a variety of products and in diverse fields of commerce.

Trusts are devoted to promoting industrial, technical and medical research, education,

religious values and providing better living and recreational facilities. With the spirit of

social consciousness uppermost in mind, J.K. Organization is committed to the cause of

human advancement.

It has been rightly said "If you plan for a year, plant corn; If you plan for a decade, plant

trees; But if you plan for a century, plant men". This is the philosophy which guides the

people policies at JK Tyre.

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THE WORK CULTURE

JK Tyre provides an enabling work culture with a clear sense of vision, mission and

strategies in which people work with clear goals and thereby achieve more.

Goals are set participative and performance is reviewed

transparently, starting with self-assessment. Merit is recognized

through proportionate rewards and growth opportunities. The

company's aspiration of being a global player known for its

excellence provides opportunities for stretch for the potential of

its people.

Jk Tyre and Industries is committed to self reliance and follows an ethic that views

customer satisfaction as an index of achievement.

Over the years, the company has expanded and diversified its business portfolio. It has

developed into a multi product, multi-location corporate entity comprising of following

business division.

VISION:

To be amongst the most admired companies in India committed to excellence.

MISSION:

-Be a customer obsessed company.

-No.1 tyre brand in India.

-Deliver enhances value to all stake-holder.

-Most profitable tyre company in India.

-Enhance global presence through acquisition.

-Motivated and committed team development for high performance organization.

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FOUNDERS OF Jk

Tyre

JK Organization owes its name to Late Lala Juggilal Singhania, a dynamic personality

with a broad vision. Inspired by the cause of the Swadeshi movement of Mahatma

Gandhi, and driven by the zeal to setup an Indian enterprise,Lala Kamlapat Singhania

founded J.K. organization in the 19th century ushering in a new industrial era in India.

The process of industrialization and diversification was worthily and successfully carried

on by Lala Kamlapat and Lala Lakshmipat and Lala Kailashpat, aided in no small

measure by the late Gopal Krishna son of Padampat.

LEADERS PAR EXCELLENCE

Mr. Hari Shankar Singhania, the President of JK

Organization and Chairman of JK Tyre & Industries Ltd is a

renowned business leader in India. He has been bestowed

the prestigious national award "Padma Bhushan" by the

President of India.

He has been the President of International Chamber of

Commerce (ICC), Paris, being the 2nd Indian and 3rd

Asian in the last 80 years and has made significant contributions in national and

international business arenas.

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Recognising his contribution to Indo-Swedish business relations, the King of Sweden

honoured him with "Royal Order of Polar Star" one of Sweden's highest awards.

His vision, dynamism and charisma is steering JK Tyre to greater heights.

Dr. Raghupati Singhania is the Vice Chairman & Managing

Director of JK Tyre & Industries Ltd. His vision and

entrepreneurial zeal have revolutionised the Indian Tyre

Industry - from introducing Radials in India to setting up

world-class R & D facilities. He has put India on the

Motorsports map of the world by promoting and supporting the sport.

Apart from being associated with many Apex Chambers and many government bodies,

Dr. Singhania's illustrious career is studded with numerous prestigious recognitions and

awards.

His commitment to quality has brought many a laurel to JK Tyre by way of National

Recognitions and awards.

.MILESTONES OF JK TYRE INDUSTRIES

1933:-

First in India to manufacture Calico Prints-Juggilal Kamlapat.

Cotton Spinning and Weaving Mills co. Ltd. Kanpur.

1959:-

First in India to set up a continuous process of Rayon Plant.

1962:-

First in India to produce Nylon-6 with its own polymerized raw material- J.K. Synthetics

Ltd. Kota.

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1969:-

First to manufacture Acrylic Fibers’ - J.K. Synthetics Ltd. Kota

First to develop differently Dyeable- J.K. Synthetics Nylon Ltd. Kota.

1985:-

First in India to produce Catholics Dye able Polyester Fiber- J.K Synthetics Ltd. Kota

First in India to produce Nylon Tyre Cord based on Spin Draw Technology- J.K.

Synthetics Ltd. Kota.

1992:-

R&D center set-up at HASTERI.

1994:-

India’s T-rated tyre launched.

Ban more tyre Plant(BTP) crossed 100 TPD

1995:-

Mercedes Benz Launched on JK steel radials

First tyre manufacturer in the World to get ISO 9001.

1997:-

Awarded the National Export Award for 96-97.

Vikrant Tyres (VTL) acquired.

India’s first H rated tyre launched.

Only Tyre manufacturer to get ‘E’ Mark certification.

HASTERI became the first research institute in Asia to get ISO 9002.

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2000:-

JK introduced National Go-Karting Championships.

2001:-

Received CAPEXIL award.

JK Industries Received FOCUS LAC export award for the year

1999 -2000.

Commendation Certificate of CII Exim.

Llnd National Go-Karting Championship held.

One’s More Achievement

Delhi-based JK Tyre, one of the top five tyre making companies in the country, has

bought 100 per cent stake in the Mexico-based tyre-maker Tornel for Rs. 270 crore.

The acquisition will help JK Tyre gain access to the world's largest auto market in the

United States in addition to some distant markets of central and South America.

Corporate : Manufacturing Facilitiez

JK Tyre has six Modern plants in India which are strategically located at

1) Mysore, Karnataka

(2) Banmore, Madhya Pradesh

3) Kankroli, Rajasthan

4) Chennai, Tamil Nadu

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JK Tyre has also enhanced its global reach by taking over Tornel a renowed Mexican

company, which has 3 plants in Mexico. All these plants are equipped with World’s

most advanced manufacturing and testing machines.

EXECUTIVE SUMMARY

Organization : - Jk Tyre & Industries Pvt. Ltd.

Reporting Officer : - Mr.N.K Sharma, HR Manager.

Name : - MONIKA BADALA

QUALITY POLICY of INDUSTRIES.

The people of JK Tyre have an organization which committed to quality in everything

they do. They will continuously anticipate and understand their customer's

requirements, convert these into performance standards for their products and services

and meet these standards every time. Full customer satisfaction - both internal and

external is motto of the organization.

Commitment towards Quality:

“In order to demonstrate its commitment towards Quality, JK tyre has made never

ending efforts to make all its products of world class quality”.

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QUALITY MANAGEMENT

ISO 9001:

JK Tyre world's first tyre company to receive 'ISO 9001' certification for its entire

operations in 1995 in one go. Its Quality Management System is completely integrated

into all aspects of our operations.

QS 9000:

JK Tyre the world's first tyre company to receive Quality Management System

certification ‘QS 9000' in 1998 for multi location operations. They using

'QS 9000' system as a tool for continuous incremental improvement.

Environment Management System (ISO 4001):

JK Tyre recognizes the impact that our business has on the environment and

takes our responsibilities for maintaining harmony with nature. Jk tyres is the first

tyre company in India to receive 'ISO 14001' certification for multi location

operations in 1999.

“E-mark”:

JK Tyre is the only Tyre Company in India having the E-mark certification on their

products, a mandatory requirement for exporting tyres to European Markets.

“DOT” (Department of Transport): JK Tyre has the DOT certification on its products, a

mandatory requirement for exporting tyres to US Market.

‘INMETRO” (Instituto Nacional De Materiologia - Brazil)

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We also have the certification from INMETRO a mandatory requirement for exporting

tyres to Brazi (South America). This is a product as well as a system certification. Also

this is a proof of superior quality of JK Tyre and our ability to meet stringent international

standards. PRODUCT OF J.K. TYRE & INDUSTRIES Ltd

Today J.K. tyre Ltd rewarded as India’s no.1 RADIAL TYRE making company and

contributes their product to the society not only in India but to the world community.

The Chairman of company Mr. R P. Singania laid the ground work for a new approach

to management that consider defect as being crime. Quality superior customer service

are considered the key factor for success of its product in the very competitive

environment.It becomes a leading manufacturer of variety of GLOBAL products and

they are:

OUR FIRSTS - LEADING THE WAY

Ever since its inception, JK Tyre has

been a leader rather than a follower.

We have garnered many Firsts to our

credit like;

First Indian tyre company to

introduce All Steel Truck &

Bus Radials in India in 1999

Pioneered Radial technology

in India by introducing

passenger radials in 1977

First Indian tyre company to be recognized as 'SUPERBRAND' by Global

Advertising Professionals

First in India to launch 'Eco-friendly - Green tyre'

First in India to launch 'Dual Contact' - Aquasonic tyre

First to launch 'Asymmetric' tyre

First in India to launch high performance tyre -

o H rated - Speed of above 190 kms upto 210 kms

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o V rated - Speed of above 210 kms upto 240 kms

o Z rated - Speed of above 240 kms. Upto 300 kms.

World's first tyre manufacturer to get QS 9000 certification for all its multi-

location operations

World's first tyre manufacturer to get ISO 9001 certification for its entire

operations.

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CHAPTER-2

REVIEW OF LITERATURE

:REVIEW OF LITERATURE:

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INTRODUCTION

Global competition involves multiple firms competing across markets, for supremacy in

an industry. We analyze the competitive behaviors of globally operating firms from

different countries, considering their foreign direct investment (FDI) positions. Our

framework is based on the theories of oligopolistic reaction (Knickerbocker, 1973) and

FDI (Dunning, 1998). This work contributes to the literature by incorporating measures

of international oligopolistic behavior into a model of the determinants of decisions

regarding foreign subsidiary location.

We investigate international competition in the tire industry, and the behavior of

individual firms with respect to each other. Oar model considers factors related to

foreign subsidiary location, examining leading firms' FDI during different stages of the

industry's consolidation. Using binomial logit models, we find that the investment

behaviors of the tire industry's major players imply the use of global strategies and a

consideration of the extent of competition in individual markets. This behavior is

consistent with the theory of oligopolistic reaction. Our modeling also suggests that

strategic behaviors differ, depending on the presence of particular rivals.

LITERATURE REVIEW

Two Outcomes of Oligopolistic Behavior

Past literature predicts two different types of behavior by firms in an oligopolistic

industry. Classical economic theory suggests that oligopolistic firms recognize their

mutual interdependence, realizing that profits will be higher when cooperative policies

are pursued (Scherer and Ross, 1990). Similar collusive outcomes can be expected in

foreign investment. Then, oligopolists should be less likely to invest in markets already

inhabited by rivals. Thus, classic oligopoly theory suggests that firms will attempt to

avoid head-to-head competition in foreign markets; i.e., carving up the world market is

consistent with joint profit maximization.

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However, the literature related to multimarket contact indicates that head-to-head

competition does not always reduce profits. A firm has incentive to establish a foothold

in at least some of the same markets as its primary competitors, to signal its ability to

respond, should it come under attack (Karnani and Wernerfelt, 1985). Firms competing

simultaneously in many markets may actually cooperate. Each firm can gain by allowing

its competitor to be superordinate in some markets, in exchange for similar treatment in

others. The "mutual forbearance" hypothesis (Edwards, 1955) postulates that firms

meeting in multiple markets can anticipate each other's potential reactions. Then,

investments that result in multimarket competition generate credible threats of

competitive retaliation. This reduces the incentive for individual firms to act too

aggressively, as such actions will result in suboptimal performance for all members of

the oligopoly.

Over time, firms in highly concentrated industries expect to become familiar with the

likely actions of their competitors, allowing them to coordinate activities more easily.

Studying U.S. domestic firms, Scott (1991) and Kim and Singal (1993) identified a

relationship between multimarket contact and performance, finding multimarket contact

to be generally associated with higher profits, given high concentration. However,

Mester (1987) found that high concentration, accompanied by extensive multimarket

contact between dominant domestic firms, was associated with more competitive

behavior, contrary to the mutual forbearance hypothesis. In addition to these empirical

studies, Bernheim and Whinston (1990) and Klemperer (1992) developed formal

models of multimarket contact.

Thus, the existing literature identifies two distinct strategies in an oligopolistic industry:

carving up the market and investing head-to-head. The behaviors implied by the

different theories seem to stem from different assumptions. The collusive behavior

predicted by the classical oligopoly literature is consistent with assumptions of perfect

information and decreasing returns, because the uncertainty associated with

competitive interaction disappears and collusion logically emerges. However,

multimarket competition is consistent with assumptions of imperfect information and

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increasing returns, where the uncertainty is too high to warrant the trust implicit in the

decision to carve up the market.

Empirical Evidence of Oligopolistic Reaction

Past empirical research related to FDI theory has generally supported the notion that

firms in an oligopolistic industry at home tend to follow each other overseas, making

similar investments in the same countries. This phenomenon is known as "oligopolistic

reaction," "follow-the-leader behavior," or the "bandwagon effect." The behavior

predicted by the theory of oligopolistic reaction results in multimarket …

According to CARE Research, the domestic tyre industry is on a brink of a major

structural change. T&B which is a dominant segment in terms of tonnage is witnessing a

gradual rise in the proportion of radial tyres. Going by the global trend it seems that the

radial tyre demand in India is at inflection point and with almost 97 – 98 per cent of the

passenger car tyre production has been radialised, T&B tyre category is the next major

category to witness spurt in the demand for radial tyres. And with improvement in road

infrastructure and better cost economics the proportion of radial tyres in T&B category is

expected to expand by around seven times from the current levels. Sighting this

opportunity, almost all the expansion plans for T&B category tyres are for radial

category tyres.

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CHAPTER-3

RESEARCH & METHODOLOGY

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ANALYSIS TOOLS

While analyzing financial statements there are varieties of tools that can be chosen to

suit a specific purpose. The tools used for analysis purpose are:

Ratio Analysis

Year to year change or Horizontal Analysis

Common size or Vertical Analysis

Cross sectional Analysis

1. RATIO ANALYSIS

Accounting Ratios | Financial Ratios:

RATIO ANALYSIS : - is a powerful tools of financial analysis. A ratio is an

arithmetical relationship between two related or inter dependent items. The relationship

between two accounting figure, expressed mathematically, is known as “Financial

Ratio”. Ratios help to summarize large quantities of financial data and to make

qualitative judgment about the firm’s financial performance.

Advantages of Ratios Analysis :

Ratio analysis is an important and age-old technique of financial analysis. The following

are some of the advantages / Benefits of ratio analysis:

Simplifies financial statements: It simplifies the comprehension of financial

statements. Ratios tell the whole story of changes in the financial condition of the

business

Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios

highlight the factors associated with with successful and unsuccessful firm. They also

reveal strong firms and weak firms, overvalued and undervalued firms.

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Helps in planning: It helps in planning and forecasting. Ratios can assist management,

in its basic functions of forecasting. Planning, co-ordination, control and

communications.

Makes inter-firm comparison possible: Ratios analysis also makes possible

comparison of the performance of different divisions of the firm. The ratios are helpful in

deciding about their efficiency or otherwise in the past and likely performance in the

future.

Help in investment decisions: It helps in investment decisions in the case of investors

and lending decisions in the case of bankers etc.

Limitations of Ratios Analysis :

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.

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.

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.

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Ratios alone are not adequate: Ratios are only indicators, they cannot be taken as

final regarding good or bad financial position of the business. Other things have also to

be seen.

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.

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.

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.

Personal bias: Ratios are only means of financial analysis and not an end in itself.

Ratios have to interpreted and different people may interpret the same ratio in different

way.

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.

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Classification of Accounting Ratios :

Classification of Accounting Ratios / Financial Ratios

(A)

Traditional Classification or

Statement Ratios

(B)

Functional Classification or

Classification According to

Tests

(C)

Significance Ratios or Ratios

According to Importance

Profit and loss account

ratios or revenue/income

statement ratios

Balance sheet ratios or

position statement ratios

Composite/mixed ratios or

inter statement ratios

Profitability ratios

Liquidity ratios

Activity ratios

Leverage ratios or long term

solvency ratios

Primary ratios

Secondary ratios

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Ratios may be classified in a number of ways to suit any particular purpose. Different

kinds of ratios are selected for different types of situations. Mostly, the purpose for

which the ratios are used and the kind of data available determine the nature of

analysis. The various accounting ratios can be classified as follows

Analysis of Profitability

1. Liquidity Ratio:-

a) Current Ratio:

It is a measure of general liquidity and is most widely used to make the analysis for

short term financial position or liquidity of a firm. It is calculated by dividing the total of

the current assets by total of the current liabilities.

Definition:

Current ratio may be defined as the relationship between current assets and current

liabilities. This ratio is also known as "working capital ratio". It is a measure of general

liquidity and is most widely used to make the analysis for short term financial position or

liquidity of a firm. It is calculated by dividing the total of the current assets by total of the

current liabilities.

Formula :

Following formula is used to calculate current ratio:

Significance :

This ratio is a general and quick measure of liquidity of a firm. It is also an index of

technical solvency and an index of the strength of working capital.

A ratio equal to or near 2 : 1 is considered as a standard or normal or satisfactory.

b) Liquid or Liquidity or Acid Test or Quick Ratio:

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Definition:

Liquid ratio is also termed as "Liquidity Ratio",  "Acid Test Ratio" or "Quick Ratio". It is

the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a

firm to pay its short term obligations as and when they become due.

Formula of Liquidity Ratio / Acid Test Ratio:

Significance:

The quick ratio/acid test ratio is very useful in measuring the liquidity position of a

firm. It is used as a complementary ratio to the current ratio. As a convention,

generally, a quick ratio of "one to one" (1:1) is considered to be satisfactory.

c) Absolute Liquid Ratio :

Absolute liquidity is represented by cash and near cash items. It is a ratio of

absolute liquid assets to current liabilities. In the computation of this ratio only the

absolute liquid assets are compared with the liquid liabilities. The absolute liquid

assets are cash, bank and marketable securities. It is to be observed that

receivables (debtors/accounts receivables and bills receivables) are eliminated

from the list of liquid assets in order to obtain absolute4 liquid assets since there

may be some doubt in their liquidity.

Formula of Absolute Liquid Ratio:

Absolute Liquid Ratio = Absolute Liquid Assets / Current

Assets

Liquid Ratio = Liquid Assets / Current Liabilities]

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This ratio gains much significance only when it is used in conjunction with the

current and liquid ratios. A standard of 0.5 : 1 absolute liquidity ratio is

considered an acceptable norm. That is, from the point of view of absolute

liquidity, fifty cents worth of absolute liquid assets are considered sufficient for

one dollar worth of liquid liabilities. However, this ratio is not in much use.

2) Activity Ratio:-

a) Inventory Turnover Ratio or Stock Turnover Ratio (ITR):

Every firm has to maintain a certain level of inventory of finished goods so as to

be able to meet the requirements of the business. But the level of inventory

should neither be too high nor too low.

A too high inventory means higher carrying costs and higher risk of stocks

becoming obsolete whereas too low inventory may mean the loss of business

opportunities. It is very essential to keep sufficient stock in business.

Definition:

Stock turn over ratio and inventory turn over ratio are the same. This ratio is a

relationship between the cost of goods sold during a particular period of time and

the cost of average inventory during a particular period. It is expressed in number

of times. Stock turn over ratio/Inventory turn over ratio indicates the number of

time the stock has been turned over during the period and evaluates the

efficiency with which a firm is able to manage its inventory. This ratio indicates

whether investment in stock is within proper limit or not.

Formula of Stock Turnover/Inventory Turnover Ratio :

(a) [Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost]

The ratio is calculated by dividing the cost of goods sold by the amount of

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average stock at cost.

Generally, the cost of goods sold may not be known from the published financial

statements. In such circumstances, the inventory turnover ratio may be calculated by

dividing net sales by average inventory at cost. If average inventory at cost is not known

then inventory at selling price may be taken as the denominator and where the opening

inventory is also not known the closing inventory figure may be taken as the average

inventory.

(b) [Inventory Turnover Ratio = Net Sales / Average Inventory at Cost]

(c) [Inventory Turnover Ratio = Net Sales / Average inventory at Selling Price]

(d) [Inventory Turnover Ratio  = Net Sales / Inventory]

Significance of ITR :

Inventory turnover ratio measures the velocity of conversion of stock into sales.

Usually a high inventory turnover/stock velocity indicates efficient management of

inventory because more frequently the stocks are sold, the lesser amount of

money is required to finance the inventory. A low inventory turnover ratio

indicates an inefficient management of inventory.

b) Debtors Turnover Ratio | Accounts Receivable Turnover Ratio:

Definition:

Debtors turnover ratio or accounts receivable turnover ratio  indicates the velocity

of debt collection of a firm. In simple words it indicates the number of times

average debtors (receivable) are turned over during a year.

Formula of Debtors Turnover Ratio:

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A) Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors

The two basic components of accounts receivable turnover ratio are net credit

annual sales and average trade debtors. The trade debtors for the purpose of

this ratio include the amount of Trade Debtors & Bills Receivables.

Significance of the Ratio:

Accounts receivable turnover ratio or debtors turnover ratio indicates the number

of times the debtors are turned over a year. The higher the value of debtors

turnover the more efficient is the management of debtors or more liquid the

debtors are. Similarly, low debtors turnover ratio implies inefficient management

of debtors or less liquid debtors.

Average Collection Period Ratio:

Definition:

The Debtors/Receivable Turnover ratio when calculated in terms of days is

known as Average Collection Period or Debtors Collection Period Ratio.

The average collection period ratio represents the average number of days for

which a firm has to wait before its debtors are converted into cash.

Formula of Average Collection Period:

B) Debtors Turnover Ratio = Total Sales / Debtors

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Following formula is used to calculate average collection period:

(Trade Debtors × No. of Working Days) / Net Credit Sales

Significance of the Ratio:

This ratio measures the quality of debtors. A short collection period implies

prompt payment by debtors. It reduces the chances of bad debts

c) Creditors / Accounts Payable Turnover Ratio:

Definition and Explanation:

This ratio is similar to the debtors turnover ratio. It compares creditors with the

total credit purchases.

It signifies the credit period enjoyed by the firm in paying creditors. Accounts

payable include both sundry creditors and bills payable. Same as debtors

turnover ratio, creditors turnover ratio can be calculated in two forms, creditors

turnover ratio and average payment period.

Formula:

Creditors Turnover Ratio = Credit Purchase / Average Trade Creditors

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Average Payment Period:

Average Payment Period = Trade Creditors / Average Daily Credit Purchase

Average Daily Credit Purchase= Credit Purchase / No. of working days in a year

Or

Average Payment Period = (Trade Creditors × No. of Working Days) / Net Credit

Purchase

Average payment period ratio gives the average credit period enjoyed from the

creditors. It can be calculated using the following formula:

(In case information about credit purchase is not available total purchases may

be assumed to be credit purchase.)

Significance of the Ratio:

The average payment period ratio represents the number of days by the firm to

pay its creditors. A high creditors turnover ratio or a lower credit period ratio

signifies that the creditors are being paid promptly. This situation enhances the

credit worthiness of the company. However a very favorable ratio to this effect

also shows that the business is not taking the full advantage of credit facilities

allowed by the creditors.

d) Working Capital Turnover Ratio:

Definition:

Working capital turnover ratio indicates the velocity of the utilization of net

working capital.

This ratio represents the number of times the working capital is turned over in the

course of year and is calculated as follows:

Page 33: JK ND CEAT

Formula of Working Capital Turnover Ratio:

Following formula is used to calculate working capital turnover ratio

The two components of the ratio are cost of sales and the net working capital. If

the information about cost of sales is not available the figure of sales may be

taken as the numerator. Net working capital is found by deduction from the total

of the current assets the total of the current liabilities.

Significance:

The working capital turnover ratio measure the efficiency with which the working

capital is being used by a firm. A high ratio indicates efficient utilization of

working capital and a low ratio indicates otherwise. But a very high working

capital turnover ratio may also mean lack of sufficient working capital which is not

a good situation

e) Fixed Assets Turnover Ratio:

Definition:

Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio

measures the efficiency and profit earning capacity of the concern.

Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio

means under-utilization of fixed assets. The ratio is calculated by using following

formula:

Formula of Fixed Assets Turnover Ratio:

Working Capital Turnover Ratio = Cost of Sales / Net Working Capital

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Fixed assets turnover ratio turnover ratio is calculated by the following formula:

Fixed Assets Turnover Ratio = Cost of Sales / Net Fixed Assets

3) Profitability Ratio:-

A) On the basis of sales-

a) Gross Profit Ratio (GP Ratio):

Definition of gross profit ratio:

Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a

percentage. It expresses the relationship between gross profit and sales.

Formula:

Following gross profit ratios: formula is used to calculate

[Gross Profit Ratio = (Gross profit / Net sales) × 100]

Significance:

Gross profit ratio may be indicated to what extent the selling prices of goods per

unit may be reduced without incurring losses on operations. It reflects efficiency

with which a firm produces its products.

b) Net Profit Ratio (NP Ratio):

Definition of net profit ratio:

Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as

percentage.

Formula:

Page 35: JK ND CEAT

Net Profit Ratio = (Net profit / Net sales) × 100

Significance:

NP ratio is used to measure the overall profitability and hence it is very useful to

proprietors. The ratio is very useful as if the net profit is not sufficient, the firm

shall not be able to achieve a satisfactory return on its investment.

c) Operating Ratio:

Definition:

Operating ratio is the ratio of cost of goods sold plus operating expenses to net

sales. It is generally expressed in percentage.

Operating ratio measures the cost of operations per dollar of sales. This is

closely related to the ratio of operating profit to net sales.

. Formula of operating ratio:

Significance:

Operating ratio shows the operational efficiency of the business. Lower operating

ratio shows higher operating profit and vice versa. An operating ratio ranging

between 75% and 80% is generally considered as standard for manufacturing

concerns.

d) Expense Ratio:

Operating Ratio = [(Cost of goods sold + Operating expenses) /

Net sales] × 100

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Definition:

Expense ratios indicate the relationship of various expenses to net sales. The

operating ratio reveals the average total variations in expenses. But some of the

expenses may be increasing while some may be falling. Hence, expense ratios

are calculated by dividing each item of expenses or group of expense with the

net sales to analyze the cause of variation of the operating ratio.

While interpreting expense ratio, it must be remembered that for a fixed expense

like rent, the ratio will fall if the sales increase and for a variable expense, the

ratio in proportion to sales shall remain nearly the same.

Formula of Expense Ratio:

Following formula is used for the calculation of expense ratio:

B)

On the basis of Investment-

a) Return on Shareholders Investment or Net Worth Ratio:

Definition:

It is the ratio of net profit to share holder's investment. It is the relationship

between net profit (after interest and tax) and share holder's/proprietor's fund.

This ratio establishes the profitability from the share holders' point of view. The

ratio is generally calculated in percentage.

Formula of return on shareholder's investment or net worth Ratio:

Particular Expense = (Particular expense / Net sales) × 100

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Significance:

This ratio is one of the most important ratios used for measuring the overall

efficiency of a firm. As the primary objective of business is to maximize its

earnings, this ratio indicates the extent to which this primary objective of

businesses being achieved.

b) Return on Equity Capital (ROEC) Ratio:

In real sense, ordinary shareholders are the real owners of the company. They

assume the highest risk in the company. (Preference share holders have a

preference over ordinary shareholders in the payment of dividend as well as

capital.

Return on equity capital which is the relationship between profits of a company

and its equity, can be calculated as follows:

Formula of return on equity capital ratio is:

Significance :

This ratio is more meaningful to the equity shareholders who are interested to

know profits earned by the company and those profits which can be made

Return on share holder's investment = {Net profit

(after interest and tax) / Share holder's fund} ×

100]

Return on Equity Capital = [(Net profit after tax − Preference dividend) /

Equity share capital] × 100

Page 38: JK ND CEAT

available to pay dividends to them. Interpretation of the ratio is similar to the

interpretation of return on shareholder's investments and higher the ratio better

is.

c) Return on Capital Employed Ratio (ROCE Ratio):

Definition of Capital Employed:

Capital employed and operating profits are the main items. Capital employed

may be defined in a number of ways. However, two widely accepted definitions

are "gross capital employed" and "net capital employed". Gross capital employed

usually means the total assets, fixed as well as current, used in business, while

net capital employed refers to total assets minus liabilities. On the other hand, it

refers to total of capital, capital reserves, revenue reserves (including profit and

loss account balance), debentures and long term loans.

To find out net capital employed, current liabilities are deducted from the total of

the assets as calculated above.

Gross capital employed = Fixed assets + Investments + Current assets

Net capital employed = Fixed assets + Investments + Working capital*.

*Working capital = current assets − current liabilities.

Formula of return on capital employed ratio:

Return on Capital Employed=(Adjusted net profits*/Capital employed)×100

*Net profit before interest and tax minus income from investments.

Significance of Return on Capital Employed Ratio:

Page 39: JK ND CEAT

Return on capital employed ratio is considered to be the best measure of

profitability in order to assess the overall performance of the business. It

indicates how well the management has used the investment made by owners

and creditors into the business.

d) Proprietary Ratio or Equity Ratio:

Definition:

This is a variant of the debt-to-equity ratio. It is also known as equity ratio or net

worth to total assets ratio.

This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio

indicates the long-term or future solvency position of the business.

Formula of Proprietary/Equity Ratio:

Proprietary or Equity Ratio = Shareholders funds / Total Assets

Significance:

This ratio throws light on the general financial strength of the company. It is also

regarded as a test of the soundness of the capital structure. Higher the ratio or

the share of shareholders in the total capital of the company, better is the long-

term solvency position of the company. A low proprietary ratio will include greater

risk to the creditors.

This ratio may be further analyzed into the following two ratios:

Ratio of fixed assets to shareholders/proprietors' funds

Ratio of current assets to shareholders/proprietors' funds

Page 40: JK ND CEAT

e) Capital Gearing Ratio:

Definition and Explanation:

Closely related to solvency ratio is the capital gearing ratio. Capital gearing ratio

is mainly used to analyze the capital structure of a company.

.Formula of capital gearing ratio

[Capital Gearing Ratio = Equity Share Capital / Fixed Interest

Bearing Funds]

Significance of the ratio:

Capital gearing ratio is important to the company and the prospective investors. It

must be carefully planned as it affects the company's capacity to maintain a

uniform dividend policy during difficult trading periods. It reveals the suitability of

company's capitalization.

4.OVERALL PROFITITABILITY:

a)Earnings Per Share (EPS) Ratio:

Definition:

Earnings per share ratio (EPS Ratio) is a small variation of return on equity

capital ratio and is calculated by dividing the net profit after taxes and preference

dividend by the total number of equity shares.

Formula of Earnings Per Share Ratio

Earnings per share (EPS) Ratio = (Net profit after tax − Preference

dividend) / No. of equity shares (common shares)

.

Page 41: JK ND CEAT

Significance:

The earnings per share is a good measure of profitability and when compared

with EPS of similar companies, it gives a view of the comparative earnings or

earnings power of the firm. EPS ratio calculated for a number of years indicates

whether or not the earning power of the company has increased.

b)Dividend Payout Ratio:

Dividend payout ratio is calculated to find the extent to which earnings per share

have been used for paying dividend and to know what portion of earnings has

been retained in the business. It is an important ratio because ploughing back of

profits enables a company to grow and pay more dividends in future.

Formula of Dividend Payout Ratio

A

complementary of this ratio is retained earnings ratio. Retained earning ratio is

calculated by using the following formula:

Retained Earning Ratio = Retained Earning Per Equity Share / Earning Per

Equity Share

Significance of the Ratio:

The payout ratio and the retained earning ratio are the indicators of the amount

of earnings that have been ploughed back in the business.

c)Dividend Yield Ratio:

Dividend Payout Ratio = Dividend per Equity Share / Earnings per

Share

Page 42: JK ND CEAT

Definition:

Dividend yield ratio is the relationship between dividends per share and the

market value of the shares.

Formula of Dividend Yield Ratio:

Dividend Yield Ratio = Dividend Per Share / Market Value Per Share

Significance of the Ratio :

This ratio helps as intending investor is knowing the effective return he is going to

get on the proposed investment.

d)Debt Service Ratio or Interest Coverage Ratio:

Definition :

Interest coverage ratio is also known as debt service ratio or debt service

coverage ratio.

This ratio relates the fixed interest charges to the income earned by the

business. It indicates whether the business has earned sufficient profits to pay

periodically the interest charges. It is calculated by using the following formula.

Formula of Debt Service Ratio or interest coverage ratio :

Interest Coverage Ratio = Net Profit Before Interest and Tax / Fixed

Interest Charges

Significance of debt service ratio:

Page 43: JK ND CEAT

The interest coverage ratio is very important from the lender's point of view. It

indicates the number of times interest is covered by the profits available to pay

interest charges.

e)Price Earnings Ratio (PE Ratio):

Definition :

Price earnings ratio (P/E ratio) is the ratio between market price per equity share

and earning per share.

Formula of Price Earnings Ratio:

Price Earnings Ratio = Market price per equity share / Earnings per share

The market value of every one dollar of earning is six times or $6. The ratio is

useful in financial forecasting. It also helps in knowing whether the share of a

company are under or over valued

Significance of Price Earning Ratio:

Price earnings ratio helps the investor in deciding whether to buy or not to buy

the shares of a particular company at a particular market price.

Generally, higher the price earning ratio the better it is. If the P/E ratio falls, the

management should look into the causes that have resulted into the fall of this

ratio.

General profitability:

Page 44: JK ND CEAT

1) Gross profit ratio = (Gross profit / Net sales) × 100

2) Operating ratio = (Operating cost / Net sales) × 100

3) Expense ratio = (Particular expense / Net sales) × 100

4) Operating profit ratio = (Operating profit / Net sales) × 100

Overall profitability:

1) Return on shareholders' investment or net worth = Net profit after interest and tax

/ Shareholders' funds

2) Return on equity capital = (Net profit after tax – Preference dividend) / Paid up

equity capital

3) Earnings per share (EPS) ratio =  (Net profit after tax – Preference dividend) /

Number of equity shares

4) Return on gross capital employed = (Adjusted net profit / Gross capital

employed) × 100

5) Return on net capital employed = (Adjusted net profit / Net capital employed) ×

100

6) Dividend yield ratio = Dividend per share / Market value per share

7) Dividend payout ratio or pay-out ratio = Dividend per equity share / Earnings per

share

Short Term Financial Position or Test of Solvency:

1) Current ratio = Current assets / Current liabilities

2) Quick or acid test of liquid ratio (for immediate solvency) = Liquid assets /

Current liabilities

3) Absolute liquid ratio = Absolute liquid assets / Current liabilities

Current Assets Movement, Efficiency or Activity Ratios:

1) Inventory / Stock turnover ratio = Cost of goods sold / Average inventory at cost

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2) Debtors of receivables turnover ratios = Net credit sales / Average trade debtors

3) Average collection period = (Trade debtors  No. of working days) / Net credit

sales

4) Creditors or payables turnover ratio = Net credit purchase / Average trade

creditors

5) Average payment period = (Trade creditors  No. of working days) / Net credit

purchase

6) Working capital turnover ratio = Cost of sales / Net working capital

Analysis of Long Term Solvency:

1) Debt to equity ratio = Outsiders funds / Shareholders funds or External funds /

Internal funds

2) Ratio of long term debt to shareholders funds (Debt equity) = Long term debt /

Shareholders funds

3) Proprietary of equity ratio = Shareholders funds / Total assets

4) Fixed assets to net worth = Fixed assets after depreciation / Shareholders' funds

5) Fixed assets ratio or fixed assets to long term funds = Fixed assets after

depreciation / Total long term funds

6) Ratio of current assets proprietors' funds = Current assets / Shareholders' funds

7) Debt service or interest coverage ratio = Net profit before interest and tax / Fixed

interest charges

8) Capital gearing ratio = Equity share capital / Fixed interest bearing funds

2.Year to year change or Horizontal Analysis : -

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A comparison of financial statements over two or three year can be undertaken by

computing the year to year change in absolute amounts and in terms of percentage

changes.

3. Common Size or Vertical Analysis Statements : - are very well suited to

inter – company comparisons because the financial statements of a variety of

companies can be recast into the uniform common size format regardless of the

size of individuals account. Comparison of Common Size statements of

companies within an industry or with Common Size composite statistics of that

industry can alert the analyst’s attention about variations in accounting structure

or distribution.

4.Cross Sectional Analysis : -

this involves comparison of ratios of one firm it some other firm in the same

industry at the same point in time.

Page 47: JK ND CEAT

CHAPTER-4

DATA INTRPRETATION & ANALYSIS

Page 48: JK ND CEAT

DATA ANALYSIS OF JK TYRE

Balance Sheet of JK Tyre and

Industries------------------- in Rs. Cr. -------------------

Mar '12 Mar '11

12 mths 12 mths

Sources Of Funds

Total Share Capital 41.06 41.06

Equity Share Capital 41.06 41.06

Share Application Money 0.00 0.00

Preference Share Capital 0.00 0.00

Reserves 629.54 673.66

Revaluation Reserves 0.00 0.00

Networth 670.60 714.72

Secured Loans 1,396.69 758.68

Unsecured Loans 281.35 559.35

Total Debt 1,678.04 1,318.03

Total Liabilities 2,348.64 2,032.75

Mar '12 Mar '11

12 mths 12 mths

Application Of Funds

Gross Block 2,773.27 2,737.33

Less: Accum. Depreciation 1,330.08 1,321.02

Net Block 1,443.19 1,416.31

Capital Work in Progress 749.20 287.88

Investments 100.89 93.56

Inventories 661.54 688.60

Sundry Debtors 867.36 713.99

Cash and Bank Balance 78.23 85.11

Page 49: JK ND CEAT

Total Current Assets 1,607.13 1,487.70

Loans and Advances 470.48 250.02

Fixed Deposits 0.19 0.17

Total CA, Loans & Advances 2,077.80 1,737.89

Deffered Credit 0.00 0.00

Current Liabilities 1,917.17 1,398.74

Provisions 105.27 104.15

Total CL & Provisions 2,022.44 1,502.89

Net Current Assets 55.36 235.00

Miscellaneous Expenses 0.00 0.00

Total Assets 2,348.64 2,032.75

Contingent Liabilities 241.22 467.09

Book Value (Rs) 163.32 174.07

Interpretation :

The Equity share capital is the JK tyres is 2011 are 41.06 & 2012 are 41.06,

corer .The Equity share capital is equal in both year . Reserves & surplus are the year

2011 is 673.66 & 2012 is 629.54 corer RS. TOTAL LOAN of year 2011 are 1318.03,&

2012 is 1678.04corer RS . NET BLOCK of 2011 is 1,443.19 & 2012 is 1416.31 corer

RS. CAPITAL WORK IN PROGRESS of the year 2011 is 287.88 & 2012 is 749.20

corer RS .The capital WIP is 2012 is increases by 461.32 crore rs. INVESTMENT of

the year 2012 is 93.56, & 2012 is 100.89 corer RS . The increase of the amount of the

investments . TOLAT NET CURRENT ASSETS of the year 2011is 1487.70 & 2012 is

1607.13 .

Page 50: JK ND CEAT

Mar '12 Mar '11

12 mths 12 mths

Income

Sales Turnover6,148.5

95,247.57

Excise Duty 502.51 449.39

Net Sales5,646.0

84,798.18

Other Income 4.94 24.05

Stock Adjustments -87.32 178.66

Total Income5,563.7

05,000.89

Expenditure

Raw Materials4,212.6

43,739.46

Power & Fuel Cost 224.32 184.18

Employee Cost 294.80 271.80

Other Manufacturing Expenses 59.53 86.33

Selling and Admin Expenses 432.17 360.76

Miscellaneous Expenses 55.60 0.08

Preoperative Exp Capitalised 0.00 0.00

Total Expenses5,279.0

6

4,642.61

Mar '12 Mar '11

12 mths12 mths

Operating Profit 279.70 334.23

PBDIT 284.64 358.28

Profit & Loss account of JK Tyre and

Industries------------------- in Rs. Cr. -------------------

Page 51: JK ND CEAT

Interest 170.43 175.70

PBDT 114.21 182.58

Depreciation 101.41 114.54

Other Written Off 0.00 0.00

Profit Before Tax 12.80 68.04

Extra-ordinary items 0.00 0.19

PBT (Post Extra-ord Items) 12.80 68.23

Tax 1.80 30.35

Reported Net Profit 11.00 61.32

Total Value Addition1,066.4

2903.15

Preference Dividend 0.00 0.00

Equity Dividend 10.26 12.32

Corporate Dividend Tax 1.67 2.00

Per share data (annualised)

Shares in issue (lakhs) 410.59 410.59

Earning Per Share (Rs) 2.68 14.93

Equity Dividend (%) 24.99 30.00

Book Value (Rs) 163.32 174.07

Interpretation:

The profit and loss of the year 2011 & 2012 is show the total sale of the year 2011 is

4798.18 & 2012 is 5646.08 crore .and other income of year is 2011 is 24.05 & 2012 is

4.94 crores .The total sales is increased by847.9 crore RS. The total raw material is

consumed in year 2011 is 3739.46 & 2012 is 4212.64 croers rs.The operating profit of

the year 2011 is 334.23 & 2012 is 279.70 crores RS. The sales of 2011 is low than but

the profit of 2011is the greater then the year 2012. The expenses of year 2012 is more

than year 2011. Equity dividend of year of the 2011 is the paid by the company is the

12.32 and 2012 is 10.26 crores RS.

Page 52: JK ND CEAT

CEAT TYRES:

COMPANY OVERVIEW:

On the road since 1958, CEAT has run up to be one of the best tyre manufacturers in

the business. We not only make trailblazing tyres, but also market tubes and flaps. And

that's not all. At CEAT we personify our business; tough yet smooth, secure yet ready to

explore the undaunted.

We are young and revving to go; with a maturity that comes with years of market

presence. More than 3000 Cr annual turnover, an impressive list of clients and OEMs,

various awards and certificates are statistics that could speak for us. But we'd rather

scorch the road with our performance!

We believe that tyres are not just accessories; they are the force that moves your

aspirations. With us you get to choose from a wide range of tyres that suit your needs

and vehicle type. (Not to mention, our radials are racers in the world market!) Strength

is one of the most important attributes of our products, which complements our solid

foundation as a part of RPG Enterprises. Our commitment to quality ensures that you

have a safe ride, always. So go on, defy destiny

Vision & Mission

Page 53: JK ND CEAT

Vision:

"CEAT will at all times provide total customer satisfaction through products and

services of highest quality and reliability."

Mission:

"To nurture an exciting and challenging work environment with fairness and

transparency."

Corporate History

A recollection of our past gives us pride, but it is the responsibility of the future that

makes us wise.

CEAT International was first established in 1924 at Turino in Italy and manufactured

cables for telephones and railways.

In 1958, CEAT came to India, and CEAT Tyres of India Ltd was established in

collaboration with the TATA Group.

In 1982, the RPG Group took over CEAT Tyres of India, and in 1990, renamed the

company CEAT Ltd.

The journey since has been smooth, ups and downs not withstanding. Today, we

are on a roll and looking long distance. Our current mileage:

Over 6 million tyres produced every year

Operations in Mumbai and Nasik plants

Exports to USA, Africa, America, Australia and other parts of Asia

Network of 34 regional offices, 7 Zones, over 3,500 dealers and more than 100 C&F

agents

Dedicated customer service, with customer service managers in all four divisional

offices, assisted by 50 service engineers

WORK CULCTURE :

At CEAT, your progress graph is marked by the decisions you make. And the

emphasis here is not on the progress or the decisions, but on you. Because YOU make

all the difference.

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Here you have the freedom to identify your own training and development needs.

You identify the subject that interests you and work toward enhancing your knowledge

in that area.

You are encouraged to acquire the necessary skills, and constantly keep improving your

performance by practicing hard. Here, the emphasis is always on your progress chart,

because we believe that is what ultimately leads to the success of the company.

We will give you the opportunities to kick-start, the ignition would have to be your

initiation.

NETWOEK :

Eyes on the road. Head firmly on shoulders. A thirst in our heart. And the

world's our highway.

130 countries. Does that sound big? Because it isn't. The world is a big place and

there are inroads to be made yet. But it feels good to know there are people around the

world riding safe on our tyres.

We don't believe in flashing numbers, we let quality do our talking. And it is with reason

that CEAT marks the highest exports from India in truck, OTR and LCV categories.

That's not all; we have a whole range to suit the global market.

We take special interest in fulfilling the needs of our global customers: special sizes,

quality that matches world standards, and a global presence.

Reaching out to the end-users makes business; pleasing them with a reliable

product makes business sense

Page 55: JK ND CEAT

CEAT ROYAL:

Philosophy

CEAT Royal is a program for CEAT Loyal customers rewarding the experience

and building a stronger emotional bond with CEAT. Like the name suggests

treating its customers as "Royals" providing a higher plank of recognition and

transformation. Through this program, CEAT endeavors to reward the best-

managed fleets and strengthen the bond with its esteemed customers to create a

strong platform for the future of the brand.

Objective

Fostering relationships with our major fleet owners is at the core of CEAT Royals.

We aim to be the first choice for our customers by winning their trust on the road

and off it. Hence, it is an emotion-driven initiative and not a transaction-led

platform. This program is at the heart of our plans to evolve from being a

manufacturer into a transportation partner of choice.

Page 56: JK ND CEAT

DATA OF CEAT TYRE :-

Balance Sheet of Ceat ------------------- in Rs. Cr. -------------------

Mar '12 Mar '11

12 mths 12 mths

Sources Of Funds

Total Share Capital 34.24 34.24

Equity Share Capital 34.24 34.24

Share Application Money 3.64 6.05

Preference Share Capital 0.00 0.00

Reserves 618.46 608.85

Revaluation Reserves 0.00 0.00

Networth 656.34 649.14

Secured Loans 936.43 624.13

Unsecured Loans 134.38 130.78

Total Debt 1,070.81 754.91

Total Liabilities 1,727.15 1,404.05

Mar '12Mar '11

12 mths 12 mths

Application Of Funds

Gross Block 2,100.82 1,881.55

Less: Accum. Depreciation 576.74 520.46

Net Block 1,524.08 1,361.09

Capital Work in Progress 13.42 123.40

Investments 74.48 86.53

Inventories 579.61 567.46

Sundry Debtors 612.60 468.68

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Cash and Bank Balance 33.43 44.62

Total Current Assets 1,225.64 1,080.76

Loans and Advances 150.93 159.71

Fixed Deposits 0.00 3.26

Total CA, Loans & Advances 1,376.57 1,243.73

Deffered Credit 0.00 0.00

Current Liabilities 1,237.95 1,383.58

Provisions 23.44 27.12

Total CL & Provisions 1,261.39 1,410.70

Net Current Assets 115.18 -166.97

Miscellaneous Expenses 0.00 0.00

Total Assets 1,727.16 1,404.05

Contingent Liabilities 182.66 269.63

Book Value (Rs) 190.61 187.80

Source : Dion Global Solutions Limited

Interpretation:

THE BALBANC SHEET of ceat tyres is show the share capital is year 2011 is 34.24 &

2012 is 34.24 corer RS. The share capital is stable.Reserves & Surplus are the year

2011is 608.85,2012 is 618.46 corer RS.The Reserves & Surplus are increasesing.

TOLAL LIABILITIY of the year 2011 is 1404.05, 2012 is 1727.15, corer RS. The total

liability is the continusly incraesesing . NET BLOCK of the year 2011 is 1361.09, 2012

is 1524.08 corer RS. SUNDRY DEBTORS for the year 2011 is 468.68 & 2012 is

612.60 corer RS . Cash And Bank of the year 2011 is 44.62,& 2012 is 33.43, crore RS.

cash & bank is increases year by year.

Page 58: JK ND CEAT

Profit & Loss account of Ceat ------------------- in Rs. Cr. -------------------

Mar '12 Mar '11

12 mths 12 mths

Income

Sales Turnover4,824.8

13,779.66

Excise Duty 352.79 294.61

Net Sales4,472.0

23,485.05

Other Income 16.85 22.43

Stock Adjustments -25.90 151.74

Total Income4,462.9

73,659.22

Expenditure

Raw Materials3,342.8

12,760.57

Power & Fuel Cost 151.47 122.61

Employee Cost 232.70 204.43

Other Manufacturing Expenses 0.00 135.78

Selling and Admin Expenses 0.00 240.59

Miscellaneous Expenses 463.57 25.73

Preoperative Exp Capitalised 0.00 0.00

Total Expenses4,190.5

53,489.71

Mar '12Mar '11

12 mths 12 mths

Operating Profit 255.57 147.08

PBDIT 272.42 169.51

Interest 192.16 102.50

PBDT 80.26 67.01

Page 59: JK ND CEAT

Depreciation 70.47 34.17

Other Written Off 0.00 0.00

Profit Before Tax 9.79 32.84

Extra-ordinary items 0.00 0.52

PBT (Post Extra-ord Items) 9.79 33.36

Tax 2.25 11.08

Reported Net Profit 7.54 22.28

Total Value Addition 847.74 729.14

Preference Dividend 0.00 0.00

Equity Dividend 3.42 6.85

Corporate Dividend Tax 0.56 1.06

Per share data (annualised)

Shares in issue (lakhs) 342.44 342.44

Earning Per Share (Rs) 2.20 6.51

Equity Dividend (%) 10.00 20.00

Book Value (Rs) 190.61 187.80

INTERPRETATION

PROFIT &LOSS AIC OF CEAT TYRES:2011 &2012:The profit and loss a/c of the ceat tyres is show the sales of year 2011 is 3485.05 &,2012 4472.02 crores RS.The increases the total sales of the year 2011 to 2012 is the 389.75 crore 986.97 RS. and other income is the year 2011 is 22.43 & 2012 is 16.85 crores RS.The other income is the decrasesing in ceat tyers .The raw material consumed in the year 2011 is 2760.57 &,2012 is 3342.81 crores RS.The gross profit of the year 2011 is 147.08 & 2012 is 225.57 crores RS.

.

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Comparative Ratio Analysis Between JK Industry & CEAT Tyre

S.NO. RATIO

NAME

CEAT TYRE JkTYRE &

INDUSTRIES

INTERPRETATION

2011 2012 2011 2012

INVESTMENT VALUATION RATIO

1. Dividend Per

Share

2.00 1.00 3.00 2.50 DPS Ratio of jk

industry is higher

then CEAT tyre

which shows DPS

of JK is more

favourable for

shareholder.

PROFITABILITY RATIO

2. Operating

Profit

Margin(%)

4.22 5.71 6.96 4.95 JK has lower

operating ratio, it

can be further

improved by

increasing GP ratio.

4. Gross Profit

Margin(%)

3.23 4.13 4.57 3.15 higher the gross

profit is better so

CEAT is in better

position.

5. Cash Profit 1.83 1.80 3.15 1.96 JK having higher

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Margin(% cash profit so it is in

better position.

6. Net Profit

Margin(%)

0.63 0.16 1.27 0.19 NP ratio is used to

measure the

overall profitability.

& JK’s overall

profitability is good.

7. Return On

Capital

Employed(%

)

10.25 11.87 11.99 7.74 CEAT is more

efficient in using its

funds bcoz it has

higher return.

8. Return On

Net

Worth(%)

3.46 1.15 8.57 1.64 JK is in better

position bcoz it has

higher return &

investor would like

to invest in it.

9. Return to

total Asset

0.78 0.44 1.5 0.47 Bcoz of having

lower ratio of CEAT

shows under

utilization of

companies assets.

LIQUIDITY & SOLVENCY RATIO

10. Current Ratio 0.76 1.09 0.64 0.63 In this CEAT tyre

has more liquidity

than jk tyre and in

profitability jk tyre is

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better

11. Quick Ratio 0.46 0.63 0.69 0.68 In this jk tyre has

more liquidity and

ceat tyre has more

profitability.

DEBT COVERAGE RATIO

12. Interest

Cover

1.84 1.07 2.49 1.07 As both are in

stable position and

it assures the

lenders a regular

and periodical

interest income.

MANAGEMENT EFFICIENCY RATIO

13. Inventory

Turnover

Ratio

6.97 8.32 7.91 9.78 JK has higher ITR

ratio then CEAT.

Which indicates JK

has efficient

management of

inventory.

14. Debtors

Turnover

Ratio

8.25 8.27 7.99 7.14 IN this CEAT is in

better position bcoz

the higher the

value of debtors

turnover the more

efficient is the

management of

debtors or more

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liquid the debtors

are.

15. Fixed Assets

Turnover

Ratio

1.92 2.20 1.76 2.04 In this jk has lower

ratio means under-

utilization of fixed

assets is there

16. Total Assets

Turnover

Ratio

2.60 2.69 2.37 2.41 In this ratio ,CEAT

is better which

means better

utilization of total

assets is there.

17. Capital

Turnover

ratio

2.59 2.40 CEAT has better

utilization of capital

& more profitability

CAPITAL STRUCTURE RATIO

18. Debt Equity

Ratio

1.17 1.64 1.84 2.50 Ceat tyre is in

better position

because it has long

term financial

solvency position

OTHER RATIOS

19. Dividend

Payout Ratio

Net Profit

35.48 52.79 23.35 108.45 CEAT has lower

ratio which

indicates strong

financial position of

company.

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20. Earnings Per

Share

6.51 2.20 14.93 2.68 JK is slightly higher

then CEAT tyre

which shows good

profitability of JK.

21. Retention

ratio

74.05 62.79 62.05 -24.79 Higher the ratio of

CEAT which shows

the high growth

potential of

company.

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CHAPTER-5

SUGGESTION & RECOMMENDATION

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Suggestions & Recommendations :

Financial statements do not take account changes in price levels. Analysis of such

statements may not give a true picture of the states of affairs.

Different companies follow different accounting policies, comparison with the

company having different policies may not give the true result.

A problem may arise on two accounts – interpretation of ratio on its own, and

interpretation of the ratio taken together. It is difficult to decide the optimum level of a

ratio, inspire of the presence of industry average.

√Current ratio has decreased to 0.63 which is lower than the normal standard

which is 1.5:1 for manufacturing industry, which is showing that the ability of

J.K. Tyre industry to meets its current obligation, is not good.

√Company liquidity is mainly relying on the sale and recovery of its inventory

since most portions of current assets is holding by debtors and inventory,

which is not good.

√Profit margin of the tyre industry is higher than the J.K. Tyre which is not much

efficient in its production, selling, financial and tax management comparing

with other player in the industry.

√Present asset turnover of the company has decreased in last two years. But

now the ratio is increased so this is good sign in absolute terms.

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√There has been a drastic decrease in profit after tax (PAT). It showing a

decreasing trend in 2011 as compared to 2012. This decrease has been

mainly due to increase in employees, freight and transportation cost and

increase in cost of borrowing.

√The increase in Current Liabilities is more than that of Current Asset.

There is decrease in sources of fund. This decrease has been contributed by decrease

in loans (both secured and unsecured) and decrease in reserve and surpluses. The

application of fund has been mainly done in acquiring assets, meeting current assets,

loans and advances.

√The interest coverage ratio of J.K. Industries is very less as compared to its

competitors. It indicates that the Margin of Safety for the lenders is very less

as compared to the competitors. The reason being very low net profit before

interest and very high interest paid.

√The receivable turnover ratio is showing a declining trend in past and now

improve in receivable turn over ratio but is not showing a healthy position. It

indicates that debts are not collected quickly

√The Assets turn over ratio is showing an increase trend. It states that the assets

are use efficiently.

√The company not maintained Debt-Equity ratio. The ideal ratio should be

between 2:1 & 1:1, which has not maintained by the company.

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CHAPTER-6

CONCLUSION

Page 69: JK ND CEAT

CONCLUSION:-

The period under review was one with daunting challenges of acute global financial

crunch followed by economic down-turn worldwide including India. The impact was

severe on the Automobile Industry-both commercial and passenger, resulting in

curtailed demand for tyres,more so, for the commercial tyres. Moreover, unprecedented

hike in the oil prices led to sharp cost increases of petro-based raw materials and other

inputs for the tyre industry.

The all round cost push on the one hand and economic slowdown on the other, affected

profitability.

However, there has been significant improvement in the profitability of the Company

in the current year on account of better operating efficiencies, higher productivity, all

round cost reduction measures and richer product mix.

JK tyre has already been exporting tyres to these markets and will thus be able to

strengthen its presence apart from leveraging strategi clocational advantage. All-round

initiatives have been undertaken to stream-line and improve Tornels operations to

optimize the use of resources and synergies offered by this acquisition. These

initiatives have started yielding results.

JK Tyre now comprises 7 tyre plants with an aggregate capacity of 15.8 million tyres

per annum with a combined tonnage of over 1000 MTs per day,The journey started in

1977 with Companys first tyre manufacturing plant with an initial capacity of 0.5 million

tyre in Kankroli,Rajasthan. Over these eventful years, JK Tyre acquired Vikrant Tyre in

1997, a Government of Karnataka undertaking which was subsequently amalgamated

with JK Tyre. With the acquisition of Tornel, JK Tyres combined turnover exceeds US $

1 billion, giving a boost to its national positioning as also strengthening JK Tyres

position in the international ranking.

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The Indian Automotive Industry is becoming increasingly globalised and is operating in

highly dynamic environment with rising customer expectations. JK Tyre is proud to be

associated with the leading automotive manufacturers of the country, and enjoys the

privileged position of being major suppliers in most of the successful car launches in

recent times like Swift, Logan, Swift Dzire, SX4, A star, Indigo XL and Scorpio.

CEAT company ended the year with net sales of Rs. 2514 crores as compared to Rs.

2330 crores in the previous year relating to a growth of 8%. The OEsegment and

exports did not perform well during the year under review. However, this was

compensated by gains in the replacement market

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References/ Bibliography

Page 72: JK ND CEAT

References:

http://money.rediff.com/companies/jk-tyre-and-industries

ltd/10680007/balance-sheet

http://money.rediff.com/companies/jk-tyre-and-industries/10680007

http://myiris.com/shares/company/financial.php?icode=APOTYRES

http://www.jktyre.com/

http://www.ceattyres.in/

Bibliography:

Stock Exchanges, Investments and Derivatives, 3/e (Paperback),

V.Raghunathan, Prabina Rajib.

Foundations of Financial Management; 6th edition,‘ Block and Hirt, Irwin, 1992.

Guide to Financial Analysis; Bowlin, Martin, and Scott. 2nd edition, McGraw-Hill,

1990.

Financial Management Theory and Practice; Brigham and Gapenski, 6th

edition, Dryden Press, 1991.

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