International Journal of Engineering and Management Research, Volume-3, Issue-2, April 2013 ISSN No.: 2250-0758 Pages: 59-63 www.ijemr.net An Analysis of Financial Statements of Karnataka State Finance Corporation Srinivas K.T. Associate Professor, CIMS-B School, Jayanagar, Bangalore ABSTRACT The present research work is undertaken to analyze the financial statements of KSFC. Present study also made an attempt to examine movement of NPA at KSFC. To achieve the aforesaid objectives data is gathered from annual reports of KSFC and used ratio analysis techniques for data analysis. From the present study it is found that Net profit ratio of the KSFC is satisfactory and KSFC not taken appropriate measures to minimize operating expenses to maximize the wealth of the corporation. And it is also found that the Percentage of NPA over the period of time is decreasing and it is satisfactory. Keywords: Financial Statements, NPA, KSFC, Ratio Analysis etc. I. INTRODUCTION A financial statement depicts the financial performance of the organization. Financial statements are the mirror which reflects the financial position, strength and weakness of the company. Financial performance refers to the act of performing financial activity. In broader sense, financial performance refers to the degree to which financial objectives being or has been accomplished. It is the process of measuring the results of a firm s policies and operations in monetary terms. It is used to measure firm's overall financial health over a given period of time and can also be used to compare similar firms across the same industry or to compare industries or sectors in aggregation. Finney and Miller defines that Financial analysis consists in separating facts according to some definite plan, arranging them in groups according to certain circumstances and then presenting them in a convenient and easily read and understandable form. Financial statement analysis can be defined as the breaking down, interpretation and translation of data contained in financial statements to provide information and show important relationships among the items of financial statements and drawing conclusion about the past performance, current financial position and future potential of a business. II. INCEPTION OF THE KSFC Karnataka financial corporation was established by the government of Karnataka on 30 th March 1959 under the provisions of SFCs act 1951 passed. All along, KSFC has played a pioneer role in the development of micro and small scale enterprises in the state of Karnataka. It has fulfilled the objectives of developmental lending such as industrialization of backward areas, assistance to weaker sections, promoting first generation entrepreneurs, assistance technocrats and women, several units, which received start up assistance from KSFC have today become large industrial conglomerates. III. REVIEW OF LITERATURE Hermanson et al (1992) financial statement analyses consist of applying analysis tools and techniques to financial statements and other relevant data to show important relationships and obtain useful information. John J.Wild, K.R.Subramanyam & Robert F.Halsey (2006) in his research article on financial performance he has pointed that he have said that the financial Statement analysis is the application of analytical tools and techniques to general-purpose financial statements and related data to derive estimates and inferences useful in business Analysis. Financial statement analysis reduces reliance on hunches, guesses, and intuition for Business decisions. It decreases the uncertainty of business analysis. Susan Ward (2008) in his research article on financial performance he has pointed that emphasis that financial analysis using ratios between key values help Investors cope with the massive amount of numbers in company financial statements. For Example, they can compute the percentage of net profit a company is generating on the funds it has deployed. All other things remaining the same, 59
a company that earns a higher percentage of Profit compared to other companies is a better investment option. Rachchh Minaxi A (2011), in his research article on financial performance he has pointed & suggested that the financial statement analysis involves analyzing the financial statements to extract information that can facilitate decision making. It is the process of evaluating the relationship between component parts of the financial statements to obtain a better understanding of an entity s position and performance. From the above literature review, it is evident that, the financial performance depicts the efficiency of organization. It also helps to know the prosperity of the company with the profitability. Mentioned facts can understand only with the analysis of financial statements. IV. NEED FOR THE STUDY Karnataka State Finance Corporation was set up under the State Financial Corporation ACT, 1951 with view to providing medium and long-term finance to medium and small industries and which supplements the financial assistance provided by the all India institutions. KSFC act as a catalyst for promotion of investment and industrial development in the respective State of Karnataka. KSFC is playing major role in the state of Karnataka to provide medium and long-term finance to medium and small industries. If the financial performance of the KSFC is sound the roles in Promotion of industries will also good, if not, other financial institution should play role to restructure the KSFC. Hence study selected to analyze the financial performance of the KSFC. availability of the data from annual reports data is analyzed to achieve the aforesaid objectives. VIII. TOOLS USED FOR DATA ANALYSIS To achieve the aforesaid objectives the data is analyzed by using ration analysis techniques and percentage. IX. DATA ANALYSIS I. Net Profit Ratio: Net profit ratio measures the rate of net profit earned on sales. It helps in determining the overall efficiency of the business operations. Increase in Net profit ratio shows better performance, improvement in the overall efficiency and profitability of the business. In the same way decrease in the ration indicates managerial inefficiency. The ratio is calculated with the following formula: Net Profit Ratio = Net Profit after tax/revenue x 100 V. OBJECTIVES OF THE STUDY 1. To examine the profitability position of the Karnataka State Finance Corporation. 2. To study the overall operating performance of Karnataka State Finance Corporation. 3. To examine the movement of Net NPA of Karnataka State Finance Corporation. 4. To offer suggestions based on findings of the study. VI. SCOPE OF THE STUDY The present study is confined to Karnataka State Finance Corporation. And study is limited for the period of seven years. VII. DATA COLLECTION To achieve the aforesaid objectives data is gathered from secondary sources i.e. Annual report of Karnataka State Finance Corporation. Based on the The above table depicts the Net Profit Ratio of KSFC, in the year 2006-07 the net profit ratio was 6.62%, in the year 2007-08 the net profit ratio is increased to 23.44% because of managerial efficiency, in the year 2008-09 corporation incurred net loss of -17. 49% even though working of the Corporation for the year resulted in an operating profit of Rs. 8.25 crore. However, because of the regulatory requirement of 100 per cent provisioning in respect of Doubtful-3 advances an additional provisioning of Rs. 43.75 crore was necessitated. As a result, there is a net loss of Rs. 3984.09 Lakh crore. In the year 2009-10 corporation tried to come out of Net loss and resulted with net profit ratio of 1.42%, in the year 2010-11 the net profit ratio is increased to 8.86%, but during 2011-12 the net profit ratio is decreased to 4.73%,during financial year 2012-13 the net profit ratio is little bit increased to 5.99% 60
.From the above table it can inferred that corporation fail to perform very well after 2007-08 because of the various reasons like government provision regarding doubtful debts etc, despite of the various reasons corporation should try to improve the net profit ratio, because which depicts the managerial efficiency of the corporation. II. Return on Equity Capital Ratio: The return on equity capital examines profitability from the perspective of the equity investors by relating profits, available for the equity shareholders, with the book value of equity investment. The purpose of computing this ratio is to find out how efficiently the funds supplied by the equity shareholder s have been used and whether the firm has been able to earn reasonable return for the owners or not. This ratio is of great significance to the equity shareholders as this reveals how well the resources of a company are being used, higher the ratio better are the results. The ratio is calculated with the following formula: Return on Equity Capital Ratio: Net profit after tax and preference dividend/paid-up Equity Capital x100 indicates the ratio of operational cost to the sales. Operating ratio is a measurement of efficiency and profitability of the business enterprises. Higher ratio indicates low efficiency because a major part of sales is eaten up by operating cost. 75 to 85 percent may be considered to be a good ratio. Operating ratio is considered to be yardstick of operating efficiency. If business should increase its net profit which is possible if the operating cost is reduced. Lower operating cost indicates higher efficiency and its increases the net profit of the business. The ratio is calculated with the following formula: Operating Ratio = Operating cost/ Net sales x 100 The above table depicts the Return on Equity Capital Ratio of KSFC. It can be evident from the above table that in the year 2006-07 return in equity capital ratio was 13.24%, in the year 2007-08 return on equity capital ratio was 63.54%, during this period corporation effectively utilizes the shareholders fund to maximize return to shareholders. In the year 2008-09 return on equity capital ratio was -32.38% it means corporation failed to provide return to shareholders. In 2009-2010 return on equity capital ratio was 0.58%, in the year 2010-11 corporations maximize return to shareholders with percentages of 35.33%, but 2011-12 again return on equity capital ration drastically decreased to 1.79%, in the year 2012-12 corporation tried to utilize the shareholders effectively with this return on equity capital ratio stood at 2.59%. III. Operating Ratio: Operating ratio reveals the cost content and operational expenses absorbed in the sales. Operating ratio The above table depicts the operating ratio of KSFC, during the 2006-07 operating ratio of KSFC was 93.16%, in the year 2007-08 operating ratio was decreased to 73.13% because corporation minimize the operating expenses effectively, but in the year 2008-09 corporation failed to minimize operating expenses with this effect operating ratio stood at 117.20%. During 2009-10 corporations somehow manage to reduce the operating expenses with this yardstick operating ratio stood at 98.56%. In the year 2010-11, 2011-12, and 2012-13 the operating ratio of the corporation was stood at 91.12%, 95.33 and 94.00% respectively. From the above table it can infer that corporation not taken appropriate measures to minimize the operating expenses. IV. Return on Asset Ratio: The return on assets shows how profitable a company s assets are in generating revenue. The objective of computing this ratio is to find out how efficiently the total assets have been used by the firm. The return on assets indicates the overall efficiency of the management in generating profits at a given level of assets at its disposal. The ratio is calculated with the following formula: Return on Assets Ratio = Net profit/ Average Total Assets x 100 61
The above table depicts the return on average assets ratio of KSFC. During 2006-07 the average assets ratio of KSFC was only 0.96%, in the year 2007-08 the ratio was 4.41%, in the year 2008-09 return on average assets ratio was -2.43% it means corporation fail to utilize the assets to maximize the return. During 2009-10, 2010-11, 2011-12, and 2012-13 the average assets ratio of KSFC was 0.16%, 1.09%, 0.50% and 0.68% respectively. The above table depicts the net NPA of the KSFC; during 2006-07 the net NPA was 46%, in the year 2007-08 NPA was decreased to 33%, in the year 2008-09 because of good recovery policy NPA was decreased to 24%, in the year 2009-10 recovery measures of KSFC towards recovery of NPA resulted outstanding with this result the Net NPA of corporation was stood at 9.71%, from 2010 onwards KSFC performing very well in recovery of NPA, it is evident from the above table, in the year 2010-11 net NPA was only 3.45%, in the year 2011-12 net NPA was 3.72% and in the year 2012-13 net NPA was 2.78%. From the above table it can be inferred that measures and policy towards recovery of NPA of KSFC is good and commendable. X. CONCLUSION The above table depicts the interest income as a percentage to average working funds, non-interest income as a percentage to average working funds, operating profit as a percentage to average working funds and Net profit per employees of the corporation. From the above table it can infer that corporation should take timely appropriate measures to improve the financial soundness of the corporation. The Karnataka State Financial Corporation played a pioneer role in the development of micro and small scale enterprises in the state of Karnataka. It has fulfilled the objectives of developmental lending such as industrialization of backward areas, assistance to weaker sections, promoting first generation entrepreneurs, assistance technocrats and women, several units, which received start up assistance from KSFC have today become large industrial conglomerates. The financial statements reflect the efficiency with which the activity of a KSFC has been undertaken. At last it can be concluded that by suggesting for the KSFC to maintain the control over its operating expenses which will otherwise going to be a major constraint on its profitability. It is also suggested for the KSFC to take utmost care in providing better returns to its equity shareholders since they are the major provider of capital and other continuous support for the survival of the corporation. The KSFC is taken proper measures to control 62
NPA for the fast few years, still some more vibrant measures should take, so that NPA of the corporation can completely eliminated. REFERENCES [1] Pandey I M, A Management Guide for Managing Company s Funds and Profits, 6 th Edition, Pg no 1.58. [2] Susan ward, Financial Ratio Analysis for Performance Check, Pg no.132. [3] Mohammad Wahid Abdullah Khan (Oct 15, 2010) Financial Analysis Techniques & Tools Which Are Designed For Analyzing The Market & Invest Right Way For Maximized Profit, Page no 1,063. [4] Mary Low (December 21 st 2011), Financial Statement Analysis- pages 10, journal of Business and Marketing. [5] Rachchh Minaxi A (2011), Introduction to Management Accounting, Pg no.3-88. [6] John J.Wild, K.R.Subramanyam & Robert F.Halsey (2006), Financial Statement Analysis, 9 th Edition, Pg no 2-90. [7] Chidambaram Rameshkumar, Anbumani N, An overview on financial statements and ratio analysis, 2006, Vol.1, Pg no. 30. [8] Salmi, T. and T. Martikainen (1994), "A review of the theoretical and empirical basis of financial ratio analysis", The Finnish Journal of Business Economics 43:4, Pg no 426-448. [9] Jae K.Shim, Joel G.Siegel, Schaum's Outline of Theory and Problems of Financial Accounting, 1999, Pg no 279-298. [10] Doron Nissim & Stephen H Penman (March 1999), Columbia university-columbia business school, Department of Accounting. [11] Kennedy and Muller, Analysis of Financial Statements, 1999, pg no 1.3. [12] Elizabeth Duncan and Elliott, financing performance, 2005, Pg no 36-37. 63