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CHAPTER 1 INTRODUCTION Finance is the foundation stone of every business. No business can manage without finance.

The success of business depends on availability of finance and its effective utilisation. Financial Perfomance measuring the result of a firm policies and operations in monetary terms. These results are reflected in the firms return on investment, return on asset etc.. It is also used as a ganeral measure of a firms over all financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation. Co-operative bank has been defined as, a mutual society formed, composed and governed by working people themselves for encouraging regular savings and granting small loans easy terms of interest and payments. A co-operative bank promote economic activity and provides banking facilities and services to the rural people. Service rather than profitis the moto of co-operative banks. The co-operative banks generally formed a 3 tier structure and are, thus federal in charactor. Statement of the Problem A service co-operative bank is an organisation established for mutual help and is intended to protect the interest of the members. It protects the agricultural and other activities rendered by the people within the area. This study attends to evaluate the performance of Kothavara Service Co-operative Bank. So, the problem is stated as analysis of financial performance of Kothavara Service Co-operative Bank Ltd. Scope of the Study The study is about the financial aspects of Kothavara Service Co-operative Bank Ltd No.1359 for the period of five years from 2006-2007 to 2010-2011. Objectives of the Study 1) 2) 3) 4) To find out the financial performance of the bank. To analyse the liquidity posiion of Kothavara Service Co operative Bank Ltd. To give suggestion based on the study. To analyse the profitability of theBank.

The study is undertaken to evaluate the financial performance of Kothavara Service Co operative Bank. Secondary data have been used for this society. Secondary data were collected from the annual reports, documents etc.Ratio analysis is used to study the financial performance.

Limitations of the Study 1) Most of the informations are based on the published annual report which may not represent the true financial position. 2) Non availability of sufficient data. 3) Time constraints are another limitations of the study. 4) The study covers only the financial aspects.

CHAPTER 2 INTRODUCTION Kothavara Service Co-operative Bank Ltd No.1359 was Registered on 10/08/1926 under the Kerala Cooperative societies Act 1969.The registered address of the bank is the Kothavara Service Co-operative Bank Ltd no. 1359, Kothavara P.o Vaikom Taluk, Kottayam District, Thalayazham village. The society started its business on 19/09/1926 Karuvelikadathu.After that it shifted to Kothavara on 26/3/1973. Objectives The main objectives of Kothavara Service Co-operative Bank are : To help the member to have new and better needs. To distribute new and imporoved tool to members. To provide short term ,medium term and long term loans to its members. To promote superior farming methods. To conduct various agricultural production programmes. To collect money from individuals and institutions for the running and maintanence of the society. The society will carry out all ordinary functions of abank permitted by law.

Permenant residents who live within the area of operation and who have 18 years of age has eligibility to get membership from Kothavara Service Co-operative Bank. Those who are eligible to become members according to byelaws no.5, will be made member after the approval of Board of Directors. Now this Co-operative Bank has 4132 members.

The management of Kothavara Service Co-operative Bank consist of Board of Directors, President and Secretary.

Board of Directors
The Board has the control and responsibility over the fuctioning of the society. Board consist of 11 members and the term of appointment of the members to the board is 3 years. The members retired from the board have the eligibility to be re- elected. But no one can continue on the board for more than two times without the permission of the Deputy Registrar.

President is an official representative who manage and control the society. Both the president and secretary have to sign the agreements above Rs.100.All the documets related to the society is on the name of the president and he has the responsibility to maintain the bank account of the society. The president has to sign the annual report after verifying the account and reserves.

The secretary has the power to call and attend the general meeting under the supervision of president .He has the responsibility to record all the accounts and registers according to the law and to prepare the receipt ,vouchers,balancesheet and other document of the society .He also has to spend and receive money as per the decisions of board of directors.

Organisational Structure Board of Directores





Working The working of Kothavara Service Co-operative Society are raising fund through deposits and provide loans to its members and some other services . Deposits One of the important objectives of co-operative society is promotion of thrift and savings habits of the people in rural areas .The following are the various kinds of deposits collected by the society from the members and non members.

Savings Bank Account In this account the bank collects smaller amounts from the people and allow only limited interest.It promote the habit of savings as well as banking habits.By accepting savings deposits ,bank mobilize scattered savings of the rural people and utilize them for productive purposes. Current Account Current account is a running account in which can be deposited and withdrawn any number of times and without any limit during aworking day.This account is usually allowed to operate by traders and merchants.Current account is also known as demand deposits as the banker is under an obligation to repay the deposit whenever demanded by the account holder. Fixed Deposit It is a type of deposit made with the bank for afixed period which is specified at the time of making the deposit.The time period is normally from six months to more than five years or more.The rate of interest is comparatively higher than any other deposits.Fixed Deposits certificates are issued as evidence for money received under this deposit. Recurring Deposits

Recurring deposits are those deposits in which the depositor deposits a fixed some of money every month for an agreed period. the rates of interest of these deposits is almost the same as that of fixed deposit. Deposits
2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Fixed Others Total

42.65 219.23 2.74 264.62

78.39 302.97 5.56 386.92

68.34 370.02 5.68 444.05

84.70 468.86 10.94 563.66

83.00 569.4 19.94 672.40

800 700 600 500 400 300 200 100 0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Savings Fixed Others Total

LOANS Loans are given only to the members.This loan can be given on the security of the property of its members.The following loans are given to the members:Short term Agricultural Loans Short term agricultural loans can be given only to the farmers who is a member of the society.Board of Directors have the right to decide the maximum credit limit for the members on the basis of the rules and regulations of the District Co-operative Bank.

Medium term Loans Medium term loans are given to members for the purchase of agricultural implements and to buy bullocks and cow.These loans must be repaid within 3years.These loans have to begiven on the basis of condition made by the Board of Directors which is agreed by the District Bank. Surety Loans Surety loans can be distributed among the members according to the following : The person having a fixed deposit can be given loan.Loan amount should not exceed 20% of the fixed deposit. On the securities of government,promissory notes,debentures of the Central Land Mortgage Bank,10% of loans can be given. 50% of the loan can be given on the security of gold.

Other Services Neethi Store Co-operative bank conduct Neethi Store for providing goods at lowest price to its members.It helps to prevent the increase in price of necessary goods.

Chapter 3 FINANCIAL STATEMENTS Financial statements are the end products of financial accounting .In order to ascertain the financial status of the business every enterprise prepares certain statements,known as financial statement.It is mainly prepared for decision making purposes.But the information as its provided in the financial statements is not adequtely helpful in drawing a meaningful conclusion.Thus ,an effective analysis and interpretation of financial statements is required. According to John N.MyerThe Financial Statements provide a summary of the accounts of a business enterprise,the Balance sheet reflecting the assets and liabilities and the Income Statement showing the results of operations during a certain period. These are prepared at the end of a given period of time.They are the indicators of profitability and financial soundness of the business concern.The term financial analysis is also known as analysis and interpretation of financial statements.Analysis of financial statements is an attempt to assess the efficiency of a firm.Thus,the analysis and interpretation of financial statements is very essential to measure the efficiency,profitability,financial soundness and future prospects of the business units.

OBJECTIVES OF FINANCIAL STATEMENTS The following are the important objectives of financial statements; To provide reliable information about changes in such economic resources and obligation. To provide information about changes in net resources arising out of business activity. To provide reliable financial information about economic resources and obligation of business firm.

LIMITATIONS OF FINANCIAL STATEMENT Financial statements suffers from the following limitations ; It fails to disclose all information It fails to disclose the present value It fails to disclose vital changes within the organisation

It provide insufficient information to investors It influence personal judgement It gives only misleading figures FINANCIAL ANALYSIS Analysis of financial statement is the process of determinig the significant operating and financial characteristics of a firm from the accounting data.It is a treatment of the information contained in the financial statements to afford a full diagnosis of the profitability and financial position of the firm. According to Metcalf and Titard Analysis of financial statement is a process of evaluating the relationship between component part of a financial statement to obtain a better understanding of a firms position and performance. TYPES OF FINANCIAL ANALYSIS t

According to material used

According to modus operandi

According to objectives of analysis

External analysis

Internal analysis

Horizontal analysis

Vertical analysis

Long term analysis

Short term analysis

External Analysis External analysis of financial statement is made by those who do not have access to the detailed accounting records of the company that is banks,creditors and general public.The main objective of such analysis varies from party to party. Internal Analysis Such analysis is made by the finance and accounting department to help the top management.These people have direct approach to the relevant financial records.Such

analysis emphasises on the performance appraisal and assessing the profitability of different activities. Horizontal Analysis When the financial statement for a number of years are reviewed and analysed, the analysis are called horizontal analysis. As it is based on data from year to year, rather than on one date or period or time as a whole, this is also known as Dynamic Analysis. Vertical Analysis Vertical analysis is also known as Static Analysis. When ratios are calculated from the Balance Sheet of one year, it is called vertical analysis. It is not very useful for long-term planning as it does not include the trend study for future. Long-term Analysis In the long-term the company must earn a minimum amount sufficient to maintain a suitable rate of return on the investment to provide for the necessary growth and development of the company and to meet the cost of capital. In long term analysis the fixed assets, long term debt structure and the ownership interest is analysed. Short-term Analysis The short-term analysis of financial statement is mainly concerned with the working capital analysis. In the short run a company must have ample funds readly available to meet its current needs and sufficient borrowing capacity to meet the contingencies. METHODS OF FINANCIAL ANALYSIS The analysis of finacial statements consists of a study of relationship and trends to determine whether or not financial position of the concerned and its operating efficiency has been satisfactory. In the process of these analysis various methods are used, they are listed below: Comparative Financial Statement Common Size Financial Statement Trend Ratio Average Analysis Statement of Changes in Working Capital Fund Flow and Cash Flow Analysis Ratio Analysis

Comparative Financial Statement The preperation of Comparative Financial Statement is an important device of horizontal analysis. Statements prepared in a form that reflects financial data of two or more period or a number of prior periods. Comaparative statements may show: 1. Absolute figures 2. Change in the absolute figures 3. Absolute data in terms in percentage 4. Increase or decrease in terms in percentage Comparative Statements can be of two types. They are Comparative Balance Sheet and Comparative Income Statement. Comparative Balance Sheet : The Comparative Balance Sheet analysis is the study of the trend of the same item or group of items of two or more Balance Sheets of the same business enterprise on different dates. Comparative Income Statement: The Comparative Income Statement is a statement prepared to get an idea of the progress of a business over a period of time. Common Size Financial Statement These are statements prepared to show the relationship of different individual items with some common items. They are also known as 100% statements. It is useful in vertical financial analysis and comparison of two business enterprises at certain date. It includes Commom Size Balance Sheet and Common Size Income Statement. Commom Size Balance Sheet: A statement in which Balance Sheet items are expressed as percentage of each assets to total of assets and percentage of each liability to total of liabilities is called Commom Size Balance Sheet. Common Size Income Statement A Common Size Income Statement is a statement in which each items of expense is shown as percentage of net sales. Trend Ratio

Trend ratio is an important tool of horizontal analysis. Under this analysis, the ratio ofdifferent iitems for various periods are calculated and then a comparison is made. It is a useful analytical device for the management since by substituting percentages of large amounts , the brevity and readability are achieved. Average Analysis It is an improvement over trend analysis method. When trend ratios have been determined for the concerned , these figures are compared with average trend of the industry. Both these trends can be presented on the graph paper also in the shape of curves. Fund Flow and Cash Flow Analysis Fund flow analysis is a valuable aid to the finacial executives and creditors for evaluating the uses of funds by the firm and in determining how these uses were financed. A fund flow statement Indicates where funds came from and where they were used during the period under review. Cash Flow Statement reveals the sources of cash and its application. These statements can be prepared separately as funds flow statement and cash flow statement.These are important tools of communication and very helpful for financial executives in planning the intermediate and long -term financing of the firm Ratio Analysis These analysis is an important and widely used tool of analysis of finacial statements.It is essentially an attempt to develop meaningful relationship between individual items or group of items in the Balance Sheet or Profit and Loss Account.The object and utility of ratio analysis as a technique of financial analysis is confined not only to the internal parties but to the trade creditors , Banks and lending institutions also. Parties Interested Analysis of Financial Statements Analysis of financial statements has become very significant due to widespread interests of various parties in the financial result of a business unit. The various parties interested in the analysis of financial statements are;

Investors Investors, shareholders or proprietors of the business are interested in the well being of the business. They like to know the earning capacity of the business and its prospects of future growth. Management

The management is interested in the financial position and performance of the enterprise as a whole and of its various divisions. It helps them in preparing budgets and assessing the performance of various department heads. Trade Creditors Trade creditors are interested in firms ability to meet their claims over a very short period of time. Their analysis will, therefore, confined to the evaluation of the firms liquidity position. Suppliers of Long-term Debt Suppliers of long-term debt are concerned with the firms long-term solvency and survival. They analyse the firms profitability over time, its ability generate cash to be able to pay interest and repay principal and the relationship between various sources of funds. Government Government and their agencies need financial information to regulate the activities of the enterprises/industries and determine taxation policy. Employees They are interested to know the growth of profit. As a result of which they can demand better remunaration and congenial working environment.