Post on 14-Apr-2018
7/29/2019 Allesc Ratios Orig
1/85
A STUDY ON COMPARATIVE FINANCIAL STATEMENT
OF
S&P CAPITAL IQ INFORMATION SYSTEM (INDIA) P.V.T.LTD
Submitted to
SRM SCHOOL OF MANAGEMENT
By
VOONNA V GURU SAI PRASAD
MBA (MASTER OF BUSINESS ADMINISTRATION)
(Reg no: 3511010231)
UNDER THE GUIDENCE
Of
J DINESH
Assistant Professor Sr.G
SRM UNIVERSITY
KATTANKULATHUR,
KANCHIPURAM DIST
CHENNAI - 603203
7/29/2019 Allesc Ratios Orig
2/85
SCHOOL OF MANAGEMENT
SRM UNIVERSITY
Kattankulathur-603203
CERTIFICATE
This is to certify that the project work titled "A STUDY ON COMPARTIVE
FINANCIAL STATEMENT OF S&P CAPITAL IQ" is a bonafide work done by
VOONNA V GURU SAI PRASAD in partial fulfillment of the requirements for the
award of the degree of MASTER OF BUSINESS ADMINISTRATION SRM
UNIVERSITY during the period of 26.02.2012 to 26.04.2012.
Submitted for University Viva-Voice Examination held on
.......................................
Project Guide Dean
PROF. J DINESH DR. JAYASHREESURESH
Internal Examiner External Examiner
7/29/2019 Allesc Ratios Orig
3/85
DECLARATION
I hereby declare that the Project report entitled A Study on Comprative financial
statement of S&P CAPITAL IQ is my own work, to the best of my knowledge and belief and
a produce of my sincere effort .This Project Report is an original research carried out by me
alone under the guidence ofMr J Dinesh. It contains no material previously published or written
by another person nor material which to a substantial extent has been accepted for the award of
any other degree or diploma of any other institute,except where due acknowledge has been made
in the text.
DATE: Voonna V Guru Sai Prasad
Roll No: 3511010231
SRM School of Management
7/29/2019 Allesc Ratios Orig
4/85
ACKNOWLEDGEMENT
First and foremost I wish to thank God, the almighty for his immense blessings and
guidance throughout the training program
I would like to take this opportunity to express my profound gratitude towards all those
who had helped me in completing my Main Project and adding feathers to my knowledge.
I am highly indebted to my DEAN, Dr. Jayashree Suresh and all other faculty, staff and
students at SRM School of Management who all through my Project work stood by my side and
provided me with an informative, educative and moral support and made it a worthy knowledgegaining process.
I owe my sincere thanks to my Project Guide, Mr J Dinesh, for his constant support and
encouragement without which this project would not have been possible.
My sincere thanks to my company guide, and other executives who gave and confirmed
this permission and encouraged me to go ahead with my project work. I have furthermore to
thank the employees S&P CAPITAL IQ, Hyderabad.
7/29/2019 Allesc Ratios Orig
5/85
ABSTRACT
The project mainly focuses on analyzing the performance of a company by utilizing its past data
and measuring its progress in terms of various financial ratios.
In the process, the companys competency is observed and analyzed by comparing it with one of
its main competitors and the conclusions and interpretations are made on its performance besides
predicting its future performance.
The entire project mainly required the in-depth analysis of the financial statements, data of the companies
and studying of various factors that influence the liquidity status and profitability of the company.
7/29/2019 Allesc Ratios Orig
6/85
CHAPTER PARTICULARS PAGE NO
CHAPTER 1
1.1 INDUSTRY PROFILE 1
1.2 COMPANY PROFILE 5
1.3 SWOT ANALYSIS 20
1.4 FINANCIAL MANAGEMENT 22
1.5 REVIEW OF LITERATURE 33
1.6 NEED OF THE STUDY 35
1.7 SCOPE OF THE STUDY 36
1.8 OBJECTIVE OF THE STUDY 37
CHAPTER 2 RESEARCH METHODOLOGY 38
CHAPTER 3 LIMITATIONS 39
CHAPTER4 DATA ANALYSIS AND INTERPRETATION 40
7/29/2019 Allesc Ratios Orig
7/85
CHAPTER 5 FINDINGS 59
CHAPTER 6 SUGGESTIONS 60
CHAPTER 7 CONCLUSION 61
BIBILOGRAPHY 63
APPENDIX 64
7/29/2019 Allesc Ratios Orig
8/85
CHAPTER 1
INDUSTRY PROFILE:
IT/ITES INDUSTRIY:
The global IT industry has matured over the years and has emerged to be a
chief contributor to the global economic growth. The global IT sector, constituted by
the software and services, Information Technology Enabled Services (ITES) and the
hardware segments, has been on a gradual growth trajectory with a steady rise in
revenues as witnessed in the past few years. ITITES industry in India has today
become a growth engine for the economy, contributing substantially to increases in
the GDP, urban employment and exports, to achieve the vision of a powerful and
resilient India.
The two arms of this industry are BPO and KPO. BPO or Business
process outsourcing is the arm of ITES, which facilitates delivery of services
through the use of information technology. However, it necessitates transfer of
ownership and management of the process from the customer (offshore) to India
based service provider. Having made an indelible mark in the global BPO business,
Indian IT and ITES sector is now thriving in (KPO). Knowledge processoutsourcing (KPO) is a form of outsourcing, in which knowledgerelated and
informationrelated work is carried out by workers in a different company or by a
subsidiary of the same organization, which may be in the same country or in an
offshore location to save cost. Unlike the outsourcing of manufacturing, this
typically involves highvalue work carried out by highly skilled staff.
Having understood the KPO, the company under study can now be classified
in context of the above. Capital IQ Information Systems (India) Pvt. Ltd. is a
KPO by nature since it involves highvalue work carried out by highly skilled staff
providing software solutions to clients
http://e/wiki/Outsourcinghttp://e/wiki/Outsourcing7/29/2019 Allesc Ratios Orig
9/85
KPO (KNOWLEDGE PROCESS OUTSOURCING)
What is KPO?
The evolution and maturity of the Indian BPO sector has given birth to yet another
wave in the global outsourcing scene: KPO or Knowledge Process Outsourcing.
The success in outsourcing business process operations to India has encouraged
many firms to start outsourcing their highend knowledge work as well. Cost
savings, operational efficiencies, access to a highly talented workforce and
improved quality are all underlying expectations in offshoring highend processes
to India.
Knowledge process outsourcing (KPO) is a form of outsourcing, in which knowledge
related and informationrelated work is carried out by workers in a different
company or by a subsidiary of the same organization, which may be in the same
country or in an offshore location to save cost. Unlike the outsourcing of
manufacturing, this typically involves highvalue work carried out by highly skilled
staff. KPO firms, in addition to providing expertise in the processes themselves,
often make many low level business decisionstypically those that are easily
undone if they conflict with higherlevel business plans.
It is being claimed that KPO is one step extension of Business Processing
Outsourcing (BPO) because BPO Industry is shaping into Knowledge Process
Outsourcing because of its favorable advantageous and future scope. But, let us not
treat it only a 'B' replaced by a 'K'. In fact, Knowledge process can be defined as
high added value processes chain where the achievement of objectives is highly
dependent on the skills, domain knowledge and experience of the people carrying
out the activity. And when this activity gets outsourced a new business activity
emerges, which is called a KPO. The KPO typically involves a component of Business
Processing Outsourcing (BPO), Research Process Outsourcing (RPO) and Analysis
Proves Outsourcing (APO).
In today's competitive environment, focus is to concentrate on core specialization
and corecompetency areas and outsource the rest of the activities. Many
companies and organizations have come to realize that by outsourcing non core
http://e/kpo/site/http://e/kpo/site/http://e/wiki/Outsourcinghttp://e/kpo/site/http://e/wiki/Outsourcing7/29/2019 Allesc Ratios Orig
10/85
activities, not only cost are minimized and efficiencies improved but the total
business improves because the focus shifts to the key growth areas of the business
activity.
7/29/2019 Allesc Ratios Orig
11/85
The History of Knowledge Process Outsourcing(KPO)
Knowledge Process Outsourcing or KPO has been defined as a continuation of BPO,
though with rather more business complexity. KPO was started by McKinsey inIndia when it opened up a knowledge center back in 1987 which was then closely
followed by the opening of research centers of companies like GE, Gartner and
Office Tiger. However, it was not until 2006 to 2007 that KPO took off. KPO is
considered as the third generation of the outsourcing revolution. IT Outsourcing is
known as the first generation while Business Process Outsourcing or BPO represents
the second wave which came in 2002 to 2003. During these years, outsourcing
firms started to offer more than just telemarketing and sales; they offered more
complex transactions such as decisionmaking and problem solving tasks. Fouryears later, firms began offering knowledgeintensive BPO services currently
regarded as KPO services. The workforce also changed when KPO firms started to
provide KPO services to different foreign and local businesses. The KPO workforce
profile became more diverse as people with MBAs and those with medical,
engineering, design, medical and specialist business skills were being hired by KPO
companies.
KPO Services
Market Research
o Data Processing
o Market Research Data Analysis
o Web Survey Analysis
o Marketing Questionnaire Design
Life sciences and Pharma Research
o Database Creation
o Text Mining
o Web Mining
o Numerical Data Mining
o Data Analytics
7/29/2019 Allesc Ratios Orig
12/85
Web Based Market Research
o Abstract Writing
o Competitive Business Analysis
o Syndicated Research
o Competitor Analysis
o Company Profiling
o Desk/Web Research
Financial Market Research
o Applied Investment Research
o Financial Analysis
o Financial Accounting
KPO services also include the following:
Investment research services (equity, fixed income and credit, and
quantitative research)
Legal research services (also known as Legal Process Outsourcing)
Patent research services
Business Research and Analytics
http://e/wiki/Legal_Process_Outsourcinghttp://e/w/index.php%3Ftitle=Patent_services_outsourcing&action=edit&redlink=1http://e/wiki/Legal_Process_Outsourcinghttp://e/w/index.php%3Ftitle=Patent_services_outsourcing&action=edit&redlink=17/29/2019 Allesc Ratios Orig
13/85
CHAPTER 2
COMPANY PROFILE:
CIQs VISION
To achieve a leading position in the field of fundamental data services by
developing topquality customer solutions and by providing finest financial data
products and tools based on cuttingedge technology and advanced quality
assurance processes.
CIQs MISSION
To provide clients with consistently superior quality fundamental data and
innovative research tools. To bring a fresh approach to the financial information
supply business. Provide exemplary work environment and culture to attract,
retain & motivate the best talent and make corporate citizen
Capital IQ, a division ofStandard & Poors was started as Smart Software
Tech Dev Co in 1993.There after Smart Software became subsidiary of Simply
Stocks in 1997. In 2003 Simply Stocks was acquired by Capital IQ, New York.
By 2005 Capital IQ became a Subsidiary ofSTANDARD & POORS the McGraw
Hills Companies.
The McGrawHill Companies, Inc., incorporated in Dec.1925, is global
information services provider serving the financial services, education and business
information markets with information products and services. The company has
three operating segments: McGrawHill financial services, McGrawhill educational
services, and McGrawHill Information and Media services.
7/29/2019 Allesc Ratios Orig
14/85
McGrawHill Operating Segments
OVERVIEW OF MCGRAW HILLS COMPANIES
The McGrawHill Companies Inc, incorporated in December 1925, is a global
information services provider serving the financial services, education and business
information markets with information products and services.
9 The company has to three operating segments:
Financial services
Educational services
Information and Media services
7/29/2019 Allesc Ratios Orig
15/85
Capital IQ in the tree of McGrawHill Companies
The financial services segment operates under the Standard & Poors brand
which is provider of independent credit ratings, indices, risk evaluation, investment
research and valuations. Standard & Poors investment data platforms provide
breadth, depth and vital information required by institutions and individuals.
Combining company and securities data with its Capital IQ platform, Standard &
Poors provide clients with workflow solutions and idea generation tools.
With its network of credit ratings professional, it provides ratings services for
an array of obligations, including corporate and municipal bonds, assetbacked and
mortgagebacked securities, sovereign government and bank loans. Standard &
Poors is also a provider of independent equity and funds research.
7/29/2019 Allesc Ratios Orig
16/85
EVOLUTION OFCIQ
Started as Smart
SoftwareTechDevCo
Smart Software
became
Subsidiary of
Simply Stocks
Simply Stocks was
acquired by
Capital IQ, New
York
Capita IQ
became a
S
u
b
s
i
d
i
a
r
y
o
f
S
t
a
n
d
a
r
d
&
P
o
7/29/2019 Allesc Ratios Orig
17/85
ors the
McGrawHill
1993
1997
2003
7/29/2019 Allesc Ratios Orig
18/85
company
Reached 14002006
employee milestoneon
25th
September 2006
ABOUT THE STANDARD &POORS
Financial Market Intelligence for Investors
Standard & Poors is the worlds premier provider of investment research, market
indices, credit ratings, financial data, and fixed income research and analysis. With
more than 10,000 employees and offices in nearly twodozen countries, S&P is
valued by investors and financial decisionmakers everywhere for its analytical
independence, market expertise and thought leadership.
The global leader in credit ratings, in 2008, S&P Ratings Services published more
than 1,150,000 new and revised ratings, and has issued ratings on debt securities in
more than 100centuries. The total amount of debt S&P rated in 2008 was
approximately US$2.8 trillion.
S&P is also known for its worldfamous benchmark portfolio indicesthe S&P 500 in
the United States and, globally, the S&P 1200. More than $1.5 trillion in assets
7/29/2019 Allesc Ratios Orig
19/85
around the world are directly tied to S&P indices; more than $5.0 trillion in asset are
benchmarked to them.
7/29/2019 Allesc Ratios Orig
20/85
As one of the worlds largest producers of independent equity research and
portfolio recommendations, S&P licenses its stock, market and economic
research to over 1,000 institutions, including top securities firms, banks and life
insurance companies, Currently, S&P offers fundamental equity options on 1900
securities globally, including over 1400 in the United States.
WHAT CIQ INDIA IS?
Capital IQ, a division of Standard & Poors, provides highimpact
information and workflow solutions to over 4300 leading financial institutions,
advisory firms and combination of global private and public capital market data and
technology that enables endusers to draw deep market insights, generate better
ideas, leverage relationships and simplify workflow. Clients can deploy the Capital
IQ Platform either as a standalone solution or seamlessly integrate its components
into existing business applications.
Capital IQ, India and What We Do
Ours is a clientdirected company providing leading Financial Institutions,
Fund Managers, Banks, Corporations, Brokerage Firms, Institutions etc., the
missioncritical investment information they require to build relationships, identify
opportunities and make successful investment decisions. Our team specializes in
collecting financial and business intelligence information on tens of thousands of
companies worldwide. This information is extracted from company filings, reports,
web sites, news and other sources, and processed into clientready information at
the industrys highest quality standards. We further provide the client with a
competitive edge by creating customdesigned tools that enable them to
effectively analyze companies and markets as required by them. We are not just a
data or software company, but a team of dynamic professionals dedicated to:
Providing High Quality, Timely and Accurate Data and Tools
Providing the Best Possible Client Service
7/29/2019 Allesc Ratios Orig
21/85
Getting some business intelligence is a capital idea. Capital IQ provides business research
and analysis covering some 60,000 public companies and more than 2.2 million private firms
through its Web-based Capital IQ Platform. Its data includes financial information, executive
contacts and profiles, merger and acquisition activity, and research reports. In addition, the
company provides data feeds and software applications to help its customers organize and sift
through the data. All total, Capital IQ serves more than 3,400 clients, including investment
banks, investment management firms, private equity firms, universities, consultants, and
corporations. Capital IQ is a part of The McGraw-Hill Companies.
CORE ACTIVITIES OF CIQ HYDERABAD
Collecting information from US listed companies and companies listed in
different stock exchanges across the world.
Collecting the information about Officers and Directors, News related,
Competitors and Business relationship.
Information on segments
Information on Auditors
Press releases data
Short and long business description of the companies
Financial data analyses and excel modeling
Information about private mergers and acquisition
VALUES OF CIQ
Client orientation
Knowledge sharing
Leadership
Integrity
Performance
Team work
7/29/2019 Allesc Ratios Orig
22/85
KEY SERVICE AREAS
A vast array of company level analysis including prices, Financials, SEC filings,financial ratios and
Business descriptions. Exporting or importing data into Excel spreadsheets
Creating reports which can be customized
Comparing companies against their peers and indices
Charting and graphing the results in bar, line, pie charts and customized colors
KEY PLAYERS OF CIQ, INDIA
Financials
Earnings Estimates
Supple & Segments
Data Generation & Integrity
BIRD
External Quality Assurance
Securities Data
Technology Corp
Human Resource & Administration
Finance
CIQ PLATFORM
Our solutions are based on the Capital IQ Platform, a unique combination of
global private and public capital market data and technology that enables end users
to draw deep market insights, generate better ideas, leverage relationships and
simplify workflow. Clients can deploy the Capital IQ Platform either as a standards
alone solution or seamlessly integrate its components in to existing business
applications and portals via systems integration and custom data feeds. The Capital
IQ Platform consists of the following integrated components.
7/29/2019 Allesc Ratios Orig
23/85
Market Intelligence
Comprehensive information on over 42,000 public companies, 399,000 private
companies, 9,200 private capital firms, 1,62,000 transactions, and 7,30,000
professionals worldwide.
Financial Analytics
Easytouse tools for financial statement analysis, comparable analysis,
financial modeling, sector analysis and charting.
Idea Generation
Screening and targeting tools for identifying potential investments, investors,
buyers, acquisition, sales percepts as well as financial transactions and corporate
actions.
CIQ OFFICES
CIQ head quarters in New York
Regional offices
San Francisco
Chicago
Los Angeles
Houston
Boston
London Various
locations inIndia
7/29/2019 Allesc Ratios Orig
24/85
ORGANIZATION STRCUTRE:
ExecutiveChairman
DecisionMaking,
Planning &
ManagingDirector Implementation
Interpretative,
L l
Vice presidentDefinedProcess
LevelsSr.Director/Director/Dy.Direct
or
Sr.Manager/Manager
Process
ExecutionLevels
Assistant Manager
Sr.TL/ TL /Sr.
Executive
Sr. Analyst / Executive
Analyst
SRA / SBID / Jr. Executive
7/29/2019 Allesc Ratios Orig
25/85
EMPLOYEE LEVELS/CAREER PROGRESSIONLEVELS
The following are the employee levels at Capital IQ
Junior research associate
Research associate
Senior research associate
Analyst Senior analyst
EMPLOYEE LEVELS/ CAREER PROGRESION
LEVELS:
Senior Analyst
Analyst
Senior Research Associate
Research Associate
Junior Research Associate
7/29/2019 Allesc Ratios Orig
26/85
PROCEDURE
Each level of employee should have certain skills and knowledge levels which canbe defined and
communicated to all the employees.
There should be no specified time limit for promoting an employee from one
level to another. But the TL/Manager should follow certain guidelines, for the
same as specified by the management.
The TL/Manager recommendation of each employee promotion is not the final
decision. It should be approved by the management.
Junior Research Associate (JRA)
The newly hired associate will typically have a college degree and 02years of
professional experience.
JRAs should be good at basic concepts of capital markets. Good
understanding of financial statements, accounting terminologies etc.
JRA should be a good team player.
JRA need complete assistance and guidance of TL/Manager.
The productivity levels of a JRA should be near to the standard production
levels and performance should be within acceptable level.
. Research Associate (RA)
RA should be good at concepts of capital markets, good understanding of
financial statements, accounting terminologies etc. and should be able to
apply this knowledge while processing the data.
The work of RA for the most part should be free. He can operate in an
independent way but may require the assistance from the TL/Manager. RA should be able be able to act individually with the laid down procedures.
RA needs to be good communicator and need to have good interpretationalskills.
RA should considerable improvement in the productivity and should havestandard productivity.
7/29/2019 Allesc Ratios Orig
27/85
Senior Research Associate (SRA)
SRAs should have very good understanding of capital markets, financial
statements and terminologies etc. And they are able to accurately apply this
knowledge to process the data.
The SRA is usually able to operate in an independent way, requiring only rare
assistance from the TL/Manager to accomplish productivity targets.
Should possess good understanding of relevant accounting standards andprinciples.
Has to be proficient in the use of production tools and understand the
intricacies of data process. So that even more difficult tasks can be
accomplished without assistance.
Has to be very productive and is able to accomplish tasks at abovestandards.
SRA should have good communication skills and need to take up
responsibilities from TL/Manager.
Analyst
Analyst should have expertise knowledge in subject and his respective
department and must be good at analyzing critical data items.
Analyst should think beyond the production area and build positive
relationship with colleagues within the team and throughout the company.
Should be proficient in relevant accounting standards and principles.
Should have knowledge in more than one department.
Should have fair knowledge about data storage and retrieval.
Should have priority to official tasks over personal commitments.
7/29/2019 Allesc Ratios Orig
28/85
Senior Analyst (SA)
SA must have expertise knowledge in subject as well as in his respective
department and must be very good at analyzing critical data must have a
thirst for knowledge and make consistent efforts to enhance his knowledge
level and communicate the same down the line to other team members.
SA acts as an individual player, who takes up projects from the manager and
does research on their own.
SAs are confident and competent and need to communicate with the clients
to address their issues.
Should be proficient in relevant accounting standards and principles.
The work of the SA is extremely dependable and for the most part, error free
and is always in the top tier in productivity.
Should have good knowledge about data storage and retrieval.
7/29/2019 Allesc Ratios Orig
29/85
CAPITAL IQCLIENTS
7/29/2019 Allesc Ratios Orig
30/85
SWOT ANALYSIS:STRENGTHS:
Large talented pool of employees.
Forex and income tax are handled by its parent company i.e. Capital IQ INC and
hence no marketing risk also.
Company has good employee benefit schemes and employee engagements like annual
day celebrations and sports day, etc.
Company has open work culture and policies.
Employees in the organization have high innovation and good team co-ordination.
Company follows Cost + Markup revenue model.
WEAKNESSES:
All the process is based on MIS and the company needs to take care of the backups and
servers maintenance.
This company is human resource based but not autonomous.
Processional compensation benefits for the newly hired are higher than that for the
existing employees in certain divisions.
Research lab is unavailable for the technology division for innovation.
OPPORTUNITIES:
Post era has seen a sudden increase in investments and hence there is a need
for knowledge sharing portal.
Company is situated in Hyderabad-It is cost advantage for expansion plans.
Hyderabad is the fastest growing MBA hub in India.
Fast pace growth of the developing nations. India is the 2nd
fastest growing economy.
THREATS:
Threat of poaching- due to talented pool of employees.
Threat of agitations in Hyderabad-operations might be paused at times and hence might
think of other geographical locations.
As the companys model is cost + markup, this markup can hinder the growth of
the company.
Threat of technology up gradation.
7/29/2019 Allesc Ratios Orig
31/85
COMPETITORS:
Bloomberg
LexisNexis Thomson Reuters
Allsec technologies
Factset
FINANCIAL MANAGEMENT:
Finance has emerged as a distinct area of study during second half of the
twentieth century. But even before that some direct or indirect references to
finance function were made on a casual basis. The evaluation of finance function
and the changes in scope appeared due to two factors namely.
1. The continuous growth and diversity in business2. The gradual appearance of new financial analytical tools.
Meaning of financial management:
The term financial management has been defined differently by different authors.
According to Solomon financial management is concerned with the efficient use of an important
Economic resource, namely capital fund.
Scope of financial management:
Financial management has under gone significant changes over the years as regards its
scope and coverage. As such the role of finance manager has also undergone fundamental
changes over the years. In order to have a better exposition to these changes over the years, it
will be appropriate to study both the traditional concept and modern concept of the financial
function.
7/29/2019 Allesc Ratios Orig
32/85
TRADITIONAL CONCEPT:
In the beginning of the present century, which was the starting point for the scholarly
writings on corporation finance, the function of finance was considered to be the task of
providing funds needed by the enterprise on terms that are most favorable to the operations of theenterprise. The traditional scholars are of the view that the quantum and pattern of finance
requirements and allocation of funds as among different assets is the concern of non financial
executives. According to them, the finance manager has to undertake the following three
functions.
1. Arrangement of funds from financial institutions
2. Arrangement of funds through financial instruments
3. Looking after the legal and according relationship between a corporation and its sources
of funds.
Modern concept:
The traditional concept outlived its utility due to changed business situations since mid
1950s. Technological improvements widened marketing operations, development of a strong
corporate structure, keen and healthy business competitions all made it imperative for the
management to make optimum use of available financial resources for continued survival of
the firm.
Finance functions:
Although it may be difficult to separate the finance functions from production, marketing
and other functions, yet the functions themselves can be readily identified. We may identify
two kinds of finance functions which are managerial and routine.
There are four important managerial finance functions
1. Investment or long term asset mix decision
2. Financing or capital mix decision
3. Dividend or profit allocation decision
4. Liquidity or short term asset mix decision.
7/29/2019 Allesc Ratios Orig
33/85
Investment decision:
Investment decision or capital budgeting is the oldest area of the recent thinking in
finance. It relates to allocation of capital and involves decisions to commit funds to long term
assets which would yield benefits in future. Its a very significant aspect in the task ofmeasuring the prospective profitability of new investments. Future benefits are difficult to
measure and cannot be predicted with certainty because of the uncertain future, capital
budgeting involves risk. Investment proposals should, therefore, be evaluated in terms of
both expected return and risk.
Financing decision:
Financing decision is the second important function to be performed by the financial
manager. Broadly, he must decide when, where and how to acquire funds to meet the firms
investment needs. The central issue before him is to determine the
proportion of equity and debt. The mix of debt and equity is known as the firms capital
structure. The finance manager must strive to obtain the best financing mix or optimum capital
structure for his firm. The firms capital structure is optimum when the market value of shares is
maximized.
Dividend decision:
Dividend decision is the third major financial decision. The financial manager must
decide whether the firm should distributed all profits, or retain them, or distribute a portion
and retain the balance. Like the debt policy, the dividend policy should be determined interms of its impact on the shareholders value. The optimum dividend policy is one which
maximizes the market value of the firms shares. Thus, if shareholders are not indifferent to
the firms dividend policy, the financial manager must determine the optimum dividend
payout ratio.
Liquidity Decision:Current assets management which affects a firms liquidity is yet
another important finance function, in addition to the management of long term
assets. Current assets should be managed efficiently for safeguarding the firm
against the dangers of illiquidity and insolvency. Investment in current assets
affects firms profitability, liquidity and risk
7/29/2019 Allesc Ratios Orig
34/85
Ratio analysis theory:
Meaning of Ratio:
Ratio are relationships expressed in mathematical terms between figures which are
connected with each other in some manner and stigmatizes a long way ofaccounting figures, the main contribution lies in bringing into bold relief the inter
relationship which exist between various segments of business as suppressed
through accounting statements and in avoiding any distortions that may results
from a absolute study of accounting information.
Ratio can be expressed in two ways:
Times: when one value is divided by another the unit used to express the quotient istermedasTimes
Percentage: if the quotient obtained is multiplied by 100, the unit of expression istermedaspercentage.
Classification of Ratios:
Ratios can be classified into different categories depending upon the basis ofclassification.
The classification has been on the basis of the financial statement to which the
determinants of a ratio belong on this basis the ratio could be classified as:
1. Profit and Loss account ratio: Ratio calculated on the basis of the item of the profit and
loss account only.
Example: gross profit ratio, stock turnover ratio.
2. Balance sheet ratio: ratio calculated on the basis of the figures of balance sheet only.
Example: Current ratio, debit to equity ratio.
3. Composite Ratio or inter-statement ratio: ratios based on figures of profit and loss
account as well as the balance sheet.
Example: fixed assets turnover ratio.
7/29/2019 Allesc Ratios Orig
35/85
Classification of Ratios Chart
Accounting Ratios
Traditional Functional
P&L A/c BalanceComposite
Profitability Coverage Turnover Financia
Ratios sheet Ratios Ratios Ratios Ratios Ratios
Ratios
Liquidity Stability
Ratios Ratios
7/29/2019 Allesc Ratios Orig
36/85
Advantages of Ratio Analysis:
Ratio analysis is an important and ageold technique of financial analysis. The
following are some of the advantages / Benefits of ratio analysis:
1. Simplifies financial statements: It simplifies the comprehension offinancial statements. Ratios tell the whole story of changes in the financialcondition of the business
2. Facilitates interfirm comparison: It provides data for interfirmcomparison. Ratios highlight the factors associated with successful andunsuccessful firm. They also reveal strong firms and weak firms, overvaluedand undervalued firms.
3. Helps in planning: It helps in planning and forecasting. Ratios can assistmanagement, in its basic functions of forecasting. Planning, coordination,control and communications.
4. Makes interfirm comparison possible: Ratios analysis also makespossible comparison oftheperformance of different divisions of the firm. The
ratios are helpful in deciding about their efficiency or otherwise in the pastand likely performance in the future.
5. Help in investment decisions: It helps in investment decisions in the caseof investorsandlending decisions in the case of bankers etc.
Limitation of Ratio Analysis:
1. Limitations of financial statements: Ratios are based only on theinformation which has been recorded in the financial statements. Financialstatements themselves are subject to several limitations. Thus ratios derived,there from, are also subject to those limitations. For example, nonfinancialchanges though important for the business are not relevant by the financial
statements. Financial statements are affected to a very great extent byaccounting conventions and concepts. Personal judgment plays a great partin determining the figures for financial statements.
2. Comparative study required: Ratios are useful in judging the efficiency ofthe businessonlywhen they are compared with past results of the business.However, such a comparison only provide glimpse of the past performanceand forecasts for future may not prove correct since several other factors likemarket conditions, management policies, etc. may affect the futureoperations.
3. Ratios alone are not adequate: Ratios are only indicators, they cannot betaken asfinalregarding good or bad financial position of the business. Otherthings have also to be seen.
4. Problems of price level changes: A change in price level can affect thevalidity ofratioscalculated for different time periods. In such a case the ratioanalysis may not clearly indicate the trend in solvency and profitability of thecompany. The financial statements, therefore, be adjusted keeping in viewthe price level changes if a meaningful comparison is to be made throughaccounting ratios.
5. Lack of adequate standard: No fixed standard can be laid down for idealratios. There are nowell accepted standards or rule of thumb for all ratioswhich can be accepted as norm. It renders interpretation of the ratios
7/29/2019 Allesc Ratios Orig
37/85
difficult.
6. Limited use of single ratios: A single ratio, usually, does not convey muchof a sense. To make abetter interpretation, a number of ratios have to becalculated which is likely to confuse the analyst than help him in making anygood decision.
7/29/2019 Allesc Ratios Orig
38/85
7. Personal bias: Ratios are only means of financial analysis and not an end initself. Ratios have to interpret and different people may interpret the sameratio in different way.
8. Incomparable: Not only industries differ in their nature, but also the firms ofthe similarbusiness widely differ in their size and accounting procedures etc.It makes comparison of ratios difficult and misleading.
Importance of ratio analysis:
It helps in evaluating the firms performance: With the help of ratioanalysis conclusion can bedrawn regarding several aspects such as financialhealth, profitability and operational efficiency of the undertaking. Ratio pointsout the operating efficiency of the firm i.e. whether the management hasutilized the firms assets correctly, to increase the investors wealth. Itensures a fair return to its owners and secures optimum utilization of firmsassets.
It helps in interfirm comparison: Ratio analysis helps in interfirmcomparison by providingnecessary data. An inter firm comparison indicatesrelative position. It provides the relevant data for the comparison of theperformance of different departments. If comparison shows a variance, thepossible reasons of variations may be identified and if results are negative,
the action may be initiated immediately to bring them in line. It simplifies financial statement: The information given in the basic
financial statements serves no useful Purpose unless it s interrupted andanalyzed in some comparable terms. The ratio analysis is one of the tools inthe hands of those who want to know something more from the financialstatements in the simplified manner.
It helps in determining the financial position of the concern: Ratioanalysis facilitates the management to know whether the firms financial
position is improving or deteriorating or is constant over the years by settinga trend with the help of ratios The analysis with the help of ratio analysis canknow the direction of the trend of strategic ratio may help the managementin the task of planning, forecasting and controlling.
It is helpful in budgeting and forecasting: Accounting ratios provide areliable data, which can be compared, studied and analyzed. These ratiosprovide sound footing for future prospectus. The ratios can also serve as abasis for preparing budgeting future line of action.
Liquidity position: With help of ratio analysis conclusions can be drawnregarding the Liquidityposition of a firm. The liquidity position of a firm wouldbe satisfactory if it is able to meet its current obligation when they becomedue. The ability to met short term liabilities is reflected in the liquidity ratio of
a firm. Long term solvency: Ratio analysis is equally for assessing the long term
financial ability of the Firm. The long term solvency s measured by theleverage or capital structure and profitability ratio which shows the earningpower and operating efficiency, Solvency ratio shows relationship betweentotal liability and total assets.
Operating efficiency:Yet another dimension of usefulness or ratio analysis,relevant from theView point of management is that it throws light on thedegree efficiency in the various activity ratios measures this kind of
7/29/2019 Allesc Ratios Orig
39/85
operational efficiency.
7/29/2019 Allesc Ratios Orig
40/85
Current Ratio:
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 thecurrent assets by total of the current liabilities.
Formula: Current Ratio = Current Assets / Current Liabilities
Significance:
This ratio is measure of liquidity and should be used very carefully because it suffers from
many limitations. It is, therefore, suggested that it should not be used as the sole index of short
term solvency.
1. It is crude ratio because it measures only the quantity and not the quality ofthe current assets.
2. Even if the ratio is favorable, the firm may be in financial trouble, because ofmore stock and work in process which is not easily convertible into cash, and,therefore firm may have less cash to pay off current liabilities.
3. Valuation of current assets and window dressing is another problem. Thisratio can be very easily manipulated by overvaluing the current assets. Anequal increase in both current assets and current liabilities would decreasethe ratio and similarly equal decrease in current assets and current liabilitieswould increase current ratio.
Liquid ratio:
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: Liquid Ratio = Liquid Assets / Current Liabilities
Significance:The quick ratio/acid test ratio is very useful in measuring the liquidity position
of a firm. It measures the firm's capacity to pay off current obligations immediately
and is more rigorous test of liquidity than the current ratio. It is used as a
complementary ratio to the current ratio. Liquid ratio is more rigorous test of
liquidity than the current ratio because it eliminates inventories and prepaid
expenses as a part of current assets. Usually high liquid ratios are an indication that
the firm is liquid and has the ability to meet its current or liquid liabilities in time
and on the other hand a low liquidity ratio represents that the firm's liquidity
7/29/2019 Allesc Ratios Orig
41/85
position is not good. As a convention, a quick ratio of "one to one" (1:1) is
considered to be satisfactory. However the same will vary from company to
company depending upon the nature of its activities.
7/29/2019 Allesc Ratios Orig
42/85
Fixed Assets Turnover Ratio:
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: Fixed Assets Turnover Ratio = Cost of Sales / Net Fixed Assets
Significance:
This ratio is often used as a measure in manufacturing industries, where
major purchases are made for PP&E to help increase output. When companies make
these large purchases, prudent investors watch this ratio in following years to see
how effective the investment in the fixed assets.
Debtor turnover ratio:
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: Debtors Turnover Ratio = Total Sales / Debtors
Significance:
Accounts receivable turnover ratio or debtors turnover ratio indicates the
number of times the debtors are turned over a year. The higher the value ofdebtors 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. It is the reliable measure of the time
of cash flow from credit sales. There is no rule of thumb which may be used as a
norm to interpret the ratio as it may be different from firm to firm.
Net profit margin ratio:
A ratio of profitability calculated as net income divided by revenues, or net
profits divided by sales. It measures how much out of every dollar of sales a
company actually keeps in earnings. Profit margin is very useful when comparing
companies in similar industries. A higher profit margin indicates a more profitable
company that has better control over its costs compared to its competitors. Profit
margin is displayed as a percentage.
7/29/2019 Allesc Ratios Orig
43/85
Formula: Net profit margin ratio= (net profit after tax/sales)*100
Significance:
Increased earnings are good, but an increase does not mean that the profit
margin of a company is improving. For instance, if a company has costs that have
increased at a greater rate than sales, it leads to a lower profit margin. This is an
indication that costs need to be under better control.
Return on assets:
An indicator of how profitable a company is relative to its total assets. ROA
gives an idea an idea as to how efficient management is at using its assets to
generate earning. Calculated by dividing a companys annual by its total assets,
ROA is displayed as a percentage. Sometimes this is referred to as return on
investment.
Formula: Return on assets=net profit after tax/total assets .
Significance:
ROA tells you what earnings were generated from invested capital (assets).
ROA for public companies can vary substantially and will be highly dependent on
the industry. This is why when using ROA as a comparative measure, it is best to
compare it against a company's previous ROA numbers or the ROA of a similar
company.
Debtequity ratio:DebttoEquity ratio indicates the relationship between the external equities
or outsiders funds and the internal equities or shareholders funds. It is also known
as external internal equity ratio. It is determined to ascertain soundness of the long
term financial policies of the company.
Formula: debitequity ratio=Total Long Term Debts / Shareholders Funds
Significance:
Debt to equity ratio indicates the proportionate claims of owners and the
outsiders against the firms assets. The purpose is to get an idea of the cushionavailable to outsiders on the liquidation of the firm. However, the interpretation of
the ratio depends upon the financial and business policy of the company. The
owners want to do the business with maximum of outsider's funds in order to take
lesser risk of their investment and to increase their earnings (per share) by paying a
lower fixed rate of interest to outsiders. The outsiders creditors) on the other hand,
want that shareholders (owners) should invest and risk their share of proportionate
7/29/2019 Allesc Ratios Orig
44/85
investments. A ratio of 1:1 is usually considered to be satisfactory ratio although
there cannot be rule of thumb or standard norm for all types of businesses.
Theoretically if the owners interests are greater than that of creditors, the financial
position is highly solvent. In analysis of the longterm financial position it enjoys the
same importance as the current ratio in the analysis of the shortterm financial
position.
7/29/2019 Allesc Ratios Orig
45/85
Operating ratio:
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 unit of sales. This is closely related to the ratio of operating profit
to net sales.
Formula: Operating Ratio = ((Cost of goods sold + Operating expenses) /Net sales)*100
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. This ratio is considered to be a yardstick of operating
efficiency but it should be used cautiously because it may be affected by a numberof uncontrollable factors beyond the control of the firm. Moreover, in some firms,
nonoperating expenses from a substantial part of the total expenses and in such
cases operating ratio may give misleading results.
Working capital turnover ratio:
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
Formula: working Capital Turnover Ratio = Cost of Sales / Net WorkingCapital
Significance:
The working capital turnover ratio measures 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.
Gross Profit Ratio:A financial metric used to assess a firm's financial health by revealing the
proportion of money left over from revenues after accounting for the cost of goods
sold. Gross profit margin serves as the source for paying additional expenses and
future savings.
Formula: gross profit Ratio = (gross profit / net sales)*100
7/29/2019 Allesc Ratios Orig
46/85
Significance:
Gross profit ratio indicates the average margin on the goods sold. It shows
whether the selling prices are adequate or not. It also the extent to which selling
prices may be reduced without resulting in losses.
A low gross profit ratio may indicate a higher cost of goods sold due to higher
cost of production. It may also be due to low selling prices. A high gross profit ratio
may be increased by taking the following steps:
Lowering cost of goods sold, selling prices remaining constant
Increasing selling prices, the cost of goods remaining constant
Increasing the sale of those goods which have a higher gross margin
Expense Ratio:
This ratio present the relationship that exit between each item of expenses
and net sales. It indicates the portion of the sales which is consumed by various
items of operating cost.
Significance:
The operating ratio is yardstick to measure the efficiency with which a
business is operated. It shows the percentage of net sales that is is absorbed by
cost of goods sold and operating expenses. A high operating ratio is considered
unfavorable because it leaves a smaller margin of profit to meet no operating
expenses. On the other hand, a lower operating ratio is considered a good sign
Earnings per Share (EPS):
In order to avoid confusion on account of the varied meanings of the term capital
employed, the overall profitability can also be judged by calculating earnings per
share.
Formula: Earning per share=profit after taxdividend/no of equity shares.
Significance:
The earnings per share help to determining the market price of the equity share ofthe company. A comparison of earning per share of the company with another will
also help in deciding whether the equity share capital is being effectively used or
not. It also helps in estimating the company capacity to pay dividend to its equity
shareholders
7/29/2019 Allesc Ratios Orig
47/85
CHAPTER 3
REVIEW OF LITERATURE:
Financial Statement Includes:
Trading & Profit & Loss Account; which gives the result of years working.
Profit & Loss Appropriation Account; which gives details about the disposal of
the retained earnings.
Balance Sheet; which gives the financial position of the undertaking as on theaccounting date.
The most important function of financial statements is to serve those who
control and direct the business and may be answered the questions, how efficiently
the capital of the business is being utilized, how well credit standards are being
observed, and whether the financial condition is being improved.
The Meaning of Analysis and Interpretation
The financial statements are of much interest to number of groups of persons.
Apart from the management there are other interested parties like shareholders,
debenture holders, potential investors, bankers, trade creditors and legislature.
Interpret means to put the meaning of a statement into simple terms for thebenefit of a person.
Analysis comprise resolving the statements by breaking them into simpler
statements by a process or rearranging, regrouping and the calculation of ratios,
interpretation is the mental process of understanding the terms of such statements
and forming opinions or inferences about the financial health, profitability,
efficiency and such other aspects of the understanding.
7/29/2019 Allesc Ratios Orig
48/85
Objectives of Analysis and Interpretation
To evaluate the financial health of the understanding.
To evaluate the earning performance of the undertaking.
To evaluate the ability of the undertaking to pay interest, amortized debt and
other outside liability.
To evaluate the solvency of the undertaking. By the understating of solvency
of the undertaking above points can be well understand.
Whether current assets are sufficient to pay off the current liabilities.
Proportion of liquid assets (cash and book debts) to current assets.
Whether the debenture holders are secured by a floating charge of thecurrents assets.
Future growth of undertaking and earning.
7/29/2019 Allesc Ratios Orig
49/85
NEED OF THE STUDY:
The financial statements are mirror which reflects the financial position and
strengths or weakness of the concern. The analysis of financial statements is useful
to
Corporate
Management
Investors
Creditors
Bankers
Financial institution etc
SCOPE OF THE STUDY:
The study is based on the accounting information of the S&P CAPITAL IQ
INFORMATIONSYSTEMS (INDIA) PVT Ltd. The study covers the period of
20072011 for analyzing thefinancialstatement such as income statements
and balance sheet.
This study aims at analyzing the overall financial performance of the
company by using various financial tools.
The study is confined to IT/ITES sector in India and two companies under this
sector namely,S&pCapital IQ and Allsec Technologies.
7/29/2019 Allesc Ratios Orig
50/85
OBJECTIVES OF THE STUDY:
Through this project the following objectives will be achieved:
To examine and compare the financial performance of two firms,S&P CapitalIQ (India) Pvt. Ltd. and Allsec Technologies in the KPO domains using
Financial statements.
To Track the growth of S&P Capital IQ at par with the ITES sector in India
To project the future prospects of S&P capital IQ and what should the
company do to improve its performance
To analysis the interpretation of the ratio analysis in real context
To analysis liquidity position of the firm and evaluate the reason
7/29/2019 Allesc Ratios Orig
51/85
CHAPTER 4
RESEARCH METHODOLOGY:
The data obtained for the study has to be divided into two groups:
9 Primary data
9 Secondary data
Primary Data:
The information and data collected by conducting personal interviews withthe financial
manager of capital IQ .These interviews helped me to secure first hand informationabout various
aspects related to the management.
Secondary Data:
It comprises of information obtained from annual reports and other
statements, files and some other important documents maintained by the
organization
LIMITATIONS:
The interpretation part of the project, comprising of inter-firm analysis, will be confined to
past five years financial statements.
Effect of personal ability and bias of the analyst
Ratio analysis becomes less effective due to price level changes
Further, the study takes into consideration the quantitative aspect of the performance and not
the qualitative aspect such as impact of industrial assistance of company in the economic
development of the country or state, on additional employment opportunities, contribution to
net domestic product, etc.
7/29/2019 Allesc Ratios Orig
52/85
CHAPTER 4
DATA ANALYSIS AND INTERPRETATION:
COMMON SIZE BANALCE SHEET ANALYSIS:Through a common size analysis an attempt has been made to analyze the
common size balance sheets of Capital IQ for a period of five years (2007to 2011
In common size analysis, the items in the balance sheet are stated as percentages
of total assets and liabilities. The objective of this analysis is to study the trend in
different items, both assets and liabilities in the balance sheet. The common size
balance sheets are shown in the above table.
Comment on the Financial Strategy of Capital IQ on the basis ofCommon Size Analysis:
A careful observation of the common size analysis of the company reveals
that it has been reducing its debt in the capital structure. At the same time the
shareholders funds have been increasing due to the profits and surplus being
ploughed back. This means that over the years, the company has been relying
only on internal sources and not external sources of financing. This, in the long run
will reduce the interest burden on the company leaving more in the hands of the
company.
GRAPHICAL REPRESENTATION OF INDIVIDUAL COMPONENTS OF
LIABILITIES AND ASSETS AS A PERCENTAGE OF THEIR RESPECTIVE TOTALS
(100%).
Sources of Funds/Liabilities:
7/29/2019 Allesc Ratios Orig
53/85
Application of Funds:
Expenses of Capital IQ:
Expenses (%) 2007 2008 2009 2010 2011
Personnel 70.83 77.75 76.24 74.17 75.82
Operating 20.25 16.76 19.27 20.32 20.71
Financial 0.18 0.06 0.04 0.02 0.01
Depreciation 8.73 5.42 4.44 3.94 3.46
Graph:
7/29/2019 Allesc Ratios Orig
54/85
Income of Capital IQ
Income (%) 2007 2008 2009 2010 2011
Income from Operations98.121
98.838 99.685 99.916 99.915
Other Income 1.878 1.161 0.314 0.083 0.084
Graph:
7/29/2019 Allesc Ratios Orig
55/85
Current Ratio:
Current ratio= current asset/current liabilities
Current asset= sundry debtors+ Cash and Bank balances+ Other CurrentAssets+ Loans and Advances
Current liabilities= Current Liabilities+ Provisions
year 20062007 20072008 20082009 20092010 20102011
Capital iq
Current 131,228,943 266791647 409902273 619353389 862267667
assets
Current 190814058 215903126 260435346 368439526 332357759
liability
Currentratio 0.79 1.23 1.57 1.68 2.59
Allsec
Currentasset 718092000 557873000 898848000 955331000 813201000
Current 219424000 133512000 177834000 190869000 235685000
liability
Current
ratio3.27
4.17 5.055 3.45
Graph:
6
5
4
3
2
1
0
2006-07 2007-08 2008-09 2009-1
7/29/2019 Allesc Ratios Orig
56/85
Current ratio(CIQ) Current ratio(Allsec)
7/29/2019 Allesc Ratios Orig
57/85
Interpretation:
The ideal current ratio of2:1. As we can observe, over the years the current
ratio ofCapital IQ has increased consistently and hence this company is solventand ensures continued liquidity and also allows a cushion. It is important to note
that a very high ratio may be indicative that the firms current assets are not being
used optimally and some of these assets may be remaining idle. The firm is in a
better position in the year 2008 when compared to 2007 and has increased
consistently. The liquidity position is best in the financial year 2011. An analysis of
the financial statements of the company reveals that the liquidity position has
improved with time because the components of current assets have been
improving. As we can observe, the current assets for the company have been
increasing continuously over last 5years.
RegardingAllsec, the ratio over the last 5yrs is fluctuating and very high asfar as the ideal ratio is concerned. This is because of the high amount of loans given
to other companies which has increased the value of the current assets which is
considered good for the company
Solvency ratio
Solvency ratio= net profit after tax+depreciation/total liabilities
Total liabilities= long term liabilities+short term liabilities
year 20062007 20072008 20082009 20092010 20102011
Capital iq
Net profit 102122273 179984260 226493861 254154978 962984349ater tax+dep
Total 164690956 215903126 260435346 368439526 332357759
liabilities
Solvency 0.62 0.83 0.86 0.68 2.89
ratio
Allsec
Net profit 123146000 71102000 599000 51802000 89295000ater tax+
dep
Total 219424000 133512000 177834000 180689000 235685000
liabilities
7/29/2019 Allesc Ratios Orig
58/85
Solvency 0.36 1.64 0.88 0.93 0.21
ratio
7/29/2019 Allesc Ratios Orig
59/85
Graph:
Interpretation:
This ratio indicates as to how efficiently a company utilizes its resources to
get the expected returns. The solvency ratio measures the size of a company's
aftertax income; excluding noncash depreciation expenses, as compared to the
firm's total debt obligations. It provides a measurement of how likely a company will
be to continue meeting its debt obligations Capital IQ has great fluctuation as
there was not properly utilizing resources like total liabilities. But in the year 2011
we can see that it is maintaining good solvency ratio compare previous.
RegardingAllsec, is decreasing from the year 20082011 it is not good in
utilization of resources when compare to Capital IQ. Capital IQ solvency has
increased from 0.68 to 2.89 in the year 2011 where as Allsecs solvency has
decreased from 0.93 to 0.21. SO, Capital IQ solvency is better than Allsecs
7/29/2019 Allesc Ratios Orig
60/85
Debtor Turnover Ratio:
Debtor turnover ratio: sales/closing debtors
Sales: service income+other income
year 20062007 20072008 20082009 20092010 20102011
Capital iq
Sales 616735837 1325943691 1802474191 2081844923 2483490358
Closing 0 0 254768079 371290054 586581070
debtors
Debtor 0 0 7.07 5.60 2.23turnoverratio
Allsec
Sales 1171350000 1040260000 1098470000 1327870000 1451210000
Closing 264259000 328402000 381964000 408439000 348525000
debtors
Debtor 4.4 3.1 2.8 3.2 4.1turnoverratio
Graph:
8
7
6
5
4
3
2
1
0
2006-07 2007-08 2008-09 2009-10 2010-11
debtor turnover ratio(CIQ)
debtor turnover
ratio(Allsec)
7/29/2019 Allesc Ratios Orig
61/85
Interpretation:
This ratio indicates as to how many days average sales are tied up in the
amount of debtors. The efficiency of debt collection is also indicated by this ratio. A
high debtors turnover ratio indicates the debts are being collected more quickly.
Change in this ratio shows ability to collect from its debtors. . The firm is in a betterposition in the year 2009 when compared to 200708, has increased in the year
2009 and from the year 2010 slowly its decreasing.
RegardingAllsec, the ratio has decreased from 200709 due to lack of
proper collection from its debtors. From the year 201011 ratio is slowly increasing
as because of proper collection from debtors. Allsec is in a better position in
collection from debtors when compare to Capital IQ
Debt equity ratio:
Debt equity ratio: long term debt/shareholder equity
Shareholder equity: share Capital+Reserves and surplus
Long term debt: Unsecured Loans
year 20062007 20072008 20082009 20092010 20102011
Capital iq
Long term 7868218 5712656 3344853 743643 0
debt
Shareholder 138578187 257069922 414375986 597269637 813808479
Debt equity 1.37 0.83 0.62 0.61 0.40
ratio
Allsec
Long term 1557000 3669000 5917000 25604000 33637000
debt
Shareholder 1695130000 1505373000 1435577000 1367438000 1327987000
Debt equity 0.12 0.08 0.12 0.13 0.17
ratio
7/29/2019 Allesc Ratios Orig
62/85
Graph:
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2006-07 2007-08 2008-09 2009-10 2010-11
Debt equity ratio(CIQ)
Debt equity ratio(Allsec)
Interpretation:
It is difficult to determine the level of Debt equity ratio which will bebeneficial to the firm. Thus an ideal debtequity ratio usually depends on the type of
the industry and size of the firm. The table above shows that the debtequity ratio
ofCapital IQ has decreased over that past years.
If a lot of debt is used to finance increased operations (high debt to equity),
the company could potentially generate more earnings than it would have without
this outside financing. If this were to increase earnings by a greater amount than
the debt cost (interest), then the shareholders benefit as more earnings are being
spread among the same amount of shareholders. A higher ratio indicates a risky
position in the year 2007 while a lower ratio indicates safer financial position in the
year. From the above graph we observed that debtequity ratio gradually
decreases, so it will help full to company for proper utilization of debt.
Allsecs Debtequity ratio has increased considerably over the years exceptin the year 2008
.This is because, although in this year the loans have increased considerably, the
7/29/2019 Allesc Ratios Orig
63/85
shareholders funds have decreases. Hence as the ratios are increasing, we could
say that the company is taking more loans to fund its operations and continuous
increase in the loan funds could lead to bankruptcy.
7/29/2019 Allesc Ratios Orig
64/85
Return on equity Ratio:
Returns on equity ratio: net income/shareholders equity
Shareholder equity: share Capital+Reserves and surplus
Net income: Salesexpense
year 20062007 20072008 20082009 20092010 20102011
Capital iq
Net income 92422992 190809989 245812289 273057491 325751009
Shareholder 138578187 257069922 414375986 597269637 813808479
Debtequity 0.41 0.46 0.37 0.3 0.26
ratio
Allsec
Net income 364000000 24080000 18060000 37020000 68640000
Shareholder 1695130000 1505373000 1435577000 1367438000 1327987000
Debtequity 0.16 0.09 0.05 0.04 0.02
ratio
Graph:
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2006-07 2007-08 2008-09 2009-10 2010-11
Return on Equity(CIQ)
Return on Equity(Allsec)
7/29/2019 Allesc Ratios Orig
65/85
Interpretation:
From the above graph Capital IQ has fluctuation from the year 20072009
and slowly decreasing from the year 20092011. This is due to notable maintainingshareholder fund which is directly proposition to increasing profit after tax and also
there increasing personal expense of the company which include like salaries,
bonus and other expenses.
Allsecs Return on Equity has reduced considerably over the years and has
not shown any signs of increment over the years. As we refer from the annual
report, there has been decrease in the net income of the company because less
increment in income and increasing of personal expense of the company which
includes like salaries, bonus and other expenses. Capital IQs return on equity isfar better than Allsecs.
Return on Asset ratio:
Return on asset ratio: net profit after tax/ total assets
Total assets: sundry debtors+cash and bank balances + other current assets+loansand advances
Net profit after tax: salesexpenseprovision for tax
year 20062007 20072008 20082009 20092010 20102011
Capital iq
Net profit 56349189 118491735 157306064 182893651 216538842
after tax
Total assets 317901191 472283804 654935646 921243661 1104669260
Return on 0.170 0.250 0.240 0.198 0.196
assets
Allsec
Net profit 281350000 135500000 72280000 68140000 39450000
after tax
Total assets 1673870000 1509040000 1441490000 1393040000 1361620000
Return on 0.170 0.070 0.044 0.043 0.024
assets
7/29/2019 Allesc Ratios Orig
66/85
Graph:
0.3
0.25
0.2
0.15
0.1
0.05
0
2006-07 2007-08 2008-09 2009-10 2010-11
Return on Asset(CIQ)
Return on Asset(Allsec)
Interpretation:
Return on Assets is linked to the efficient utilization of the assets which a
company owns and optimum utilization of the available assets is most desirable.
Main scenario of this ratio is earning more money with less investment. From the
above table it is observed that company has increasing the return during the period
20072008. But from the year 2009 it has slightly decreases.
.Allsecs has a huge dip in the ROI over the period due to increasing expenditure of
the company it reflect to less profit for every year. Capital IQ is maintaining a good
ROI when compare toAllsecs
7/29/2019 Allesc Ratios Orig
67/85
Net Profit margin ratio:
Net profit margin ratio= (net profit after tax/sales)*100
year 20062007 20072008 20082009 20092010 20102011
Capital iq
Net profit 56349189 118491735 157306064 182893651 216538842
after tax
Sales 616735837 1325943691 1802474191 2081844923 2483490358
Net profit 9.10 8.10 8.72 8.78 8.71margin
ratio
Allsec
Net profit 281350000 135500000 72280000 68140000 39450000
after tax
sales 1171350000 1040260000 1098470000 1327870000 1451210000
Net profit 24.01 13.02 6.50 5.10 2.70marginratio
Graph:
30.01
25.01
20.01
15.01
10.01
5.01
0.01
2006-07 2007-08 2008-09 2009-10 2010-11
net profit margin(CIQ)
net profit margin(Allsec)
7/29/2019 Allesc Ratios Orig
68/85
Interpretation:
High net profit margin ratio demonstrates effectiveness at converting sales into actual
profit. Profit margins vary by industry, but all else being equal, the higher a company's profit
margin compared to its competitors, the better. Net profit margin indicates how well thecompany converts sales into profits after all expenses is subtracted out.
From the above table Capital IQs net profit margin ratio consistently maintaining by
this we can say that company is good at managing income and expenditure. Less expenditure
incurs good profit margin.
RegardingAllsecs there is high net profit margin in the year 2007. From the year 2008-
2011 net profit margin is goes on decreasing this is because increasing of expenditure for every
year from 2008-2011. Hence as there is not proper managing of expenditure of the company it
incur less profit to company. Capital IQ is good at managing expense and it has effectively
converting sales into profit thats the main secret ofCapital IQ as maintain constant net profit.
Operating Profit margin ratio:
Operating profit margin ratio=operating income/ net sales
Year 20062007 20072008 20082009 20092010 20102011
Capital iq
Operating 605148222 1310574164 1796797166 2080105550 2481400254
income
Net Sales 616735837 1325943691 1802474191 2081844923 2483490358
Operating 0.981 0.988 0.996 0.999 0.999profit
margin
ratio
Allsec
Operating 1132788000 990161000 964922000 1220803000 1415445000income
Net Sales 1112194000 995560000 1066529000 1305544000 1430548000
Operating 1.01 0.99 0.90 0.93 0.98profitmargin
ratio
7/29/2019 Allesc Ratios Orig
69/85
7/29/2019 Allesc Ratios Orig
70/85
Graph:
1.02
1
0.98
0.96
0.94
0.92
0.9
0.88
0.86
0.84
2006-07 2007-08 2008-09 2009-10 2010-11
operating profit margin(CIQ)
operating profit
margin(Allsec)
Interpretation:
Operating margin gives analysts an idea of how much a company makes
(before interest and taxes) on each rupee of sales. When looking at operatingmargin to determine the quality of a company, it is best to look at the change in
operating margin over time and to compare the company's yearly or
quarterly figures to those of its competitors.
From the above graph we observe Capital IQs has maintaining good
operating profit ratio it mainly based on operating income. From the year 2007
2011 there is slightly increasing operating profit.
From the above graph we observe Allsecs has fluctuation from the year
20072011 there is no proper management of operating income. Capital IQs is
good at managing operating profit margin when compare toAllsecs.
7/29/2019 Allesc Ratios Orig
71/85
Expense ratio:
Expense ratio=total expense/net sales
Year 20062007 20072008 20082009 20092010 20102011
Capital iq
Totalexpense 616735837 1135133702 1556661902 1808787432 2157739349
Net Sales 616735837 1325943691 1802474191 2081844923 2483490358
Expenseratio 0.870 0.850 0.863 0.868 0.868
Allsec
Total
expense 890624000 1150822000 1168691000 1396010000 1490662000
Net Sales 1112194000 995560000 1066529000 1305544000 1430548000
Expenseratio 0.80 1.15 1.09 1.06 1.04
Graph:
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2006-07 2007-08 2008-09 2009-10 2010-11
expense ratio(CIQ)
expense ratio(Allsec)
7/29/2019 Allesc Ratios Orig
72/85
Interpretation:
As we can observe, the ratios of Capital IQ have increased by
significant amounts. This can be attributed to the fact that the no. of employees
increased over the years as company expanded due to which personal expenses
increased, so the average daily expenses ratio increased gradually. Also, theoperating expenses show considerable amount of increase. This shows the company
has good growth and expansion.
Allsesc has also shown greater increase in the ratios due to the increase in
thepersonalexpenses as compared to Capital IQ. Hence it will affect the profit as
well as the share holders .Because the if the expense will increase then it will affect
the profit and if the profit will decrease then it will not maximize the share holders
wealth. This may create problem for the company
Earnings per Share:
Earnings per share = (profit after taxpreference dividend/no of equity share)
Year 20062007 20072008 20082009 20092010 20102011
Capital iq
PAT(preference 1105853932 4244224412 90831216131518259417224560739896
dividend)
No of equity 138578187 257069922 414375986 597269637 813808479
shares
EPS 7.98 16.51 21.92 25.42 30.18
Allsec
PAT(preference 34055161700133827659706804634980 6112447860 3439486330
dividend)
No of equity 1695130000 1505373000 1435577000 1367438000 1327987000
shares
EPS 20.09 8.89 4.74 4.47 2.59
7/29/2019 Allesc Ratios Orig
73/85
Graph:
35
30
25
20
15
10
5
0
2006-07 2007-08 2008-09 2009-10 2010-11
Earning per share(CIQ)
Earning per share(Allsec)
Interpretation:
The phrase earnings in finance is referred to net profit, that is, after
tax profit. Earnings per Share equals simply to the total net profit (earnings) divided
by the total number of shares. What EPS means is how much net profit one share of
the company is producing. Obviously the higher this ratio is, the better, because the
value of the share will increase.
From the above graph we observe that the Earning per Share Ratio of
Capital IQ is consistently increasing which shows that the company is performing
well in the
market which is creating more profit for the company as well as the stock holders .It
will attract more investors to invest in the company as EPS tells how much each
rupees invested earns (this is true if we only consider the EPSs of the different
company's stocks).In case ofAllsecs it is clearly observed that share price isdecreasing every year.
7/29/2019 Allesc Ratios Orig
74/85
FINDINGS:
9 The liquidity position of the company is satisfactory. The company liquidity
position year by year increases .The ratio is fluctuating In between 0.824 to2.594 which is due to the current assets gradually increase and currentliabilities gradually decreasing.
9 Quick ratio of the company is fluctuating in between 0.824 to 2.594 this ratioequal to the current ratio, why because of the company dont have any stock,this company purely financial service company .Quick ratio ideal ratio is 1:1and present ratio in the year 201011 is 2.594 in this year ratio is good andliquidity position is better.
9 Net profit margin ratio is changed slightly from 9.27% to 8.71% the companymaintains the net profit margin ratio of 8.71% in the year 201011 where asAllsec is going on decreasing
9 Return on equity ratio is fluctuating in between 0.6 to 0.46 the highprofitability in the year 200708 (0.46) and lowest in the year 201011.
9 Capital IQ company net profit is year by year increases and the business isalso increases. In the year 200607net profit is 57228939 the year 201011 is216538842 so the business is gradually increasing.
9 Earnings per share of the company is increasing from 20072011 that meansprofit of the company is satisfactory where as Allsecs EPS is going ondecreasing profit of the company is not satisfactory because of expenses areincreasing than income.
9 Operating profit margin ratio is constant 0.99 from the year 20072011 whereas Allsecs Operating profit margin is fluctuating in between 1.01 to 0.93.
7/29/2019 Allesc Ratios Orig
75/85
SUGGESTIONS:
The following recommendations have been made only in respect of thoseratios where CIQs
performance is poorer
9 Current Ratio The current ratio of CIQ in the financial year 200607 was
0.824. Thus the company can improve this ratio and bring it closer to the
ideal ratio of 2:1 by either increasing its current assets or reducing its current
liabilities. In the year 201011 CR is improved to 2.59 this will improve the
shortterm liquidity position of the company
9 Net Profit Margin The net profit of the firm has been falling despite both
sales and netprofitof the firm increasing every year. This could once again
be attributed to the cost plus markup revenue model followed by the
firm which has proved to be both a boon and bane for it. While the model
provides an umbrella to the company during rainy days since that markup
rate is fixed and that company is bound to earn more than it expended on the
product sold, there is no scope to earn more that the rate fixed, leaving less
scope for higher profit on product. Thus the company should take steps in
this regard to improve its profits which will automatically reflect in the net
profit margin in the form higher values signifying an improvement.
9 Operating Profit Margin The analysis of the companys income
statements revealtheexpenses have been increasing at a rate higher than
that of the income. This can be attributed to the cost plus markup revenue
model of the company which has limited the companys scope for earning a
high profit margin. The company can therefore take steps to increase its
income from both core and subsidiary operations by altering its revenue
model. This will improve the efficiency of CIQ
.
7/29/2019 Allesc Ratios Orig
76/85
CONCLUSION:
RATIOS CAPITAL IQ
ALLS
EC
Liquidity Ratios:
Current Ratio
Net Working Capital
Profitability Ratios:
Operating Profit Margin
Net Profit Margin slightly
Return on Equity
Return on Investments
Turnover Ratio:
debtor turnover
Solvency Ratios:
Debt Equity
Debt Asset
Leverage Ratios:
Fixed Assets to Networth
The liquidity position of the company has gradually and consistently increased during the
years. The availability of current assets to pay off current liabilities is fairly sufficient to
meet the obligations arising out of current liabilities to the tune.
The profitability position of the company is more or less consistent over the years and
shows that the company is profitable enough.
Turnover ratios show an increase which states that the companys sales are quite higher
than the net investments in the fixed assets.
7/29/2019 Allesc Ratios Orig
77/85
Solvency Ratio of Capital IQ is very good over the years. As such, there are no debts to
this company as it is totally funded by Capital IQ INC.
Average Daily Expense Ratio of this company has increased considerably which
justifies the expansion plans. Although the investments in the fixed assets over the
years have reduced, this company doesnt require much of the investments
How can the company improve its net profit?
Both of the above parameters of measuring the profitability of the firm can beimproved by:
Changing the revenue model of the company.
Charging a higher percentage of mark-up from the customer i.e. the parent company
Capital IQs financial performance has proved to be better. If the company
continues to progress and perform at this pace its liquidity position will also improve
in the coming financial years. Though the impact of global financial crisis was high
on IT/ ITES sector, Capital IQ has succeeded in coping up with it and performed well
because of its revenue model. The company indeed has a bright future ahead.
7/29/2019 Allesc Ratios Orig
78/85
BIBILOGRAPHY:
Annual report of Capital IQ
(20072011) Annual report of
Allsec (20072011)
Finance management by Dr S.N.
Maheshwari Finance management by
Dr B.G. Satyaprasad
Oxford dictionary of accounting
www.capitaliq.com
www.allsectech.com
www.investopedia.com
www.accountingformanagement.com
www.wikipeida.com
http://www.capitaliq.com/http://www.allsectech.com/http://www.investopedia.com/http://www.accountingformanagement.com/http://www.wikipeida.com/http://www.capitaliq.com/http://www.capitaliq.com/http://www.allsectech.com/http://www.allsectech.com/http://www.investopedia.com/http://www.investopedia.com/http://www.accountingformanagement.com/http://www.accountingformanagement.com/http://www.wikipeida.com/7/29/2019 Allesc Ratios Orig
79/85
APPENDIX:
BALANCE SHEET OF CAPITAL IQ INFORMATION SYSTEMSLIMITED
Particulars 2006 07 2007 08 2008 09 200910 201011
SOURCES OF FUNDS:
Share Capital 7,175,000 7,175,000 7,175,000 7175000 7175000
Reserves and surplus131,403,187
249,849,922
407,200,986 590094637 806633479
Unsecured Loans 7,868,218 5,712,656 3,344,853 743643
Deferred tax liabilities(net) 6,703,887
APPLICATION OFFUNDS :
Gross Block
260,429,18
1 343135141
411,506,74
1 5483492