Post on 16-Jul-2015
Finance ReportSubmitted by Joydip PatiPGP11-13/Sec B/Roll 38 29-Feb-12
CONTENTSSrl. No. Topics Page No.
1.
Introduction
3
2.
Analysis
4-18
3.
Capital Structure Analysis
4-9
4.
Dividend Policy
9-15
5.
Industry Analysis
15-17
6.
Bibliography
18
Joydip Pati
Page 2
IntroductionFollowing are the ratios which have been taken up to carry out the Financial Analysis: Debt to Equity (DE) Ratio: A measure of a company's financial leverage is calculated by dividing its total debts by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. Debt to Equity (DE) Ratio= Debt/Equity
Financial Leverage Ratio: Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. Financial Leverage Ratio = Total Assets/Equity
Dividend Payout Ratio: The percentage of earnings paid to shareholders in dividends. The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio. Dividend Payout Ratio = Dividend per Share/EPS Price Earning (PE) Ratio: The PE Ratio measures the amount investors are willing to pay for each rupee of earnings; the higher the ratio, the greater the confidence of investors in the firms future.
Price Earning (PE) Ratio= Market price per Share/EPS
Joydip Pati
Page 3
Longitudinal Analysis & Cross sectional AnalysisAutomobile Industry:5 4.5 4 3.5 3 2.5 2 1.5 1 0.511 0.5 0 2011 2010 2009 0.031 0.069 0.079 1.71 1.11095141 1.076483935 Maruti Udyog LTD. Mahindra & Mahindra Tata Motors 3.738498379 4.490780726
DE Ratio
Interpretation:2011- The DE ratio indicates the margin of safety to the creditors. As the DE Ratio of Maruti is 3.1:100 it implies that for 3.1 rupees of outside liability, the firm has 100 rupees of owners capital, or stake of creditors is 3.1% of the owners, now if we take a look at TATA Motors ratio is 1.71 which indicates its comparatively less risky proposition for the shareholders.
Joydip Pati
Page 4
3 2.633855072 2.5 2.479945461
Financial Leverage Ratio
2 1.703768074 1.511218587 1.5 1.2063485 1.065339541 1 0.621411582 0.5 0.189862225 0 2011 2010 2009 Maruti Udyog LTD. Mahindra & Mahindra Tata Motors
Interpretation:2011: As the Financial Leverage Ratio of TATA Motors is 2.47 it means part of total assets is being provided by the creditors meaning less protection to the creditors, as compared to Mahindra. From the graph above we can also see that over the period the ratio of Mahindra has been coming down significantly and TATA Motors ratio has been on the rise.
Joydip Pati
Page 5
FMCG Industry:
1.4 1.2 1 0.804 0.8 1.20674712
DE Ratio
P&G 0.6 0.4 0.2 0 0.000981785 0.006 0.004061553 0.007 2011 2010 2009 0.01 HUL ITC 0.347661909 0.327295203
Interpretation:2011- The DE Ratio of P&G is 0.8:1 it implies that for 0. 8 rupees of outside liability, the firm has 1 rupees of owners capital, or stake of creditors is 80% compared to the owners, now if we take a look at HUL ratio is 0.0009 which indicates its comparatively have less risky proposition for the shareholders.
Joydip Pati
Page 6
3.5 3.126540693 Financial 3 2.90738369
Leverage Ratio
2.5 2.136848445 2 1.852011855 P&G HUL 1.5 1.140662311 1 0.724445229 0.423721089 1.143541673 1.071959544 Tata Motors
0.5
0 2011 2010 2009
Interpretation:2011: As the Financial Leverage Ratio of HUL is 2.90 it means part of total assets is being provided by the creditors meaning less protection to the creditors, as compared to P&G which has a fairly lower ratio of 0.72 indicating that the net worth of share capital exceeds fixed assets & also indicates that Working Capital is partly financed by the Share holders funds.
Joydip Pati
Page 7
IT Industry:0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2011 0.003052462 0 0.234811224 TCS Infosys Wipro 0.342677813 0.417451792
DE Ratio
0.005591139 0 2010 2009 0.003052175 0
Interpretation: 2011- The DE Ratio of Wipro is 0.23:1 it implies that for 0. 23 rupees of outside liability, the firm has 1 rupees of owners capital, or stake of creditors is 23% compared to the owners, now if we take a look at TCS ratio is 0.003 which indicates its comparatively have less risky proposition for the shareholders.
Joydip Pati
Page 8
1.2 0.961772405
Financial Leverage Ratio 1.1681275341.06082152
1
0.920339866 0.830745796 0.82415723
0.8
0.86797898 0.814866367 0.656418704 TCS Infosys Wipro
0.6
0.4
0.2
0 2011 2010 2009
Interpretation:2011: As the Financial Leverage Ratio of HUL is 0.961 it means that all the assets is being provided by the Shareholders meaning more protection to the creditors. Wipro has the least ratio of 0.81 indicating that more of the net worth of share capital exceeds fixed assets & also indicates that Working Capital is partly financed by the Share holders funds. From the graph above we can also see that over the period the ratio of Wipro has been coming down significantly and TCS ratio is increasing every year.
Joydip Pati
Page 9
Automobile Industry:1.2 1.011800802 1 1.026431718
Payout Ratio
0.8 0.666 Maruti Udyog Ltd 0.6 Mahindra & Mahindra Tata Motors 0.4
0.2
0.094
0.0578369 2011 2010
0.05 2009
0
Interpretation: As per the graph TATA Motors has the highest Pay Out Ratio as compared to Maruti & Mahindra which signifies that the investors seeking high current income & limited capital growth will prefer TATA and the investors seeking Capital gains prefer lower PO Ratio as capital gains are taxed at lower rates.
Joydip Pati
Page 10
FMCG Industry:2 1.8 1.6 1.4 1.2 P&G 1 0.8 0.6 0.4 0.2 0.006143667 0 2011 2010 2009 0.478 0.578778135 0.035283993 0.694 0.643564356 0.654450262 0.427 HUL ITC 1.893
Payout Ratio
Interpretation:As per the graph ITC has the highest Pay Out Ratio as compared to HUL & P&G which signifies that the investors seeking high current income & limited capital growth will prefer ITC and the investors seeking Capital gains prefer lower PO Ratio as capital gains are taxed at lower rates.
Joydip Pati
Page 11
IT Industry:
0.6 0.534473544 0.5 0.4 0.302571861 0.3 0.2 0.1 0 0.001841621 2011
0.560695262
0.576368876 0.522193211
Payout Ratio
0.314630309 0.24907841
TCS Infosys Wipro
0.098376783
2010 2009
Interpretation:As per the graph Infosys has the highest Pay Out Ratio as compared to TCS & Wipro in the year 2011 which signifies that the investors seeking high current income & limited capital growth will prefer Infosys and the investors seeking Capital gains prefer lower PO Ratio as capital gains are taxed at lower rates.
Joydip Pati
Page 12
Industry-wise Analysis (2011 figures):
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
0.4
0.552
0.596
2.45 5.69
Payout Ratio Current Ratio DE Ratio
0.724
0.75110825 0.62 0 Automobile FMCG IT
Interpretation:Payout Ratio: From the graph we can analyse that the Companies we have taken in the FMCG industry has reached a matured stage and thus its offering a higher ratio (0.596), where as the IT and Automobile companies are in a growing stage and thus offers a lower Pay Out Ratios 0.552 and 0.4 respectively. Current Ratio: From the graph we can see that IT industry has the highest Current Ratio 5.69:1 that means for every 1 rupee of Current liability, current asset of 5.69 times is available to meet current liability.Joydip Pati Page 13
Current ratio of FMCG industry is 0.72:1 that signifies CA are only 72% of CL, the liquidity position as measured by the Current Ratio is better in case of IT industry than FMCG, There fore from the creditors point of view its a more risky venture. In contrast a sufficient cushion in IT industry and even with 5 times shrinkage in the value of its assets that will be able to meet its obligations in full. DE Ratio: Capital intensive companies in the Automobile industry are having higher rate of DE Ratio (0.75), where as FMCG companies which are matured are mostly zero debt companies.
Joydip Pati
Page 14
Industry & Respective Company Analysis:Automobile Industry:100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Payout Ratio PE Ratio 0.4 17.02 0.946 15.841 0.4389 26.5515 Tata Motors M&M Maruti Automobile 0.6667 8.6683
Interpretation:PE Ratio: As compared to industry standars of 17.02 M&M has a PE Ratio of 26.55 meaning that investors are paying more for each unit of net income, so the stock of M&M is more expensive as compared to TATA motors having a lower PE Ratio of 8.66. Payout Ratio: As per the industry standards of 0.4 Maruti has the highest and M&M has the lowest payout ratio. That means that Maruti is distributing more of its profits then the industry average.
Joydip Pati
Page 15
FMCG :100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Payout Ratio PE Ratio 0.596555687 180.1961167 0.694227769 36.0968661 33.1201248 0.617283951 471.3713592 ITC HUL P&G FMCG 0.47815534
Interpretation:PE Ratio: As compared to industry standards of 180.1961167 ITC has a PE Ratio of 471.3713592 meaning that investors are paying more for each unit of net income, so the stock of ITC is more expensive as compared to P&G having a lower PE Ratio of 33.1201248. It also shows the current investor demand for a Company share. If the PE ratio of a company is very high but still investors prefer to buy that share, that shows that the investors are expecting consistent future growth. Payout Ratio: As per the industry standards of 0.596555687 HUL has the highest and ITC has the lowest payout ratio. That means that HUL is distributing more of its profits then the industry average.
Joydip Pati
Page 16
IT Industry:100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Payout Ratio PE Ratio 0.302571861 25.64493141 27.01966717 88.26319953 0.356315696 1 212.125 WIPRO INFOSYS TCS IT
0.552962519
Interpretation:PE Ratio: As compared to industry standars of 88.26319953 Wipro has a high PE Ratio of 212.125 meaning that investors are paying more for each unit of net income, so the stock of Wipro is more expensive as compared to Infosys having a lower PE Ratio of 25.64493141. Payout Ratio: As per the industry standards of 0.552962519 Wipro has the highest and TCS has the lowest payout ratio. That means that Wipro is distributing more of its profits then the industry average.
Joydip Pati
Page 17
Bibliography:To complete this project we have taken help of the following: Annual Reports of the Companies www.yahoofinance.com Financial Analysis by Khan & Jain www.wikipedia.com
Joydip Pati
Page 18
Appendix:
Joydip Pati
Page 19