Copy of Ppts8 - Fa

8/8/2019 Copy of Ppts8 - Fa

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MANAGEMENTACCOUNTING - I

- Dr. Sandeep Goel


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FOCUS

FINANCIAL ANALYSIS

- Dr. Sandeep Goel


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WHY FINANCIAL ANALYSIS?

Two sets of Users

Internal users

External users


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TOOLS/TECHNIQUES OFFINANCIAL

ANALYSIS

Horizontal Analysis

Vertical Analysis

Trend Analysis

Ratio Analysis

Du Pont Analysis


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Comparative Analysis / Horizontal Analysis

To determine the comparative performance of the current year

with respect to previous year.


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Vertical Analysis / Common-size Analysis

To determine Item-wise Performance.

(i) To determine the contribution of an individual item in thetotal.

(ii) Also, to find out the performance of an item in regard to a

common base.

It is also known as Common-size Analysis as all items are

converted intoone common size ,that is 100.


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Trend Analysis

To find out the trend Pattern ofChange over longer time

periods such as 5 or 10 years.


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WHAT IS

PROFIT/EARNING?

Profit

= Income Expenses

Profit Variants

- Gross Profit ( Sales COGS)

- EBITDA (Cash Operating Profit)

- EBIT(PBIT) / (Operating profit)

- EBT(PBT)

- EAT(PAT) / Net Profit


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Efficiency at every level with respect to Sales

Multi-Step Profit and Loss Account

RIL(Rs. in crore)

2008-09

Sales 146,328.07

Less: Cost of production of goods sold (COGS) / Direct Expenses 118 ,306.32

Gross Profit - GP 28,021.75

Less: Indirect expenses before depreciation, interest & tax 8,062.05

Earning before Interest,Tax, Dep. &Amort. - EBITDA 19,959.70

Less: Depreciation 5,195.29

Earning before Interest and Tax - EBIT 14,764.41 Less /Add: Non-Operating Expense(Income) 3,668.82

Earning before Tax - EBT 18433.23

Less: Tax 3123.91

Profit after Tax - PAT 15309.32

19.15%

13.64%

10.09%

12.60%

10.46%


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Ratio Analysis

Objective

To find out the profitability of the concern.

To determine the operating efficiency.

To determine the liquidity.

Tofind

out the s

olvency.

To determine the value creation to shareholders.


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Profitability Ratios

To find out whether the Company is earning desired profits or

not?

Profit

= Income Expenses

Profit Variants

- Gross Profit ( Sales COGS)- EBITDA (Cash Operating Profit)

- EBIT(PBIT) / (Operating profit)

- EBT(PBT)

- EAT(PAT) / Net Profit


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Profitability Ratios

To find out whether the Company is earning desired profitsor not?

1. Gross Profit Ratio = Gross Profit

Sales

Gross Profit = Sales - Cost ofProduction of Goods Sold*

*Cost ofProduction of Goods Sold (COGS) =Opening Stock + Purchases + Direct expenses - Closing Stock


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2. Cash Operating Profit Ratio = Cash Operating Profit / EBITDA

Sales

3. Operating Profit Ratio = Operating Profit / EBIT

Sales

4. Net Profit Ratio = PAT

Sales

5. Operating Ratio = Total Operating Expenses

Sales

Note: All the above Ratios are expressed in Percentage and therefore multiplied

by100.


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1 . C o n s i d e r t h e i n a n c i a l s ta t e m e n t s o f Z e d L t d . f o r 3 1 D e c e m b e r , 2 0 0 5 .

P r o f i t a o s s c c o t

f o r t e y e a r e e 3 1 s t e c e m e r , 2 0 0 5

( s . i l a k s )

P a r ti c la r s 2 0 0 5 2 0 0 4

I c o m e

a l e s 2 6 0 0 2 2 0 0

t h e r I n c o m e 1 6 5 1 2 0

P ro fi t o n s a l e o f fi x e d a s s e ts 9 5 -

P ro fi t o n s a l e o f i n v e s tm e n t - 3 5

t o c k a d j u s tm e n t * 8 5 1 2 0

T o t a l In c o m e 2 9 4 5 2 4 7 5e i t r e

a m a te r i a l s c o n s u m e d 1 4 9 0 1 2 6 0

x c i s e D u t y 2 1 5 1 9 5

M a n u fa c tu r in g e x p e n s e s 1 6 0 1 2 0

d m i n i s t ra t io n e x p e n s es 6 5 4 0

e l l i n g d i s t r i b u t i o n e x p e n s es 8 0 6 0

D e p r e c i a ti o n 1 2 5 1 0 0

I n t e r e s t c o s ts 1 6 5 1 8 0

L o s s o n s a l e o f fi x e d a s s e ts - 2 5L o s s o n s a l e o f i n v e s tm e n t s 2 0 -

o t a l e i t r e 2 3 2 0 1 9 8 0

P ro fi t e f o r e T a x ( P T ) 6 2 5 4 9 5

P ro v i s i o n f o r T a x 1 8 8 1 4 9

P ro fi t ft e r T a x ( P T ) 4 3 7 3 4 6

* t o c k a d j u s t m e n t r e fe r s t o a d j u s tm e n t f o r fi n i sh e d s t o c k .

I n t e r e s t i s o n l o n g - t e r m l o a n s .


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a l a c e e e t a s a t 3 1s t

e c e m e r , 2 0 0 5

( s . i l a k s )

P a r t i c l a r s 2 0 0 5 2 0 0 4

o r c e s o f F s

Sh a r e h o l d e r s F u n d s :

h a r e C a p i t a l ( E q u i t y s h a r e s o f s . 1 0 e a c h ) 1 9 0 0 1 2 5 0

1 2 % P r e fe r e n c e h a r e C a p i ta l 5 0 0 4 0 0

e s e r v e s a n d u r p l u s 1 9 6 0 1 3 3 0

L o a n F u n d s :

L o n g - t e rm L o a n s 1 6 5 0 1 8 0 0

T o t a l o r c e s 6 0 1 0 4 7 8 0

l i c a t i o o f F sF i x e d s s e t s ( n e t b l o c k ) 4 0 3 0 3 0 6 0

C a p i t a l - o r k - i n - p r o g r e s s 7 5 0 6 0 0

I n v e s t m e n t s 1 0 5 0 1 2 0 0

C u r r e n t as s e t s , L o a n s a n d

d v a n c e s :

I n v e n t o r i e s 2 6 0 2 1 0

D e b t o r s 3 2 5 2 6 0

C a s h a n d a n k a l a n c e s 4 0 6 0

L o a n s a n d d v a n c e s 3 2 5 1 8 5

T o t a l C u r r e n t a s s e t s , L o a n s a n d d v a n c e s 9 5 0 7 1 5

L e s s : C u r r e n t L i a b i l i t i e s a n d P r o v i s i o n su n d r y C r e d i t o r s ( 5 0 8 ) ( 6 7 5 )

P ro v i s i o n f o r T a x ( 3 3 7 ) ( 1 7 0 )

e t C u r r e n t s s e t s 1 0 5 ( 1 3 0 )

M i s c e l l a n e o u s E x p e n s e s 7 5 5 0

T o t a l l i c a t i o s 6 0 1 0 4 7 8 0

C a l c u l a t e s a l e s - b a s e d p r o fi t a b i l i t y r a t i o s .

C a l c u l a t e a s s e t s - b a s e d p r o fi t a b i l i t y r a t i o s .


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Solution (Rs. in lakhs)

2005 2004

Gross Profit

Sales 2600 2200

Less:Cost of production of goods sold

Raw materials consumed (1490) (1260)

Excise duty (215) (195)

anufacturing expenses (160) (120)

Stock ad ustment 85 1780 120 1445820 745

Gross profit margin (%) (820 x 100) 31.54 (745 x 100 ) 33.86

2600 2200

Zed Ltd. (Sales based profitability ratios)


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(Rs. in lakhs)

2005 2004

Cash Operating Profit (EBITDA)

Gross profit 820 745

Less:Operating expenses (except depreciation)

Administration expenses (65) (40)

Selling and distribution expenses (80) (145) (60) (100)

675 645

Cash operating profit margin (%) (675 x 100) 25.96 (645 x 100 ) 29.32

2600 2200

Gross profit margin 31.54 % 33.86 %


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(Rs. in lakhs)

2005 2004

Operating Profit (EBIT)

Cash operating profit 675 645

Less: Depreciation (125) (100)

550 545

Operating profit margin (%) (550 x 100) 21.15 (545 x 100 ) 24.77

2600 2200

Cash operating profit margin 25.96 % 29.32 %


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(Rs. in lakhs)

2005 2004Net Profit (PAT)

Operating profit 550 545

Add: Non- operating income

Other income 165 120

Profit on sale of fixed assets 95 -

Profit on sale of investment - 260 35 155

Less:Non- operating expenses

Interest (165) (180)

oss on sale of fixed assets - (25)

oss on sale of investments (20) (185) - (205)

EBT 625 495


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(Rs. in lakhs)

2005 2004

Net Profit (PAT)

EBT 625 495

Less: Provision for tax (188 ) (149)

437 346

Net profit margin (%) (437 x 100) 16.81 (346 x 100 ) 15.73

2600 2200

Operating profit margin 21.15 % 24.77 %


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2005 2004

Gross profit margin 31.54 % 33.86 %

Cash operating profit margin 25.96 % 29.32 %

Operating profit margin 21.15 % 24.77 %

Net profit margin 16.81 % 15.73 %

Operating Ratio (100 O.P.R.) 78.85 % 75.23 %

Operational efficiency has gone down in this year.


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BEL - PROFITABILITY

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

CashOperatingProfit Ratio(%) 23.87 27.20 28.81 30.82 26.24

OperatingProfit Ratio(%) 21.64 24.94 26.67 28.56 23.95

Net Profit Ratio (%) 13.90 16.49 18.19 20.15 16.13

March,05 March,06 March,07 March,08 March,09


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BEL - COST EFFICIENCY

72.00

74.00

76.00

78.00

80.00

82.00

84.00

Operating atio 82.88 76.00 79.88 78.00 79.34



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RIL - PROFITABILITY

0.00

20.00

40.00

60.00

80.00

100.00

Gross Profit Ratio(%) 93.96 96.44

CashOperating Profit Ratio (%) 16.61 13.64

OperatingProfit Ratio (%) 13.13 10.09

Net Profit Ratio(%) 13.97 10.46

March,08 March,09


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TCS - PROFITABILITY

0.00

50.00

100.00

150.00

Gr ss r fit ti (%) 5. 119.

C s r ti r fit ti (%) .11 26.

r ti r fit ti (%) 23.61 25.01

Net r fit ti (%) 24.65 20.96

Marc ,08 Marc ,09


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6. Return on Investment/

Return on Capital Employed =

EBIT

Capital Employed*

*Capital Employed =

Net Worth + Preference Share Capital + ong-term loans

Less:Miscellaneous Expenses / ictitious Assets

or

Net Block + Working Capital


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7. Return on Equity/

Return on NetWorth =

PAT - Preference Dividend Dividend distribution Tax

Net Worth*

Net Worth* = Equity Share Capital + Reserves

Less:

Miscellaneous Expenses / ictitious Assets


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8. Earning per Share =

PAT - Preference Dividend Dividend distribution Tax

Numberof Equity Shares

9. Dividend per Share =

Dividend paid to Equity Shareholders


Note: All the above Ratios except EPS and DPS are expressed in

Percentage and therefore multiplied by 100. EPS and DPS

are expressed in NumberofTimes.


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Solution

(Rs. in lakhs)

2005 2004

Operating Profit (EBIT) 550 545

Capital Employed

Equity share capital 1900 1250

12 Preference share capital 500 400Reserves and surplus 1960 1330

ong-term loans 1650 1800

6010 4780

Less: Miscellaneous expenses 75 50

5935 4730

Or

ixed Assets ( Net) 4030 3060

Capital work-in-progress 750 600

Investments 1050 1200

Working capital( Net current assets) 105 (130)5935 4730

Zed Ltd. (Assets based profitability ratios)


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(Rs. in lakhs)

2005 2004

Operating Profit (EBIT) 550 545

Capital Employed 5935 4730

ROCE(%) ( EBIT x 100) (550 x 100) 9.27 (545 x 100) 11.52

CE 5935 4730

ROCE has gone down despite increase in PAT margin.

Reason : Pooroperational efficiency (poor efficiency in assets

utilisation).


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2. Calculate W of e Life Ltd. under the following scenarios for the year2005

and comment.

( s. i lak s)

Partic lars ce ario 1 ce ario2

2005 2005

P IT 3000 3300

Loan funds (Average pre-tax

interest cost 15%)

2000

Loan funds (Average pre-tax

interest cost 18%)

2000

hareholders funds 4000 4000

Tax rate (%) 30 30


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Solution New Life Ltd.

(Rs. in lakhs)

Scenario 1 Scenario 2

2005 2005

PBIT 3000 3300

Less:Interest @15% &18% (300) (360)

PBT 2700 2940

Less: Provision for tax @30% (810) (882)

PAT 1890 2058

RONW (%) (1890 x 100) 47.25 (2058 x 100) 51.45

4000 4000

Here, Increase in Interest RONW


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BEL - RETURN EARNED

0.00

10.00

20.00

30.00

40.00

50.00

ROI( ) 48. 46. 1 44.00 36.22 29.08

ROE( ) 28.32 28. 6 27.96 25.73 19.71

Mar ,05 Mar ,06 Mar ,07 Mar ,08 Mar ,09


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RIL- RETURN EARNED

0.00

5.00

10.00

15.00

20.00

25.00

ROI (%) 14.53 7.03

ROE (%) 23.55 11.86

March,08 March,09


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TCS- RETURN EARNED

0.00

10.00

20.00

30.00

40.00

50.00

ROI( ) 41.00 41.23

ROE( ) 38.85 33.13

March,08 March,09


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3. Following are the financialsof eality Ltd. For two years:

( s. i millio )

Partic lars 1999-2000 1998-1999

PAT(after preference dividend) 1250 620

14%Preference hares (of s. 100 each) 200 200

Equity hares (of s. 10 each) 600 500eserves ands urplus 1200 1050

Pay-out atio 50% 40%

Market Price Per hare (Rs.) 40 30

Miscellaneous Expenditure (not writtenoff) 125 150

During the year,fresh shares were issued at premiumofRs. 30on ctober 1, 1999.

Calculate dividend yield and earning per share.


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Solution (Rs. in million)

1999-2000 1998-1999

Proposed dividend* 625 310

Dividend yield (Rs. per share) [625 /(40x60)] 0.26 [ 310/(30x50)] 0.21

Weighted average numberof shares

[(50x6/12 +(60x6/12)] 55 50

EPS (Rs.) (1250 -3.5**)/55 22.66 (775 -3.5**)/50 15.43

*Pay-out ratio = Proposed dividend x 100 [ or finding out pay-out,PAT

PAT should be after pref. Dividend ]

** Tax on dividend on preference shares @12.5%

Realty Ltd.


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Basic EPS

Earning per Share = PAT - Preference Dividend



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Diluted EPS

(Potential equity shares in the capital structure)

Diluted EPS = *Diluted earnings / Ad usted Net Profit

Ad usted Weighted average numberof equity shares

* PAT Pref. dividend ,as increased by post-tax savings in interest

AS-20 & IAS has made it mandatory for listed companies to

show both basic and diluted EPS.


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4.M N td. has earned aPATof Rs. 1,200 lakhs during the year2000-01. Its capital

structure for2000-01 includes the following:

Particulars

Outstanding Equity shares (number in lakhs) 150

14% Convertible Preference Shares of Rs. 100 each (number in

lakhs) [each preference share is convertible into two equity shares]

10

13% Convertible Debentures of Rs. 100 each (number in lakhs) [each

preference share is convertible into two equity shares]

10

Employee stockoption [Exercise Price Rs. 70] (number in lakhs) 8

Average air Value Per Share (on the basis of weekly closing shareprices during January March,2001)

120

Tax Rate 35%

Tax on Preference Dividend 20%

Calculate Basic EPS and Diluted EPS for2000-01.


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Solution

Basic EPS = PAT Preference dividend Tax on preference dividend /

Average outstanding equity shares

= [1,200 (140 28)] / 150

= Rs. 6.88

MN Ltd.


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Effect of dilution Increase in Increase in Ranking as per

on earnings PAT (Profit available no. of shares dilutive impact

to equity shareholders)(Rs. lakhs) (Rs. lakhs)

14% Convertible 168(140+28) 20 3

preference shares

13% Convertible 84.50* 20 2

Debentures

ESOPs - 8 1

* Saving in interest net of tax

Interest = Rs. 130

Less: Tax = Rs. 45.5(35%)

Net Cost = Rs. 84.5

ESOPs are most dilutive as there is no increase in profits but increase in no. of shares.


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Diluted EPS Profit available for equity No. of ordinary shares EPS

shareholders (Rs. lakhs) (Rs. lakhs) (Rs.)

Profit available for equity 1284.5 198

Shareholders after dilution (1,032+168+84.50) (150+20+20+*)

6.48


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BEL - RETURN DISTRIBUTED

0.00

20.00

40.00

60.00

80.00

100.00

120.00

EPS 55.80 72.88 89.86 103.34 93.23

DPS 11.20 14.60 18.00 20.70 18.70

D/PRati ( ) 20.07 20.03 20.03 20.03 20.06

ar ,05 ar ,06 ar ,07 ar ,08 ar ,09


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RIL - RETURN DISTRIBUTED

0.00

50.00

100.00

150.00

EPS 131.98 95.25

DPS 11.22 12.06

D/P atio ( ) 8.50 12.66

March,08 March,09


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TCS - RETURN DISTRIBUTED

0.00

10.00

20.00

30.00

40.00

50.00

EPS 43.69 45.53

DPS 14.00 14.00

D/PRati ( ) 32.04 30.75

ar ,08 ar ,09


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CORPORATE CASES

Profitability Ratios (2002 - 2003)Company NPM% Payout% EPS Rs. ROCE % ROE%

HLL 18.74 66.31 8.29 63.26 49.7

P&G 19.35 63.61 31.44 42.91 30.39

Infosys 29.79 18.67 144.61 47.65 39.04

Satyam 23.29 30.69 9.77 26.5 21.53

HLLs figures are for calendar yr. 2002;P&Gs for yr. July 2002-June 2003.

All other companies follow April-March.


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Analysis

1. FMCG (HLL&P&G) High payout ratio

Company does not have enough investment requirement

2. Software (Infosys) Low payout ratio

Retention of cash to meet future contingencies

Wo

uld Shareho

lders mind with a lo

w payo

ut ?No, ROE is 40% and EPS is Rs. 145

(Shareholders would want their money to be re-invested in

such a profitable business).


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Turnover/ Operating Efficiency Ratios

To find out whether the Company is efficiently managing its

resources?

Debtors Turnover Ratio = Sales

Average Debtors

Note:

While calculating Debtors Turnover Ratio,Doubtful Debts are notdeducted from Debtors, since here the purpose is to calculate the

numberof days for which sales are tied up in debtors and not the

realizable value of debtors.


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Average Collection Period = Days in an Year/Month in an Year

Debtors Turnover Ratio

Creditors Turnover Ratio = Purchases

Average Creditors

Average Payment Period = Days in an Year/ Month in an Year

Creditors Turnover Ratio

Stock Turnover Ratio = Cost of Goods Sold

Average Stock


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Working Capital Turnover Ratio = Sales

Working Capital

Fixed Assets Turnover Ratio = Sales

Total ixed Assets

Total Assets Turnover Ratio = Sales

Total Assets


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BEL - DEBTORS MANAGEMENT

0.00

50.00

100.00

150.00

200.00

Debt rs Tur ver ati 4.59 3.47 2.33 2.00 2.03

AverageC llecti eri d(Days) 79 105 156 183 180

Marc ,05 Marc ,06 Marc ,07 Marc ,08 Marc ,09


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RIL - DEBTORS MANAGEMENT

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

Debt rs TurnoverRatio 22.36 32.01

Average Collection Period (Days) 16 11

arch,08 arch,09


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TCS - DEBTORS MANAGEMENT

0.00

20.00

40.00

60.00

80.00

DebtorsTurnoverRatio 4.88 6.03

Average ollectionPeriod(Days) 75 61

Marh,08 Marh,09


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BEL - INVENTORY MANAGEMENT

0.00

50.00

100.00

150.00

200.00

Invent ryTurn ver ati 3.02 3.41 3.17 3.04 1.91

Invent ryH lding eri d(Days) 121 107 115 120 191



56/109

RIL - INVENTORY MANAGEMENT

Improvement in utilisation of working capital in RIL

- Inventory holding period has reduced by 2 days

(Due to fall in production cycle)

0.00

10.00

20.00

30.00

40.00

50.00

Inventory TurnoverRatio 7.62 7.97

Inventory HoldingPeriod(Days) 48 46

March,08 March,09


57/109

TCS - INVENTORY MANAGEMENT

0.00

200.00

400.00

600.00

800.00

1,000.00

Inventory TurnoverRatio 505.98 842.07

Inventory HoldingPeriod(Days) 1 0

March,08 March,09


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BEL - ASSETS MANAGEMENT

0.00

2.00

4.00

6.00

8.00

10.00

WorkingCapital Turnover atio 2.90 2.33 1.97 1.56 1.47

FixedAssets Turnover atio 8.76 9.03 9.42 9.13 8.99



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RIL - ASSETS MANAGEMENT

Fixed assetss efficiency has gone down in the current year

- Each rupee of fixed assets is generating less than 1 Re of sales in RIL in

2008-09.

0.00

2.00

4.00

6.00

8.00

WorkingCapital Turnover atio 7.39 7.70

FixedAssets Turnover atio 1.64 0.86

Marc ,08 Marc ,09


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TCS - ASSETS MANAGEMENT

0.00

2.00

4.00

6.00

8.00

WorkingCapital TurnoverRatio 4.89 5.22

Fixed ssets TurnoverRatio 6.46 6.68

March,08 March,09


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CORPORATE CASES

Assets Efficiency Ratios (2002 - 2003)Company Fixed Assets Inventory Production Collection Suppliers

Turnover Holding Period Cycle Period Credit

(Days) (Days) (Days) (Days)

HINDALCO 1.640 77 22 27 35

NALCO 0.792 333 21 22 27

HLL 8.306 86 2 13 114

P&G 4.928 57 1 23 137

SAIL 1.233 120 1 28 33TISCO 1.295 105 1 37 79

HLLs figures are for calendar yr. 2002;P&Gs for yr. July 2002-June 2003.

All other companies follow April-March.


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Analysis

1. FMCG (HLL&P&G) Fixed assets efficiency is veryhigh as compared toothers

Also, wide differences in fixed assets turnover ratio

HLL has outsourced most of its production requirements.


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The same is not true for hardcore manufacturing companies.

Industries like Aluminum and Iron&Steel are highly capital

intensive and hence the asset efficiency ratios would be lower.

2. Aluminum HINDALCO seems to be more efficientthan NALCO.

3. Iron&Steel TISCO is more efficient than SAIL.

NALCO is very inefficient in inventory management. It almost

maintains a years inventory.


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BHARAT ELECTRONICS LTD.

ASSETS STRUCTURE

( 2004-05 to 2008-09 )

(Rs. in million)

2004-05 2005-06 2006-07 2007-08 2008-09

Fi e Assets* 3667 3915 4194 4492 5142

In estments 123 123 123 120 120

urrent Assets 38219 46405 52577 63431 78357

Total Assets 42009 50443 56894 68043 83619

CA/ TA Ratio(%) 90.98 91.99 92.41 93.22 93.71

*Fi e Assetscompriseof et Blockan apital ork-in- rogress


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Issue:

Are we managing our huge current assets

efficiently?


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First, we talk about Inventories


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Are we losing Inventory due to obsolescence ?

Provision for Obsolescence as a Percent of

Total Inventory in BEL

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

Provisionforobsoles en e(%) 4.66% 5.94% 5.67% 5.05% 3.51%

Mar h,05 Mar h,06 Mar h,07 Mar h,08 Mar h,09

Wh t b t D bt ?


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What about Debtors ?Doubtful Debts as a Percent of Total Debts in BEL

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

Doubt fu lDebts (% ) 20.37% 17.14% 14.55% 13.57% 13.26%

M ar h,05 M ar h,06 M ar h,07 M ar h,08 M ar h,09


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Liquidity Ratios

To find out whether the Company can meet its current

obligations as and when they arise?

Current Ratio = Current Assets

Current Liabilities

Liquid Ratio = Liquid assets

Current Liabilities

Super Quick Ratio = Cash and Bank

Current Liabilities


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1 . C o m p u t e t h e s h o r t - t e r m s o l v e n c y r a t i o s f r o m t h e f o l l o w i n g d e t a i l s :

a l a

c e

e e t a s a t 3 1s t

a r c

, 2 0 0 1

(

s . i

l a k

s )

P a r t i c

l a r s 2 0 0 1 2 0 0 0

o r c e s o f F

s

S h a r e h o l d e r s F u n d s :

h a r e C a p i t a l 2 0 0 2 0 0R e s e r v e s a n d u r p l u s 2 2 5 2 0 0

L o a n F u n d s :

L o n g - t e r m L o a n s 1 2 5 1 0 0

C a s h C r e d i t 7 5 1 0 0

T o t a l o

r c e s 6 2 5 6 0 0

l i c a t i o

o f F

s

F i x e d

s s e t s :

r o s s

l o c k 4 3 5 3 0 0

L e s s : A c c u m u l a t e d D e p r e c i a t i o n 1 6 5 1 2 0

e t

l o c k 2 7 0 1 8 0

I n v e s t m e n t s 3 0 2 0

C u r r e n t a s s e t s , L o a n s a n d

d v a n c e s :

I n v e n t o r i e s 1 7 5 2 1 0

D e b t o r s 1 2 5 1 7 5

P r e p a i d e x p e n s e s 4 5 2 5

C a s h a n d

a n k

a l a n c e 3 0 1 0

A d v a n c e I n c o m e T a x 4 0 3 0

t a f f A d v a n c e 6 5 9 0

A . T o t a l o f C u r r e n t A s s e t s , L o a n s a n d a d v a n c e s 4 8 0 5 4 0

L e s s : C u r r e n t L i a b i l i t i e s a n d P r o v i s i o n s

u n d r y C r e d i t o r s ( 8 0 ) ( 9 0 )

P r o v i s i o n f o r T a x ( 2 5 ) ( 2 0 )

P r o p o s e d D i v i d e n d ( 5 0 ) ( 3 0 )

. T o t a l o f C u r r e n t L i a b i l i t i e s a n d P r o v i s i o n s ( 1 5 5 ) ( 1 4 0 )

e t C u r r e n t A s s e t s ( A -

) 3 2 5 4 0 0T o t a l

!

" "

l i c a t i o#

s 6 2 5 6 0 0

N o t e s

1 . D e b t o r s a r e n e t o f p r o v i s i o n s f o r d o u b t f u l d e b t s o f R s . 2 5 l a k h s a s o n 3 1

M a r c h , 2 0 0 1 ( R s . 2 0 l a k h s i n t h e p r e v i o u s y e a r ) .

2 . I n v e s t m e n t s i n c l u d e R s . 5 l a k h s o f s h o r t - t e r m i n v e s t m e n t s ( R s . 2 l a k h s i n

p r e v i o u s y e a r ) .

3 . $

t a f f A d v a n c e a r e f o r a p e r i o d o f 2 y e a r s .


72/109

Solution

(Rs. in lakhs)

2001 2000

A. Current assets

Inventories 175 210

Debtors (net of provisions) 125 175

Prepaid expenses 45 25

Cash and bank balance 30 10

Advance income tax 40 30

Short-term investments 5 2

420 452


73/109

(Rs. in lakhs)

2001 2000

B. Current liabilities

Cash credit 75 100

Sundry creditors 80 90

Provision for tax 25 20

Proposed dividend 50 30

230 240


74/109

2001 2000

Current ratio 420/230 452/240= 1.83 = 1.88

Liquid ratio *200/230 *217/240

= 0.87 = 0.90

* Liquid assets = Current assets Inventories Prepaid expenses

420 [(175-45)] 452 [(210-25)]

= 200 = 217

Both Current ratio and liquid ratio have declined during the current year.

Does it imply worsening of liquidity position of the firm?


75/109

Analysis

The firm has reduced its inventory and debtors.

- This is a sign of better liquidity.

Therefore, the firm was able to reduce its reliance on cash

credit ( from 41.67% in the previous year to32.61% in the

current year).

There has been a significant improvement in cash and bank

balance position too.


76/109

HLL CASE

HLL is known for its liquidity management

The Company avails more days of credit facility from its suppliers

than it offers to its customers.

2002

Current credit terms of suppliers 75 days

Revised term (with cash discount of 14 % p.a.) 14 days

Credit terms to customers 14 days


77/109

CORPORATE CASES

Liquidity Position (31st March , 2003)Company Industry Current Ratio Quick Ratio

HINDALCO Aluminum 2.10 0.84

NALCO Aluminum 0.69 0.08

HLL FMCG 1.11 0.60

P&G FMCG 1.39 0.85

SAIL Iron &Steel 0.69 0.19

TISCO Iron &Steel 1.29 0.47

Infosys Software 3.29 2.50Satyam Software 4.22 3.97


78/109

Analysis

1. Software Very high liquidity ratios

Both the companies in software industry maintain huge cash

balance and hence their liquidity ratios are very high. This is an

industry- specific phenomenon.


79/109

2. Aluminum Wide variation in liquidity position

NALCOs Quick ratio is almost zero

The company does not possess readily realizable assets

3. Iron and Steel Similar trend as of Aluminum

SAILs Quick ratio is almost zero

Companys short-term liquidity is very weak.

BEL LIQUIDITY


80/109

BEL - LIQUIDITY

0.00

0.50

1.00

1.50

2.00

CurrentRatio 1.41 1.49 1.62 1.71 1.71

LiquidRatio 1.02 1.15 1.24 1.35 1.35

Super Qui Ratio 0.49 0.59 0.64 0.66 0.66

M ar h,0

5

M ar h,0

6

M ar h,0

7

M ar h,0

8

M ar h,0

9

RIL LIQUIDITY


81/109

RIL - LIQUIDITY

0.00

0.50

1.00

1.50

2.00

Current atio 1.78 1.53

Li uid at io 1.19 1.12

Super uic k atio 0.18 0.62

Marc ,08 Marc ,09

TCS LIQUIDITY


82/109

TCS - LIQUIDITY

0.00

0.50

1.00

1.50

2.00

2.50

CurrentRatio 2.04 1.87

LiquidRatio 2.04 1.86

Super Qui Ratio 0.15 0.32

M ar h,08 M ar h,09


83/109

Solvency Ratios

To find out whether the Company is financially sound, i.e.

whether the Company can meet its long-term obligations on the

due time?

Debt- Equity Ratio = Long-term Debt

ShareholdersFunds*

*ShareholdersFunds = Net Worth + Preference Share Capital

Less: Fictitious Assets /Miscellaneous Expenses


84/109

Interest Coverage Ratio = EBIT

Interest on Long- term Loans


85/109

Debt service Coverage Ratio

PAT +Depreciation + Other Non-cash charges + Interest

Interest on Long- term Loans +Installments paid during the

yearon long-term loans

*Cash flows from operating activities after tax

Interest on Long- term Loans +Installments paid during the

yearon long-term loans

It shows the debt-servicing capacity of the firm.

Higher the ratio, better it is for lender.


86/109

1 . C o ns ider the f o llo w in g tw o c o mp a n ie s :

Part i cu lars A L td . B L td .

P A T (Rs. lakhs) 85 (5 )

Interest o n L o ng-term L o an s (Rs. lakhs) 40 2 5

C a sh f lo w s f r o m o perat ing act iv i t ies af ter tax

[bef o re dedu c t ing in te res t] (Rs. lakhs)

6 5 4 5

L

o n g - t erm lo ans a t the en d o f the year (Rs. lakhs) 2 0 0 1 2 5Ins ta llm ents pa id dur ing the year 40 2 0

E q u i ty (Rs. lakhs) 2 2 5 1 0 0

Calcu la te lo ng- te rm s o lvency ra t io s .


87/109

Solution

Ratios A Ltd. B Ltd.

Debt equity ratio 200 / 225 = 0.89 125 / 100 = 1.25

Interest coverage ratio (85+40)/40 = 3.13 [(5) +25]/25 = 0.80

Debt service coverage ratio 65/ (40+40) =0.81 45/(25+20) = 1.00


88/109

A Ltd. B Ltd.

Debt equity ratio 200 / 225 = 0.89 125 100 = 1.25

Interest coverage ratio (85 +40) / 40 = 3.13 [(5) +25] / 25 = 0.80

Debt service coverage ratio 65 /(40 +40) = 0.81 45 / (25 +20) = 1.00

Why is DSCRof A Ltd. Poorer despite higher interest coverage ratio?

(As A Ltd. Could not manage its working capital well.

Against PBIATof Rs. 125 lakhs,operating cash flows are only Rs. 65 lakhs.)

On the other hand, with PBIATofonly Rs. 20 lakhs,

B Ltd. could show an operating cash flows of Rs. 45 lakhs.

It implies a reduction in working capital investment by Rs. 25 lakhs.

So, which company is better in long-term solvency?

BEL - SOLVENCY


89/109

0.00

1000.00

2000.00

3000.00

4000.00

5000.00

6000.00

Debt-E uityRatio 0.01 0.00 0.00 0.00 0.00

Interest o erageRatio 76.38 34.45 1317.50 5858.00 102.56


RIL - SOLVENCY


90/109

RIL SOLVENCY

0.00

5.00

10.00

15.00

20.00

Debt-Equity Ratio 0.45 0.58

Interest CoverageRatio 16.97 8.46

March,08 March,09

TCS - SOLVENCY


91/109

TCS SOLVENCY

0.00

200.00

400.00

600.00

800.00

1000.00

1200.00

1400.00

Debt-EquityRatio 0.00 0.00

InterestCoverageRatio 1,262.42 753.14

Mar h,08 Mar h,09


92/109

Market Based / Valuation Ratios

To find out how the market responses to companys performance?

Price Earning Ratio (P/E) = Market price per share / EPS

Dividend Yield = Dividend per share / Market price per share

Book value per share = Net worth / Numberof shares

Price-to-Book Ratio =Market price per share / Book value per share

BEL - VALUATION


93/109

BEL VALUATION

0.00

500.00

1000.00

1500.00

2000.00

Book Valuepershare 197.05 253.39 321.43 401.63 472.96

Market Valuepershare 665.00 1321.70 1501.00 1057.00 882.90

Market ValuetoBook Valuepershare 3.37 5.22 4.67 2.63 1.87


RIL - VALUATION


94/109

0.00

500.00

1000.00

1500.00

2000.00

2500.00

ook Valuepershare 560.44 803.13

Market Valuepershare 2264.50 1523.20

Market ValuetoBook Valuepershare 4.04 1.90

March,08 March,09

TCS - VALUATION


95/109

0.00

200.00

400.00

600.00

800.00

1000.00

Book Valuepershare 112.45 137.40

Market Valuepershare 810.90 540.00

Market ValuetoBook Valuepershare 7.21 3.93

March,08 March,09

BEL - PRICE EARNING RATIO


96/109

0.00

5.00

10.00

15.00

20.00

Pri e-Earningratio 11.92 18.14 16.70 10.23 9.47

Mar h,05 Mar h,06 Mar h,07 Mar h,08 Mar h,09


EPS 55.80 72.88 89.86 103.34 93.23

MPS 665.00 1321.70 1501.00 1057.00 882.90

RIL - PRICE EARNING RATIO


97/109

15.00

15.50

16.00

16.50

17.00

17.50

Price -Earning ratio 17.16 15.99

Marc ,08 Marc ,09

M a r c h ,0 8 M a r c h ,0 9

EPS 13 1 .9 8 9 5 .2 5

M PS 2264 .50 1 52 3 .2 0

TCS - PRICE EARNING RATIO


98/109

0.00

5.00

10 .00

15 .00

20 .00

P ric e-Earningratio 18 .56 11.86

Marc ,08 Marc ,09

M a r c h , 0 8 M a r c h , 0 9

EPS 4 3 .6 9 4 5 .5 3

M P S 8 1 0 .9 0 5 4 0 .0 0

BEL - DIVIDEND YIELD RATIO


99/109

0 .0 0

0 .5 0

1 .0 0

1 .5 0

2 .0 0

2 .5 0

D ivid e n d Y ie ld ( ) 1 .6 8 1 .1 0 1 .2 0 1 .9 6 2 .1 2

M a rc ,0 5 M a rc ,0 6 M a rc ,0 7 M a rc ,0 8 M a rc ,0 9


DPS 11.20 14.60 18.00 20.70 18.70

MPS 665.00 1321.70 1501.00 1057.00 882.90

BEL - MARKET CAPITALISATION


100/109

0.00

2000.00

4000.006000.00

8000.00

10000.00

12000.00

14000.00

Marketcapitalisation(Rs.incr.) 5320.00 10573.60 12008.00 8456.00 7064.00


RIL - MARKET CAPITALISATION


101/109

0.00

50000.00

100000.00

150000.00

200000.00

250000.00

300000.00

350000.00

Marketcapitalisation(Rs.incr.) 329099.79 239675.52

March,08 March,09

TCS - MARKET CAPITALISATION


102/109

0.00

20000.00

40000.00

60000.00

80000.00

Marketcapitalisation(Rs.incr.) 79354.67 52844.40

March,08 March,09


103/109

DU PONT ANALYSIS

It enables to understand the performance of RONW in a

better way.

It divides RONW into three determinants:

1. Net ProfitMargin

2. Assets Turnover Ratio

3. Assets to Equity /F

inancialL

everage Ratio


104/109

Du Pont Analysis

Return on Equity/ = Net Profit Ratio X Total Assets TurnoverRatio X Assets to Equity Ratio /

Return on Net Worth Financial Leverage Ratio

ROE/RONW = AT

E uitySharehol ers'Fun s

ROE/RONW = AT X Sales X Total Assets

Sales Total Assets E uitySharehol ers'Fun s

X 100

BEL - DU PONT ANALYSIS


105/109

0.00

5.00

10.00

15.00

20.00

25.00

30.00

March,05 28.32 13.90 0.77 2.66

March,06 28.76 16.49 0.70 2.48

March,07 27.96 18.19 0.70 2.21

March,08 25.73 20.15 0.60 2.11

March,09 19.71 16.13 0.55 2.21

ROE(%)NetProfit

Ratio(%)

ssets

TurnoverRatio

ssetsto

EquityRatio

BEL VS. BHEL - ROE COMPARISON


106/109

(2008-09 )

0

5

10

15

20

25

BEL19.71 16.13 0.55 2.21

BHEL 24.25 11.19 0.71 3.06

ROE(%) P T/ ales(%) ales/ ssets ssets/Equity

RIL - DU PONT ANALYSIS


107/109

0.00

5.00

10.00

15.00

20.00

25.00

Marc ,08 23.55 13.97 1.09 1.57

Marc ,09 11.86 10.46 0.65 1.77

ROE(%)NetProfit

Ratio(%)

Assets

TurnoverRatio

Assetsto

EquityRatio

TCS - DU PONT ANALYSIS


108/109

0.00

10.00

20.00

30.00

40.00

Marc ,08 38.85 24.65 1.80 0.92

Marc ,09 33.13 20.96 1.78 0.94

ROE(%)NetProfit

Ratio(%)

Assets

TurnoverRatio

Assetsto

EquityRatio

DISCLOSURES IN ANNUAL REPORT


109/109

Financial Statements

Chairmans/MDs Address

Management Discussion and Analysis

Directors Report

Auditors Report

Report on Corporate Governance

Copy of Ppts8 - Fa

Documents

Transcript of Copy of Ppts8 - Fa