Meaning of Financial Analysis

8/9/2019 Meaning of Financial Analysis

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MEANING OF FINANCIAL ANALYSIS

Financial Statements Analysis is an analysis which critically examines the relationship between

various elements of the Financial Statements. It focuses on the evaluation of past operations as

revealed by the analysis of basic statements. It is a process of scanning Financial Statements for

evaluating the relationship between the items as disclosed in these. It is an important means of

assessing past performance and forecasting and planning future performance. The analysis

simplifies, summarizes and systematizes the monotonous figures.

MEANING OF RATIO ANALYSIS

Analysis of Financial Statements with the help of !atio" is termed as !atio Analysis". !atio

Analysis is a widely used tool of Financial Analysis. It can be used to compare the ris# and

return relationships of firms of different sizes. It is defined as the systematic use of ratio to

interpret the Financial Statements so that the strengths and wea#nesses of a firm as well as itshistorical performance and current financial condition can be determined.

4.3 OBJECTIVES OF RATIO ANALYSIS

Following are the important ob$ectives of !atio Analysis

1) To provide the necessary basis for Inter%period and Inter%firm &omparison.

2) To help in providing a part of information needed in the process of decision%ma#ing.

3) To focus on facts on a comparative basis and facilitate drawing of conclusions relating to the

performance of a firm.

4) To evaluate the performance of a firm in determining the important aspects of a businesssuch as li'uidity, solvency, operational efficiency, overall profitability capital gearing, etc.

5) To throw light on the degree of efficiency in the management and the effectiveness in the

utilization of its assets.

6) To provide the way for effective control of the enterprise in the matter of achieving the

physical and monetary targets.

7) To help management in discharging its basic functions li#e forecasting, planning, co%

ordination, communication, control, etc.

8) To promote co%ordination among the departments and the staff by the study of performance

and efficiency of each department.9) To point out the financial condition of business whether it is strong, 'uestionable, or poor

and enables the management to ta#e necessary steps.

10) To act as an index of the efficiency of an enterprise.

4.4 CLASSIFICATION OF RATIOS

Accounting !atios may be classified as under


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Traditional !atiosFunctional !atios

Tr!"#"$%& R#"$'

Traditional Accounting !atios are classified on the basis of the origin of the figures used in the

accounting ratios, i.e. on the basis of the Financial Statements from which ratios are derived. The

following ratios are usually included in this type of classification.

B&%( S*# R#"$' $r F"%%("& R#"$'

!atios calculated from the different items as appearing in the (alance Sheet of a concern

are called (alance Sheet !atios, e.g. &urrent !atio, )i'uid !atio, *roprietary !atio, +ebt%e'uity

!atio, and so on.

+r$,"# - L$'' A(($%# R#"$' $r O/r#"% R#"$'

!atios calculated from the different items as appearing in the *rofit )oss Account of aconcern are called *rofit )oss Account !atios or operating !atio, e.g. -ross *rofit !atio, et

*rofit !atio, /perating !atio.

M"! R#"$' $r C$/$'"# R#"$'

!atios calculated, ta#ing some items as appearing in the (alance Sheet and ta#ing some

items as appearing in *rofit )oss Account, are called 0ixed !atios or &omposite !atios, e.g.

!eturn on et 1orth, !eturn on Investment 2!/I3, &apital Turnover !atio, etc.

FNCTIONAL RATIOS The other way of classifying the ratios in on the basis of functions they perform, what they

indicate, symptoms or characteristics, namely, li'uidity, profitability, financial stability and

turnover relationship, etc. This classification assumes greater significance because it distinctly

the different aspects of business performance and helps the various users of Financial Statements

to ta#e guard of their interest. For instance, short%term creditors are interested to evaluate the

li'uidity position by analyzing the li'uidity ratios, while long%term creditors and investors are

interested in the solvency and profitability position of the organization and as such they study the

solvency and profitability ratios. The following ratios are included in this classification.1) )i'uidity !atios

2) )everage !atios

3) *rofitability !atios

4) Activity45fficiency !atios

L""!"# R#"$'


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)i'uidity !atios are those ratios which are computed to evaluate the capacity of the

company to pay off its short%term liabilities. These ratios indicate the short%term financial

position of the company by relating short%term resources with short%term obligations. These

ratios are basically used by the short%term creditors, viz. suppliers, ban#ers, lenders, employees

and all others who are interested in the recovery of money due to them. Short%term creditors

focus their attention on the li'uidity of the company.

The most common ratios which indicate the extent of li'uidity or lac# of it are as follows6

Crr%# R#"$

This ratio is also called 1or#ing &apital !atio". It is used to assess the short%term financial

position of the business concern. In other words, it is a measure of the company"s short%term

solvency, i.e. its ability to meet its short%term obligations. It matches the total current assets of

the company against its current liabilities.As a measure of short%term solvency, it indicates the rupees of current assets available for

each rupee of current liability. Apparently, the higher the current ratio, the more protected are the

short%term creditors and vice %versa. &onventionally, a current ratio of 768 2current assets twice

of current liabilities3 is satisfactory. The Formula for computation of current ratio is given

below6

&urrent Assets¿

Current Assets

Current Liablities

1here,

&urrent Assets 9 &ash in :and ; &ash at (an# ; Short%term Investments ; (ills

!eceivable ; +ebtors ; Short%term )oans Advances ; Inventory ;

*repaid 5xpenses.

&urrent )iabilities 9 &reditors ; (ills *ayable ; (an# /verdraft ; *rovision for Taxation ;

*roposed +ividend ;


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7>>@%>C 8E,@87.8B C,[email protected] 7.?8

7>>C%>D 7C,E.@8 8D,E>>.EC 8.BD

7>>D%>E 7,C87.?7 E,7E7.8B 7.??

7>>E%8> 8D,@E>.7? E,B?.B8 8.ED

7>8>%88 7E,[email protected]? 8>,B?.> 7.D7

C


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Although SF& has better short%term solvency position, a higher current ratio of more

than 768 may be regarded as an inefficient wor#ing capital management. Therefore, it should

have a reasonable current ratio.

S/r ="(; R#"$

This ratio is also called, G&ash *osition !atioH or G&ash !atioH or GAbsolute )i'uidity!atioH. This ratio establishes the relationship between super 'uic# assets and current liabilities. It

may be used by ban#s and financial institutions who are very much interested in lending short%

term loans to companies for a period of not more than three months. -enerally, an absolute li'uid

ratio of >.?68 is considered as an ideal ratio. This ratio is computed with the help of the following

formula.

Super%uic# !atio¿

Super Quick Assets

Current Liabilities

1here,Super uic# Assets 9 &ash in :and ; &ash at (an# ; 0ar#etable Securities

TABLE 4.2 S*$"% S/r ="(; R#"$ $, SFC

2!s. In )a#hs3

=5A! S

S?%>@ 88,[email protected] 87,BB.>7 >.E

7>>@%>C B,DC8.>C C,[email protected] >.@7

7>>C%>D B,EE?.EE 8D,E>>.EC >.7@

7>>D%>E @,BED.C E,7E7.8B >.C

7>>E%8> @,ECE.? E,B?.B8 >.CB

7>8>%88 ,@?8.?D 8>,B?.> >.?

C


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00.20.4

0.60.8

1

S+ER =IC RATIO

YEARS

RATIOS

A%&'"' %! I%#r/r##"$% The Super uic# !atios of SF& over a period of six years are presented in the Table B.7.

The Super uic# !atio of SF& was >.E in 7>>?%>@. It declined to >.@7 in 7>>@%>C. These

ratios are well above the ideal ratio which is >.?68. It suggests that the &orporation was having

sufficient cash and ban# balances at its disposal to meet its current liabilities. The ratio

deteriorated in the year 7>>C%>D. The decline in the ratio was due to more increase in the current

liabilities than the super 'uic# assets. The ratio showed an upward trend in the next two years.

Again, it declined to >.?68.

The analysis of these figures reveals that the corporation has maintained sufficiently high amount

of cash and ban# balances than what is usually considered as ideal, over the years barring 7>>C%

>D and 7>8>%88. The ratios in 7>>C%>D and 7>8>%88 were >.7@68 and >.?68 respectively which

suggest that cash and ban# balances were not sufficient to meet the short%term obligations.

L>r?S$&>%(?C/"#& S#r(#r R#"$'

The second category of financial ratios is )everage or &apital Structure !atios. The long%

term lenders4creditors would $udge the soundness of a firm on the basis of the long%term

financial strength measured in terms of its ability to assure the long%term lenders with regard to

) periodic payment of interest during the period of the loan and ) repayment of principal on

maturity or in predetermined installments at due dates.

There are, thus, two aspects of the long%term solvency of a firm6 ) ability to repay the

principal when due and ) regular payment of the interest. Accordingly, there are two different,

but mutually dependent and interrelated, types of leverage ratios. First, ratios are based on the


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relationship between borrowed funds and owner"s capital. These ratios are computed from the

(alance Sheet and reflect the relative 4 sta#e of owners and creditors in financing the assets of

the firm. In other words, such ratios reflect the safety margin to the long%term creditors. The

second category of such ratios is based on the Income Statement and shows the number of times

the fixed obligations are covered by earnings before interest and taxes. In other words, they

indicate the extent to which a fall in operating profits is tolerable in that the ability to repay

would not be adversely affected.

Following are some important leverage ratios

@# #$ E"# R#"$

The relationship between borrowed funds and owners capital is a popular measure of the

long%term financial solvency of a firm. This relationship is shown by the +ebt%5'uity !atio. This

ratio indicates the relative proportions of debt and e'uity in financing the assets of a firm. It

reveals the extent to which debt financing has been used in the business. It discloses to the

creditors the extent of their in interest being covered by the net worth by the company. It can be

computed by using the following formula.

+ebt%5'uity !atio ¿ Total Debt (Outsider s' Fund )

Shareholder s' Funds

1here,

Total +ebt +ebentures ; Term )oans ; )oans on 0ortgage ; )oans from Financial 9 Institutions ; /ther )ong%Term )oans ; !edeemable *reference Share

&apital ; All &urrent )iabilities.

Shareholders" Funds 5'uity Share &apital ; Irredeemable *reference Share &apital ;9 &apital !eserves ; !etained 5arnings ; Any 5armar#ed Surplus

)i#e *rovision for &ontingencies etc. J Fictitious Assets

2-oodwill, *reliminary 5xpenses3.

TABLE 4.3 S*$"% @#E"# R#"$ $, SFC

2!s. In )a#hs3

=5A! T/TA)

+5(T

S:A!5:/)+5!S

K F?%>@ 8,E>,8??.?B 87,DE7.?? 8B.C?

7>>@%>C 8,C,C8E.?@ 87,DE7.?? 8.BC

7>>C%>D 8,C?,E@>.D? ,8>D.7B ?.8

7>>D%>E 8,C7,8??.8C ?D,>?B.CC 7.EC

7>>E%8> 8,C@,>B>.>8 C>,C7.D7 7.BE


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7>8>%88 8,E@,>8?.CB C7,?DD.@D 7.C

C


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1here,

Total Tangible Assets 9 Total Assets J 2-oodwill ; *reliminary 5xpenses ; Accumulated )osses3

TABLE 4.4 S*$"% @#T$#& T%"& A''#' R#"$ O, SFC

2!s. In )a#hs3

=5A! T/TA)

+5(T

T/TA) TA-I()5

ASS5TS

+5(T%T/TA)

TA-I()5 ASS5TS

!ATI/

200506 8,E>,8??.?B 8,B7,C7>.?@ 8.

200607 8,C,C8E.?@ 8,7@,?7>.DC 8.C

200708 8,C?,E@>.D? 8,??,8EB.?D 8.8

200809 8,C7,8??.8C 8,C7,?8.? >.EE

200910 8,C@,>B>.>8 8,DE,78>.E >.E

201011 8,E@,>8?.CB 7,8,77E.87 >.E7

C>@%>C. The ratio was 8. in 7>>?%>@ which signifies that 8. rupees of debt is covered by


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one rupee of tangible assets. This is undesirable from the point of creditors4lenders as there is no

sufficient margin of safety available to them. There was a slight increase in the ratio in 7>>@%>C.

:owever, the mid and lower part of the study period revealed an altogether downward trend in

the ratio values. This is a welcome change as the margin of safety available to the

creditors4lenders has increased over the years.

/n the whole, there have been desirable changes in the ratio values from the perspective of

creditors4lenders. :owever, the debt holders are still at high ris# because of low margin of safety.

+r$/r"#r R#"$

This ratio is called 5'uity !atio" or /wners Fund !atio" or Shareholders 5'uity !atio". This

ratio points out the relationship between the shareholders" funds and total tangible assets. In other

words, it indicates the proportion of total assets financed by owners. The formula for this ratio

may be written as follows6

*roprietary !atio ¿ Shareholder s

' Funds

TotalTangible Assets ×100

TABLE 4.5 S*$"% +r$/r"#r R#"$ $, SFC

2!s. in )a#hs3

=5A! S:A!5:/)+5!SK

F>?%>@ 87,DE7.?? 8,B7,C7>.?@ E

7>>@%>C 87,DE7.?? 8,7@,?7>.DC 8>.7

7>>C%>D ,8>D.7B 8,??,8EB.?D 78.

7>>D%>E ?D,>?B.CC 8,C7,?8.? .C

7>>E%8> C>,C7.D7 8,DE,78>.E C.B

7>8>%88 C7,?DD.@D 7,8,77E.87 B

C


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0

10

20

30

40

+RO+RIETARY RATIO

YEARS

RATIOS

A%&'"' %! I%#r/r##"$% The *roprietary !atios of SF& over a period of six years are presented in tabular and

graphical form. The *roprietary !atio of SF& was EL in 7>>?%>@ which indicates that

shareholders" funds form only EL of total tangible assets employed in the business. From

creditors" point of view, it is alarming for them because it indicates more of creditors" funds and

less of shareholders" funds in the total tangible assets of the company.A marginal increase in *roprietary !atio was registered in the next year. A significant

rise in *roprietary !atio was seen from EL in 7>>?%>@ to C.B L in 7>>E%8>. This rise was partly

due to increase in the amount of reserves and surplus and the issue of additional share capital The

rise in the ratio implies corresponding increase in the security to the creditors as more

shareholders" funds are available as safety of margin. Thereafter, the ratio declined to BL.The analysis of these figures reveals that there has been appreciable improvement in the

*roprietary !atio of SF& during the period of study. :owever, creditors are still exposed to

more ris#. L is regarded as safe.

F"! A''#' #$ +r$/r"#$r' F%!' R#"$

This is also #nown as Fixed Assets to et 1orth !atio. It establishes the relationship

between fixed assets and shareholders" funds. The main ob$ect of calculating this ratio is to

ascertain the percentage of owners" funds invested in fixed assets. This is an indicator of the

efficiency of the management regarding formulation of financial planning. It can be calculated as

follows6

Fixed Assets to *roprietors" funds !atio ¿ ¿ Assets

Shareholder s' Funds

×100

1here,


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Fixed Assets 9 Total Fixed Assets % +epreciation

TABLE 4.6 S*$"% F"! A''#' #$ +r$/r"#$r' F%!' R#"$ $, SFC

2!s. in )a#hs3

=5A! FIM5+

ASS5TS

S:A!5:/)+5!SK

F?%>@ D78.D? 87,DE7.?? @.C

7>>@%>C CBD.78 87,DE7.?? ?.D>

7>>C%>D @8??.8C ,8>D.7B 8D.?E

7>>D%>E @>EB.B8 ?D,>?B.CC 8>.?>

7>>E%8> @>88.?D C>,C7.D7 D.?>

7>8>%88 ?7D>.?7 C7,?DD.@D C.7C

C


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A ratio of @.CL implies that @.CL of shareholders" funds are sun# into the fixed assets

which constitute the revenue earning capacity of a business. There was a dip in the ratio in the

next year. This was mainly due to the decrease in the value of fixed assets. The !atio increased

to 8D.?E in 7>>C%>D which was the highest during the study period. In the last three years, the

value of fixed value decreased as a result of which there was also a decline in the ratio.

/n the whole, the &orporation has used very less amount of shareholders" funds in

ma#ing investment in the fixed assets especially in the latter part of the study period.

C/"#& Gr"% R#"$

This ratio is also #nown as G&apital Structure !atioH or )everage !atioH. It is used to analyze

capital structure of the company. It establishes the relationship between fixed interest, dividend

bearing securities and e'uity shareholders" funds. It is an indicator of the degree of ris# involved

in the total capital employed in the business. It can be calculated as follows6

&apital -earing !atio 9 ¿ Interest ∧ Dividend bearing Funds Euit! Shareholder s ' Funds

1here,Fixed Interest and +ividend bearing Funds 9 *reference Share &apital ; +ebentures ;

)ong%Term )oans

5'uity Shareholders" Funds 9 5'uity Share &apital ; !eserves and Surplus J N-oodwill

; *reliminary 5xpenses ; *rofit and )oss A4c 2+r.3O.

TABLE 4.7 S*$"% C/"#& Gr"% R#"$ $, SFC

2!s. in )a#hs3

=5A! FIM5+ IT5!5ST A+

+IPI+5+ (5A!I- F@ 8,CC,C7@.?7 87,DE7.?? 8.CE

7>>@%>C 8,@@,8BC.CE 87,DE7.?? 87.DE

7>>C%>D 8,?C,>?E.DD ,8>D.7B B.CB

7>>D%>E 8,@7,DC7.> ?D,>?B.CC 7.D8

7>>E%8> 8,@@,?D@.@> C>,C7.D7 7.@

7>8>%88 8,D?,@C>.BB C7,?DD.@D 7.?@

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200506 200607 200708 200809 200910 2010110

2

4

6

810

12

14

16

CA+ITAL GEARING RATIO

YEARS

RATIOS

A%&'"' %! I%#r/r##"$%

Table B.C shows the &apital -earing !atio of SF& for the study period. The &apital

-earing !atio of the SF& reflected a downward trend during the study period except during

7>8>%88 which recorded a marginal increase in the ratio as compared to the previous year.

The ratio was 8.CE68 in 7>>?%>@. It signifies that for every 8.CE rupees of non%owners"

funds one rupee of owners" funds is available in the capital structure of SF&. It shows the

SF&"s heavy dependence on outsiders" funds which bear fixed charges. It also shows the

amount of security available to non%owners" funds which is very meager in this case 2one rupee

for every 8.CE rupees3. :owever, the &orporation has been able to reduce the proportion of non%

owners" funds to owners" funds either by repaying the debt or raising more funds through shares.

It is a healthy sign because it allows SF& to operate flexibly.The &apital -earing !atio of

SF& was 7.?@ which is slightly higher than the previous year"s ratio. This is a significant

improvement over 7>>?%>@"s figure. (ut, creditors4lenders are still exposed to ris# because their

funds are more than the owners" funds. This is undesirable from their view point.

I%#r'# C$>r R#"$

This ratio establishes the relationship between the amount of net profits or earnings

before the deduction of interest, taxes and fixed interest charges. This ratio is used as a yardstic#

for the lenders to #now whether the business concern is able to pay its fixed interest charges on

long%term loans periodically. Interest &overage !atio is calculated with the help of the following

formula6

Interest &overage !atio 9 E"IT ∨Operating #ro$its

¿ Interest Charges


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1here,

5(IT or *(IT 9 5arnings or *rofits before Interest and Taxes

TABLE 4.8 S*$"% I%#r'# C$>r R#"$ $, SFC

2!s. in )a#hs3

=5A! 5(IT FIM5+ IT!5ST

&:A!-5S

IT5!5ST

&/P5!A-5 !ATI/

7>>?%>@ 8C,@[email protected] 8@,CD>.@7 8.>?

7>>@%>C 8?,[email protected]? 8B88>.@@ 8.8

7>>C%>D 7>,B?.78 8,@B.>8 8.?>

7>>D%>E 8,87C.BD 8@,@@C.7> >.CE

7>>E%8> 8?,7B@.>> 8,C>@.BE 8.88

7>8>%88 8C,C7E.78 8B,E8.> 8.7

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charges. It does not provide a sufficient margin of safety to the debt holders because even a slight

decline in its earnings would hamper SF&"s ability to offer assured payment of interest to the

lenders.

The further analysis of the figures reveals that Interest &overage !atio remained at or below8.?>68. The highest ratio was 8.?>68 which occurred in 7>>C%>D and the lowest was >.CE68 which

occurred in 7>>D%>E. This was the year when SF& incurred loss. /n the whole, it can be said

that earnings available to the lenders are not sufficient.


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IT5!5ST A+ TAM ASS5TS ASS5TS

7>>?%>@ [email protected] 8,B7,C7>.?@ >.@

7>>@%>C 87E?.C 8,7@,?7>.DC 8.>7

7>>C%>D @[email protected] 8,??,8EB.?D B.>8

7>>D%>E %EDB.>E 8,C7,?8.? 2%7.83

7>>E%8> [email protected]? 8,DE,78>.E >.8?

7>8>%88 78DC.8B 7,8,77E.87 8.>

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The analysis of the ratio values reveals that the income generated by the tangible

assets has been very modest during the study period. In other words, the investment made in

tangible assets is not $ustified by the amount of income generated.

R#r% $% I%>'#%#

!eturn on Investment is also #nown as !eturn on &apital 5mployed" or /verall*rofitability !atio". It is calculated by establishing the relationship between the operating profit

earned and capital employed. It is an indicator of the earning capacity of the capital invested in

the business. It shows efficiency of the business as a whole. This ratio is calculated by using the

following formula6

!eturn on Investment 9Operating #ro$its

Capital Eplo!ed ×100

1here,

&apital 5mployed 9 5'uity Share &apital ; *reference Share &apital ; !eserves and

Surplus ; +ebentures and )ong%Term )oans J 2Fictitious Assets ;

Intangible Assets ; Investments outside the (usiness3.

2/r3

&apital 5mployed 9 *roprietors Funds ; long%Term )oans.

TABLE 4.10 S*$"% R#r% $% I%>'#%# $, SFC

:R'. "% L;*')

=5A! 5(IT &A*ITA)

50*)/=5+

!5T

IP5ST05T

7>>?%>@ 8C,@[email protected] 8,7E,EC8.7E 8.@

7>>@%>C 8?,[email protected]? 8,8D,?CE.8E 8.B

7>>C%>D 7>,B?.78 8,7>,E77.B? [email protected]

7>>D%>E 8,87C.BD 8,7C,CD.@? 8>.7C

7>>E%8> 8?,7B@.>> 8,7@,DCC.@8 87.>77>8>%88 8C,C7E.78 8,?@,7C7.? 88.?

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0

5

10

15

20

RETRN ON INVESTMENT

YEARS

RATIOS

A%&'"' %! I%#r/r##"$%

The !eturn on Investment of SF& is presented in Table B.8>. It is seen from the table and chart

that the ratio values depicted a fluctuating trend throughout the study period. It ranged from

8>.7C, the lowest, in 7>>D%>E to [email protected], the highest, in 7>>C%>D.

The !eturn on Investment was 8.@ in 7>>?%>@ which implies that the &orporation was able to

earn !s.8.@ on !s.8>> investment. It can be considered as reasonably satisfactory level of

return. The return slightly declined in the next year. The &orporation earned [email protected] on !s.8>>

investment which was the highest during the study period as well. In the subse'uent years, SF&earned a reasonable rate of return on its investment. In the last year of the study period there was

a decline in the rate of return which is not a good sign for SF&.

R#r% $% Or!"%r S*r*$&!r' E"#

1hile there is no doubt that the preference shareholders are also owners of a firm, the real

owners are the ordinary shareholders who bear all the ris#, participate in management and are

entitled to all the profits remaining after all outside claims including preference dividends are

met in full. The profitability of a firm from the owners" point of view should, therefore, be

assessed in fitness of things, in terms of the return to the ordinary shareholders. The ratio under

reference serves this purpose. It relates net profit, finally available to e'uity shareholders, to the

capital employed by them. It is calculated as follows6

!eturn on /rdinary Shareholders" 5'uity


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9

%et #ro$it a$ter Interest ( Ta&∧ #re$erence Dividend

Ordinar! S h are h older s' Euit!

×100

/rdinary Shareholders" 5'uity 9 5'uity Share &apital ; !eserves and Surplus J

20iscellaneous 5xpenses ; +ebit (alance of *rofit and)oss Account3.

TABLE 4.11 S*$"% R#r% $% S*r*$&!r' E"# $, SFC

2!s. in )a#hs3

=5A! 5T *!/FIT AFT5! IT5!5ST A+

TAM

/!+IA!=S:A!5:/)+5!SK

55>?%>@ [email protected] 87,DE7.?? >.>B8

7>>@%>C 87E?.C 87,DE7.?? >.8>>

7>>C%>D @[email protected] ,8>D.7B >.8DD

7>>D%>E %EDB.>E ?D,>?B.CC %>.>@E

7>>E%8> [email protected]? C>,C7.D7 >.>>B

7>8>%88 78DC.8B C7,?DD.@D >.>>

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0.100

0.050

0.000

0.050

0.1000.150

0.200

0.250

RETRN ON S>D%>E there was negative

return. In 7>>E%8>, the &orporation made little progress. Again, in the last year of the study

period, the return declined. This is not a healthy sign.

/n the whole, the return to e'uity shareholders is not at all considered to be satisfactory.

Er%"%' +r S*r :E+S)

5arnings per Share 25*S3 measures the profit available to the e'uity shareholders on a per share

basis, that is, the amount they can get on every share held. It is calculated by dividing the profits

available to the e'uity shareholders by number of outstanding shares. The profits available to the

ordinary shareholders are represented by net profits after tax and preference dividend. Thus,


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5*S 9 %et #ro$it a$ter Interest ( Ta& (∧ #re$erence Dividend

%uber o$ Ordinar! SharesOutstanding

TABLE 4.12 S*$"% Er%"%' +r S*r $, SFC

2!s. in )a#hs3

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7>>@%>C 8,7E?.C EC,DB,??> >.>>>87B

7>>C%>D @,[email protected] EC,DB,??> >.>>>@?B

7>>D%>E %E8C.E 8,7,>?,>@> %>.>>>8DB

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C


23/23

The 5arnings per Share values of the SF& for the study period are depicted in the above table

and chart. It can be observed from the above table and chart that the &orporation is not

maintaining the 5*S uniformly and at a higher level during the study period. This is mainly due

to negative or low income generated in certain years. The &orporation is not able to generate

even one rupee per share. The income generated is not $ustifying the contribution made by the

shareholders. /n the whole, the 5*S of the &orporation is not considered to be satisfactory.

4.4.2.4 A(#">"#?E,,"("%( R#"$'

Activity ratios ma#e use of purchases and sales while calculating various ratios. (ut, SF& is

neither a trading company nor a manufacturing company. :ence, the 'uestion of purchases and

sales does not arise in the case of SF&. Therefore, the activity4efficiency ratios cannot be

calculated for SF&.

Meaning of Financial Analysis

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