I.

RETURN ON INVESTMENT (ROI) RATIOS: Returns on Net Worth

( A) ME ANING:-

This ratio measures a relationship bet ween net profit after interest, tax and preference dividend & Equity shareholders fund.
(B) OBJ ECT IVES:-

The objective of calculating this ratio is to find out how efficiently the funds supplied by the share holders have been used.
(C) CO MPONENTS:-

There are two components of this ratio which are as under 1) Net profit after interest, tax and Preference dividend. 2) Equity Shareholders fund This means equity share + reserves & surplus + profit and loss (cr.) preliminary expense
(D) CAL CUL AT ION:-

This ratio is calculated by dividing net profit after interest, tax by the Equity shareholders fund.

PAT-Preference dividend Return on Net worth = ----------------------------------------- x 100 Equity Shareholders Fund

Particulars PAT-Pref. Dividend Equity Shareholders Funds Return on Net Worth

2008-09 6.51 24.72

2009-10 5.14 32.07

(Rs. In Cr.) 2010-11 7.06 37.04 19.06%

26.33%

16.03%

RONW
30.00%
26.33%

25.00% 20.00%
16.03% 15.00% RONW 10.00%

19.06%

5.00% 0.00%
2008-09 2009-10 2010-11

(E) INTERPRET AT ION: -

The ratio was high in the year 2008 and declined in the year of 2009 due to market depressions and again had a growth in 2010. A high ratio usually means a high dividend, suppliers willing to extend more favorable terms, strengthening of the financial position of the company, better prospects.

Earning Per Share

( A) ME ANING:-

This ratio measures a relationship between net profit after interest, tax and preference dividend & number of Equity shares.
(B) OBJECT IVES:-

The objective of this ratio is to measure the profits available to the equity shareholders on a per share basis. EPS is calculated on the basis of current profits and not on the basis of retained profits.
(C) CO MPONENTS: -

There are two components of this ratio which are as under 1) Net profit after interest, tax and Preference dividend. 2) Number of Equity Shares.
(D) C ALC UL AT ION:-

This ratio is calculated by dividing net profit after interes t, tax by the number of equity shares.

PAT-Preference Dividend Earning per share = -------------------------------------------------------Weighted average number of Equity share

(Rs. In cr)
Particulars PAT-Pref. Dividend Number of Equity Shares Earning Per Share(Rs.) 2008-09 6.51 0.353 18.42 2009-10 5.14 0.351 14.64 2010-11 7.06 0.347 20.29

EPS(RS.)
25 20.29 20
18.42

15

14.64

10

EPS(RS.)

0
2008-09 2009-10 2010-11

(E) INTERPRET AT ION: -

The ratio was high in the year 2008-09 and declined in the year of 2009-10 due to more issue of equity shares and also due to decreasing in profit and again had a growth in 2010 -11. As such, increasing EPS may indicate the increasing trend of current profits per equity share. However, EPS does not indicate how much of the earnings are paid to the owners by way of dividend and how much of the earnings are retained in the business.

Cash Earning Per Share

( A) ME ANING:-

This ratio measures a relationship between net profit after interest, tax and preference dividend and also a non cash charges & number of Equity shares.
(B) OBJECT IVES:-

A measure of financial performance that looks at the cash flow generated by a company on a per share basis. This differs from basic earnings per share (EPS), which looks at the net income of the company on a per share basis. The higher a company's cash EPS, the better it is considered to have performed over the period. A company's cash EPS can be used to draw comparisons to other companies or to the company's own past results.
(C) CO MPONENTS: -

There are two components of this ratio which are as under 1) Net profit after interest, tax, Preference dividend, non-cash charges 2) Number of Equity Shares.

(D) C ALC UL AT ION:-

This ratio is calculated by dividing net profit after interest, tax, pref. dividend and non -cash charges by the number of equity shares.

PAT-Preference Dividend+ Non -cash Charges Cash Earning per share = ----------------------------------------------------------------Weighted average number of Equity share

(Rs. In cr)
Particulars PAT-Pref. Dividend Non Cash Charges Number of Equity Shares Cash Earning Per Share(Rs.) 2008-09 6.51 1.33 0.353 22.20 2009-10 5.14 16.02 0.351 19.20 2010-11 7.06 18.00 0.347 25.47

CASH E S(RS.)
30
25.47

25 20
15 10

22.2

19.2

CASH E S( S.)

5 0
2008-09 2009-10 2010-11

(E) INTERPRET AT ION: -

There has been a rise in CEPS from 2008 -09 to 2010-11 which shows the company has a sound position to serve its obligations towards its lenders and meet its operating expenses.

II.

SOLVENCY RATIOS: Net Asset Value(NAV)

( A) ME ANING:-

This ratio measures a relationship between Equity shareholders fund and outstanding number of equity shares.
(B) OBJECT IVES:-

(C) CO MPONENTS:-

There are two components of this ratio which are as under 1) Equity shareholders fund. 2) Outstanding Number of Equity Shares.

(D) C ALC UL AT ION:-

This ratio is calculated by dividing Equity shareholders fund and outstanding number of equity shares .

Net Asset Value =

Equity shareholders fund -------------------------------------------------Outstanding number of Equity share

(Rs. In cr)
Particulars Equity shareholders fund Outstanding Number of Equity Shares Net Asset Value(Rs.) 2008-09 24.71 0.353 69.99 2009-10 32.07 0.351 91.33 2010-11 37.0 0.347 106.51

NAV(RS.)
120 106.51 100 80
60 AV( S.) 40 20

91.33
69.99

0
2008-09 2009-10 2010-11

(E) INTERPRET AT ION: -

There has been a significant rise in the NAV of the company which shows the efficiency of the company management in building up back -up of reserves and surplus to fall back upon.

Debt Equity Ratio

(A) MEANING:-

This establishes a relationship between long term debts and share holders fund.
(B) OBJECTIVE:-

The objective of computing this ratio is to measure the relative proportion of debt and equity in financing the assets of a firm.
(C) COMPONENTS:-

There are two components of this ratio. 1) Long term liabilities 2) Share holders fund

(D) C ALC UL AT ION:-

This ratio is calculated by long term liabilities and shareholders fund .

Long Term Liabilities Debt Equity Ratio = ------------------------------------ * 100 Shareholders Fund

(Rs. In cr.)
Particulars Long Term Liabilities Share Holders Fund Debt Equity Ratio (%) 2008-09 3.58 24.72 14 2009-10 3.16 32.06 10 2010-11 1.88 37.04 5

Debt Equity Ratio

16%
14%

14% 12% 10%

10% 8% Debt Equity Ratio 6% 5%

4% 2% 0%
2008-09 2009-10 2010-11

(E) INTERPRET AT ION: -

It shows a trend of decreasing debt to equity ratio which shows the company is gradually decreasing its long term debt which can be fulfilled by its equity shareholders fund and therefore indicates sound capital structure. As it is decreasing graduall y it shows the company has the capacity of to raise more funds.

III. LIQUIDITY RATIO

Current Ratio
( A) ME ANING:-

This ratio establishes a relationship between current assets and current liabilities.
(B) OBJECT IVES:-

The objective of calculating this ratio is to measure the ability of the firm to meet its short term obligation.
(C) CO MPONENTS: -

There are two components of this ratio which are as under 1. Current assets 2. Current liabilities + Provisions + Short term debt
(D) C ALC UL AT ION:-

This ratio is calculated by dividing current Assets and Current liabilities .

Current Assets Current Ratio = ----------------------------Current Liabilities

(Rs. in cr.)
Particulars Current Asset Current Liability Current Ratio 2008-09 54.49 33.79 1.61:1 2009-10 53.41 31.93 1.67:1 2010-11 52.45 25.04 2.09:1

Current Rati
2.5 2.09 2
1.61 1.67

1.5

0.5

0
2008-09 2009-10 2010-11

(E) INTERPRET AT ION: -

The Current Ratio shows that liquidity position of the company. The company has fluctuating current ratio but an acceptable value and can meet its current obligations. It had a rise in the year 2010 -11 which shows its sound position and therefore has decr eased its loan requirements which is better for the companys performance.

C rrent a ti

Quick Ratio
(A) ME ANING:-

This ratio establishes a relationship between Quick assets and current liabilities.
(B) OBJECT IVES:-

The ratio of current assets less inventories to total current liabilities. This ratio is the most stringent measure of how well the company is covering its short-term obligations, since the ratio only considers that part of current assets which can be turned into cash immediately (thus the exclusion of inventories).
(C) CO MPONENTS: -

There are two components of this ratio which are as under 1.Quick assets 2.Current liabilities +Provisions
(D) C ALC UL AT ION:-

This ratio is calculated by dividing Quick Assets and Current liabilities .

Quick Assets Quick Ratio = ----------------------------Current Liabilities

(Rs. in cr.)
Particulars Quick Asset Current Liability Quick Ratio 2008-09 26.02 20.90 1.24 2009-10 24.86 21.55 1.15 2010-11 27.02 17.61 1.53

Quick Rati
1.8
1.6 1.4

1.53 1.24
1.15

1.2 1

0.6 0.4

0.2 0
2008-09 2009-10 2010-11

(E) INTERPRET AT ION:-

The quick ratio is in line with generally accepted 1:1 and has grown adequately in 2009-2010 which shows better position of the company to meets its obligations.

0.8

Q ick a ti

Debtors Ratio ( A) ME ANING:The debtors ratio focuses on the time it takes for trade debtors to settle their bills. The ratio indicates whether debtors are being allowed excessive credit. A high figure may suggest general problems with debt collection or the financial position of major customers. The efficient and timely collection of customer debts is a vital part of cash flow management, so this is a ratio which is very closely watched in many businesses.

Receivables Debtors Ratio = ------------------------*365 Credit Sales

(Rs. in cr.)
Particulars Receivables Credit sales Debtors Ratio(Days) 2008-09 17.92 77.24 85 2009-10 16.48 84.33 71 2010-11 15.16 66.86 83

Debtors' Ratio(Days)
90
85

85 80
75 71 70 65 60

83

Debtors' Ratio(Days)

2008-09

2009-10

2010-11

(B) INTERPRET AT ION:-

The data above indicates an improvement in debtor days because in the year 2008-09 debtor day was 85 days but in 2009-10 debtor days have fallen. That means that the business is converting credit sales into cash slightly quicker, although it still has to wait for an average of over two months to be paid. But in the year 2010-11 debtor day is increase which is 83 days, so that company require to converting its credit sales into cash quickly. There are several actions a business can take to reduce debtor days, including offering early-payment incentives or by using invoice factoring

Creditors Ratio ( A) ME ANING:The Creditors Ratio gives us the number of days within which the amount due for credit Purchase is payment. Similarly the number of days within which we payment to our creditors for Credit Purchase is obtained from Creditors Velocity.
(B) OBJECT IVES:-

This ratio gives an insight into whether a business is taking full advantage of trade credit available to it.
(C) CO MPONE NT S:

There are two components of this ratio which are as under 1. Creditors+ Bills Payable 2. Credit Purchase

(D) CALC UL AT ION: -

Creditors Ratio =

Creditors + B\p --------------------------- *365 Credit Purchase

(Rs. In Cr.)
Particulars Creditors Credit Purchase Creditors Ratio(Days) 2008-09 12.73 37.08 125 2009-10 10.92 26.47 117 2010-11 10.14 25.31 83

Creditors' Ratio(Days)
140
120

125

117

100
80

83

40

20
0

2008-09

2009-10

2010-11

(E) INTERPRET AT ION: -

This ratio shows the average payment to the creditors of the company. In the year 2008-09 the payment was made within 125 days which decrease up to 117 days in 2009-10 and it reduces up to 83 days in 2010-11. The ratio indicates that the company makes speedier payment every year.



60

Credit rs' a ti ( a ys)

Inventory Holding Period

(A) ME ANING: -

Creditors Ratio =

Inventory ----------------------------- *365 Cost of Goods Sold

(Rs. In Cr.)
Particulars Inventory Cost of Goods Sold Inventory Holding Period(Days) 2008-09 28.47 65.35 159 2009-10 28.55 59.91 174 2010-11 25.43 46.80 198

Inventory Holding eriod(Days)

250 198 200 159
150

174

100 50
0

Invent r y H l ding e ri d ( a ys)

2008-09

2009-10

2010-11

(E) INTERPRET AT ION: -

There has been a rise in inventory holding period from year 2008 to year 2010 which shows the capital is blocked in inventory. Thus, the company needs to avoid excessive inventory build up.

 

IV. RESOURCES EFFICIENCY OR TURNOVER RATIOS Fixed Assets Turnover Ratio

(A) ME ANING:-

This ratio measures a relationship between net sales and fixed assets of the firm.
(B) OBJECT IVES:-

The objective of calculating this ratio is to point out the efficiency of the firm in the use of fixed assets.
(C) CO MPONENTS: -

There are two components of this ratio which are as under 1) Net sales. 2) Net fixed assets.
(D) C ALC UL AT ION:-

This ratio is calculated by dividing net sales by fixed assets.

Fixed Assets Turnover Ratio

Net Sales = -------------------Fixed assets

(Rs. In Cr.)
Particulars Net Sales Fixed Assets Fixed Assets Turnover Ratio 2008-09 73.00 13.46 5.42 2009-10 81.67 16.05 5.09 2010-11 66.92 15.00 4.46

Fixe Assets Turnover Ratio

6 5 4 5.42 5.09
4.46

2 1 0

2008-09

2009-10

2010-11

(E) INTERPRET AT ION: -

This ratio shows the efficiency with which assets are being used in the company. This ratio also shows a increasing trend constantly which is good for the company. It shows higher efficiency and increasing in the position of the company. The ratio had stee p decline in its subsequent years which shows under utilization of its fixed assets for generating income for the company.

Fixe

ssets Tur o ver Ratio

Inventory Turnover Ratio

( A) MEANING:-

This ratio establishes a relationship between cost of goods sold and average inventory (average stock)
(B) OBJECT IVE: -

The objective of computing this ratio is to determine the efficiency with which the inventory is utilized.
(C) COMPONENT S:-

There are two components of this ratio which are as under, 1) 2)

(D)

COST OF GOODS SOLD AVERAGE STOCK

C ALC UL AT ION:-

This ratio is calculated by dividing cost of goods sold by average stock. It is expressed as x. no. of times.

Cost of Goods Sold Inventory Turnover Ratio= -----------------------------Inventory

(Rs. In Cr.)
Particulars Cost of Goods Sold Inventory Stock Turnover Ratio 2008-09 73.00 13.46 5.42 2009-10 81.67 16.05 5.09 2010-11 66.92 15.00 4.46

Inventory turnover ratio

6 5 4 5.42 5.09 4.46

3
2 1 0 2008-09 2009-10 2010-11


Invent ry t rn ver rati

 

(E) INTERPRET AT ION:-

In 2008-09 the ratio was higher which is profit able for the company. In 2009-10 it decreases it may be because of low quality of goods, which was a danger signal to the management. But in the year 2010 -11 this ratio decreases which is not profitable for the company. If the company can quickly sell its Inventories, then the Inventory Turnover will be higher. Conversely, if the company cannot sell its inventory very well, then the Inventory Turnover will be l ow. You will have to watch this figure closely - if the Inventory Ratio climbs too high, then the company may be keeping too little inventory. This could cause lost profits due to customer orders that had to wait until inventory arrived.

Debtors Turnover Ratio

( A) ME ANING:This ratio establishes a relationship between net credit sales and average trade debtors. (B) OBJECT IVES:The objective of calculating this ratio is to determine a efficiency with which the trade debtors are manage. (C) COMPONE NTS: There are two components of this ratio which are as under

1) Net credit sales=gross credit sales sales return. 2) Average trade debtors (including bills receivable) Opening balance + closing balance -----------------------------------------------2

=
(D) CALC UL AT ION: -

This ratio is calculated by dividing net credit sales by average trade debtors
Credit Sales -----------------------Average Debtors

Debtors Turnover Ratio

(Rs. In Cr.)
Particulars Credit Sales Average Debtors Stock Turnover Ratio 2008-09 77.24 17.92 4.31 2009-10 84.33 16.48 5.12 2010-11 68.86 15.16 4.54

Debtors turnover ratio

5.2 5 4.8 4.6 4.4 4.2 4 3.8 2008-09 2009-10 2010-11 4.31 4.54
#

5.12

e t rs t rn ver rati
# $

(E) INTERPRET AT ION: -

The collection procedure of the company has been appropriate throughout these three years. It has been viewed that the ratio was very appropriate in 2009 2010 but has slightly dropped in 2 010 2011.

#" !

V. PROFITABILITY / PROFIT MARGIN RATIOS:

GROSS PROFIT RATIO

(A) ME ANING: This ratio measures the relationship between gross profit & net sales. (B) OBJECT IVE:The main objective of computing this ratio is to determine the efficiency with which the production & or purchase operations are carried on. (C) CO MPONE NT S:There are two components of this ratio.

1. Gross profit which is the excess of net sales of over cost of goods sold. 2. Net sales which is gross sales (both cash & credit) -sales return.
(D) CALC UL AT ION: This ratio is calculated by dividing the gross profit by net sales. It is expressed as percentage. Form of formula of this ratio may be expressed as Gross profit -------------------Sales

Gross profit ratio

x 100

(Rs. In Cr.)
Particulars Gross Profit Sales Gross Profit Ratio (%) 2008-09 12.40 72.99 16.99 2009-10 15.30 81.68 18.73 2010-11 9.33 66.92 13.95

Gross Profit Ratio(%)

20 18 16 14 12 10 8 6 4 2 0 18.73 16.99 13.94

Gr ss r fit ati ( )
(% ' %& %

2008-09

2009-10

2010-11

(E). INT ERPRET AT ION: -

The profitability has a high ratio in 2009 10 at 18.73% but has decreased to 13.94% in 2010 11 which shows the gross profit margin had decreased which is not healthy for the company.

A decreasing Gross Profit to Net Sales ratio is a negative sign, indicating the company is becoming less profitable. The company may even have an increasing Net Sales, but the cost to the company to generate those extra sales may be degrading profits. This ratio varies wildly between companies and industries, so the best knowledge from this ratio can be gained by measuring it over several periods.

Net Profit Ratio A) ME ANING: This ratio measures the relationship between net profit & net sales. (B) OBJECT IVES:The main objective of computing this ratio is to determine the overfull profitability due to various factors such as operational efficiency trading on equity, etc. (C) CO MPONE NT S:-

There are two components of this ratio. 1 Net profit 2 Net sales
(D) CALC UL AT ION: This ratio is computed by dividing the net profit by the net sales. It is expressed in percentage. In the form of the formula, this ratio may be expressed as under Net Profit -------------------Sales

Net profit ratio

x 100

Particulars Net Profit Sales Net Profit Ratio (%)

2008-09 6.51

2009-10 5.14

(Rs. In Cr.) 2010-11 7.05 66.92

10.53

72.99
8.92

81.68
6.29

Net Profit Ratio(%)

12 10 8 6.29 8.92 10.53

6
Net Profit Ratio(%) 4 2 0 2008-09 2009-10 2010-11

(E) INTERPRET AT ION: -

Expenses Ratio (A) ME ANING: This ratio measures the relationship between expenses & net sales. (B) OBJECT IVES:To identify the causes of variations in the operating ratio, following expenses ratio can be calculated.

(C) CO MPONE NT S:-

There are two components of this ratio. 1 Expense 2 Net sales

(D) CALC UL AT ION: This ratio is computed by dividing the expenses by the net sales. It is expressed in percentage. In the form of the formula, this ratio may be expressed as under Expense -------------------Net Sales

Expenses ratio

x 100

Particulars Expense Sales Expense Ratio (%)

2008-09 68.35

2009-10 68.21

(Rs. In Cr.) 2010-11 55.10 66.92

82.34

72.99
93.64

81.68
83.51

Expense Ratio(%)
96 94 92 90 88 86 84 82 80 78 76 93.64

82.34

2008-09

2009-10

2010-11

(E) INTERPRET AT ION: -

83.51

Expe se Ratio(%)