Professional Documents
Culture Documents
On
“Financial Analysis”
for
By
“Professor M. Halale”
Submitted to
“University of Pune”
In partial fulfillment of the requirement for the award of
the degree of Master Of Business Administration (MBA)
Through
Vishwakarma Institute of Management
Pune-48
Acknowledgement
Thousands of thanks
this project,
And
i
C
ii
C
iii
List of abbreviations
iv
List of Tables
1. Summary of ratios P. 60
v
List of Figures
1. current ratio p. 26
2. Quick ratio p. 29
3. Fixed asset turnover ratio p. 31
4. Current asset turnover ratio p. 33
5. Working capital turnover ratio p. 36
6. Capital employed turnover ratio p. 37
7. Debt equity ratio p. 40
8. Proprietary ratio p. 42
9. Gross profit ratio p. 46
10. Net profit ratio p. 47
11. Ruturn on asset ratio p. 50
12. Return on capital employed p. 52
13. Return on equity p. 54
14. EPS p. 56
15. Dividend payout ratio p. 58
vi
Financial highlight of the company during 5 years:
vii
INDEX
viii
Chapter I: Executive Summary
companies in Iran to offer a complete and global class services on IT, networking and
telecommunications in the market of SOHO, SMB, Enterprise and ISP. The company
has full experienced and well educated engineering teams with more than 50 persons
Financial analysis which is the topic of this project refers to an assessment of the
prepare financial or annual reports. These financial reports are made with using the
information taken from financial statements of the company and it is based on the
significant tool of Ratio Analysis . These reports are usually presented to top
During the summer training period at S.S.V. Company, I had close connection with
preparation of financial statements and also their analysis which was made by
emphasis on the importance of these Ratios which could be the roots of decisions
So, I was influenced to allocate the aim of this project to study the details about these
1
ratios and their possible effects on the decisions made by not only people inside the
2
Chapter II: Company Profile
S.S.V. is a telecommunication company located in Tehran, the capital city of Iran
organizations of all sizes and types. These solutions enable customers to manage
business-critical voice, video and data in a secure, scalable, reliable and efficient
network environment. The company delivers networking solutions and services for
enterprises that view their networks as mission critical, and value superior
performance.
technology and performs the detailed analysis on the products it chooses. The analysis
of demands and requirements of the customer company will be the basis of the choice
The working team of engineers has been carefully chosen by the top management and
evaluation of experienced telecom. experts who are member of the employment team
of company. This attention to the recruitment process leads the company to success
for which the efficiency of all the members is required and crucial.
there is always a consultancy process which leads its clients to suitable solutions. The
professionals offer and present technical advices to the clients step by step through
seminars and presentations first to help them to choose the best solutions according to
their needs and then monthly reports to the management of the client company to
3
Services
S.S.V. has classified its special services into SATELLITE, DATA LINK,
communication and offers its customers a full service package through its
SATELLITE services. DATA LINK service provides wired or wireless links between
solutions for SOHO, SMB, enterprise and hotspot environments. The HELPDESK
a)Satellite
the company installs, configures and supports the establishment of International data
links and network via satellite for its customers. Independent of any satellite
providers, the company is able to choose the satellite that best meets the requirements
of the customer. it takes care of the reservation and renting of satellite capacities on
behalf of the customer. On the basis of the analysis of demands and requirements an
developed and settled in close cooperation with the customer. The relevant service
components like service level agreement, technology and hardware and transmission
b) Data link
The company provides LAN to LAN connections between its customer offices using
wireless or wired technologies. In the wireless manner it offers Point to Point or Point
to Multi Point data links. Different products are used specially to establish excellent
4
wireless high speed data/voice links between long distant headquarters. These
products establish various reliable data speed ranging from 20Mps to 1Gbps
Meanwhile it has established many high speed internet access service headquarters
between its ISP headquarters and its clients has positioned us as an active and
Mixing the solutions, it can provide high speed internet access to the customer’s
office centers and also full private network infrastructures in all around the country.
c) Network
Planning, designing and implementation of LAN for office buildings are provided by
this service. Newly wired technologies using high performance passive networking
devices have enabled us to provide high speed data networks through structured
cabling processes.
It also provides a wide range of products for active devices in the networking projects
including high speed switches and routers. it suggests a wide range of network special
applications to make the network fully utilized by its customers including Centralized
C) Help desk
It provides a wide range of global class ICT services to its clients. The technical
engineering teams provide 7x24 monitoring and online customer supports. They test
the validity of all devices and make the customer sure about total system well
5
functioning.
it also offers network engineering services to manage the networks including Cisco
based servers and workstations are also provided and supported by the engineering
teams.
6
Relation and Partners
This company has established strategic relationships with great manufacturers in the
world to help its clients to meet their high expectations. These manufacturers are:
Satellite Services and Voice Termination with its headquarters in the heart of
Germany.
7
Chapter III : Objectives Of The Study
There have been various objectives for this study, the first of which is a detailed
analysis of the financial statements that is the balance sheet and the income statement
The second objective, however the most important one or in other word the principle
aim of this project is the understanding and assessment of financial ratios based on the
The next aim of the project is to recognize the position of the company through those
ratios and data available. This recognition is a leading factor in changes of each and
every company and the base and root of lots of management decisions.
8
Chapter IV: Research Methodology
Research framework:
This study is based on the data about S.S.V. Telecommunication Company of Iran for
a detailed study of its financial statements, documents and system ratios and finally
1. First type is the primary data which was collected personally to be used and studied
2. The secondary data which was already prepared so these data was only used to
reach the aims and objectives of this project. These data has been collected from the
The sources of collecting the primary data was through interviews, observation and
questionnaire, however the secondary one was collected from the financial statements
already available to the employees of the company and some of which was published.
A) Questionnaire
This method of data collection is quite popular. In this method a questionnaire - which
consists a set of questions in a definite form -is send to the person concerned with a
request to answer the questions and return the questionnaire. The respondents have to
9
answer the questions on their own.
For the purpose of fulfilling different parts of my project, I prepared a limited number
I had to use the email since the company had a policy of reducing paper work by
means of e-mail, so every body had an email that had to be checked regularly.
Therefore all the issues in the company were announced through these emails. And I
B) Personal Interview
In some cases, I had the chance to ask my questions personally from the Head of
information I needed.
Different questions and information I could collect during these two methods are:
5. Areas of operations
10
C) Printed and Digital Sources
The secondary data I collected was through the study of the financial statements
already existed in the company in form of printed files or digital files reserved in the
company for further references. I had chosen these files because of the reliability and
suitability of these information which I was also sure about the accuracy of them.
3. income statements
4. financial reports
11
Chapter V: Financial Statement
Definition:
Financial statements (or financial reports) are formal records of a business' financial
of the book value of all of the assets and liabilities (including equity) of a business
Income statement also called a Profit and Loss Statement (P&L), is a financial
statement that reports a company's results of operations over a period of time for
companies that indicates how revenue (money received from the sale of products
and services before expenses are taken out) is transformed into net income (the
result after all revenues and expenses have been accounted for ).The purpose of
the income statement is to show managers and investors whether the company
12
Cash Flow statement: is a statement, which measures inflows and outflows of
cash on account of any type of business activity. The cash flow statement also
company's cash flow activities, particularly its operating, investing and financing
activities.
13
Chapter VI: Financial statement analysis
want to achieve. Financial analysis can be used as just a monitoring tool in the
selection of stocks in the secondary market. Or it can be used as a forecasting tool for
future financial conditions and results. It may be used for evaluation and diagnosis of
Furthermore, financial analysis is a great and accurate base to rely which reduces the
guessing and uncertainty that presents in all decision making situations. Financial
analysis does not lesson the need for judgment but rather establishes a sound and
Financial statements are used and analyzed by a different group of parties, these
groups consists of people both inside and outside a business. Generally, these users
are:
A. Internal Users: are owners, managers, employees and other parties who are
directly connected with a company:
decisions that affect its continued operations. Financial analysis is then performed on
statements are also used as part of management's report to its stockholders, and it
14
form part of the Annual Report of the company.
with the management, in the case of labor unions or for individuals in discussing their
investing in a business. Financial analyses are often used by investors and is prepared
by professionals (financial analysts), thus providing them with the basis in making
investment decisions.
2. Financial institutions (banks and other lending companies) use them to decide
whether to give a company with fresh loans or extend debt securities (such as a long-
4. Media and the general public are also interested in financial statements of some
15
Chapter VII: Financial Ratio analysis
relation of two mathematical expressions and the relationship between two or more
things.
There are many standard ratios used to evaluate the overall financial condition of a
corporation or other organization. Financial ratios are used by managers within a firm,
analysts use financial ratios to compare the strengths and weaknesses in various
companies.
Values used in calculating financial ratios are taken from balance sheet, income
statement and the cash flow of company, besides Ratios are always expressed as a
decimal values, such as 0.10, or the equivalent percent value, such as 10%.
enough money to pay debts and we can even tell whether its shareholders could be
happy or not.
1. between companies
2. between industries
16
3. between different time periods for one company
To evaluate the performance of one firm, its current ratios will be compared with its
past ratios. When financial ratios over a period of time are compared, it is called time
series or trend analysis. It gives an indication of changes and reflects whether the
firm’s financial performance has improved or deteriorated or remained the same over
that period of time. It is not the simply changes that has to be determined, but more
importantly it must be recognized that why those ratios have changed. Because those
changes might be result of changes in the accounting polices without material change
Another method is to compare ratios of one firm with another firm in the same
industry at the same point in time. This comparison is known as the cross sectional
analysis. It might be more useful to select some competitors which have similar
operations and compare their ratios with the firm’s. This comparison shows the
relative financial position and performance of the firm. Since it is so easy to find the
To determine the financial condition and performance of a firm, its ratios may be
compared with average ratios of the industry to which the firm belongs. This method
is known as the industry analysis that helps to ascertain the financial standing and
Industry ratios are important standards in view of the fact that each industry has its
own characteristics, which influence the financial and operating relationships. But
17
there are certain practical difficulties for this method. First finding average ratios for
the industries is such a headache and difficult. Second, industries include companies
of weak and strong so the averages include them also. Sometimes spread may be so
wide that the average may be little utility. Third, the average may be meaningless and
the comparison not possible if the firms with in the same industry widely differ in
extremely strong and extremely weak firms be eliminated then the industry ratios will
be very useful.
After such a discussion and mentioning that these ratios are one of the most important
tools that is used in finance and that almost every business does and calculate these
ratios, it is logical to express that how come these calculations are of so importance.
What are the points that those ratios put light on them? And how can these numbers
The answer to these questions is: We can use ratio analysis to tell us whether the
business
1. is profitable
2. has enough money to pay its bills and debts
3. could be paying its employees higher wages, remuneration or so on
4. is able to pay its taxes
5. is using its assets efficiently or not
6. has a gearing problem or everything is fine
7. is a candidate for being bought by another company or investor
and more.
18
But as it is obvious there are many different aspects that these ratios can demonstrate.
So for using them first we have to decided what we want to know, then we can decide
As before mentioned there are varieties of people interested to know and read these
information and analyses, however different people for different needs. And it is
because each of these groups have different type of questions that could be
Therefore we can say there are different ratios for different groups, these groups with
1. Investors: these are people who already have shares in the business or they are
willing to be part of it. So they need to determine whether they should buy shares in
the business, hold on to the shares they already have or sell the shares they already
own. They also want to assess the ability of the business to pay dividends. As a result
the Return on Capital Employed Ratio is the one for this group.
2. Lenders: This group consists of people who have given loans to the company so
they want to be sure that their loans and also the interests will be paid and on the due
19
time. Gearing Ratios will suit this group.
3. Managers: managers might need segmental and total information to see how they
fit into the overall picture of the company which they are ruling. And Profitability
4. Employees: the employees are always concerned about the ability of the business to
therefore these information must be find out from the stability and profitability of
their employers who are responsible to provide the employees their need. Return on
5. Suppliers and other trade creditors: businesses supplying goods and materials to
other businesses will definitely read their accounts to see that they don't have
problems, after all, any supplier wants to know if his customers are going to pay them
back and they will study the Liquidity Ratio of the companies.
6. Customers: are interested to know the Profitability Ratio of the business with
which they are going to have a long term involvement and are dependent on the
7. Governments and their agencies: are concerned with the allocation of resources
20
and, the activities of businesses. To regulate the activities of them, determine taxation
policies and as the basis for national income and similar statistics, they calculate the
information about the trends and recent developments in the prosperity of the business
and the range of its activities as they affect their area so they are interested in lots of
ratios.
9. Financial analysts: they need to know various matters, for example, the
10. Researchers: researchers' demands cover a very wide range of lines of enquiry
ranging from detailed statistical analysis of the income statement and balance sheet
data extending over many years to the qualitative analysis of the wording of the
21
In isolation, a financial ratio is a useless piece of information. In context, however, a
situation and the trends that are developing. A ratio gains utility by comparison to
Financial ratios quantify many aspects of a business and are an integral part of
financial statement analysis. Financial ratios are categorized according to the financial
aspect of the business which the ratio measures. Although these categories are not
fixed in all over the world however there are almost the same, just with different
names:
1. Profitability ratios which use margin analysis and show the return on sales and
capital employed.
2. Rate of Return Ratio (ROR) or Overall Profitability Ratio The rate of return ratios
are thought to be the most important ratios by some accountants and analysts. One
reason why the rate of return ratios are so important is that they are the ratios that we
3. Liquidity ratios measure the availability of cash to pay debt, which give a picture
22
4. Solvency or Gearing ratios measures the percentage of capital employed that is
financed by debt and long term finance. The higher the gearing, the higher the
dependence on borrowing and long term financing. The lower the gearing ratio, the
higher the dependence on equity financing. Traditionally, the higher the level of
gearing, the higher the level of financial risk due to the increase volatility of profits.
23
Financial Ratios
Profitability Ratios
ROR or Overall
Profitability Ratios
Liquidity Ratios
Gearing or Solvency
Ratios
Investors Ratios
24
Chapter VIII: Ratios of S.S.V.
Liquidity Ratios:
The two liquidity ratios, the current ratio and the acid test ratio, are the most
important ratios in almost the whole of ratio analysis are also the simplest to use.
Liquidity ratios provide information about a firm’s ability to meet its short- term
financial obligations. They are particular interest to those extending short term credit
to the firm. Two frequently-used liquidity ratios are current and quick ratio.
While liquidity ratios are most helpful for short-term creditors/suppliers and bankers,
they are also important to financial managers who must meet obligations to suppliers
assets into cash to cover debts is of the utmost importance when creditors are seeking
payment. Bankruptcy analysts and mortgage originators frequently use the liquidity
complete liquidity ratio analysis can help uncover weaknesses in the financial position
of the business. Generally, the higher the value of the ratio, the larger the margin of
25
1- Current Ratio
The current ratio can give a sense of the efficiency of a company's operating cycle or
its ability to turn its product into cash. Companies that have trouble getting paid on
their receivables or have long inventory turnover can run into liquidity problems
Current Asset
Current Ratio =
Current Liabilities
current raio
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2002 2003 2004 2005 2006
26
Comments:
The ratio is mainly used to give an idea of the company's ability to pay back its short-
term liabilities (debt and payables) with its short-term assets (cash, inventory,
receivables). The higher the current ratio, the more capable the company is of paying
its obligations. A ratio under 1 suggests that the company would be unable to pay
off its obligations if they came due at that point. However for the working system and
culture in Iran, it is a problem that almost all the businesses face and they always will
find a way for that logically because there are many ways to access financing or
changing the due dates. Meanwhile the company has improved its financial health in
2006 in compare to previous year and the changes in last years shows that it is trying
to solve this problem, Since low current ratio does not necessarily mean that the firm
Short term creditors prefer a high current ratio since it reduce their risk.
27
2- Quick or Acid-Test Ratio
The essence of this ratio is a test that indicates whether a firm has enough short-term
assets to cover its immediate liabilities without selling inventory. So it is the backing
There are two terms of liquid asset and liquid liabilities in this formula, Liquid asset is
all current assets except the inventories and prepaid expenses, because prepaid
expenses can not be converted to cash. The liquid liabilities include all current
liabilities except bank overdraft and cash credit since they are not required to be paid
off immediately.
Liquid Asset
Quick Ratio=
Liquid Liabilities
28
Quick ratio
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2002 2003 2004 2005 2006
Comments:
The acid-test ratio is far more forceful than the current ratio, primarily because the
current ratio includes inventory assets which might not be able to turn to cash
immediately.
Companies with ratios of less than 1 cannot pay their current liabilities and should be
looked at with extreme caution. Furthermore, if the acid-test ratio is much lower than
the current ratio, it means current assets are highly dependent on inventory.
29
Turn Over Ratios:
Accounting ratios that measure a firm's ability to convert different accounts within
their balance sheets into cash or sales. Companies will typically try to turn their
production into cash or sales as fast as possible because this will generally lead to
higher revenues.
Such ratios are frequently used when performing fundamental analysis on different
companies.
30
1- Fixed Asset Turn Over Ratio:
It shows how the company uses its fixed assets to achieve sales. The formula is as
follows:
Net Sales
Fixed Asset Turn Over Ratio=
Fixed Assets
0.60
0.50
0.40
0.30
0.20
0.10
0.00
2002 2003 2004 2005 2006
31
Comments:
A High fixed asset turn over ratio indicates the capability of the firm to earn
maximum sales with the minimum investing in fixed assets. So it shows that the
company is using its assets more efficiently. As it is shown in above chart, S.S.V.
Company is using its assets specially fixed assets more efficiently each year although
in its net sales amount which has been affected by the recent US sanctions on Iran
which caused very businesses great losses and damages especially the firms whose
The company had lost lots of its customers during this period. Those customers were
organizations left the country when USA imposed those sanctions on Iran. This
32
2- Current Asset Turn Over ratio:
it is almost like the fixed asset turn over ratio, It calculates the capability of
organization to earn sales with usage of current assets. So it indicates with what ratio
Net Sales
Current Asset Turn Over Ratio=
Current Assets
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
2002 2003 2004 2005 2006
33
Comments:
In this formula current assets are balance sheet accounts that represent the value of all
assets that are reasonably expected to be converted into cash within one year in the
normal course of business. A higher current assets turn over ratio is more desirable
since it shows the better financial position of company and better usage of these
current assets. And as it shows the company has improved this ratio since 2003.
which means the company is using its current assets more efficiently.
The comparison between two ratios over the same period of time, also shows that
company has used its current assets better than its fixed assets
34
3- Working Capital Turn Over Ratio:
As its name suggests it is the relationship between turnover and working capital. It is
over a given period. This provides some useful information as to how effectively a
A company uses working capital to fund operations and purchase inventory. These
operations and inventory are then converted into sales revenue for the company. The
working capital turnover ratio is used to analyze the relationship between the money
used to fund operations and the sales generated from these operations.
Net Sales
Working Capital Turn Over Ratio=
Working Capital
35
w orking capital turn over ratio
10.00
5.00
0.00
2002 2003 2004 2005 2006
-5.00
-10.00
-15.00
-20.00
-25.00
-30.00
Comments:
The term working capital is a measure of both a company's efficiency and its short-
Positive working capital means that the company is able to pay off its short-term
In a general sense, the higher the working capital turnover, the better because it means
that the company is generating a lot of sales compared to the money it uses to fund the
sales. So in case of this company this ratio is getting worst each year which means the
company has more current liability that current asset so the negative working capital
36
4- Capital Employed Turn over Ratio
The capital employed turnover ratio tells us the state of the relationship between the
shareholders' investment in the business and the sales that the management of the
business has been able to generate from it.
Net Sales
Capital Employed Turn Over Ratio=
Capital Employed
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00
2002 2003 2004 2005 2006
37
Comments:
Capital employed can be expressed in different terms, all generally refer to the
investment required for a business to function. By "employing capital" you are
making an investment. So, capital employed indicated the long term funds supplied by
creditors and owners of the firms. So it can be computed as:
Capital Employed = share capital + Long term liabilities + reserve and surpluses
This ratio shows the efficiency of the firm with which the capital employed is being
utilized. A high ratio is a sign of capability of firm to earn maximum sales with
minimum amount of capital employed and this firm is improving its ratio from 2003
and it has made the ratio to near 1:1.
38
Solvency Or Gearing Ratios:
Gearing is concerned with the relationship between the long terms liabilities that a
business has and its capital employed. The idea is that this relationship ought to be in
balance. It is a general term describing a financial ratio that compares some form of
owner's equity (or capital) to borrowed funds. The shareholders and lenders of long
39
1- Debt Equity ratio:
External Liabilities
Debt Equity Ratio=
Shareholder’s fund
Shareholders’
888.65 887.50 1384.60 1429.80 1505.90
fund
Debt Equity 0.82 0.90
1.14 1.09 0.94
ratio
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2002 2003 2004 2005 2006
40
Comments:
In this ratio shareholders’ fund is the share capital plus reserve and surpluses. In case
of high debt equity it would be obvious that the investment of creditors is more than
owners. And if it is so high then makes the firm in a risky position. Or if it is too low
it might indicate that the organization has not utilized its capacity of borrowing which
must be utilized and that is because the borrowing from outsiders is a good source of
fund for business with lower returns in compare to equity. The S.S.V. is trying to
lower its debt equity ratio by lowering its liabilities and increasing its equity. So it
wants to improve its position since, a relatively lower this ratio is favorable.
41
2- Proprietary ratio:
It indicates the relationship between owners fund and total assets. And shows the
extent to which the owner s’ fund are sunk in assets or different kinds of it.
Total Asset
proprietary Ratio=
Owner’s fund
proprietary Ratio
2.20
2.10
2.00
1.90
1.80
1.70
1.60
2002 2003 2004 2005 2006
42
Comments:
The Proprietary Ratio represents the proportion of Proprietors’ Equity to Total Assets.
The company is decreasing its ratio of funds to be sunk in total asset and the higher
this ratio gets it denotes that the shareholders have provided the funds to purchase the
assets of the concern instead of relying on other sources of funds like bank
However if too high the proprietary ratio say it means that management has not
effectively utilize cheaper sources of finance like trade and long term creditors.
43
Profitability Ratios :
As the name itself suggests, this ratio is calculated to determine profitability of the
firm. The basic objective of almost every business is to earn profit which is essential
A business needs profits not only for its existence but also for its expansion and
want higher wages, creditors want higher security for interest and loan and the list
could continue.
generate earnings as compared to its expenses and other relevant costs incurred during
a specific period of time. For most of these ratios, having a higher value relative to a
competitor's ratio or the same ratio from a previous period is indicative that the
44
1- Gross Profit Ratio:
The gross profit margin ratio tells us the profit a business makes on its cost of sales. It
is a very simple idea and it tells us how much gross profit our business is earning.
Gross profit is the profit we earn before we take off any administration costs, selling
costs and so on. So we should have a much higher gross profit margin than net profit
margin.
High ratios are favorable in this, since it indicates the business is earning a good
Gross Profit
Gross Profit Ratio = X 100
Net Sales
45
Gross Profit Ratio
60.00
50.00
40.00
30.00
20.00
10.00
0.00
2002 2003 2004 2005 2006
Comments:
This ratio indicates the relation between production cost and sales and the efficiency
with which goods are produced or purchased. If it has a very high gross profit ratio it
may indicate that the organization is able to produce or purchase at a relatively lower
cost. Gross profit is the profit we earn before we take off any administration costs,
46
2- Net Profit Ratio:
This shows the portion of sales available to owners after all expenses. A high profit
Net Sales
25.00
20.00
15.00
10.00
5.00
0.00
2002 2003 2004 2005 2006
47
Comments:
This ratio is so important because it tells us the amount of net profit per one dollar of
the turnover (sales) a business has earned. That is, after taking account of the cost of
sales, the administration costs, the selling and distributions costs and all other costs,
the net profit is the profit that is left, out of which they will pay interest, tax, dividends
and so on.
In the chart above we can see that the net profit is decreasing in 2005 and 2006 or
which the political and economical of the country was not without effect. And the
48
Overall Profitability or ROR Ratios:
The rate of return ratios are thought to be the most important ratios by some
accountants and analysts. One reason why the Rate of Return ratios or Rate On
Investment Ratios are so important is that they are the ratios that we use to tell if the
managing director is doing their job properly.
It is the relation between the profits of firm and investment in the firm. is the ratio of
49
1- Return of assets:
This ratio actually measures the profitability of the investments in the firm. And the
Asset
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2002 2003 2004 2005 2006
50
Comments:
Because this ratio shows the profitability of investment in the firm so higher the ratio
is better and more desirable while the company is earning less and less profitability
ratio. Although it is better than four years ago, however it is generally earning less
profitability.
51
2- Return On Capital Employed:
To tell briefly, The Return on Capital Employed ratio (ROCE) tells us how much
profit we earn from the investments the shareholders have made in their company.
Return on capital
16.26 13.69 14.99 9.39 9.48
employed Ratio
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2002 2003 2004 2005 2006
52
Comments:
a measure of the return that a company is realizing from its capital employed. The
ratio can also be seen as representing the efficiency with which capital is being
Of course the higher this ratio is more profitable while this company fails to satisfy
this.
53
3- Return On Equity:
ROE is viewed as one of the most important financial ratios. It measures a firm's
efficiency at generating profits from every dollar of net assets (assets minus
liabilities), and shows how well a company uses investment dollars to generate
earnings growth and shows if the company has earned enough return for its share
holders.
equity
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2002 2003 2004 2005 2006
54
Comments:
This is so crucial ratio from the shareholders point of view. The higher it is the better
will be the position. While in this company the ratio is going down ward which shows
all the problems the company having and a not desirable financial position. This ratio
even shows that the company is not earning efficiently of the dollars of its shares. So
it will face serious problems shortly. And that is because it won’t be able to make its
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Investors Ratios:
This is, perhaps, the fundamental investor ratio. It is the average amount of profits
EPS
2.50
2.00
1.50
1.00
0.50
0.00
2002 2003 2004 2005 2006
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Comments:
It is a widely used ratio to measure the profit available to the equity shareholders, but
it does not indicate how much of the earnings are paid to the owners by way of
dividend. This ratio shows that the owners and the shareholders are earning more in
compare to last year however it is less than the earning in the 2004.
The number of shares outstanding is less than 2005. Although, the number of shares
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2- Dividend Payout Ratio
This measures the relationship between the earning belonging to the equity
160.00
140.00
120.00
100.00
80.00
60.00
40.00
20.00
0.00
2002 2003 2004 2005 2006
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Comments:
This ratio indicates the policy of management to pay cash dividend. When it is
subtracted from 100 it gives the indication about the policy of management to retain
the profits in the business with intention to reinvest which will definitely affect the
market price of shares which shows that it has been growing till 2005 but a slight
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Chapter IX: Summary of Ratios
Table of Financial Ratios of S.S.V. Company for last Five Years
Fixed Asset Turn Over Ratio 0.35 0.31 0.46 0.56 0.53
Current Asset Turn Over Ratio 8.10 1.66 3.76 3.85 4.20
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Chapter X: Observation and Findings
Based on the ratios and calculations made on my project I can analyze S.S.V. as
follows:
• The year 2004 could be called the peak on the business during last five year
which almost divides the ratios into two parts, before 2004 and after that.
• Liquidity ratios shows that the firm has been facing some problems regarding
paying short term liabilities for 3 years, but it is trying to improve the situation.
• The usage ratio of the company had followed a comparable pattern. The overall
efficiency of the company to use its assets, capital or the working capital had a
gradual increase from 2004 to 2005. However one year later, it is declining and
falling to a lower level of efficiency, for which the company blames the
environmental conditions of the country, and that involves the economical and
• The S.S.V. Company fails to increase its profitability for last two years. It has
had just a slight increase improvement from year 04 to 05. though it should be
mentioned that we see a noticeable net profit point in the 2004. and its rate of
return also remains the same for last two years with a great fall from 04 to05.
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Chapter XI: Suggestions and Conclusion
• The company is having financial troubles and is going far from a desirable
financial point.
• The company currently is unable to meet its short-term liabilities with its current
working capital is a sign of this. when the company's current assets do not
exceed its current liabilities, then it may run into trouble paying back
• The company might have some changes to better position with having a
marketing team to widen its area of operation in the country to compensate the
company for this reason. Having more customers is more sales which makes the
turnover of the company higher. And it also might affect the current asset in of
company.
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Chapter XII: Bibliography
Books:
• Financial Management
Satish M. Inamdar
Everest Publication
Internet sites:
• http://en.wikipedia.org/wiki/Financial_statement
• http://en.wikipedia.org/wiki/Financial_ratios
• http://cpaclass.com/fsa/ratio-01a.htm
• http://beginnersinvest.about.com/od/financialratio/Financial_Ratios.htm
• www.esesv.com