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Project Report Submitted To Delhi Institute of Advanced Studies For the Partial fulfillment of the degree of MBA (2006-08)
Submitted by: PALKA ROLL NO.- 0551233906 MBA (A)- 3rd Sem.
Under the Supervision of: Mr. Kamal Ahuja
DELHI INSTITUTE OF ADVANCE STUDIES GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY NEW DELHI
ACKNOWLEDGEMENT I would like to express my deep sense of gratitude to my project guide Mr. Kamal Abuja, my mentor at Indiabulls for his immerse support, help & cooperation at every step of my project. Without his support this project would not have taken in present form in reality. I would like to thank all the faculty members of Delhi Institute of Advanced Studies (DIAS) for extending time to time to help for the fulfillment of this project. Their invaluable guidance all through this project has enabled me to complete project work in systematic manner. I also want to extend my deep sense of gratitude to all the members of Accounts payable team who helped me to understand the intricacies of working of the organisation & lent full cooperation & guidance, which was necessary for successful completion of project. I thank especially my parents for giving me monumental support and inspiration during the course of this project. Last but not the least to all my friends who helped me in every possible manner during the course of my project.
In any country; more so far a developing country like India; there is a great need for capital formation through saving & investments. To achieve this objective individuals as well as groups savings and investments are to be properly planned, promoted & channeled. When an individual or group saves some money and decides to invest the same in various schemes provided by the financial institutions /companies, they directly participate in economic development. On the other hand Financial Institutions/ Companies fulfills the credit needs of a large percentage of population in India. They offer consumer loans, personal loans, securities, brokerage and other financial products and services to the customers and helps to fulfill their dreams. With the rapid growth and maturation of Indian financial markets provide a unique opportunity to create a leader in diversified financial services, who is able to offer a one stop shop for all investment & credit needs of retail clients and builds a long term relationship with customers. It is believed that ultimately a hand full of big players will emerge as winners as the credits and securities business continue to grow and consolidate, and barriers to entry & scale advantages dominate the business. Technology, analytics and national scale provide unique advantage to a business model when combined with strong sales & marketing and local presence. Only a handful of financial institutions are building a national brand & serving the customer across product needs. With the power of information, technology and strong local presence Indiabulls Financial Services Ltd. group, have built as winning national scale credit and securities business.
It is leading financial services and Real estate company having presences over 414 locations in more then 124 cities. loans against share & mortgage and housing finance. explanation of ratios covered by each category. The project has been divided into 4 chapters. analysis & interpratation of ratios of four companies namely Indiabulls Financial Services Limited. Types of financial analysis. Tools of Financial Analysis. Group including the Analysis of Financial Statements of four subsidiaries viz. research & advisory services. Advantages & Limitations of Ratio Analysis. Chapter 4 exclusively deals with the inter-firm comparisons.00. derivatives. Indiabulls Financial Services Limited. Indiabulls Securities Limited & Indiabulls housing Finance Limited for last 3 years. Classification of ratios. The project has been undertaken to study the financial position of the company. Indiabulls Credit Services Limited. consumer secured and unsecured credit. depository services.Indiabulls has built one of the largest customer franchises in India with almost 3. Third Chapter has exclusively been devoted to Calculation. It serves the customers with wide range of financial services and products from securities. Indiabulls Securities Limited & Indiabulls housing Finance Limited. Steps involved in financial statement analysis. Indiabulls Credit Services Limited. with a view to understand the functioning & the whole ambit of the Indiabulls Financial Services Ltd. the tool that has been used for the analysis of financial statements in the project including the Definition of ratios.000 customers as of March 2006. 4 . Second Chapter explains the theoretical aspect of ‘Ratio Analysis ‘. First chapter deals with the theoretical aspects of the ‘Analysis of Financial statements’ including the Types of financial statements. The ratios of the four companies have been compared. insurance. trading. Nature & limitations of financial statements.
33-34 5.1 Introduction…………………………………………. 2 Executive Summary……………………………………………. Analysis of Financial statements-An overview…….. Ratio Analysis – An overview…………………………..5 Inter-firm comparison………………………………….……14-16 3..PALKA Table of Contents Acknowledgement……………………………………………….……………….4 Limitations of financial statements………………….72-78 5 .23 4.3 Ratio Analysis of Indiabulls Credit Services Limited…53-63 5. . Introduction…………………………………………..4 Ratio Analysis of Indiabulls Housing Finance Limited.6 Types of Financial Analysis………………………….17-18 3.1 Meaning of Financial statements. Company Profile………………………………………...5 Various Techniques of Financial Analysis………….7-13 3.18-21 3.1 Ratio Analysis of Indiabulls Financial Services………35-43 5.23-32 4..21-22 4.6 2.2 Ratio Analysis of Indiabulls Securities Limited………43-53 5....63-72 5.……14 3.14-22 3.3 Nature of Financial Statements………………………16-17 3.2 Categories of Ratio………………………………….………………………. Analysis & Interpretation of Ratios………………….4 Limitation of Ratio Analysis..35-77 5.. 3-4 1.3 Advantages of Ratio Analysis……………………….23-34 4. 32-33 4.2 Different types of financial statements………….….
Indiabulls Financial Services Ltd.15 crores & it’s net profit after tax more than quadrupled to Rs. Adequate finance is absolutely necessary to lubricate industrial machines to insure its smooth working. The economic factors include capital stocks and its role of accumulation. So among all the economic developments finance has its key importance. which is necessary for the growth of all economies. brief explanation of the financial services provided by the Financial Services Limited Group and real estate arm of the 6 . It helps in economic development. is one of the companies actively engaged in providing financial services.6. Indiabulls has emerged as one of the leading and fastest growing in less than two years since its initial public offering in September 2004.. On going discussion led us to visualize the growth & development of companies involved or engaged in providing financial services. The economic development is influenced by economic and non-economic factors. general education etc.36 crores. which are engaged in various areas of financial services sector and real estate.……………………………………………79 INTRODUCTION Every country in the world tries to attain the economic development irrespective of the degree of development.. Bibliography . capital output ratio in various sectors.253. Indiabulls has an extra ordinary financial performance as its revenues more than tripled to Rs. It has a market capitalization of around US $ 800 million and consolidated net worth of around US $500 million. 613. Of course non-economic factors include political freedom social organizations. The project has been undertaken in order to understand the changes in financial position of the organisation over the last three years. The company has 8 subsidiary companies.
Bombay Stock Exchange. derivatives trading. The market capitalization of Indiabulls is around USD 800 million. Indiabulls helps its clients to satisfy their customized financial goals. An effort has been made through this study to look into the growth story of the organisation Indiabulls Financial Services Ltd. 2006 as revenue of the company grew at a CAGR of 184% from FY03 to FY06. It is currently evaluating several large-scale projects worth several hundred million dollars. insurance. Some of the large shareholders of Indiabulls are the largest financial institutions of the world such as Fidelity Funds. research & advisory services. Capital International. With around 5000 Relationship Managers. During the same period. Business of the company has grown in leaps and bounds since its inception. consumer secured & unsecured credit. & also through its subsidiaries over last 3 years Company Profile Indiabulls is India’s leading Financial Services and Real Estate company having 15000 employees with presence over 414 locations in more than 124 cities. loan against shares and mortgage & housing finance. Indiabulls through its group companies has entered Indian Real Estate business in 2005.. Indiabulls serves the financial needs of more than 3. Goldman Sachs. and the consolidated net worth of the company is around USD 500 million. Indiabulls Financial Services Ltd is listed on the National Stock Exchange.oraganisation.00. Merrill Lynch. Indiabulls and its group companies have attracted USD 300 million of equity capital in Foreign Direct Investment (FDI) since March 2000. depositary services. Luxembourg Stock Exchange and London Stock Exchange. Indiabulls is ranked 82nd in the list of most valuable companies in India in BT500. profits of the company grew at a CAGR of 268%. Lloyd George and Farallon Capital. 7 .000 customers with its wide range of financial services and products from securities. It hass been rated as ‘Fastest Growing Large Cap Company’ in India in a report by Business Today magazine in April.
Every business metric exceeded expectations and delivered record revenues and profits in each quarter of the year.Indiabulls became the first company to bring FDI in Indian Real Estate through a Joint Venture with Farallon Capital Management LLC. Indiabulls consumer credit and housing loan products have been well established in the market place and are now offered out over 165 locations. In April 2006. Indiabulls announced demerger of its real estate division to a separate entity. Indiabulls partnered with strong international investors to acquire projects in Delhi and Mumbai and have seen significant appreciation in the value of holdings. Indiabulls client acquisition strategy has been bearing fruit as it ramped up its monthly consumer adds from few thousands to over 25000 per month by the end of the fiscal year. Company kicked off strategic diversification by foraying onto booming real estate sector by: 8 . Financial year 2006 was a transformational year for Indiabulls as the company executed on its vision to be a leader in diversified financial services and branch out beyond their heritage in securities business. Indiabulls Housing Finance Limited. Indiabulls entered into real estate development through its associate companies 2005 to exploit the huge opportunity in an unconsolidated industry with fat margins and huge market opportunities. strengthened the position of Indiabulls Credit Services Limited. providing fastest growing & most valuable customer franchise in India. and continued to show its leadership and momentum in Securities business. It has launched its Housing Finance Company. Indiabulls Retail brokerage and securities business continued to generate exceptional results. a respected US based investment firm. Indiabulls has demonstrated deep understanding and commitment to Indian Real Estate market by winning competitive bids for landmark properties in Mumbai and Delhi. where they can bring its strong execution skills and create a national leader. It has strong credit sales team in place across the country and its sales volume and credit performance has been ahead of business expectations.
Indiabulls started its consumer finance business. established India’s one of the first trading platforms with the development of an in house team Indiabulls expands its service offerings to include Equity. IPO distribution and Equity Research. 2004-05 • • • • Indiabulls won bids for landmark properties in Mumbai 9 . 2001-03 • 2003-04 • Indiabulls ventured into Insurance distribution and commodities trading. Indiabulls came out with its initial public offer (IPO) in September 2004. Wholesale Debt. F&O.• • Winning bids for Jupiter and Elphinstone mills in Mumbai as part of the NTC Mills auction Forming joint venture with DLF Universal to acquire 35. • Company focused on brand building and franchise model. Mutual fund.8 acres of prime land in south Delhi by putting in the highest bid of 450 crore in the auction carried out by Delhi Development Authority • Acquiring over 150 acres of land in Sonepat in national Capital Region ( NCR) to develop prime residential housing complex Milestones of Indiabulls 2000-01 • Indiabulls Financial Services Ltd. Indiabulls entered the Indian Real Estate market and became the first company to bring FDI in Indian Real Estate.
• • Indiabulls is a market leader in securities brokerage industry. • Steel Tycoon Mr. • . • Farallon Capital and its affiliates.8 acres of land from Delhi Development Authority through a competitive bidding process for Rs 450 crore to develop residential apartments. Kenneth Builders & Developers (KBD). LN Mittal promoted LNM India Internet venture Ltd.2% stake in Indiabulls Credit Services Ltd. is included in the prestigious Morgan Stanley Capital International Index (MSCI). • Indiabulls Financial Services Ltd. the world’s largest hedge fund committed Rs. Indiabulls Credit Services Ltd.2005-06 • Indiabulls has acquired over 115 acres of land in Sonepat for residential home site development.440 million in Indiabulls Financial Services Ltd. 6. With around 31% share in online trading. one of the renowned investment banks in the world have increased their shareholding in Indiabulls. Merrill Lynch and Goldman sac. acquired 8. 2000 million for Indiabulls subsidiaries Viz. • Farallon Capital has agreed to invest Rs. and Indiabulls Housing Finance Ltd. 2006-07 • Indiabulls entered in a 50/50 joint venture with DLF. KBD has acquired 35. Indiabulls Indiabulls ventured has 10 received into an “in commodity principle • brokerage business.
Board resolves to Amalgamate Indiabulls Credit Services Limited and demerge Indiabulls Securities Limited.approval” from Government of India for development of multi product SEZ in the state of Maharashtra.66% Indiabu lls Finance Compa ny Private Ltd. Ltd. CORPORATE STRUCTURE INDIABULLS Financial Services Group-1 Real Estate Group Indiabu lls Securiti es Ltd. Indiabulls Financial Services Ltd.02% Indiabu lls Housin g Finance Ltd. 40% Indiabu lls Infrastr ucture Limited 40% 11 .. has subscribed to new shares and has also acquired a minority shareholding from the Company. 66. 100% Indiabu lls Credit Service s Limited 53. 40% Indiabu lls Properti es Pvt.50% Indiabu lls Estate Ltd. 40% Indiabu lls Real Estate Compa ny Private Ltd. 57. • Dev Property Development plc.
7 expertise to execute the projects in time and under the budget on the other hand.73% in calendar 2005 on the cash segment of NSE. Indiabulls Securities Limted(ISBL): It is India’s largest retail brokerage and securities related company with a client base of over 2. Indiabulls Finance Company Private Limited (IBFCPL): It provides financing loans to retail customers. Real Estate Group: 1. loans for commercial trucks. The company is focused on middle income segment and finances both primary purchase of property & refinancing of existing propertied to provide access to liquidity and credit to its customers base. loan against property and home equity products. Indiabulls Credit Services Ltd. debt.PRODUCT PORTFOLIO Financial Services Group 1. opened real estate sector to FDI. Indiabulls Estate Ltd. In March 2005 govt. ISBL provides various types of brokerage accounts & services related to purchase and sale of securities such as equity. 12 . (IBCSL): It provides secured and unsecured consumer loans to the individuals in the middle-income sector of Indian consumer credit market. 2.000 customers & the market share of 6. Indiabulls has positioned its real estates business to benefit the national scale players who have the relationships with financers and large corporate customers on one hand and have deep local market knowledge. It operates many credit products including direct consumer loans. 4. Indiabulls Housing Finance Limited (IBHFL): It provides housing loans to middle income segment under the national housing bank guidelines. loans for two wheelers and cars. and derivatives listed on BSE & NSE.: The real estate sector has been extremely fragmented with local developers dominating the market.Company has three major projects under development.36. 3.
Indiabulls Properties Private Ltd. 3.2.5 million square feet. Indiabulls Real Estate Company Private Ltd. (IBPPL): This Company has acquired successfully 11-acre site of Jupiter Mills auctioned by NTC in Mumbai. (IBRECPL): This company successfully acquired 8 acres site of Elphinstone Mills auctioned by NTC in Mumbai and currently developing a world class IT office complex on the site with an expected lea sable square footage of around 1. It is currently developing a world class IT office complex at the acquired place. 13 .
2. capital reserves and other account balances at their respective book values”. Its purpose is to convey an understanding of some financial aspects of a business firm.1 Income Statement: The income statement or profit & loss account is considered as a very useful statement of all financial statements. 3. liabilities. and (iv) a statement of change in financial Position.2. It depicts the expanses incurred on production. India has defined balance sheets as. On the basis of the information provided in the financial statements. Balance sheet is a statement. management makes review of the progress of the company and decides the future course of action. “ a statement of financial position of an enterprise as at a given date which exhibits its assets. 3. “ A financial statement is an organized collection of data according to logical & consistent accounting procedures. According to Harry G.2 Balance Sheet: Accounting Standards Board.1 MEANING OF FINANCIAL STATEMENTS According to Himpton John. Of course. sales and distribution and sales revenue and the net profit or loss for particular period. It shows whether the operations of the firm resulted in profit or loss at the end of a particular period.Chapter 3 Analysis of Financial statements-An overview 3. It may show a position at a moment of time as in the case of balance sheet. “ the balance sheets might be described as financial cross section taken at certain 14 . which shows the financial position of a business as on a particular date. or may reveal a series of activities over a given period of time. The term financial statements refers to two basic statements: (i) The income statement and (ii) the Balance Sheet. as in the case of an income statement”. a business may also prepare (iii) Statement of Retained earnings.2 DIFFERENT TYPES OF FINANCIAL STATEMENTS 3. Guthmann. It represents the assets owned by the business and the claims of the owners and creditors against the assets in the form of liabilities as on the date of statement.
6 Schedules & Note to Financial Statements: Schedules are the statements.2.7 Annual Reports / Corporate reports: Apart from the financial statements annual report contains other relevant information such as Management discussion & 15 . It shows the inflow and outflow of cash and helps the management in making plans for immediate future. Retained earnings are the accumulated excess of earnings over losses and dividends.5 Cash Flow Statements: A cash flow statement depicts the changes in cash position from one period to another. which explains the items given in the income statement and balance sheet. The balance shown by the income statements is transferred to the balance sheet through this statement after making the necessary appropriations. These are virtually a part of financial statements. 3.3 Statement of Retained Earnings: The statement of retained earnings is also called profit & loss appropriation account. An estimated cash flow statement enables the management to ascertain the availability of cash to meet business obligations. 3.2. 3.2.2. This statement is useful for short term planning by management.2. 3. Schedules are a part of financial statement. which give detailed information about the financial position of a business organisation.” The funds Flow Statement described the sources from which the additional funds were derived and the use to which these funds were put”.intervals and earning statements as condensed history of the growth and decay between the cross sections”. 3. It is a link between income statement & balance sheet.4 Fund Flow Statement: According to Anthony. The statement reveals the sources of funds and their application for different purposes. Funds flow statements help the financial analyst in having amore detailed analysis and understanding the changes in the distribution of resources between two balance sheet periods. Certain notes are often used to supplement the information comprised in basic financial statements.
The figures. financial statements reflect “ a combination of recorded facts. Disclosure is necessary if they are not followed”. details of the subsidiary companies. which are shown in the book of accounts. Accounting policies of the organisation are consistently followed over along period of time and are reported as schedule to financial statements or as notes to financial statements in the annual report. going concern concept. 3. are not depicted in financial statements. Reports on corporate Governance. Dual aspect concept etc. a) Recorded facts: The term-recorded facts refer to the figures. These reports play as important role as financial statements of the company in understanding of the complete financial position.analysis. cost concept. India. accrual etc. accounting conventions and personal judgments and conventions applied affect them materially”. concepts & conventions: Accounting policies encompasses the principles. It means that data presented in financial statements is affected by recorded facts. Usually. b) Accounting policies. Director’s report. which are not recorded in the books. As per accounting standards Board. Money measurement concept. they are not specifically stated because their acceptance and use are assumed. matching concept. accounting concepts & conventions and personal judgments. no matter how important or unimportant those facts are. 16 . Some accounting concepts are Business entity concept.3 NATURE OF FINANCIAL STATEMENTS According to the American Institute of Certified Public Accountants. Assumptions. bases. Some fundamental accounting assumptions are Going concern concept. rules and procedures adopted by in preparing and presenting financial statements. fundamental accounting assumptions mean “ basic accounting assumptions which underline the preparation & presentation of financial statements. consistency. Accounting concepts are basic framework on the basis of which accounting work is carried out. conventions.
conventions. There are certain assets and liabilities. As such the use of balance sheet is limited. creation of provisions and reserves. conservatism. 17 . Actual profits can be ascertained only after the firm achieves the maximum capacity. iv) Even the audited financial statement does not provide complete accuracy. materiality. consistency. The judgment needs to be exercised in proper classification of assets. iii) An investor likes to analyze the present and future prospects of the business while the balance sheet show the past position. . which are not disclosed in the balance sheets. 3. full disclosure. which enjoy the sanctity of application on account of long usage.Accounting conventions are the principles. policies and assumptions. v) The net income is the result of personal judgment and bias of accountants cannot be removed in the matters of depreciation and stock valuation. For example the most tangible assets of the company is its management force and its dissatisfied labor force is its liability which are not disclosed in the balance sheet. E.4 LIMITATIONS OF FINANCIAL STATEMENTS i) Financial statements disclose only monetary facts. vii) The profit & loss account does not disclose the factors like quality of product and efficiency of management. classification of expenditure into capital & revenue. ii) The financial statements are generally prepared with from the point of view of shareholders and their use is limited in the decision making by the management.g. c) Personal Judgments: Personal judgments of the accountant are of importance despite of properly laid down concepts. vi) Profit arrived at by profit & loss account is interim in nature. are termed as accounting conventions. investors and creditors.
In case of sugar industry a balance sheet prepared in off-season depicts a better liquidity than in the crushing season. Comparative statements reveal the following: (i) Absolute data (Money value or rupee amounts) (ii) Increase or reduction in absolute data (in terms of money values) (iii) Increase or reduction in absolute data (in terms of percentage) (iv) Comparison (in terms of ratios) (v) Percentage of totals Comparative balance sheets.5 VARIOUS TECHNIQUES OF FINANCIAL ANALYSIS 3. In any one year.2 Common size Statements: The figures shown in financial statements viz. 3. Such presentation emphasis the fact that statements for a series of period are far more significant that those of a single period and that the accounts of one period are but an installment of what is essentially a continuous history.5. 3.1 Comparative Financial Statements: Comparative financial statements are statements of financial position of a business designed to provide time perspective to the to the consideration of various elements of financial position embodied in such statements.viii) The accounting year may be fixed to show a favorable picture of business. comparative income statements and comparative statements of changes in financial position can be prepared. Profit & loss account and balance sheet are converted to percentages so as to establish each element to the total figure of the statement and theses statement are called common size statements. These statements are useful in analysis of the performance of the company by analyzing each individual element to the 18 . the Income statement and the surplus statement be given for one or more preceding years as well as for the current years”. American Institute of Certified Public accountants have explained the utility of preparing the comparative statements.5. it is ordinarily desired that the balance sheet. thus: “ The presentation of comparative statements is annual and other reports enhance the usefulness of such reports and brings out more clearly the nature and trend of current changes affecting the enterprise.
3 Trend Analysis: In trend analysis ratios different items are calculated for various periods for comparison purposes. The trend analysis is a simple technique and does not involve tedious calculations. Trend analysis can be done by trend percentages.” The funds Flow Statement described the sources from which the additional funds were derived and the use to which these funds were put”.total figure of the statement. 19 . However trend percentages are not calculated only for major items since the purpose is to highlight important changes. Working capital is of paramount importance in any business so this kind of a analysis proves to be very useful. Theses statements will also assist in analyzing the performance over years and also with the figures of the competitive firm in the industry for making analysis of relative efficiency. Thus method is a useful analytical device for the management since by substitution of percentages for large amounts. However. 3. policies and motivations. the brevity and readability are achieved. which have bought about the changes revealed over the years. The statement reveals the sources of funds and their application for different purposes. According to Anthony.4 Fund flow analysis: Fund Flow Statement: Fund flow analysis reveals the changes in working capital position.5. The trend analysis conveys a better understanding of management’s philosophies. Funds flow statements help the financial analyst in having amore detailed analysis and understanding the changes in the distribution of resources between two balance sheet periods. Fund flow analysis has become an important tool for any financial analyst.5. comparisons would be meaningful only when accounting policies are uniform and price level changes do not present a distorted picture of phenomenon. trend ratios and graphic and diagrammatic representation. credit granting institutions and financial managers. 3.
5.5 Cash Flow Analysis: A cash flow statement depicts the changes in cash position from one period to another. To carry out the Value added analysis. 3.3. This statement is useful for short term planning by management.6 Ratio Analysis: Ratio analysis is very important analytical tool to measure performance of an organisation . tax. It shows the inflow and outflow of cash and helps the management in making plans for immediate future. No enterprise can survive or grow if it fails to generate wealth.The ratio analysis concentrates on the interrelationship among the figures appearing in the financial statements. 3. An enterprise can survive without making profits but cannot survive without adding value. interest. government and analysts to make an evaluation of certain aspects of firm’s performance.7 Value Added Analysis: ‘Value Added’ is a basic and important measurement to judge the performance of an enterprise. a typical statement of added value is prepared as routine 20 . wages. and the appraisal of the ratios to make proper analysis about the strength and weakness of firm’s operations. location or availability of a product or service excluding the cost of bought in material or services used in that product or service. It is a process of comparison of one figure against another. fringe benefits. which make a ratio. depreciation and net profit (Retained). The ratio analysis helps the management to analyze the past performance of the firm and to make further projections. ‘Value added’ is described as “ the wealth created by the reporting entity by its own and its employees’ efforts and comprises salary.5. creditors.5. investors. Ratio analysis allows interested parties like shareholders. Value added is the increase in the market value brought by an alteration in the form. It indicates the net value or wealth created by the manufacturer during a specified period. An estimated cash flow statement enables the management to ascertain the availability of cash to meet business obligations. dividend. This tool of financial has been discussed in detail in next chapter.
that is.part of management information system. The comparison of the items is made across the year. (ii) On the basis of Modus Operandi: The analysis can be of following types: (a) Horizontal Analysis: The horizontal analysis consists of the study of the behavior of each of the item in the financial statement. 3. and other outsiders. The value added statement is basically rearrangement of information given in income statement. Naturally. its increase & decrease with the passage if time. This may also indicate the analysis carried out in legal or statutory matters where the parties which are not a part of management of the company may have the access to the books and records of the company. though some of the recent amendments of the statutes like Companies Act. As such. prospective investors. Naturally. the eyes look at the comparative analysis is at the horizontal level . This may involve the analysis carried out by creditors. those outsiders are required to depend upon the published financial statements. .6 Types of Financial Analysis (i) On the basis of Material Used: The analysis can be of following types: (a) Internal Analysis: It indicates the analysis carried out by those parties who have the access to the book and records of the company. 1956 have made it mandatory for the companies to reveal maximum information relating to the operations & financial position. which have taken palace. (b) External Analysis: It indicates the analysis carried out by those parties who do not have the access the books an\d records of the company. 21 . in order to facilitate the correct & proper analysis & interpretation of the Financial statements by the readers. hence the analysis id termed as horizontal analysis. the depth & correctness of the external analysis is restricted. It is also known as dynamic type of analysis since it shows the changes. it indicates basically the analysis carried out by management of the company to enable the decision making process.
It is also called ‘ Static’ analysis as it is frequently used for referring to ratio developed on the date or for one accounting period. Both these analysis form the backbone of the technique of financial statement analysis. Analysis can be done both horizontally and vertically. Such an analysis is useful in comparing the performance of several companies in the same group or divisions or department in the same company. 22 . Since this analysis depends on the data for one period. As a matter of fact one type of analysis is incomplete in itself.(b) Vertical Analysis: In vertical analysis a study is made of the quantitative relationship between he various items in the financial statements on a particular date. It’s a static type of analysis or study of position. Both are complementary to each other. this is not very conducive to a proper analysis of the company’s financial position.
1 DEFINITION The term ratio implies arithmetical relationship between two related figures. Structural Classification/ Traditional Classification: The classification on the basis of items in the financial statements to which the determinant of a ratio belongs is known as structural classification. depending on the nature of ratio. It may definitely give some significant information. Net Profit as 10% of Sales (b) Fractions for example. 4.Chapter 4 Ratio Analysis – An overview 4. Ratios. The technique of ‘Ratio Analysis’ as technique for interpretation of financial statements deals with the computation of various ratios. may be expressed in either of the following ways: (a) Percentage for example. 1. The ratio can be defined as the qualitative or mathematical relationship that persists between two similar variables. retained earnings as 1/3 rd of share capital (c) Stated comparison between numbers for example. Comparative variable should have the same unit of measurement. Current assets as twice the current liabilities. In other words it is the precise relationship between two comparative variables in terms of quantitative figures (either in percentage or proportion). The ratios are classified as: (a) Balance Sheet ratio: The ratio which are calculated by using the figures given in the balance sheet only are known as balance sheet ratios. 23 .2 CLASSIFICATION OF RATIOS Ratios are classified into different categories depending upon the basis of classification. by grouping or regrouping the various figures and/or information appearing on the financial statements (either profitability statements or balance sheet or both) with the intention to draw the fruitful conclusion thereform. This technique is based on the premise that a single accounting figure by itself does not communicate any meaningful information but expressed as a relative to some other figure.
2. On this basis. which are derived from comparisons of items of income & expanse. the ratio may be classified in the following categories: (a) Profitability Ratio: Ratio. is termed as profitability ratio.(b) Income Statement Ratio: The ratio.Debt. (b) Turnover or Activity ratio: It is used to measure the effectiveness of the use of capital/ assetsRATIOS as turnover or activity ratio. are termed (c) Solvency ratio: The ratio which test the financial position / status of an enterprise are called solvency ratio. profit & loss account only are called income statement ratios.Fixed Asset Turnover Ratio 2. The above classification can be put as under also: (a) Financial ratios: Ratios which are derived from comparisons of balance sheet items. These highlight the significance of end results of business activities. which measures the profitability of a business. Proprietary Ratio 3. Functional Classification: The classification according to the purpose of computing the ratio is known as functional classification.Equity Ratio 2.Operating Ratio 2.e. (b) Operating ratios: Ratios. Capital Turnover Ratio 1. which are computed by using the figures in the income statements i. They can be further subdivided into two parts: --Short term Solvency Ratio --Long term Solvency Ratio Profitability Turnover Ratios Ratios Solvency Ratios 1. The main objective is to judge the efficiency of the business. ROI (Return on Investment) 1. are termed as operating ratios. Current Assets Ratio 3. Net Profit Ratio 3. (c) Inter-statement Ratio: The ratios which are computed by using the figures given in balance sheet as well as income statement both at a time are regarded as inter-statement or composite ratios. or of balance \sheet items with profit & loss items are known as financial ratios. Working 24 Capital Turnover Ratio 4. Current Ratio .
Profitability ratio are measured with reference to sale. The major profitability ratios are following: 25 . The profitability of the firm is the net result of a large number of policies & decisions. asset management & debt management on operating results. total assets employed. shareholders fund etc.Functional Classification of Ratios I Profitability Ratios: The purpose of study & analysis of profitability ratio are to help assess the adequacy of profits earned by the company & also to discover whether profitability is increasing or decreasing. The profitability ratios show the combined effects of liquidity. capital employed.
Still the position needs analysis. administration & selling expanses) to sales is the operating ratio. material used. Significance: The ratio is the test of operational efficiency with which the business being carried. It is to be observed that majority of the cost debited to the profit & loss account are fixed in nature & many increase in sales will cause the cost per unit to 26 . A dynamic management should be interested in making a complete analysis. through the unit selling price has remained the same. the reason for such increase should be found out & management be advised to check the increase. It is not necessary that the management should be concerned only when the operating ratio goes up. In case the comparison shows that there is increase in this ratio. Net profit is “the excess of revenue over expanses during a particular accounting period”. The operating ratio should be low enough to leave a portion of sales to give affair return to investors. If the operating ratio has fallen. labor. Net Profit Ratio = Net Profit x 100 Net Sales This ratio could be compared with that of the previous years and with that of competitors to determine the trend in Net profit Margins of the company & its performance in the industry. The ratio may be computed on the basis of net profit after tax or before tax or both.e. This measure will depict the correct trend of performance where there are erratic fluctuations in the tax provisions from year to year. A comparison of operating ratio will indicate whether the cost component is high or low in the figure of sales.(a) Operating Ratio: The ratio of all operating expanses (i. If an annual comparison show that the sales has increased the management would be naturally interested & concerned to know as to which element of the cost has gone up. (b) Net Profit ratio: Net profit ratio relates net profit to net sales. factory overheads. A comparison of the operating ratio would indicate whether the cost content is high or low in the figure of sales. as it may be the some total of efficiency in certain departments & in efficiency in others. It is the net result of the working of a company during a period.
‘Yield on capital’ is another term employed to present the same concept. Thus ROI provides a suitable measure for assessment of profitability of each proposal. The profit being the net result of all the operations. ( c) ROI (Return on Investment): The main objective of a business enterprise is to earn a return on capital employed. The business can survive only when the return on capital employed is more than the cost of capital employed in the business. Capital employed includes all the long-term funds in the balance sheet that is shareholders’ funds plus long-term loans plus miscellaneous long-term funds. which a firm earns on investing a unit of capital. The ROI is calculated as: ROI = Net profit before Interest & taxes Capital Employed Return on investment analysis provides a strong incentive for optimal utilization of the assets of the company. 27 . The ratio is thus an effective measure to check the probability of business. Significance: The return on Capital Employed invested is a concept that measures the profit. This encourages managers to obtain assets that will provide a satisfactory return on investment and to dispose of assets that are not providing an acceptable return.decline because of the spread of same fixed cost over the increased number of units sold. the return on capital expresses all efficiencies or inefficiencies of the business collectively and thus is a dependable basis for judging its overall efficiency or inefficiency. Significance: This ratio help in determining the efficiency with which affairs of the business are being managed. The rate of return on investment is determined by dividing net profit or income by the capital employed or investment made to achieve the profit. An increase in the ratio over the previous period indicates the improvement in the operational efficiency of the business provided the gross profit ratio is constant. It is advised to ascertain it periodically.
Hence it is an indirect measure of profitability. It is calculated as: Fixed Assets Turnover = Net Sales Fixed Assets Significance: A high fixed asset turnover ratio indicates the capability of the organisation to achieve maximum sales with minimum investment in fixed assets. (a) Fixed Assets Turnover Ratio: This measures the company’s ability to generate sales revenue in relation to fixed asset investment. More efficient the operations of an undertaking. So higher the fixed asset turnover ratio better will be the situation. It in indicates that the fixed assets are turned over in the form of sales more number of times. Or the purchase of an additional asset intended to increase production capacity. Turnover Ratios: Turnover ratios are used to measure the effectiveness of the employment of resources are termed as activity ratios.II. How many times the assets turnover during business operations – is to be measured by these ratios. they are known as turnover ratios. In other words it indicates the extent to which the investment in fixed assets contribute towards sales. A low asset turnover may be remedied by increasing sales or by disposing of certain assets or both. the better it is for the business. The rate of rotation of capital employed is a significant contributor of to the profitability of an enterprise. An increase in the fixed asset figure may result from the replacement of an asset at an increased price. Since they relate to the use of assets for generation of income through turnover. the quicker and more number of times the rotation is. 28 . The later transaction might be expected to result in increased sales whereas the former would more probably be reflected in reduced operating cost. The greater the rotation of assets to generate sales. The business would be more profitable if greater turnover is achieved with lesser use of funds. This is a difficult set of ratios to interpret as asset values are based on historic cost.
The decline in the number of times of working capital turnover means that either the working capital is in excess of the requirements or there have been operational inefficiencies. As such higher the current asset turnover ratio better will be the situation. It indicates that the current assets are turned over in the form of sales more number of times. since the total assets can be divided into two major parts. (c) Working Capital Turnover Ratio: Working Capital turnover ratio indicates the extent of working capital turned over in achieving sales of the firm. both cash as well as credit.(b) Current Asset Turnover Ratio: The way fixed asset turnover ratio is calculated. Current asset ratio is calculated as: Current asset Turnover Ratio = Net Sales Current Assets Significance: A high current Asset turnover ratio indicates the capability of the organization to achieve minimum sales with the minimum investment in current assets. It tells the management of the oraganisation that to what extent the working capital funds have been fruitfully employed in the business towards sales. It is calculated as: Working Capital Turnover Ratio = Net Sales Working Capital Significance: A high working capital turnover ratio indicates the capability of the organisation to achieve maximum sales with the minimum investment in working 29 . Current assets are composed of broadly Receivables (Debtors + B/R). similarly Current Assets turnover Ratio is computed. The turnover of even these three can be calculated separately to analyze which part of the working capital or current assets is efficiently put to operations and which part not.fixed assets & current assets. if any. stock and cash. Net sales includes sales after returns.
It is calculated as: Capital turnover Ratio = Sales Capital Employed Significance: As this ratio the management of the organisation about the efficiency or inefficiency in the utilization of capital. It indicates that the capital employed is turned over in the form of sales more number of times. It is calculated as follows: Debt. This ratio indicates the efficiency with which the capital employed is being utilized. including those not currently payable. As such higher the capital turnover ratio. The ratio indicates the pattern of financing of the business. It is also known as “External-Internal” Equity ratio. A proper proportion must be maintained between proprietors’ (owners’) funds and long-term loans.capital.Equity Ratio = External Equity Internal Equity 30 . higher the ratio. The ratio can be computed by putting longterm debt in relation to shareholder’s fund. better will be the situation. Solvency Ratio: (i) Long term Solvency Ratios: The long-term financial stability of the firm may be considered dependent upon its ability to meet all its liabilities. It indicates that working capital is turned over in the form of sales more number of times. efficiency in utilization of capital employed in generating revenue. As such. better will be the situation. (d) Capital Turnover Ratio: Capital turnover ratio indicates. The ratios which are important in measuring the long term solvency are: (a) Debt Equity Ratio: The debt-equity ratio is determined to ascertain the soundness of the long-term financial policies of the company. III. a high capital turnover indicates the capacity of the organisation to achieve maximum sales with minimum amount of capital employed.
A very high debt-equity ratio may make the proposition of investment in the oraganisation very risky one. the business would become risky. It indicates the cushion available to the creditors on liquidation of the organizations.67. Significance: Debt-Equity ratio indicates the stake of shareholders or owners in the oraganisation vis-à-vis that of the creditors. The ideal ratio may be 0. (b) Proprietary Ratio: Proprietary ratio indicates the relationship between the owners’ fund and total assets.The ratio may be 2:1. A high debtequity ratio may indicate that the financial stake of the creditors is more than that of the owners. it is definitely advisable to have greater debt-equity ratio. if the business is flourishing and there is high profitability ever after repayment of interest and liquidity position is not adversely affected by repayment of interest & principal sum. The general financial strength or the weakness of the concern is reflected by this ratio as this ration as it shows the proportion of proprietor’s fund invested in assets employed in the business. Financing of assets to the extent of more than 50% through the use of outside funds may be dangerous for the enterprise. However. On the other hand. a very low debt-equity ratio may mean that the borrowing capacity of the organisation is being underutilized. The high ratio is indicative of the sound financial status of the company and the creditors are relatively at a comfortable position. If the ratio is more than two. It is a slight variant of the debt-equity ratio. The ratio can be calculated as: Proprietary Ratio = Owners’ Fund Total Assets Significance: The ratio indicates the extent to which the owners’ funds are sunk in different kinds of assets. 31 . It implies that outside long-term loans may be twice the shareholder’s fund.
In other words. As such higher the current ratio . 4.(ii) Short term Solvency Ratios (a) Current Ratio: Current ratio measures the solvency of the company in the short term. which are to be paid off in the short span of time. which can be converted into cash with in one year. i. current assets. to pay off the liabilities. A very high current ratio will have adverse impact on the profitability of the organisation. Loans & Advances Current Liabilities & Provisions Significance: It indicates the backing available to current liabilities in the form of current assets. high balances in cash and bank accounts without proper investment. which can be converted into cash. without any reduction in value. It can be calculated as: Current Ratio = Current Assets. A high current ratio may be due to the piling up of inventory. inefficiency in collection of debtors. A current ratio of 2:1 indicates a highly solvent position. Suitable relationships can be established between 32 . (ii) Facilitates inter-firm Comparison: For inter-firm comparison. better will be the situation. i. in a short span of time. Current assets are those assets. A current ratio of 1.e. ratio analysis is of immense importance. current liabilities.33:1 is considered by banks as the minimum acceptable level for providing working capital finance. The ratios are useful in the following ways: (i) Assessment of Financial health & operational efficiency: Ratios reveal useful trends for assessment of financial strength and operational efficiency of an enterprise.e. Current Liabilities and provisions are those liabilities that are payable within a year.3 ADVANTAGES OF RATIO ANALYSIS ‘Ratio Analysis is to a business what a score board is to a game’. a higher current ratio indicates that there are sufficient assets available with the organisation.
if any. in case. (iii)Intra firm comparison possible: The performance of different divisions of the enterprise can also be compared suitably with the help of ratio analysis. Whatever limitations financial statements have. valuation of inventories or charge of depreciation is on different basis. For example. net profit 33 .” Ratios can at times be quite deceptive since they are precise in numbers mathematically. (iv) No precise terminology: Accounting ratios and terms used to calculate such ratios have no standard and precise definitions as yet. will become vicious. horizontal or vertical. since the malady may be deep seated. the limitations of ratio analysis must be kept in mind. Therefore.4 LIMITATIONS OF RATIO ANALYSIS It is said “ ratios like statistics have an air of precision and finality about them which at times may be misleading. 4. The departmental efficiency can be judged and appropriate decisions taken in several directions. The ratios are used to locate symptoms of problems. (iii) Dependence of financial statements: The base of ratio analysis is financial statement. There may be differing accounting policies pursued in different years or different firms. too much reliance should not be put on figures. The ratio analysis is one of the most popular techniques employed to diagnose the financial edifice and flow of funds of a firm. Ratios have predatory value and they are very helpful in forecasting and planning the business activities for a future period.various relevant factors in a concern and these can be compared with the same in other units in the industry or average for the industry as a whole. say. but also serve as barometers for future. those automatically apply to ratio analysis too. Ratios are at best only symptoms and there is always a need to investigate the facts revealed by them further. is necessary. Comparisons. (iv) Planning & Forecasting: Ratios not only perform post mortem operations. Suitable adjustments should be made in the financial statements before attempting ratio analysis. which are as under: (i) Only Indicators: Ratios are simply indicators. Careful examination of the statements disclosing accounting policies.
The effect of window dressing should be eliminated after proper adjustments in case the ratio analysis is to serve any useful purpose. (vii) Cause-and-Effect Relation missing: The relationship of cause & effect is necessary to be established before relating two variables. Chapter 5 Analysis & Interpretation of Ratios 34 . accept to some summarized figures only after studying the realities behind the financial statements. (vi) Accuracy of accounts: If the accounts have not been correctly prepared. (viii) Correct Interpretation: Ratio computation leads us nowhere.ratio is calculated on the basis of operating profit by one and net profit before tax by the other and the net profit after tax by the third. the values shown in the financial statements loose their significance. The exact cause & the exact effect should also be very clear at the outset. Adjustment in the values is required before undertaking ratio analysis. the ratio can be correctly interpreted. these will give misleading results. on account of change in the level of prices. (v) Effect of inflation: Comparisons become meaningless since. the ratio cannot be correctly computed. Ratios are only as accurate as the accounts on the basis of which these are established. (ix) No suitable standards: Suitable standards for comparison are missing. If ratios of not significantly related figures are calculated. In the absence of a single standard. it becomes very difficult to apply the technique to serve any effective purpose.
1 0.800 Operating Profit 0.058.680 584.2 Ratios 0.568 For 2005-06 For 2006-07 382.1858 2. From the figures it can be interpreted that the company’s operating expanses has gone up considerably in the year 2005-06.1 RATIO ANALYSIS & INTERPRETATION OF INDIABULLS FINANCIAL SERVICES LIMITED I. which can be because of business 35 2007 0.562 = 0.627. it can be concluded that the operating ratio of the company has increased to a great extent in the year 2006 & 2007 as compared to 2005.0836 0.15 0. Profitability Ratios (i) Operating Ratio (ii) Net Profit Ratio (ii) ROI (Return on investment) Operating Ratio Formula: Operating Costs X 100 Net Sales Calculation: For 2004-05 43.297.1858 0.1659 3.1659 .906.697 = 0.572.05 0 2005 2006 Years Interpretation: From the above bar graph.5.384.674 = 0.0836 518.521.811.
4347 Ratio 0.2 0.3607 2. indicating a better operational efficiency achieved in 2006-07. The figure for net profit has obviously gone up by 214.031.3607 0.906.058.5 0.531. (i) Net Profit Ratio Formula = Net Profit after tax x100 Net sales Calculation: For year 2004-05 For 2005-06 For 2006-07 236. The operating expanses increased to 52.4549 518.627. 296.569.72% in 2006-07 while sales increased to a higher proportion of 71%. Increase in the operating expanses in 2005-06 was 781.1 0 2005 Years 2006 2007 Interpretation: From the bar graph showing the Net profit ratio.811.57 % in the year 2005-06 but it was not proportionate to increase in sales that were approx.680 1.096 = 0.8% while increase in the sales was mere 296.expansion spree.521.869 = 0.4549 0.575 = 0.057.72%.3 0.800 Net Profit Ratio 0.4 0.72%.4347 3. it can be very well concluded that the net profit ratio is showing almost same trend as operating cost ratio.568 742. This decrease can again be apportioned to increase 36 . resulting in a decrease in Net profit ratio.
While situation has been improved to in the year 2006-07 as an increase of 71 % in sales has bought about 106. In the year 200506. 2007-08 will see an improving figure.915.899 = 0.873.0586 0.52 % increase in net 37 .142 For 2006-07 = 2. 0.177.565 = 0. which is obviously a good sign.1 0.15 Ratios 0.730. the increasing trend of Return on capital employed in clearly visible.1408 Interpretation: From the figure shown above. But if the trend continues.05 0 2005 20. 149.18 % increase in Net profits making the picture better. (ii) Returns on Capital Employed: Formula = Net profit before Interest & Taxes Total Capital Employed Capital Employed = Share capital + Reserves and surplus + Long term liabilities (Non-Business Assets +Fictitious Assets) Calculation: For 2004-05 = 479.940.operating costs in the same year.998.0586 8. But Net profit ratio for the year 2006-07 has not yet crossed the 2004-05 mark.088 For 2005-06 = 1.199.1408 R.850 2006 Years 2007 0.626.C.689 = 0.O.085 20.880.008.242.0850 0.74 % increase in capital employed bought about 260.
II.828.708 38 .708 times For 2005-06 = 2.800 = 18.422 Fixed asset turnover ratio 500 400 Ratios 300 200 100 0 2005 2006 Years 2007 12.625 For 2006-07 = 3. While in year 2006-07 a mere 3.680 = 455.138. Turnover Ratios (i) Fixed Assets Ratio (ii) Current Assets Ratio (iii) Working Capital Turnover Ratio.627.profit. (iv) Capital Turnover ratio (i) Fixed Assets Ratio: Formula = Net Sales Fixed Assets (net) Calculation: For 2004-05 = 518906568 1.750 times 187.680 = 12.052. It shows that borrowing policy of the company was wise & economic and capital has been employed fruitfully.811. It shows better fund management by the company & overall increase in the efficiency of the business.521.862 times 160.058.95 % increase in Net profit.862 18.75 455.09% increase in capital employed bought 69.
800 = 0.015. Hence the figures are moving to a better end. 13.2198 0.0662 0.05 0 2005 2006 Years 2007 Interpretation: The current ratio figures are showing an increasing trend over the years. A high & increasing current ratio figure indicates capability of the organisation to achieve maximum sales with minimum investment in current assets. But in year 2006-07.2 Ratios 0.72 % in sales reducing the ratio to a great extent.568 = 0. A high fixed asset turnover in year 2004-05 shows better utilization of fixed assets.2198 16.956 % increase in fixed assets could bring about an increase of mere 296.622.680 = 0.707.811.832.0662 7.1407 14.358 Current assets turnover ratio 0.651 For 2006-07 = 3.521. It could be because of high investment made by the organisation for business expansion. (ii) Current Assets Turnover Ratio: It is calculated as follows: Formula = Net Sales Current Assets Calculation: For 2004-05 = 518.695.906.451 For 2005-06 = 2. Here current 39 .116.1407 0.627.15 0.07 % increase in sales.1 0.058.25 0. The situation has slightly improved in the year 2006-07 as an increase of 17% in fixed assets caused 71.Interpretation: A high fixed asset turnover ratio indicates the capability of the organisation to achieve maximum sales with minimum investment in fixed assets and vice-versa.
53 % in current assets in year 2006-07.103. sundry debtors. While an increase of 9. (iii) Working Capital Turnover Ratio Formula = Net Sales Working Capital Calculation: For 2004-05 = 518.0679 Ratios 2005 2006 Years 2007 Interpretation: Working capital ratio is also showing an upward trend over three years.568 = 0.05 0 0.1499 0.680 = 0.853 Working Capital Turnover Ratio 0.1 0.635.627. Hence an increasing working capital turnover ratio shows better efficiency in utilizing working capital for achieving maximum sales. increased the sales to 71%.0679 7.809.15 0.058.2378 0. an increase in 86.642 For 2006-07 = 3.2378 14.2 0. In year 2005-06.68 % in current assets resulted in 296.assets include Interest accrued. 40 .337.811.906. In year 2005-06.72% increase in sales. It indicates the higher increase in sales with less than proportionate increase in working capital. cash & bank balances.726.1499 13.324 For 2005-06 = 2. Loans & advances.25 0.e efficient cash management & debtors management by the company. It shows a better current assets management i.521.800 = 0.844.
1687 2005 2006 Years 2007 Interpretation: Capital turnover ratio indicates the efficiency of the organisation with which the capital employed is being utilized. 65 % in the year 2006-.15 0.521.680 = 0.811.0634 8.906. it is clearly visible that the capital turnover ratio is showing an increasing trend.008. A high turnover ratio indicates the capability of the organisation to achieve maximum sales with minimum amount of capital employed.1017 0.998.873.1 0.05 0 Ratios 0.07.the ratio has increase 60% as compared to year 2004-05.568 = 0.880. In the year 2005-06. while the increase in approx.850 Capital Turnover Ratio 0.0634 0.1687 20.2 0. 41 . 292% increase in sales.77 % in working capital showed approx.an increase of 79.800 = 0. The situation on this front is improving year by year.242.058.1017 20.627. (iii)Capital Turnover ratio: This is calculated as: Formula = Sales Capital Employed Calculation: For 2004-05 = 518.177. From the above figure.088 For 2005-06 = 2.142 For 2006-07 = 3. While in 2006-07 increase in working capital brought about almost proportional increase in sales.
000 = 1.428. The ratio is very near to ideal figure in 42 . III.451.386 = 0. The debt-equity ratio of the company is showing a decreasing trend over the years.333 1. While in year 2006-07 a mere 3.900.242.600 0.72%. increased the sales to 296.333 3.803.024 0.6486 Ratio 2006 Years 2007 Interpretation: Debt-Equity ratio indicates the stake of shareholders in the organisation vis-à-vis that of creditors.As in year 2005-06.124 Debt Equity Ratio 1.200 1.200 0.000 0.959.108.504.400 0.673.000 2005 1.516 = 1.895.400 1.52 % increase in capital employed.999. 147.024 9.572 For 2005-06 = 10.572. Solvency Ratios (i) Debt-Equity Ratio (ii) Proprietory Ratio (iii)Current Ratio (i) Debt-Equity Ratio: Formula = Long term Liabilities Shareholders’ funds Calculation: For 2004-05 = 4.142 For 2006-07 = 8.6486 13.122% increase in capital employed caused 71% increase in sales.800 0.
478.4184 8.137. The increasing proprietary ratio is a satisfactory indication of organization’s financial health.4184 0.64 indicates debt repayment or decreased dependence on external liabilities while there is an increase in the shareholder’s fund.5755 0.473 Interpretation: The above figure shows an increasing trend of proprietary ratio over the years.4 0. 43 .504.015 Proprietory Ratio 0. However a ratio below 50% is regarded as alarming for the creditors.2006. While the ratio increased by 22 % in 2006-07. (ii) Proprietary Ratio Formula = Total assets Owners fund Calculation: For 2004-05= 3.787.572.6 0. An increasing Proprietary ratio is indicative of strong financial position of the business.451.2 0 2005 2006 Years 2007 0. Further the decrease in 2007 to .142 = 0.375.5755 23.124 = 0.8 Ratios 0.151 For 2006-07 = 13.582.999.4730 21.572 = 0.888 For 2005-06 = 9.959.717. The ratio has shown an increase of 13% in the year 2005-06 as compared to 2004-05.108.
358 = 86. The ideal current ratio is 2:1.862 Current Ratio 200 150 Ratio 100 50 0 2005 2006 Years 2007 86.707.615.015.619.116.(iii) Current Ratio: Current ratio = Current assets Current Liabilities Calculation: For 2004-05= 7. which indicates that the current liabilities are very less as compared to current assets.014 For 2005-06 = 14.832.622.855 49.869 184. Current ratio indicates the backing available to current liabilities in the form of current assets.741 For 2006-07 = 16. The company needs to lower down its current ratio as it indicates poor utilization of current assets.39 157.451 = 157.166.651= 50. The current ratio figure is very high in all the three years.364.869 50. 44 .855 Interpretation: Current ratio measures the short-term solvency of the business.39 290.
234. it can be seen that operating ratio has decreased in the year 2005-06 & showed again an increasing trend in year 2006-07 & reached a figure even more than year 2004-05.3914 3. In the year 2005-06.112.659 Operating Ratio 0.178.3 0.6 0. Although the ratio decreased but it was high in absolute terms.5126 1.06% increase in sales.38 % increase in operating cost.182.287.5 0.2 0.30 % increase in operating cost resulted in 178. 112.119.5160 0.059. In year 2006-07.652 For 2005-06= 1.627.4 0.244.770 = 0.3914 Ratios 2005 2006 Years 2007 Interpretation: From the figure give above. 33% increase in sales was bought about by 75. thus reducing the ratio.143.2 RATIO ANALYSIS & INTERPRETATION OF INDIABULLS SECURITIES LIMITED Profitability Ratios (i) Operating Ratio (ii) Net Profit Ratio (iii) ROI (Return on investment) (i) Operating Ratio Operating Costs X 100 Net Sales For 2004-05= 586.1 0 0.5160 4.545 = 0. 45 .5126 0.596 For 2006-07= 2.228.043 = 0.5.
However during the year 2006-07.380.2731 1. due to increase in operating expanses as shown by operating cost ratio.887.659 Net Profit Ratio 0.3750 0.469 = 0.3265 Interpretation: Net profit ratio is showing a trend almost similar to operating cost ratio.2 0.228.219.596 For year 2006-07 = 1. increase in sales was 178.4 Ratios 0. profits increased to mere 15.178.496 = 0.3750 3.06%.50% over three years.143.3 0. resulting in a maximum net profit ratio of 37.e.287.192.78%. (iii) ROI (Return on investment) It is calculated as: 46 .2731 0.272. 281. Hence it can be concluded that the heavy operating expanses in the 2006-07.82 % while sales increased to 33%.615 = 0. resulted in a high operating cost ratio & lower net profit ratio.1 0 2005 2006 Years 2007 0.627.652 For year 2005-06 = 1.(ii) Net Profit Ratio: Net Profit after tax x100 Net sales Calculation: For year 2004-05 = 312.112. In year 2005-06. while there was more than proportionate increase in net profit i.3265 4.
984 For 2005-06 = 1.133. net profit increased by 14. Though the capital employed decreased in year 2006-07 because of repayment of secured loans. The return on capital employed increased by 25.339. The capital employed increased by 174.51 % in year 2005-06 while increase in profits was more than proportionate i.e.627.804.55%. 245. The organisation has managed to earn increasing returns over the years.152.88% in the year 2005-06 while increase was approx.267 = 0.6 0.3502 5.587.5956 3.5956 Interpretation: Return on capital employed ratio is showing an increasing trend.2782 1.26%.2782 0.267 = 0.2 0 2005 2006 Years 2007 0.8 Ratios 0.196 For 2006-07 = 2.367 = 0.869.945.955.659 Returns on Capital Employed 0. II. Turnover Ratios (ii) (iii) (i) Fixed Assets Ratio Current Assets Ratio Working Capital Turnover Ratio. depicting a positive situation.3502 0.224. 47 . 70% in 2006-07.4 0.136.Net profit before Interest & Taxes Total Capital Employed Capital Employed = Share capital + Reserves and surplus + Long term liabilities (Non-Business Assets +Fictitious Assets) Calculation: For 2004-05= 541.
an increase of 111.112.228. It can be because of investment in fixed assets.538 Fixed Assets Turnover Ratio 8 Ratios 6 4 2 0 2005 2006 Years Interpretation: Fixed asset ratio indicates efficiency of using the fixed assets by the organisation.06%.5159 times 207.236.e.215. While in year 2006-07.5159 6.627.1815 3. Higher the fixed asset ratio better will be the position.343 For 2005-06= 3.659 = 3.086.596 = 6.579.8913 times 1.287. 148.8913 48 .652 = 5.779 For 2006-07 = 4. which could not bring immediate increase in the sales. 178.143.(iv) Capital Turnover ratio (i) Fixed Assets Turnover Ratio: The ratio is calculated as follows: Net Sales Fixed Assets (net) Calculation: For 2004-05= 1. In year 2005-06.13 % increase in fixed assets resulted in more than proportionate increase in sales i. (ii) Current Assets Turnover Ratio: It is calculated as follows: Net Sales Current Assets 2007 5.178.1815 times 514.3 % in fixed assets bought only 33% increase in sales.
(iii) Working Capital Turnover Ratio: This ratio is calculated as follows: Net Sales Working Capital Calculation: For 2004-05= 1.228.725.3581 0. It indicates that the current assets utilization is done efficiently in the year 2006-07 as compared to 2005-06. 33%. resulting in a proportionate increase in sales i.148.112.3581 3.2 0 2005 2006 Years 2007 0.e. As the current ratio has improved in the recent years.980 For 2005-06= 3.4 0. The current assets increase by 33% in year by 2006-07.143.191.652 = 0.6 0.601 = 0.606.3477 0.7542 5.339. the figures are showing appositive movement.698 Current Assets Turnover Ratio 0.843. In 2005-06 the ratio decreased by approx 3% while in 2006-07 the ratio again increased to 0.391 = 1. Higher ratio indicates the better efficiency of firm investment i.287.Calculation: For 2004-05= 1.196 For 2006-07 = 4.8 Ratios 0. the company can able to utilize their current assets effectively for generating more sales/revenue.659 = 0.763. Interpretation: This ratio tests the efficiency or inefficiency in utilizing the investment in current assets made by the organization.75126.96.36.19959 49 .7542 .e.3477 5.804.
in spite of 50% decrease in working capital.5 Ratios 1 0.5876 1.8 times increase in sales.410.112.061 For 2006-07 = 4.042 Working Capital Turnover Ratio 2 1.179. (iv) Capital Turnover ratio: It is calculated as: Sales Capital Employed Calculation: For 2004-05= 1. there is 3% increase in sales.6726 1.601 = 0.945.466.984 For 2005-06= 3.601 = 0.727.091 = 1. which resulted in 2. It shows a better working capital management by the company in year 200607.357.855.847.143. In the year 2005-06 the increase in working capital was 5.135.6726 4.725. While in year 2006-07.5954 50 .8945 Interpretation: Working Capital turn over ratios indicates the efficiency in utilization of working capital. It indicates that organization has managed to achieve increased sales in spite of a decrease in working capital.3559 0.336.224.5 0 2005 2006 Years 2007 1.769 For 2005-06= 3.8945 2.6 times.652 = 0.182.179.
Solvency Ratio (i) Debt-Equity Ratio (ii) Proprietary Ratio (iii) Current Ratio (i) Debt-Equity Ratio: It is calculated as External Liabilities Shareholders’ funds 51 . 2. indicating the improving situation.2 0 1. resulting in approx 2 times increase in Capital employed turnover ratio.5954 Ratios 0. as higher the ratio better will be the position. Capital employed ratio is increasing over the years.5.196 For 2006-07 = 4.5876 0.287.133.587. III.5876 0. While in year 2006-07 capital employed decreased.4 1.74 times which resulted in almost proportionate increase in sales i.228.2 1 0.6 0.659 Capital Turnover Ratio 1.5954 Years 1. but sales increase by 33%.659 = 1.8 0.1787 3.339.4 0.e. In year 2005-06 capital employed increased to 2.78times.1787 0. It indicates the efficiency of organisation in utilizing the capital resources.804.1787 Interpretation: Capital turnover ratio indicates the amount of capital turned over to achieve the sales/ revenues.
Calculation: For year 2004-05 = 1.9376 0.605 = 0.75 times resulting in improving the debt-equity mix situation.002 For 2006-07 = 395.7939 188.8.131.527.+C.080.1239 2005 2006 Years 2007 Interpretation: Debt-Equity ratio indicates the stake of shareholders in the organisation vis-à-vis that of creditors.1239 3. In year 2006-07 external liabilities again decreased due to repayment of loans while shareholder’s fund increased almost by 1.234 = 0. = Total Assets.5 0 1. External liabilities increased to 4 times in 2005-06 while shareholder’s funds increased by only 1.893.522.331.399.379 For 2005-06= 3. (ii) Proprietary Ratio: This ratio is calculated as: Shareholders’ / Owner’s fund Total assets * Here we have considered F.7939 0.501.A.425 Debt-Equity Ratio 2.323 52 Ratios . resulting in a 2time increase in Debt-equity ratio.Calculation: For 2004-05= 860.084.3190 3.9376 1.194 = 1.5 2 1. The debt-equity ratio of the company is has increased in ear 2005-06 while again decreased in year 2007.379 = 0.6 times.084.A.690.331.632.5 1 0.
632.4768 0.425 = 0.690.002 = 0.4000 0. but this figure is required to be improved further.6000 0. the proprietary ratio is below 50% mark. (iii) Current Ratio: It is calculated as: Current ratio = Current assets Current Liabilities * C.152.’s + loans and advances.75 times. but it has improved in year 2006-07 & the figure is quite near to satisfactory level.2245 1. thus increasing the proprietary ratio.1881 9.894 53 .659.191.3000 0.L.4768 6. includes C.2000 0.792.817.0000 0.L. include C.980 = 2.692.434.A.1000 0.832.191.5000 0. In year 2007 total assets have decreased by 1.1881 Ratios 2005 2006 Years 2007 Interpretation: An increasing Proprietary ratio is indicative of strong financial position of the business. * C.A.3190 0.087 For year 2006-07 = 3.’s + Provisions. However a ratio below 50% is regarded as alarming for the creditors.44 times while shareholders funds have increased to 1. Calculation: For year 2004-05 = 3.843.For year 2005-06 = 1.236 Proprietary Ratio 0. Although in all the three years.
4 2.809.8622 Current Ratio 2.8 1. It indicates that the organisation is maintaining a proper balance between the current liabilities & current assets.2245 2.144.606. Current ratio indicates the backing available to current liabilities in the form of current assets.308 4.936.86 % in year 2006-07.1372 = 1.384.278.2 2 1.212. while it decreased by 12.843 For year 2006-07 = 5.8622 Ratios 2007 Interpretation: Current ratio measures the short-term solvency of the business.698 3.For year 2005-06 = 9.947 = 2. The current ratio has decreased by 4% in year 2005-06. The ideal current ratio is 2:1. 5.6 2005 2006 Years 2. The current ratio figure is showing a decreasing trend over the years & figure is very near to the satisfactory level.3 RATIO ANALYSIS & INTERPRETATION OF INDIABULLS CREDIT SERVICES LIMITED Profitability Ratios (i) Operating Ratio (ii) Net Profit Ratio (iv) ROI (Return on investment) 54 .1372 1.010.
121.4582 781.842. Increase is operating cost is more steep during the year 2005-06 as compared to year 2006-07.291 = 0.463 Opertaing Ratio 0.(i) Operating Ratio Operating Costs X 100 Net Sales For 2005 = 198.0158 12.996 times in sales.467 = 0.1358 55 . the an increase of 51.2 0 2005 2006 Years 2007 0.22 times was seen in operating cost resulting in an increase of 3.954 For 2007 = 1.143.5902 Interpretation: The operating ratio indicates the operational efficiency of the business.4582 0.4 0.090 For 2006 = 357.5902 3.564.409 = 0. In the year 2006-07. The operating cost ratio is showing an upward trend over the years. while increase in sales was mere 62.0158 0. (ii) Net Profit Ratio: It can be calculated as: Net Profit after tax x100 Net sales Calculation: For year 2004-05 = 14. which is not a positive sign.477 = 1.57 times. In the years 2005-06 operating costs became 1804 times the 200405 figure.179.446.966.8 Ratios 0.6 0.This huge increase in operating costs can be attributed to initial investments required to be made in business.483.
339. ROI (Return on investment): It is calculated as: Net profit before Interest & Taxes Total Capital Employed Capital Employed = Share capital + Reserves and surplus + Long term liabilities (Non-Business Assets +Fictitious Assets) Calculation: For 2004-05 = 22. Sales increased 62. 19. The net profit ratio is required to increase in the coming years.564.e. sales increase to 3.368 = 0.1358 0.843 ii) 56 .091= 0. But increase is sales was lesser than the last year.12. as decreasing ratio is reflecting inefficiencies in business operations.84 times.82 times. net profit figure is decreasing resulting in a decrease in Net profit ratio.445 = 0.954 For year 2006-07 = 797.0168 1.090 For year 2005-06 = 281.2556 3.996 times.5 0 2005 2006 Years Interpretation: Net profit ratio is reflecting the increasing trend of operating cost.914.57 times in year 2005-06 while increase in profit was less than proportionate i.143.3598 0.2556 2007 0.121. While in year 2006-07.3598 781.463 Net Profit Ratio 1.077. As operating costs are increasing. which was very near to proportionate.5 Ratios 1 1.327.914.483. which is also not a positive sign for the organisation. making net profits increase to 2.
In year 2005-06 increase in capital employed was 3.764.634.15 0.e.For 2006-07 = 425.828 57 .18 42.0902 0.143. The increase has been steeper in year 2005-06 as compared to year 2006-07.716.949.98 times.1737 7. In year 2006-07. Return on capital employed is showing an increasing trend over the years.55 times of previous year.819 = 0.1737 Interpretation: Return on Investment indicates the Net profit earned on the total capital employed.270.090 = Nil Nil For 2005-06 = 781. 19.695 Return on investment 0.402 For 2006-07 = 1. II.454.665 = 0.490.1 0. while sales increased to 2. Capital employed increased to 1.954 = 18.55 times which resulted in more than proportionate increase in net profit before interest & taxes i.315.2 Ratios 0.483.0902 4. Turnover Ratios (i) Fixed Assets Turnover Ratio: The ratio is calculated as follows: Net Sales Fixed Assets (net) Calculation: For 2004-05 = 12.07 times. It is good indicator for the organisation because in spite of increasing operating costs.0168 0. it is able to give increasing returns on capital employed.05 0 2005 2006 Years 2007 0.
463 = 0. (ii) Current Assets Turnover Ratio: It is calculated as follows: Net Sales Current Assets Calculation: For 2004-05 = 12. hence higher the ratio better the position is. 3.143.564.405.121.009. keeping the fixed assets ratio low.For 2006-07 = 3. It can be because of investment in fixed assets.675 Ratios 2007 Interpretation: It indicates the efficiency of utilizing fixed assets to attain the sales/revenues. The fixed asset ratio decreased in the year 2006-07 as fixed assets increased by 4.011 58 .425 Fixed Assets Turnover Ratio 19 18 17 16 15 14 2006 Years 18.00934 1.64 times as compared to 2005-06 while increase in sales is slightly less than proportionate i.463 = 15.675 199.336.18 15.e.1559 5.564. The available financial information shows that the company didn’t own any fixed assets in the year of its inception. which could not bring immediate increase in the sales.014.133.483.996.954 = 0.121.011 For 2005-06 = 781.200.3693 8.889 For 2006-07 = 3.090 = 0.450.
954 = 0.328 For 2006-07 = 3.00934 0.996 times increase in sales.849.479.564.813.770.57 times. It can be concluded that the company in improving upon the current asset utilization & managing them in efficient manner. In year 2005-06. 62.0094 1. the current assets had increased by 3.1559 0.4 Ratios 0.3693 Interpretation: It indicates the efficiency in utilizing the current assets to achieve the sales/ revenue.327.1637 4.Current Assets Turnover Ratio 0.483.3 0.229 59 .811 For 2005-06 = 781. (iii) Working Capital Turnover Ratio: This ratio is calculated as follows: Net Sales Working Capital Calculation: For 2004-05 = 12.2 0. The current assets turnover ratio is showing an increasing trend.69 times sin current assets bought about 3.062.e.090 = 0.1 0 2005 2006 Years 2007 0. In year 2006-07.5148 6.143.75 times while the increase in sales was more than proportionate i.463 = 0.121. showing that company is improving in utilizing its current assets. an increase of 1.
While the increase in working capital turnover ratio is steeper in year 200607 than in year 2005-06.402 For 2006-07 = 3.57 times in sales.996 times increase in working capital. 1.914. in year 2005-06.In year 2006-07.121.27 times increase in working capital resulted in3.716.695 60 .327.454.4 0.564.5148 Interpretation: Working capital Turnover ratio indicates the efficiency in utilizing the working capital in increasing sales/ revenues.1656 4. (iv) Capital Turnover ratio: It is calculated as: Sales Capital Employed Calculation: For 2004-05 = 12.143.315.954 = 0.5 times in working capital had brought about an increase of 62. which is again a positive sign for the organisation.0094 0.634. This ratio is also showing an increasing trend. An increase of 3.463 = 0.2 0 2005 2006 Years 2007 0.0094 1.843 For 2005-06 = 781.4267 7.483.6 Ratios 0.1637 0.090 = 0.Working Capital Turnover Ratio 0.
2 0. indicating the improving situation.32865 5.914. In year 2005-06 capital employed increased to 3. While in year 2006-07 capital employed increased by 1. which resulted in more than proportionate increase in sales i.564.4 0.5 times increase in Capital turnover ratio.890.5 0.00012 4.e.327. III.Capital Turnover Ratio 0.1 0 0.748 = 0.022 61 Ratio .809. Capital employed ratio is increasing over the years.0094 2005 2006 Years 2007 0. as higher the ratio better will be the position.505.996 times resulting in approx 2. It indicates the efficiency of organisation in utilizing the capital resources.065.55 times while sales increase by 3.673 = 0.716.57 times.1656 Interpretation: Capital turnover ratio indicates the amount of capital turned over to achieve the sales/ revenues.654 For 2006-07 = 1.843 For 2005-06 = 568.3 0.4267 0. Solvency Ratio (i) Debt-Equity Ratio: It is calculated as: External Liabilities Shareholders’ funds Calculation: For 2004-05 = Nil = Nil 1. 62.552 times.
5477 10.32865 Interpretation: The leverage reflects the company’s capital structure.022 = 0.00012 2006 Years 2007 0.1 0 0.9335 5.336.843 = 0.327.2 0.17 times resulting in a high debt-equity ratio.748 out of the total capital employed.716.964. which is a very important financial decision take by company.4 Ratios 0.963.890.654 = 0.9937 1.505.Debt-Equity Ratio 0.200.717 For year 2006-07 = 5.914.050. external liabilities increased 3182 times while shareholders funds increased only by 1. (ii) Proprietary Ratio: It is calculated as Shareholders’ / Owner’s fund Total assets Calculation: For year 2004-05 = 1. From the above information we can say that in the year 2005 company had no debt in their total capital employed whereas in year 2006 it had increased it to Rs.051.065.011 For year 2005-06 = 4. 568.114 62 .3 0. In year 2006-07.
9937 0.014.85 times while. An increasing Proprietary ratio is indicative of strong financial position of the business.200 For year 2005-06 = 5.Proprietary Ratio 1. includes C.999 = 3.as shareholder’s wealth increased 0.591.011 = 160.L.200.405.5477 Interpretation: This ratio indicates the relationship between the owners’ fund and total assets. However a ratio below 50% is regarded as alarming for the creditors.A.539 . The ratio is showing a decreasing trend over the years with minimum ratio in 2006-07.009.350. however the ratio in more than 50%.011 2.’s + Provisions. reflecting a satisfactory position.336.561 For year 2006-07 = 8. (iii) Current Ratio: It is calculated as: Current ratio = Current assets Current Liabilities NOTE: C. The decrease in proprietary ratio had been steeper in year 2006-07.782 63 = 20.9335 0. include C.450.’s + loans and advances.L.387. total assets became 2 times of previous year.5 0 2005 2006 Years 2007 0. C.889 238.5 Ratios 1 0.A. Calculation: For year 2004-05 = 1.02 8.535.
The ratio is required to be further lowered down by financing current liabilities from current assets.02 Ratio Years Interpretation: The current ratio indicates the short-term solvency position of a company.0544 For 2006-07 = 303.2850 1.376 = 0.e.237.999 3.549. The ratio of company is showing a decreasing trend and moving towards ideal figure.539 160. Profitability Ratios Operating Ratio: It is calculated as: Operating Costs X 100 Net Sales For 2005-06 = 1. 2005 & 2006 the ratio had been very high indicating improper balance between current assets & current liabilities.534 = 0.Current Ratio 200 150 100 50 0 2005 2006 2007 20.4 RATIO ANALYSIS & INTERPRETATION OF INDIABULLS HOUSING FINANCE LIMITED I. 5. In the initial year i. The ideal ratio is 2:1 for current ratio.726.065.835.382 33.712 64 .
2850 0.7052 33. Operating costs have increased 165.6 times.692 = 0.2 0 Net Profit Ratio 0.8 Ratios 0.726.712 0. Increasing operating ratio is not appositive indicator.1 0 2006 0.065.2 0.737.5066 2006 Years 65 2007 .Operating Ratio 0.546 = 0.7052 0. only 31.0544 2007 Years Interpretation: Operating ratio has become 5 times in year 2006-07 as compared to year 2005-06.534 For Year 2006-07 = 539.38 times while corresponding increase in Net sales is less than proportionate i. The reason behind such increase could be the initial investment required in the beginning of the business.783. (ii) Net Profit Ratio: It is calculated as: Net Profit after tax x100 Net sales Calculation: For Year 2005-06 = 23.6 0.3 Ratio 0.e.4 0.5066 1.237.
As Operating cost is increasing over the years.3206 2.6 times.1 0 0.Interpretation: The Net profit ratio is reflecting the trend showed by operating cost ratio.991. 23 times.e.891.4 0.152 = 0.3 0.0156 2. the net sales have gone up by 31. which is not a good indicator.2 0. while corresponding Net Profit after Tax figure increased less than proportionate i.236.0156 2006 2007 Years 66 .690 Return on Investment 0. In year 2006-07. (iii) ROI (Return on investment): It is calculated as: Net profit before Interest & Taxes Total Capital Employed Capital Employed = Share capital + Reserves and surplus + Long term liabilities (Non-Business Assets +Fictitious Assets) Calculation: For 2005-06 = 31.654. Net profit ratio is showing a decreasing trend.3206 Ratios 0.198 For 2006-07 = 826.579.039.568 = 0.
In the year 200607.237.726.499.0165 2. 4. Turnover Ratios (i) Fixed Assets Turnover Ratio: The ratio is calculated as follows: Net Sales Fixed Assets (net) Calculation: For 2005-06 = 33.534 = 0.049.Interpretation: Return on Investment is showing an increasing trend.726.38 times. company’s Return on Investment is increasing. Total Capital Employed increased only 1.368. It shows that in spite of decreasing Net profit ratio & increasing Operating cost ratio.237.534 Nil = Nil For 2006-07 = 1. which is positive sign.065.3162 3. while Net Profit before interest & Taxes increased to 26 times the net profit figure of 2005-06.26 times.396 (ii) Current Assets Turnover Ratio: It is calculated as follows: Net Sales Current Assets Calculation: For 2005-06 = 33.712 = 19.712 = 0. II.830 67 .065.955.715 For 2006-07 = 1.514.
0165 2006 Years 2007 . Interpretation: As we know that current ratio indicates the efficiency of current asset utilization.Current Ratio 0.5 0.712 = 0.64 times in year 2006-07.4 0.237.2 0.118.3862 Ratios 0.0165 2006 Years 68 2007 .3 0.726.574.2 0.0165 2.534 = 0.3 0. while sales have increased to 31. (iii) Working Capital Turnover Ratio: This ratio is calculated as follows: Net Sales Working Capital Calculation: For 2005-06 = 33.065. an increasing current assets turnover ratio reflects a positive picture.4 0.1 0 0.3162 Ratios 0. Current assets have increased to 1.039.952 For 2006-07 = 1.6 times which is very high as compared to increase in current assets.1 0 0.758.387 Working Capital Turnover Ratio 0.3862 2.
Capital Employed is showing an increase of 1.2 0.1653 2.35 times.5 0.237. Working capital turnover ratio is showing an increasing trend.4130 2.579.726.236.654.065.4 0.712 = 0.6 times.Interpretation: It indicates the efficiency in working capital utilization in making sales/Revenues. 69 . while sales have increased by 31. Working Capital is showing an increase of 1.1653 Ratios 2006 Years 2007 Interpretation: It indicates the efficiency in utilization of capital employed in achieving the sales/revenue targets of the organisation. Capital turnover ratio is showing an increasing trend.1 0 0.3 0.35 times. while sales have increased by 31.6 times.690 Capital Turnover Ratio 0.534 = 0.198 For 2006-07 = 1.039.4130 0. (iii) Capital Turnover ratio: It is calculated as: Sales Capital Employed Calculation: For 2005-06 = 33.
26 times.654.690 = 0.67 times.L. includes C.236.198 = 0.’s + loans and advances.’s + Provisions.7534 3.2 1 0.455.039.6 0.III Solvency Ratio (i) Proprietary Ratio: It can be calculated as: Shareholders’ / Owner’s fund Total assets Calculation: For Year 2005-06 = 2.A.423.715 For Year 2006-07 = 2.226 Proprietary Ratio 1. include C.A.4 0.L. The ratio has shown a decrease of 24% in the year 2006-07 as compared to 2005-06. An increasing Proprietary ratio is indicative of strong financial position of the business. 70 .9952 0. (ii) Current Ratio: It is calculated as: Current ratio = Current assets Current Liabilities NOTE: C. C.579.8 0. while the total assets increased to 1. However a ratio below 50% is regarded as alarming for the creditors.514.049.9952 2. Shareholder’s wealth increased to 1.2 0 0.7534 Ratios 2006 Years 2007 Interpretation: The above figure shows a decreasing trend of proprietary ratio over the years.
The ideal current ratio is 2:1.368.514. Current ratio indicates the backing available to current liabilities in the form of current assets.715 9.520 Current Ratio 25 20 15 10 5 0 20. The current ratio figure is very high in both the years.62 = 5.52 Ratios 2006 Years 2007 Interpretation: Current ratio measures the short-term solvency of the business. which indicates that the current liabilities are very less as compared to current assets.939.830 610.381.499.049.62 5.Calculation: For year 2005-06 = 2. The company needs to lower down its current ratio as it indicates poor utilization of current assets. 71 .763 For year 2006-07 = 3.443 = 20.
58 (Max) 35.6 59.) IHFL NIL 5.56 (Min) IHFL NIL 70.58 5.14 51.66 72 .14 51.52 50. Operating Cost Ratio Years 2005 2006 2007 IFSL 8.02 (Max.02 28.31 37.59 2005 IFSL 2006 ISL Years ICSL 2007 IHFL Net Profit Ratio: Years 2005 2006 2007 IFSL 45.25 45.6 ICSL 1.58 16.59 ISL 51.5 INTER-FIRM COMPARISON I.44 28.5.58 0 51.5 32.47 ISL 27.07 43.82 59.65 ICSL 113.25 39.58 (Min) 45.82 39.5 Operating Cost Ratio 80 Ratio (in %) 60 40 20 0 8.44 16.98 25.49 36.36 1.36 18.5 18.
Net Profit Ratio
80 60 40 20 0
45.49 27.31 0 36.07 37.5 35.98
70.52 50.66 43.47 32.65 25.56
2005 IFSL I. Return on Investment Years 2005 2006 2007 IFSL 5.86 8.5 14.08
2006 Years ISL ICSL IHFL
ISL 27.82 35.02 59.56 (Max)
ICSL 1.68 9.02 17.37
IHFL Nil 1.56 (Min) 32.06
Return on Investment 80
Ratios (in %)
60 40 20 0
5.86 27.82 1.68 0 35.02 8.5 9.02 14.08 1.56
59.56 32.06 17.37
2006 Years ISL ICSL
IV. Fixed Assets Turnover Ratios Years 2005 2006 2007 IFSL 455.71(Max) 12.86 18.75 ISL 5.52 6.18 3.89 (Min) ICSL Nil 18.18 15.68 IHFL Nil Nil 19.38
Fixed Assets Turnover Ratio
400.00 300.00 200.00 100.00 0.00
6.18 18.18 15.68 19.38 12.86 0 18.75 3.89
2006 ISL Years ICSL
Current Assets Turnover Ratio Years 2005 2006 2007 IFSL 6.62 14.07 21.98 ISL 35.81 34.77 75.42 (Max) ICSL 0.93 (Min) 15.59 36.93 IHFL Nil 1.65 31.62
Current Asset Turnover Ratio 80.00 Ratio (in%) 60.00 40.00 20.00 0.00
35.81 6.62 0.93 34.77 14.07 0 15.59 1.65 21.98 36.93 31.62 75.42
ISLYears ICSL IHFL
Working Capital Turnover Ratio Years 2005 2006 2007 IFSL 6.79 14.99 23.78 ISL 135.59 67.26 189.45 (Max) ICSL 0.94 (Min) 16.37 51.48 IHFL Nil 1.65 38.62
Working Capital Turnover Ratio
Ratio (in %)
189.45 150.00 100.00 50.00 0.00 6.79 0.94 0 2005 IFSL 135.59 67.26 14.99 23.78 16.37 1.65 2006 IHFL 51.48 38.62
ISL Years ICSL
VII Capital Employed Turnover Ratio Years 2005 2006 2007 IFSL 6.34 10.17 16.87 ISL 58.76 59.54 117.87 (Max) Capital Turnover Ratio
140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.00
ICSL 0.94 (Min) 16.56 42.67
IHFL Nil 16.53 41.30
Ratio (in %)
117.87 58.76 6.34 0.94 0 59.54 10.17 16.56 16.53 16.87
ISL Years ICSL IHFL
II.33 102.00 99.52 75.30 57.34 Ratio (in %) 80.00 20.39 193.90 18.37 93.81(Min) 47.86 50.00 64.86 Debt-Equity Ratio 250.00 40.68 Properietary Ratio 120.34 54.30 31.35 99.00 (Min) 0.012 0.39 32.84 47.00 133.37 93.77 IHFL Nil 99.00 100.52 (Max) 75.55 ISL 31.77 57.35 54. Debt-Equity Ratio Years 2005 2006 2007 IFSL 133.40 64.90 2005 IFSL 2006 Years ISL ICSL IHFL 2007 76 .00 0.00 41.00 2005 2006 2007 IFSL Years ISL ICSL oprietary Ratio Years 2005 2006 2007 IFSL 41.012 32.86 12.84 47.86 ISL 79.39 100.00 150.00 0.39 ICSL 0.00 193.55 47.68 18.40 79.33 102.81 0 Ratio (in %) ICSL 99.00 0.76 (Max) 12.76 200.00 60.
86 50.00 50.62 2.14 1.86 3.54 5.54 IHFL Nil 20.39 2.00 100.14 1.02 (Max) 20.Current Ratio Years 2005 2006 2007 IFSL 157.39 86.22 2.99 20.00 ICSL 160.52 2005 IFSL 2006 ISL ICSL Years IHFL 2007 77 .62 5.99 3.52 Ratio (times) 150.02 86.00 0.86 160.22 0 20.87 50.86 (Min) Current Ratio 200.87 ISL 2.00 157.
1997 (ii) Mittal.1-B. 576-693 (iii) Mahesgwari.545 Website http://www.com/ www.N.96 (iv) Kishore. 2nd Edition. 4th Edition. “ Management Accounting and Financial Control”. “Key Management Ratios-How to Analyze.537-2. S.2. Compare and Control the figures that Drive the Company Value”. “ Cost & Management Accounting” Taxmann’s Paublication. pp. 1999. Ciaran.com www. “Management Accounting and Financial Management”.nseindia..Bibliography (i) Walsh. Sultan Chand & Sons..N. S. Macmillan India Limited. B..investopedia. pp.com 78 . Mahavir Publication. Ravi M. pp.indiabnulls.
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