ANALYSIS AND INTERPRETATION

1. Debt equity ratio

The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion

of shareholders' equity and debt used to finance a company's assets.[1] Closely
related to leveraging, the ratio is also known as risk, gearing or leverage. The two
components are often taken from the firm's balance sheet or statement of financial
position (so-called book value), but the ratio may also be calculated using market
values for both, if the company's debt and equity are publicly traded, or using a
combination of book value for debt and market value for equity financially.

Usage:-Preferred stock can be considered part of debt or equity. Attributing

preferred shares to one or the other is partially a subjective decision but will also take
into account the specific features of the preferred shares.When used to calculate a
company's financial leverage, the debt usually includes only the Long Term Debt
(LTD). Quoted ratios can even exclude the current portion of the LTD. The
composition of equity and debt and its influence on the value of the firm is much
debated and also described in the Modigliani-Miller theorem.financial econimists and
academic papers will usally refer to all liabilities as a debt and the statement that
equity plus liabilities equals assets is therefore an accounting identify Other
definitions of debt to equity may not respect this accounting identity, and should be
carefully compared. Generally speaking, a high ratio may indicate that the company
is much resourced with (outside) borrowing as compared to funding from
shareholders.
Formula:-In a general sense, the ratio is simply debt divided by equity. However,
what is classified as debt can differ depending on the interpretation used. Thus, the
ratio can take on a number of forms including:

 Debt / Equity
 Long-term Debt / Equity
 Total Liabilities / Equity
In a basic sense, Total Debt / Equity is a measure of all of a company's future
obligations on the balance sheet relative to equity. However, the ratio can be more
discerning as to what is actually a borrowing, as opposed to other types of obligations
that might exist on the balance sheet under the liabilities section. For example, often
only the liabilities accounts that are actually labelled as "debt" on the balance sheet
are used in the numerator, instead of the broader category of "total liabilities". In
other words, actual borrowings like bank loans and interest-bearing debt securities
are used, as opposed to the broadly inclusive category of total liabilities which, in
addition to debt-labelled accounts, can include accrual accounts like unearned
revenue.Another popular iteration of the ratio is the long-term-debt-to-equity
ratio which uses only long-term debt in the numerator instead of total debt or total
liabilities. Total debt includes both long-term debt and short-term debt which is made
up of actual short-term debt that has actual short-term maturities and also the portion
of long-term debt that has become short-term in the current period because it is now
nearing
maturity. This second classification of short-term debt is carved out of long-term debt
and is reclassified as a current liability called current portion of long-term debt (or a
similar name). The remaining long-term debt is used in the numerator of the long-
term-debt-to-equity ratio.
A similar ratio is debt-to-capital (D/C), where capital is the sum of debt and equity:
D/C = total liabilities / total capital = debt / (debt + equity)
The relationship between D/E and D/C is:
D/C = D/(D+E) = D/E / (1 + D/E)
The debt-to-total assets (D/A) is defined as
D/A = total liabilities / total assets = debt / (debt + equity + non-financial
liabilities)
It is a problematic measure of leverage, because an increase in non-financial
liabilities reduces this ratio.[2] Nevertheless, it is in common use.
In the financial industry (particularly banking), a similar concept is equity to total
assets (or equity to risk-weighted assets), otherwise known as capital adequacy.

YEAR OUTSIDERS SHAREHOLDERS DEBT EQUITY

FUND FUND RATIO
2012-2013 48034 166096 0.29
2013-2014 43012 180020 0.24
2014-2015 62708 197091 0.32
2016-2017 76227 216176 0.35
2017-2018 76766 240184 0.32

Data Interpretation:-The debt-equity ratio for the year 13-14 shows 0.29 & 14-
15-0.24 & 15-16-0.32 & 16-17-0.35 & 17-18-0.32. Hence its shows a fluctuating
trend. The low debt equity ratio is considered a favorable from the longterm creditors
point of view. A high debt equity ratio indicates that the claims of outsides are
greater than owner is not considered by creditor because of lesser margin of safety.

2. Proprietary Ratio

Proprietary ratio (also known as Equity Ratio or Net worth to total assets or
shareholder equity to total equity). Establishes relationship between proprietor's
funds to total resources of the unit. Where proprietor's funds refer to Equity share
capital and Reserves, surpluses and Tot resources refer to total assets.This ratio
shows the proportion of total assets of a company which are financed by proprietors’
funds. The proprietary ratio is also known as equity ratio. It helps to determine the
financial strength of a company & is useful for creditors to assess the ratio of
shareholders’ funds employed out of total assets of the company.The word
“Proprietors” is a synonym for “owners of a business”, proprietors’ fund, in this case,
would only be the funds which belong to the owners/shareholders of the business.
Proprietors’ funds are also known as Owners’ funds, Shareholders’ funds, Net Worth,
etc.

Usage:-The proprietary ratio shows the contribution of stockholders’ in total capital

of the company. A high proprietary ratio, therefore, indicates a strong financial
position of the company and greater security for creditors. A low ratio indicates that
the company is already heavily depending on debts for its operations. A large portion
of debts in the total capital may reduce creditors interest, increase interest expenses
and also the risk of bankruptcy.Having a very high proprietary ratio does not always
mean that the company has an ideal capital structure. A company with a very high
proprietary ratio may not be taking full advantage of debt financing for its operations
that is also not a good sign for the Times interest earned ratio is very important from
the creditors view point. A high ratio ensures a periodical interest income for lenders.
The companies with weak ratio may have to face difficulties in raising funds for their
operations.Generally, a ratio of 2 or higher is considered adequate to protect the
creditors’ interest in the firm. A ratio of less than 1 means the company is likely to
have problems in paying interest on its borrowings.A very high times interest ratio
may be the result of the fact that the company is unnecessarily careful about its debts
and is not taking full advantage of the debt facilities.

Formula:-

Propriety ratio= stockholder’s equity x 100

Total assets

Some analysts prefer to exclude intangible assets (goodwill etc.) from the
denominator of the above formula. In that case, the formula would be written as
follows:

Propriety ratio= stockholder’s equity x 100

Total assets-intangible assets

YEAR SHAREHOLDER TOTAL ASSET RATIO

FUND
2012-2013 166096 295140 0.56
2013-2014 180020 318511 0.57
2014-2015 197091 367583 0.54
2016-2017 216176 397785 0.54
2017-2018 240184 457720 0.52

Data Interpretation:-The proprietary ratio or equity ratio for the year 12-13-0.56
and 16-17-0.54 and 17-18-0.52. Hence its shows a fluctuating trend. A higher the
ratio better is the long-term solvency position of the company.
3. Fixed asset to networt ratio

The fixed assets to net worth ratio, also referred to as the non-current assets to net

worth ratio, is a simple calculation that tells us more about the solvency of a
company.It indicates the proportion of the company’s fixed assets which are
currently frozen or can’t be used for meeting its debt obligations.Using this ratio, you
can easily find out the extent to which the firm’s assets are illiquid.To understand the
importance of this ratio, you need to first understand what fixed assets are.Fixed asset
is any asset that is not expected to be converted into cash in under 1 year.Buildings,
furniture, machinery, delivery trucks, etc. are some good examples of a company’s
fixed assets. Details of fixed assets can be found under the Assets section of the
balance sheet.Having a lower ratio is favorable because this shows that the company
you’re considering investing in does not rely too heavily on its fixed assets to meet its
current debt obligations.Conversely, a higher ratio may be a red flag as it indicates
that the company’s solvency becomes lower since more funds are tied up with non-
current and less-liquid assets.

Formula:-The formula for calculating a company’s net fixed assets to net worth
ratio looks like this:

Fixed asset to net worth ratio = net fixed asset x 100

Tanagible net worth

Fixed-Assets to Net Worth Ratio = Net Fixed Assets / Tangible Net WorthTo
calculate net fixed assets, you will take the value of total fixed assets and deduct the
accumulated depreciation from it.

Net fixed asset=total fixed assets-accumulated depriceiation

Net Fixed Assets = Total Fixed Assets - Accumulated Depreciation

The net worth of the firm is what will be left if the firm decides to shut shop and pay
off all its liabilities.It’s worth noting that we do not include intangible assets while
calculating total assets in the net worth calculation.That’s because, even though
intangible assets are still assets, but they are in physical in nature, or in other words,
they cannot be seen or tough, as well as they are not easily converted into cash.So
instead of using the regular net worth of a company in your valuation, you can go
ahead and exclude the intangible assets from that company’s total net worth like

Tangible Net Worth = Total assets - Total Liabilities - Intangible Assets

These figures are all reported on a company’s balance sheet.

 YEAR FIXED ASSET SHAREHOLDERS RATIO
FUND
2012-2013 113723 166096 0.68
2013-2014 109748 180020 0.61
2014-2015 109406 197091 0.56
2016-2017 114563 216176 0.53
2017-2018 131410 240184 0.55

Data Interpretation:-The fixed assets net worth ratio during the study period
ratio showed higher in 2011-12-0.68 and lower in 2015--16-0.53. This ratio 60-65
percent is considered to be satisfactory ratio in case of industrial undertakings.

4. Ratio of Current Assets to Proprietors Funds

Current Assets to Proprietors’ Fund Ratio establishes the relationship between

current assets and shareholder’s funds.The purpose of this ratio is to calculate the
percentage of shareholders funds Invested in current assets.

Formula:-

Current Assets to Proprietors Funds = Current Assets / Proprietor’s Funds

Different industries have different norms and therefore, this ratio should be studied
carefully taking the history of industrial concern into consideration before relying too
much on this ratio.

This may be expressed either as a percentage , or as a proportion. To illustrate, if the

value of current assets is $36,000 and the proprietors funds are $180,000 the relevant
ratio would be calculated as follows:

Current Assets to Proprietors Funds = 36,000 / 180,000

= 0.2

This may also be expressed as 20%. It means that 20% of the proprietors funds have
been invested in current assets.

YEAR CURRENT SHAREHOLDERS RATIO

ASSETS FUND
2012-2013 132344 166096 1.78
2013-2014 143976 180020 1.77
2014-2015 135333 197091 1.87
2016-2017 116152 216176 1.84
2017-2018 90564 240184 1.91
Data Interpretation:-The above table shows ratio of current asset to proprietor
fund. During the study period ratio showed higher in 2016-17-1.91 and lower in the
2013-14-1.77. This ratio indicates the extent to which proprietors funds are invested
in current assets.

5. Interest Coverage Ratio

The interest coverage ratio is a financial ratio that measures a company’s ability to

make interest payments on its debt in a timely manner. Unlike the debt service
coverage ratio, this liquidity ratio really has nothing to do with being able to make
principle payments on the debt itself. Instead, it calculates the firm’s ability to afford
the interest on the debt.Creditors and investors use this computation to understand the
profitability and risk of a company. For instance, an investor is mainly concerned
about seeing his investment in the company increase in value. A large part of this
appreciation is based on profits and operational efficiencies. Thus, investors want to
see that their company can pay its bills on time without having to sacrifice its
operations and profits.A creditor, on the other hand, uses the interest coverage ratio
to identify whether a company is able to support additional debt. If a company can’t
afford to pay the interest on its debt, it certainly won’t be able to afford to pay the
principle payments. Thus, creditors use this formula to calculate the risk involved in
lending.

Usage:-intrest coverage ratio can be tricky because it depends largely on how much
risky the creditor or investor is willing to take. Depending on the desired risk limits, a
bank might be more comfortable with a number than another. The basics of this
measurement don’t change, however.If the computation is less than 1, it means the
company isn’t making enough money to pay its interest payments. Forget paying
back the principle payments on the debt. A company with a calculation less than 1
can’t even pay the interest on its debt. This type of company is beyond risky and
probably would never get bank financing.If the coverage equation equals 1, it means
the company makes just enough money to pay its interest. This situation isn’t much
better than the last one because the company still can’t afford to make the principle
payments. It can only cover the interest on the current debt when it comes due.If the
coverage measurement is above 1, it means that the company is making more than
enough money to pay its interest obligations with some extra earnings left over to
make the principle payments. Most creditors look for coverage to be at least 1.5
before they will make any loans. In other words, banks want to be sure a company
make at least 1.5 times the amount of their current interest payments.

Formula:-The interest coverage ratio formula is calculated by dividing the EBIT,

or earnings before interest and taxes, by the interest expense. Here is what the interest
coverage equation looks like.

Interest coverage ratio

Interest coverage ratio =EBIT(earning before interest and taxes)

 Interest expenses

As you can see, the equation uses EBIT instead of net income. Earnings before
interest and taxes is essentially net income with the interest and tax expenses added
back in. The reason we use EBIT instead of net income in the calculation is because
we want a true representation of how much the company can afford to pay in interest.
If we used net income, the calculation would be screwed because interest expense
would be counted twice and tax expense would change based on the interest being
deducted. To avoid this problem, we just use the earnings or revenues before interest
and taxes are paid.You might also want to note that this formula can be used to
measure any interest period. For example, monthly or partial year numbers can be
calculated by dividing the EBIT and interest expense by the number of months you
want to compute.

YEAR NET PROFIT FIXED INTREST RATIO

2012-2013 33649 2667 12.6
2013-2014 30714 3036 10.1
2014-2015 30766 3206 9.6
2016-2017 31602 2367 13.4
2017-2018 40139 2454 16.2

Data Interpretation:-interest coverage ratio. During the study period ratio

showed higher in 2016-17-16.2 and lower in the year 14-15-9.6. It shows a
fluctuating trend. Higher the ratio more safe are the long-term creditors.

6. Return on Shareholder Investment

It is the ratio of net profit to share holder’s investment. It is the relationship between
net profit (after interest and tax) and share holder’s/proprietor’s fund.This ratio
establishes the profitability from the share holders’ point of view. The ratio is
generally calculated in percentage.The two basic components of this ratio are net
profits and shareholder’s funds. Shareholder’s funds include equity share capital,
(preference share capital) and all reserves and surplus belonging to shareholders. Net
profit means net income after payment of interest and income tax because those will
be the only profits available for share holders. ratio is one of the most important
ratios used for measuring the overall efficiency of a firm. As the primary objective of
business is to maximize its earnings, this ratio indicates the extent to which this
primary objective of businesses being achieved. This ratio is of great importance to
the present and prospective shareholders as well as the management of the company.
As the ratio reveals how well the resources of the firm are being used, higher the
ratio, better are the results. The inter firm comparison of this ratio determines
whether the investments in the firm are attractive or not as the investors would like to
invest only where the return is higher.
Formula:-
Return on shareholder investment= income after interest and tax

Total average stockholder equity

YEAR NET PROFIT SHAREHOLDER RATIO

FUND
2012-2013 20040 166096 0.12
2013-2014 21003 180020 0.12
2014-2015 21984 197091 0.11
2016-2017 22719 216176 0.11
2017-2018 27417 240184 0.11

Data Interpretation:-The Return on shareholders’ investment, shows a

decreasing trend. During the study period the company showed a higher ratio of 0.12
in the year 2011-2013.and the lower ratio of 0.11 in the year 2014-2016.Lower ratio
shows lower return on investment

7. Earnings per Share

Earnings per share (EPS) is calculated as a company's profit divided by the

outstanding shares of its common stock. The resulting number serves as an indicator
of a company's profitability. It is common for a company to report EPS that is
adjusted for extraordinary items and potential share dilution. The higher a company's
EPS, the more profitable it is consideredEPS is a financial ratio, which divides net
earnings available to common shareholders by the average outstanding shares over a
certain period of time. The EPS formula indicates a company’s ability to produce net
profits for common shareholders. This guide breaks down the Earnings per Share
formula in detail.A single EPS value for one company is somewhat arbitrary. The
number is more valuable when analyzed against other companies in the industry, and
when compared to the company’s share price (the P/E Ratio). Between two
companies in the same industry with the same number of shares outstanding, higher
EPS indicates better profitability. EPS is typically used in conjunction with a
company’s share price to determine whether it is relatively “cheap” (low P/E ratio) or
“expensive” (high P/E ratio).

Formula:-
Earning per share

EPS =net income- preferred divdends

Weighted average shares outstanding

Earnings per Share Formula

There are several ways to calculate earnings per share.

Below are two versions of the earnings per share formula:

EPS = (Net Income – Preferred Dividends) / End of period Shares Outstanding

EPS = (Net Income – Preferred Dividends) / Weighted Average Shares Outstanding

The first formula uses total outstanding shares to calculate EPS, but in practice,
analysts may use the weighted average shares outstanding when calculating the
denominator. Since outstanding shares can change over time, analysts often use last
period shares outstanding.There is also often talk of diluted EPS in financial
reports. Diluted EPS includes options, convertible securities, and warrants
outstanding that can affect total shares outstanding when exercised.Another type of
earnings per share formula is adjusted EPS. This removes all non-core profits and
losses, as well as those in minority interests. The focus of this calculation is to see
only profit or loss generated from core operations on a normalized basis.

YEAR NET PROFIT EQUITY RATIO

SHARES
2012-2013 20040 29787.05 0.67
2013-2014 21003 29363.09 0.71
2014-2015 21984 29395.47 0.74
2016-2017 22719 29433.34 0.77
2017-2018 27417 29480.22 0.93

Data Interpretation:- The earning per share of the company shows a increasing
trend. During the study the company showed a higher ratio of 0.93 in the year 2017-
2018. And lower ratio of the year 2012-2013.the earning per share is a good measure
of profitability.

8. Return on Net Capital Employed

Return on capital employed (ROCE) is a financial ratio that measures a company's

profitability and the efficiency with which its capital is used. In other words, the ratio
measures how well a company is generating profits from its capital. The ROCE ratio
is considered an important profitability ratio and is used often by investors when
screening for suitable investment candidates.

Formula:-

The Formula for ROCE Is

ROCE =  EBIT/Capital Employed.

EBIT = Earnings Before Interest and Tax

Capital Employed = Total Assets – Current Liabilities

How to Calculate the Return on Capital Employed

ROCE is a useful metric for comparing profitability across companies based on the
amount of capital they use. There are two metrics required to calculate return on
capital employed: earnings before interest and tax and capital employed.Earnings
before interest and tax (EBIT), also known as operating income, shows how much a
company earns from its operations alone without regard to interest or taxes. EBIT is
calculated by subtracting the cost of goods sold and operating expenses from
revenues.Capital employed is the total amount of capital that a company has utilized
in order to generate profits. It is the sum of shareholders' equity and debt liabilities. It
can be simplified as total assets minus current liabilities. Instead of using capital
employed at an arbitrary point in time, analysts and investors often calculate ROCE
based on the average capital employed, which takes the average of opening and
closing capital employed for the time period under analysis.

Usage:-ROCE is especially useful when comparing the performance of companies

in capital-intensive sectors such as utilities and telecoms. This is because unlike other
fundamentals such as return on equity (ROE), which only analyzes profitability
related to a company’s common equity, ROCE considers debt and other liabilities as
well. This provides a better indication of financial performance for companies with
significant debt.Adjustments may sometimes be required to get a truer depiction of
ROCE. A company may occasionally have an inordinate amount of cash on hand, but
since such cash is not actively employed in the business, it may need to be subtracted
from the Capital Employed figure to get a more accurate measure of ROCE.For a
company, the ROCE trend over the years is also an important indicator of
performance. In general, investors tend to favor companies with stable and rising
ROCE numbers over companies where ROCE is volatile and bounces around from
one year to the next.

YEAR NET PROFIT NETCAPITAL RATIO

EMPLOYED
2012-2013 20040 226252 0.09
2013-2014 21003 235225 0.089
2014-2015 21984 272017 0.080
2016-2017 22719 306484 0.074
2017-2018 27417 332698 0.082

Data Interpretation:-The return on net capital employed shows a fluctuating

trend. During the study period the company showed a higher ratio of 0.089 in the
year 2013-2014.and the lower ratio of 0.09 in the year 2012-2013.it shows the total
asset used in a business less its current liabilities.

9. Capital Turnover Ratio

capital turnover is a ratio that quantifies the proportion of net sales to working
capital, and it measures how efficiently a business turns its working capital into
increased sales numbers. The working capital turnover ratio reveals the connection
between money used to finance business operations and the revenues a business
produces as a result.Working capital turnover is a ratio that measures how efficiently
a company is using its working capital to support a given level of sales. Also referred
to as net sales to working capital, work capital turnover shows the relationship
between the funds used to finance a company's operations and the revenues a
company generates as a result.

The capital turnover ratio is calculated by dividing net annual sales by the average
amount of working capital—current assets minus current liabilities—during the same
12-month period. For example, Company A has $12 million of net sales over the past
12 months. The average working capital during that time was $2 million. The
calculation of its working capital turnover ratio is $12,000,000 / $2,000,000 = 6.A
high turnover ratio shows that management is being very efficient in using a
company’s short-term assets and liabilities for supporting sales (i.e., it is generating a
higher dollar amount of sales for every dollar of the working capital used). In
contrast,a low ratio may indicate that a business is investing in too many accounts
receivable and inventory to support its sales, which could lead to an excessive
amount of bad debts or obsolete inventory.To gauge just how efficient a company is
at using its working capital, analysts also compare working capital ratios to those of
other companies in the same industry and look at how the ratio has been changing
over time. However, such comparisons are meaningless when working capital turns
negative because the working capital turnover ratio then also turns negative.

How to calculate a capital turnover ratio

Before you can calculate your working capital turnover ratio, you need to figure out
your working capital, if you don’t know it already. To do so, take your current assets
and subtract your total current liabilities. Both of these figures should be reported on
your balance sheet.Once you’ve got that number, divide your net sales for the year by
your working capital for that same year. The resulting number is your working
capital turnover ratio, an indication of how many times per year you deploy that
amount of working capital in order to generate that year’s sales figures.

The working capital turnover ratio formula

Net Sales

Working Capital ‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾

=
Turnover Ratio ‾

(Total Assets – Total Liabilities)

YEAR SALES CAPITAL RATIO

EMPLOYED
2012-2013 329904 226252 1.46
2013-2014 360297 235225 1.52
2014-2015 390117 272017 1.43
2016-2017 329076 306484 1.07
2017-2018 233158 332698 0.70
Data Interpretation:-The capital turnover ratio shows a fluctuating trend and
decreasing trend. During the study period a company showed a higher ratio of 1.52 in
the year 2012-2013.and lower ratio of 0.70 in the year 2017-2018.it is used to
measure the efficiency which a firm utilizes its resources. This ratio is a good
indicator of overall profitable of the concern.

10. Fixed Assets Turnover Ratio

The fixed asset turnover ratio (FAT) is, in general, used by analysts to measure

operating performance. This efficiency ratio compares net sales (income statement)
to fixed assets (balance sheet) and measures a company's ability to generate net sales
from its fixed-asset investments, namely property, plant, and equipment (PP&E).A
higher turnover ratio is indicative of greater efficiency in managing fixed-asset
investments, but there is not an exact number or range that dictates whether a
company has been efficient at generating revenue from such investments. For this
reason, it is important for analysts and investors to compare a company’s most recent
ratio to both its own historical ratios and ratio values from peer companies and/or
average ratios for the company's industry as a whole.Though the FAT ratio is of
significant importance in certain industries, an investor or analyst must determine
whether the company under study is in the appropriate sector or industry for the ratio
to be calculated before attaching much weight to it.Fixed assets vary drastically from
one company type to the next. As an example, consider the difference between an
Internet company and a manufacturing company. An Internet company, such as
Facebook, has a significantly smaller fixed asset base than a manufacturing giant,
such as Caterpillar. Clearly, in this example, Caterpillar’s fixed asset turnover ratio is
of more relevance and should hold more weight than Facebook’s FAT ratio.The fixed
asset balance is used as a net of accumulated depreciation. A higher fixed asset
turnover ratio indicates that a company has effectively used investments in fixed
assets to generate sales.

The formula for the fixed asset turnover ratio is:

The ratio is commonly used as a metric in manufacturing industries that make

substantial purchases of PP&E in order to increase output. When a company makes
such significant purchases, wise investors closely monitor this ratio in subsequent
years to see if the company's new fixed assets reward it with increased sales.Overall,
investments in fixed assets tend to represent the largest component of the company’s
total assets. The FAT ratio, calculated annually, is constructed to reflect how
efficiently a company, or more specifically, the company’s management team, has
used these substantial assets to generate revenue for the firm.

YEAR SALES FIXED ASSETS RATIO

2012-2013 329904 60156 3.76
2013-2014 360297 55205 4.26
2014-2015 390117 74926 3.63
2016-2017 329076 90308 3.40
2017-2018 332698 92514 3.60

Data Interpretation:-The fixed asset turnover ratio shows a shows a fluctuating

trend. During the study period the company showed a higher ratio of 3.56 in the year
2014-2015.and the lower ratio of 1.77 in the year 2017-2018.it shows the relationship
between the cost of goods sold and fixed asset employed in a business.

11. Total Investment to Long-Term Liabilities

The long-term debt to total asset ratio is a solvency or coverage ratio that calculates a
company’s leverage by comparing total debt to assets. In other words, it measures the
percentage of assets that a business would need to liquidate to pay off its long-term
debt.A company can have two types of liabilities on its balance sheet: Short-term
(due within 1 year) and long-term (due in more than 1 year). Long-term debt ratio is a
ratio which compares the amount of long-term debt to the value of total assets on the
books of a company. In other words, it gives a sense of financial leverage of a
company.A company can build assets by raising debt or equity capital. The ratio of
long-term debt to total assets provides a sense of what percentage of the total assets is
financed via long-term debt. A higher percentage ratio means that the company is
more leveraged and owns less of the assets on balance sheet. In other words, it would
need to sell more assets to eliminate its debt in the event of a bankruptcy. The
company would also have to generate strong revenue and cash flow for a long period
in the future to be able to repay the debt.

This ratio provides a sense of financial stability and overall riskiness of a company.
Investors are wary of a high ratio, as it signifies management has less free cash flow
and less ability to finance new operations. Management typically uses this financial
metric to determine the amount of debt the company can sustain and manage the  the
overall capital structure of the firm.

Formula:-

Long-term debt to assets ratio formula is calculated by dividing long term debt by
total assets.
Long Term debt to Total Assets Ratio = Long Term Debt / Total Assets

As you can see, this is a pretty simple formula. Both long-term debt and total assets
are reported on the balance sheet.Total Assets refers all resources reported on the
assets section of the balance sheet: both tangible and intangible.Long-term debt refers
to the liabilities which are due more than 1 year from the current time periodOne
thing to note is that companies commonly split up the current portion of long-term
debt and the portion of debt that is due in 12 or more months. For this long-term debt
ratio equation, we use the total long-term debt of the company. This means that we
add the current and long-term portions of long-term debt.

Typically, a LT debt ratio of less than 0.5 is considered good or healthy. It’s
important to analyze all ratios in the context of the company’s industry averages and
its past. For capital intensive industry the ratio might be higher while for IT software
companies which are sitting on huge cash piles, this ratio might be zero (i.e. no Long-
term debt on the books).In the Tim’s Tile Co. example above, I mentioned that the
ratio was decreasing even when the debt was increasing. This could imply that Tim’s
Tile Co. is creating value accretive assets (thus assets are surpassing the debt
increase) or using other means of funding growth.In the Duke and Southern Utility
example, we can see that Duke reduced its LT debt ratio while Southern increased its.
Looking at the numbers closer, we see that Southern has been adding debt to its
books (organically or by acquiring companies) to grow its operations. If this strategy
works, it could create long-term value for investors. Normally, lower the ratio better
it is. But that is not the absolute truth.LT debt ratio provides a theoretical data point
and can act as a discussion starter. Analyst need to understand the underlying causes
of the ratio changes. For risk adverse investors a low LT debt ratio is preferable while
investors with high-risk appetite may tolerate higher financial leverage. The choice of
the level of ratio will also depend on the industry and the industry cycle. For
example, in the oil & gas industry during the recent oil price decline (2014-16) many
smaller companies with high level of debt were more severely penalized than the
stable large integrated Oil & Gas companies. In bear market (or risk-off environment)
investors prefer companies with lower debt levels while in bull-market (or risk-on
environment) geared companies are favored as they can provide higher earnings
growth. Analysts need to be cognizant of all these factors while analyzing a
company.Analyst should also understand the ideal capital structure that management
is seeking. Suppose the management has guided towards a LT debt ratio of 0.5x in
next 5 years as part of achieving its optimal capital structure, than analyst should
track the movement of the ratio in the next five years to gauge the execution
capability of the management. Analyst could also forecast the financial statements 5
years out, to predict if the desired capital structure (as measured by LT debt ratio) is
achievable or not.For instance, management might strive for an aggressive target
simply to spur investor interest. Analysts must be aware of what the company is
doing without being tricked with short-term strategies. That’s why it’s so important
to review the management discussion section of a 10-K of the quarterly earnings
reports.Lenders, on the other hand, typically set covenants in place to prevent
companies from borrowing too much and being over leveraged. LT term debt ratio is
one such commonly used covenant in which the lender will restrict the ratio to rise
above certain value. The loan terms also explain how flexible the company can be
with the covenants. These rules force management to be disciplined because if the
debt covenants are broken, the company will have to repay the loans immediately.
This could cause a negative financial or reputational impact such as fines,
foreclosures or credit downgrades.

YEAR SHAREHOLDERS FUNDS LONGTERM RATIO

LONGTERM LIABILITIES LIABILITIES

2012-2013 226252 60156 3.76

2013-2014 235225 55205 4.26
2014-2016 272017 74926 3.63
2016-2017 306484 90308 3.40
2017-2018 332698 92514 3.60

Data Interpretation:-The total investment to long term liabilities shows a

fluctuating trend. During the study period the company showed a higher ratio of 4.26
in the year 2013-2014.and the lower ratio of 3.40 in the year 2016- 2017.it help to
find the capital structure of the company and its long term liabilities.

12. Ratio of Fixed Assets to Funded Debt

Total-debt-to-total-assets is a leverage ratio that defines the total amount of debt

relative to assets. This metric enables comparisons of leverage to be made across
different companies.The higher the ratio, the higher the degree of leverage (DoL)
and, consequently, financial risk. The total debt to total assets is a broad ratio that
analyzes a company's balance sheet by including long-term and short-term debt
(borrowings maturing within one year), as well as all assets—both tangible and
intangible, such as goodwill.

Usage:-

Total-debt-to-total-assets is a measure of the company's assets that are financed by

debt, rather than equity. This leverage ratio shows how a company has grown and
acquired its assets over time. Investors use the ratio not only to evaluate whether the
company has enough funds to meet its current debt obligations but also to assess
whether the company can pay a return on their investment.Creditors use the ratio to
see how much debt the company already has and whether the company has the ability
to repay its existing debt, which will determine whether additional loans will be
extended to the firm.

 The total debt to total assets ratio shows the degree to which a company has used
debt to finance its assets.

 The calculation considers all of the company's debt, not just loans and bonds
payable, and considers all assets, including intangibles.
 If a company has a total debt to total assets ratio of 0.4, this shows that 40% of
its assets are financed by creditors, with owners (shareholders) financing the
remaining 60% with equity.

The Formula for Total Debt to Total Assets Is

YEAR FIXED ASSETS FUNDED DEBT0 RATIO

2012-2013 113723 48034 2.36
2013-2014 109748 43012 2.55
2014-2015 109406 62708 1.74
2016-2017 114563 76227 1.50
2017-2018 131410 76766 1.71

Data Interpretation:-The fixed asset to funded debt shows a decreasing trend

and fluctuating. During the study period the company showed a higher ratio of 2.55
in the year 2013-2014.and the lower ratio of 1.50 in the year 2016-2017.it shows a
proper mix of debt and equity capital in financing the firms asset.

13. Financial Leverage

Financial leverage simply means the presence of debt in the capital structure of a
firm. Similarly, in other words, we can also call it the existence of fixed-charge
bearing capital which may include preference shares along with debentures, term
loans etc. There are basically three leverages; operating leverage, financial leverage,
combined leverage. The objective of introducing leverage to the capital is to achieve
maximization of wealth of the shareholders.Financial Leverage. Financial leverage
simply means the presence of debt in the capital structure of a firm. Similarly, in
other words, we can also call it the existence of fixed-charge bearing capital which
may include preference shares along with debentures, term loans etc. There are
basically three leverages; operating leverage, financial leverage, combined leverage.
The objective of introducing leverage to the capital is to achieve maximization of
wealth of the shareholders.Financial leverage deals with the profit magnification in
general. It is also well known as gearing or ‘trading on equity’. The concept of
financial leverage is not just relevant to businesses but it is equally true for
individuals. Debt is an integral part of the financial planning of anybody whether it is
an individual, firm or a company. We will try to understand it from the business point
of view.In a business, debt (short or long term) is acquired not only on the grounds of
‘need for capital’ but also taken to enlarge the profits accruing to the shareholders.
Let me clarify it further. An introduction of debt in the capital structure will not have
an impact on the sales, operating profits etc but it will increase the share of the equity
shareholders, the ROE % (Return on Equity).
Formula:-

The formula for calculating financial leverage is as follows:

Leverage = total company debt/shareholder's equity. 

Take these steps in calculating financial leverage:

 Calculate the entire debt incurred by a business, including short- and long-term
debt. Total debt = short-term debt plus long-term debt.
 Count up the company's total shareholder equity (i.e., multiplying the number of
outstanding company shares by the company's stock price.)
 Divide the total debt by total equity.
 The resulting figure is a company's financial leverage ratio.
 A high leverage ratio - basically any ratio of three-to-one or higher - means
higher business risk for a company, threatens the company's share price, and
makes it more difficult to secure future capital if it's not paying its old/current
debt obligations.

YEAR EBIT EBT FINANCIAL

LEVERAGE
2012-2013 33619 25750 1.30
2013-2014 30714 26284 1.16
2014-2015 30766 27818 1.10
2016-2017 31602 29468 1.07
2017-2018 40139 35701 1.12

Data Interpretation:-The financial leverage shows a fluctuating trend. The

company showed a higher ratio of 1.30 in the year 2012-2013 and lower ratio of 1.07
in the year 2016-2017. A lower ratio indicates a low rate of interest and consequently
lower borrowings.

RELIANCE .IND INCOME STATEMENT 2018-2019

NO OF MTHS YEAR 12 MAR-2018 12 MAR-2019 CHANGE

ENDING
NET SALES 3945170 5716550 44.9

OTHER INCOME 196260 372690 89.9

TOTAL REVENUES 414430 6089840 47.0

GROSS PROFIT 544990 552840 1.4

 DEPRECIATION 167060 209340 25.3

INTREST 80520 164950 104.9

PROFITBEFORE 493670 551240 11.7

TAX

TAX 133460 153900 15.3

PROFIT AFTER TAX 360800 398370 10.4

GROSSPROFIT 13.8 9.7

MARGIN

EFFECTIVETAX 21.0 27.9

RATE

NETPROFIT 8.7 6.5

MARGIN

 Operating income during the year rose 44.9% on a year-on-year (YoY) basis.
 The company's operating profit increased by 1.4% YoY during the fiscal.
Operating profit margins witnessed a fall and stood at 9.7% in FY19 as
against 13.8% in FY18.
 Depreciation charges increased by 25.3% and finance costs increased by
104.9% YoY, respectively.
 Other income grew by 89.9% YoY.
 Net profit for the year grew by 10.4% YoY.
 Net profit margins during the year declined from 8.7% in FY18 to 6.5% in
FY19.

RELIANCE IND BALANCE SHEET 2018-2019

NO OF MTHS TEAR 12-MAR-18 12-MAR-19 CHANGE

ENDING

NETWORTH 2935060 3871120 31.9

CURRENT LIABILITY 3138520 3140230 0.1

LONG-TERM DEBT 1441750 2075060 43.9

TOTAL LIABILITIES 8163480 10024060 22.8

 CURRENT ASSETS 1837860 2260880 23.0

FIX ASSETS 5909070 5778370 -2.2

TOTAL ASSETS 8163480 10024060 22.8

 The company's current liabilities during FY19 stood at Rs 3,140 billion as

compared to Rs 3,139 billion in FY18, thereby witnessing an increase of 0.1%.

 Long-term debt stood at Rs 2,075 billion as compared to Rs 1,442 billion

during FY18, a growth of 43.9%.
 Current assets rose 23% and stood at Rs 2,261 billion, while fixed assets fell
2% and stood at Rs 5,778 billion in FY19.

Overall, the total assets and liabilities for FY19 stood at Rs 10,024 billion as against
Rs 8,163 billion during FY18, thereby witnessing a growth of 23%.

RELIANCE IND CASH FLOW STATEMENT 2018-2019

PARTICULARS MONTHS 12-MAR-2018 12-MAR-2019 CHANGE

CASH FLOW FROM RSM 714590 457360 -36.0

OPRATIONS
ACTIVITIES

INVESTING RSM -682900 -990060 -

ACTIVITIES

FINANCING RSM -20010 559060 -

ACTIVITIES

NET CASH FLOW RSM 12660 32570 157.3

cash is a life blood of business. It is an important tool of cash planning

and control. Afirm receives cash from various sources like sales, debtors,
sale of assets intestsentsetc. Likewise, the firm needs cash to take to
salaries, rent dividend, interestetc.cash flow statement reveals that inflow and
outflow of cash during a particular period. It is rapaired on the basis of historical data
showing the inflow and outflow of cash
 Toshow the causes of changes in cash balance between
the balance sheet.

 RELIANCE IND.'s cash flow from operating activities (CFO) during FY19
stood at Rs 457 billion on a YoY basis.
 Cash flow from investing activities (CFI) during FY19 stood at Rs -990
billion, an improvement of 45.0% on a YoY basis.
 Cash flow from financial activities (CFF) during FY19 stood at Rs 559
billion, an improvement of 2,894% on a YoY basis.
 Overall, net cash flows for the company during FY19 stood at Rs 33 billion
from the Rs 13 billion net cash flows seen during FY18.