Executive Summary

Even by American standards, Wal-Mart must be considered as a success story without precedent.
Founded by Sam Walton in 1962 in Bentonville, Arkansas, Wal-Mart stores offered customers abroad
range of goods. In its first year, Wal-Mart Stores garnered $700,000 in sales, which increased to $5.4
million in sales volume by 1974. In fiscal 1980, Wal-Mart became the youngsters. Retail Company, and
the only regional retailer, to exceed $1 billion in net sales. In 2002, Wal-Mart’s revenue equaled 2.3% of
U.S. gross domestic product. Wal-Marts key strategy lay in its Every Day Low Prices (EDLP) which it
achieved through aggressive bargaining with suppliers, its efficient distribution system and inventory
control as well as its unique culture. Wal-Mart was a relative latecomer to international retailing. The
move overseas was driven in part by flagging domestic growth. By 1997, Wal-Mart possessed 41 Wal-
Mart and Sam s Club stores within Mexico and also had 89retail outlets (under various names) within its
control. During the next few years, Wal-Mart expanded into Puerto Rico and Canada. It developed its
presence in Argentina, Brazil, China and the United Kingdom 1999). In Britain, Wal-Mart was able to
successfully transplant their US strategy after acquiring ASDA. Wal-Mart’s superior processes in supply
chain and IT have ensured that it was able to provide the customers with 7 % lower prices than its
competitors. During that same time, its competitors had also begun expanding into new markets. Clearly
dominating the US retail market, Wal-Mart expanded into Germany (and Europe) in late1997. Wal-
Mart’s strategy to export the successful, packaged corporate formula resulted insignificant cross-cultural
communication issues with constituents in Germany. Executive management failed to anticipate the clash
of cultural differences between German traditions and the Wal-Mart way. Upon closer inspection, the
circumstances of the company’s failure to establish itself in Germany give reason to believe that it
pursued a fundamentally flawed internationalization strategy due to an incredible degree of ignorance of
the specific features of the extremely competitive German retail market. Moreover, instead of
attracting consumers with an innovative approach to retailing, as it has done in the USA, in
Germany the company does not seem to be able to offer customers any compelling value proposition in
comparison with its local competitors. Further, Germany had limited store hours, price regulations
(prohibiting retailers from selling below costs), and stringent zoning requirements. Also, Unions were
more influential than their US counterparts. This caused many problems for Wal-Mart in Germany. The
report below details Wal-Mart’s strategy that transformed it into a success story in US and other regions,

1
reasons why it entered the German market followed by the issues it faced while operating in Germany.
We then present strategic options that Wal-Mart can opt for to increase their chances of success

2
 RESEARCH METHODOLODY

Topic: - WALMART financial ratio analysis.

Research design:-

A research design is the way or the methods or the procedure followed to conduct an
scientific research. Some of the types of research design are exploratory research design,
descriptive research design and causal research design. Each has its own meaning.
Causal research design helps us to know a cause and effect relation between two
variables, whereas exploratory research design is used to find new ideas and insight.
Descriptive research design is a type of research method that is used when one wants to
get information on the current status of a person or an object. in this study there only one
company and no new ideas are to be found. The major focus would be on to know current
financial position of WALMART. For this a descriptive type of research design is used.

Time period:-

Data from 2008 to 2012 are collected to analyse the performance of the WALMART.

Objective of the study:-

Objective means the main purpose of the report i.e. stating why this report is prepared
and what it wants to say. The only objective of this study is to WALMART’S current
financial position with the use of various financial ratios.

Data collection method: -

There are two ways one can collect data i.e. through primary source (which means
generating one’s own information by surveys or interviews etc.) or through secondary
source (which are readily available like information in newspaper, magazines, websites
etc.). For this report only secondary data are used as the basic objective is to study
WALMART’S financial position, there is no need to conduct a survey or interviews,
which are sources of primary data.

3
Type of data:- Data included in the balance sheet, profit and loss account and cash flow
statement of the company are used.

Method of analysis:-

Various financial ratios are used to evaluate the corporate financial positions along with
various graphs and charts.

Limitations of the study:-

1) Secondary data is never cent percent correct. So if the data used in the report for
evaluation are incorrect or incomplete the results would be misleading.
2) Alteration of data at source of origin can alter the results.
3) Time constraints.

4
 CHAPTER-1 - INTRODUCTION

Back ground of the study

Wal-Mart is the largest retail store in the United States, and is larger than any other retail
chain in the world. Currently Wal-Mart operates over 4,150 retail facilities globally.
Also, the company is the dominant retail store in Canada, Mexico, and the United
Kingdom. According to the Fortune 500 index of the wealthiest and most powerful
corporations in the world, Wal-Mart holds the number one spot, ranked by its total sales.
The company is ranked as the second most admired company in the world by Fortune.

Wal-Mart provides general merchandise: family apparel, health & beauty aids, household
needs, electronics, toys, fabrics, crafts, lawn & garden, jewelry and shoes. Also, the
company runs a pharmacy department, Tire & Lube Express, and Photo processing center
as well. When Sam Walton created Wal-Mart in 1962, he declared that three policy goals
would define his business: respect for the individual, service to customers, and striving
for excellence.

Wal-Mart's corporate management strategy involves selling high quality and brand name
products at the lowest price (Vance, 119). In order to keep low prices, the company
reduces costs by the use of advanced electronic technology and warehousing. It also
negotiates deals for merchandise directly from manufacturers, eliminating the
middleman.

Wal-Mart's community outreach focuses on the goals of providing customer satisfaction,

involving itself with local community services, and providing scholarships. Its emphasis
is on children and environmental issues.

During the 1970s, the retail industry became highly competitive, but, at the same time the
economy became weak due to inflation. Sears was the leading retailer in the nation,
during the 1970s, however, the recession of 1974-1975 and inflation affected Sears
adversely. Sears targeted middle class families and expanded its overhead. Wal-Mart's
strategy was to compete with its rivals and lower overhead expenses. Compared with

5
Sears, who consisted of more than 6,000 distribution centers, Wal-Mart had only 2,500
comparable units.

Today, Wal-Mart has 1,636 retail stores. There are 1,093 Wal-Mart Super centers, 502
Sam's Clubs, 31 Wal-Mart Neighborhood stores and 1,183 international stores. Its core
retail business can be divided into four retail divisions: Wal-Mart stores, super centers,
Sam's Club warehouses and neighborhood markets. Wal-Mart stores and Super centers
provide "one-stop family shopping"; combining groceries and general merchandise
departments. Sam's Club is the nation's leading members-only warehouse club.
Neighborhood Markets offer a convenient shopping experience for customers who need
groceries, pharmaceuticals and general merchandise.

History of the company:

1962 :Wal-Mart opened the first store In Rogers, Ark.

1970 :Wal-Mart opens first distribution center and home office in Bentonville, Ark.

1970 :Wal-Mart traded stocks as a publicly held company

1971 :Wal-Mart in five states: Arkansas, Kansas, Louisiana, Missouri and Oklahoma.

1972 : Wal-Mart approved and listed on the New York Stock Exchange.

1973 :Wal-Mart in Tennessee.

th
1974 :Wal-Mart stores now in Kentucky and Mississippi, Texas becomes 9 .

1977 :Wal-Mart entered Illinois. 11th state: Alabama.

1981 :Wal-Mart opened at Georgia and South Carolina

1982 :Wal-Mart opened at Florida and Nebraska.

1983 :First SAM'S CLUB opened in Midwest City, OK People Greeter implemented at
all store. Wal-Mart enters Indiana, Iowa, New Mexico and North Carolina.

1984:David Glass named company president. Wal-Mart enters Virginia

1985 :Wal-Mart has 882 stores with sales of $8.4 billion and 104,000 Associates.
Company adds stores in Wisconsin and Colorado.

6
1986 : Wal-Mart enters Minnesota.

1989 :Wal-Mart is now in 26 states with the addition of Michigan, West Virginia and
Wyoming.

1990 : Wal-Mart becomes nation's No. 1 retailer. McLane Company of Temple, Texas
acquired Wal-Mart enters California, Nevada, North Dakota, Pennsylvania, South Dakota
and Utah.

1991 : Wal-Mart enters Connecticut, Delaware, Maine, Maryland, Massachusetts, New

Hampshire, New Jersey and New York. "Sam's American Choice" brand products
introduced. International market entered for first time with the opening of a unit Mexico
City.

1992 : Sam Walton passes away April 5. S. Robson Walton named chairman of the board
April 7. Wal-Mart has entered 45 states with the addition of Idaho, Montana and Oregon.
Wal-Mart enters Puerto Rico.

1993 : Wal-Mart enters Alaska, Hawaii, Rhode Island and Washington.

1994 : Wal-Mart enters Canada by the acquisition of Woolco, and takes over 123 former
Woolco stores across Canada. It opens 96 stores in Mexico. Three value clubs open in
Hong Kong.

1995 : Wal-Mart enters its 50th state - Vermont - and builds three units in Argentina and
five in Brazil.

1996 : Wal-Mart enters China

1997 :Wal-Mart replaces Woolworth on the Dow Jones Industrial Average

th
2000 :Wal-Mart ranked 5 by FORTUNE magazine in its Global Most Admired All-Stars
list. H. Lee Scott named president and CEO of Wal-Mart Stores, Inc. Wal-Mart ranked #1
Corporate Citizen in America in the 2000 Cone/Roper Report, an annual national survey on
philanthropy and corporate citizenship.

2001 :Wal-Mart has the biggest single day sales in history: $1.25 billion on the day after
Thanksgiving. (www.walmartstore.com. About Wal-Mart)

7
2007 :Walmart.com launched Site to Store service, enabling customers to make a
purchase online and pick up merchandise in stores.

2010 :Bharti Walmart, a joint venture, opened its first store in India.

OBJECTIVE OF THE COMPANY:

As a major international public company, Walmart has lots of objectives. Here are some
of them taken directly from Walmart’s 2011 Annual Report

“Expand multi-channel initiatives”

Strategies:
 Develop and execute a global eCommerce strategy
 Accelerate global online channel growth
 Have accessible stores available for all of the customers’ needs

Tactics:
 Conduct research on customers
 Use new formats, such as Walmart Express™, in urban and rural markets.
 Open Walmart’s first convenience format stores, Walmart Express, in the second
quarter.
 Investing in global eCommerce (online commerce)
 Create technology platforms and applications for every Walmart market
 Deepening their understanding of consumer trends and creating new analytical
tools.
 Leveraging multi-channel innovations like Site-to-Store®, Pick Up TodaySM and
Fed-Ex® Site to Store

8
“Grow in the United States”

Strategies:
 Keep improving Sam’s Club®
 Maintain excellent customer service – Give the customers what they want: quality
products at affordable prices
 Implement a four-point plan to improve comparable store sales
(Investopedia says: “This statistic [comparable store sales] allows investors to
determine what portion of new sales has come from sales growth and what portion
from the opening of new stores.”)
 Implement productivity initiatives

Tactics:
 Open more supercenters
 Attract more customers and Sam’s Club members
 Use new formats, such as Walmart Express™, in urban and rural markets.
 Open Walmart’s first convenience format stores, Walmart Express, in the second
quarter.
 Expanding their assortment, reallocating selling space and enhancing productivity
initiatives to reduce costs.
 Adding services to their pharmacies, such as free monthly health screenings and
hearing centers.
 Continue to add exciting brands in key categories, including apparel, jewelry,
technology and entertainment.
 Conduct research on customers
 Deepening their understanding of consumer trends and creating new analytical
tools.

“Improve returns”

9
Strategies:
 Balance their commitment to aggressive growth with their long-term plan
 Achieve positive comparable store sales [through four-point plan]
 Enhance shareholder value

Tactics:
 Opening supercenters in new regions of Canada and changing the competitive
environment in Brazil with a shift to EDLP [every day low prices].
 Leveraging multi-channel innovations like Site-to-Store®, Pick Up TodaySM and
Fed-Ex® Site to Store
 Expanding their assortment, reallocating selling space and enhancing productivity
initiatives to reduce costs.
 Adding services to their pharmacies, such as free monthly health screenings and
hearing centers.
 Continue to add exciting brands in key categories, including apparel, jewelry,
technology and entertainment.
 Deepening their understanding of consumer trends and creating new analytical
tools.
 Attract more customers and Sam’s Club members
 Use new formats, such as Walmart Express™, in urban and rural markets.
 Open Walmart’s first convenience format stores, Walmart Express, in the second
quarter.

10
 Chapter- 2 - COMPANY NAME –A PROFIL, SWOT
ANALYSIS

 SWOT ANALYSIS:

Strengths

1 Scale of operations. Walmart is the largest retailer in the world with more than $400
billion in revenue and 10,130 stores. It makes Walmart the giant that no other retailer
can match. Due to such large scale of operations, the corporate can exercise strong
buyer power on suppliers to reduce the prices. It can also achieve higher economies
of scale than competitors because of its size. Higher economies of scale results in
lower prices that are passed to consumers.

2 Competence in information systems. The corporate achieves significant cost

savings because of its extensive information systems that tracks orders, inventory
levels, sales and other related information in real time. All this information can be
instantly accessed, analyzed and decisions made at each store. Effective management
of supply chain and logistics is one of the most important factors for Walmart
success.

3 Wide range of products. Walmart can offer wider range of products than any other
retailer. It sells grocery, entertainment, health and wellness, apparel and home related
products among many other categories and offers both branded and own label goods.
Wide range of products attracts more customers to Walmart stores.

11
4 Cost leadership strategy. This strategy has helped Walmart to become the low cost
leader in the retail market. This strategy requires selling products ant the lowest price
possible and providing a no frill services to achieve higher economies of scale and
attract masses of consumers and that is exactly what the company is doing. It sells
products at much lower prices than competitors do, builds warehouse style
superstores that contain extensive range of products but doesn’t offer much additional
benefits or services. All of this result in cost reductions and lower prices for
consumers.

Weaknesses

1. Labor related lawsuits. Walmart faces labor related lawsuits every year, which
costs millions of dollars for the company. It is criticized for poor work conditions, low
wages, unpaid overtime work and female discrimination. In addition to litigation
costs, corporate’s reputation has been damaged and fewer skilled workers are willing
to work for it.
2. High employee turnover. The business suffers from high employee turnover that
increases firm’s costs, as it has to train new employees more often. The main reason
for high employee turnover is low skilled, poorly paid jobs.
3. Little differentiation. Walmart has no differentiation compared to its
competitors, which might hurt the company in the future if commodity prices or
average consumer income would increase. In this case, low cost leadership strategy
wouldn’t be as effective as it currently is and Walmart’s main competitive advantage
would erode.
4. Negative publicity. The company is often criticized for its questionable practices
such as bribery of authorities or poor work conditions. Negative publicity damages
corporate’s reputation.

12
Opportunities

1. Retail market growth in emerging markets. Retail markets grew by at least 5%

on average in emerging markets in the last year, opening huge opportunities for
Walmart’s revenue growth. The business currently operates in Brazil, Mexico, China
and India markets. Walmart should increase its presence in these markets to sustain
future growth.
2. Rising acceptance of own label products. The sales of private label products
have increased by more than 40% over the last 10 years. This reveals increasing
consumer acceptance of supermarket chain products compared to national brand
products. Walmart has an opportunity to increase the number of private label products
sold at its stores and earn higher profit margins.
3. Trend toward healthy eating. The current trend of eating healthier food has
resulted in higher demand for grocery products. Walmart has an opportunity to expand
its grocery stores to earn more income from this trend.
4. Online shopping growth. Online retail sector grew by 4.7% in the US in 2011,
reaching $197 billion. Walmart being the biggest offline retailer has huge
opportunities to expand its presence in online retail market. The company can offer
convenience to pick up the goods ordered online in its more than 10,000 stores and
can offer even lower prices online than at the store. As a result, Walmart can reach
more customers and increase its revenue.

Threats

1. Increasing competition from brick and mortar and online

competitors. Competitors like Target, Costco, Amazon and Tesco (in UK) are putting
huge efforts to eliminate price differences that Walmart enjoys. Except the lower
prices, Walmart doesn’t differ from other low cost retailers and will experience
increased competition from them in the future.
2. Increasing resistance from local communities. Walmart superstores have a
negative impact on local retailers and communities. Some of the local retailers are

13
 usually forced to close off when Walmart superstore opens in the area. This affects not
only the retailers but their families and the community as a whole.
3. Rising commodity product prices. Rising commodity prices squeeze Walmart’s
profit margins and erode its competitive advantage. As prices go up, the cost
difference between the retailers decreases and competition shifts from price to product
and service differentiation.

CHAPTER – 3 – DATA ANALYSIS AND

INTERPRETATION

THEORETICAL FRAME WORK OF RATIOS

Ratio Analysis is the calculation and comparison of main indicators - ratios which are derived
from the information given in a company's financial statements (which must be from similar
points in time and preferably audited financial statements and developed in the same manner). It
involves methods of calculating and interpreting financial ratios in order to assess a firm's
performance and status. This Analysis is primarily designed to meet informational needs of
investors, creditors and management. The objective of ratio analysis is the comparative
measurement of financial data to facilitate wise investment, credit and managerial decisions.

Importance and Advantages of Ratio Analysis

Ratio analysis is an important tool for analyzing the company's financial performance.
The following are the important advantages of the accounting ratios.

1. Analyzing Financial Statements

Ratio analysis is an important technique of financial statement analysis. Accounting

ratios are useful for understanding the financial position of the company. Different users
such as investors, management. bankers and creditors use the ratio to analyze the
financial situation of the company for their decision making purpose.

2. Judging Efficiency

14
Accounting ratios are important for judging the company's efficiency in terms of its
operations and management. They help judge how well the company has been able to
utilize its assets and earn profits.

3. Locating Weakness

Accounting ratios can also be used in locating weakness of the company's operations
even though its overall performance may be quite good. Management can then pay
attention to the weakness and take remedial measures to overcome them.

4. Formulating Plans

Although accounting ratios are used to analyze the company's past financial performance,
they can also be used to establish future trends of its financial performance. As a result,
they help formulate the company's future plans.

5. Comparing Performance

It is essential for a company to know how well it is performing over the years and as
compared to the other firms of the similar nature. Besides, it is also important to know
how well its different divisions are performing among themselves in different years.
Ratio analysis facilitates such comparison.

15
1) Profitability ratio:-

The name says it all. It shows the profitability of the firm.

Every corporate house or firm needs to earn profit not only to survive but also to expand
or diversify. Not only this, profit needs to be earned to give returns to investors, payment
to creditors, salaries and wages to the employees, and the list goes on.

This class of ratio are used to evaluate the company’s ability to generate excess revenue
over expenses

A) Gross profit ratio:-

GP ratio is a ratio which shows relationship between sales and gross profit. It is a very
effective tool for finding the operational performance of the company.

This can be found out by dividing gross profit by net sales.

GPR = GROSS PROFIT /NET SALES *100

(IN $ BILLION)
2009 2010 2011 2012 2013
NET 401.09 408.21 421.85 446.95 496.16
SALES
16
GROSS 97.03 103.56 106.56 111.82 116.67
PROFIT
GP RATIO 24.19% 25.37% 25.26% 25.02% 23.51%

GP RATIO
26.00%

25.50% 25.37%
25.26%
25.02%
25.00%

24.50%
24.19% GP RATIO

24.00%
23.51%
23.50%

23.00%

22.50%
2009 2010 2011 2012 2013

Analysis:-

By viewing this we see that the gross profit ratio increases from year 2009 to 2010 but
then this ratio decreases inspite of increase in gross profit.This means that gross profit
increases although ratio decreases.

B) Net Profit Ratio:-

17
NP ratio is an another tool to measure the profitability of the firm. It is an indicator about
how efficient is the firm is and well it is able to control it’s costs. It’s an indicator about
how much revenues are converted into actual profits by the company.

This can be calculated by dividing profit after tax by net sales.

NPR = NPAT / NET SALES *100

(IN $ BILLION)
2009 2010 2011 2012 2013
PAT 13.25 14.41 15.36 15.77 17
NET
SALES 401.09 408.21 421.85 446.95 469.16
NP RATIO 3.30% 3.53% 3.64% 3.53% 3.62%

NP Ratio
3.70%
3.64%
3.62%
3.60%
3.53% 3.53%
3.50%

NP Ratio
3.40%

3.30%
3.30%

3.20%

3.10%
2009 2010 2011 2012 2013

Analysis: -

18
By analyzing this graph we see that profit margin increase year by year except year 2012
that mean company achieve good profit from business and company tries to maintain this
by increasing net sales .

2) Liquidity ratio:-

Lteiquidity ratios are those ratios which show the company’s ability to meet the
company’s short term obligations. These ratios help to measure the ability of the firm to
pay back their obligations when they become due.

A) Current ratio:-

This is a balance sheet financial performance ratio which shows whether the company
has the ability or assets to repay their current liabilities over the next one year.if the ratio
is more than1:1 that means company has those assets to repay their current liabilities, if
less opposite would be the situation.

It could be found out by dividing current assets by current liabilities.

CURRENT RATIO = CURRENT ASSET / CURRENT LIABLITIES

(IN $ BILLION)
2009 2010 2011 2012 2013
CURRENT 48.95 48.33 51.89 54.98 59.94
ASSET
CURRENT 55.39 55.56 58.48 62.30 71.82
LIABLITIE
S
CURRENT 0.88 0.87 0.89 0.88 0.83
RATIO

19
 Current ratio
0.89
0.89 0.88
0.88 0.88
0.87
0.87
0.86
0.85
Current ratio
0.84
0.83
0.83
0.82
0.81
0.8
2009
2010
2011
2012
2013

Analysis:-

We say that current ratio is high till year 2012 but in year 2013 its become too much low
mainly due to its current liability increase and also its asset increase with that. So
company believes in tries to maintains that ratio.

B) Acid test ratio:-

Another type of liquidity ratio, which measures short term liquidity position of the
company is acid test ratio also known as quick ratio.

This ratio suggest whether the firm has enough short term assets to cover its short term
liabilities without selling it’s inventory. This means the company having enough backing
to pay current assets almost immediately.

For this liquid assets are divided by liquid liabilities, where liquid assets includes all
current assets except for inventory and prepaid expenses, because they cannot be
converted into cash immediately for payments, while liquid liabilities include all current

20
liabilities except for bank overdraft and cash credit because they are not to be paid
immediately.

QUICK OR ACID TEST RATIO = LIQUID ASSET / LIQUID LIABILITIES

(IN $ BILLION)
2009 2010 2011 2012 2013
LIQUID 14.44 15.18 15.57 14.27 16.14
ASSET
LIQUID 55.39 55.56 58.48 62.30 71.82
LIABILITIE
S
QUICK OR 0.26 0.27 0.27 0.23 0.22
ACID TEST
RATIO

Acid test ratio

0.3
0.26 0.27 0.27
0.25 0.23 0.22
0.2
Acid test ratio
0.15

0.1

0.05

0
2009 2010 2011 2012 2013

Analysis: -

Quick ratio is increasing till the year 2010, then it has shown a declining trend. It means
that quick assets is not increasing by the same percentage as the current liabilities.

21
3) Turnoverratios:-
Accounting ratios that measure a firm's ability to convert different accounts within their
balance sheets into cash or sales. Companies would like to convert those accounts into
cash as fast as possible. This type of turnover ratios shows if they are able to do so or not.

A) Inventory turnover ratio:-

In accounting, the Inventory turnover is a measure of the number of times inventory is

sold or used in a time period such as a year. The equation for inventory turnover equals
the Cost of goods sold divided by the average inventory. Inventory turnover is also
known as inventory turns, stock turn, stock turns, turns, and stock turnover.

INVENTORY TURNOVER RATIO = COGS/AVGRAGE STOCK

(IN $ BILLION)
2009 2010 2011 2012 2013
COGS 297.32 297.5 307.65 327 343.99
AVERAGE
STOCK 34.84 33.84 34.74 38.52 42.26
INVENTORY
TURNOVER
RATIO 8.53 8.79 8.86 8.49 8.14

22
 Inventory turnover ratio
9
8.86
8.8 8.79

8.6
8.53
8.49
8.4
Inventory turnover ratio

8.2
8.14
8

7.8

7.6
2009 2010 2011 2012 2013

Analysis:-

The inventory turnover ratio is not consistent from the year 2009 to the year 2013. From
the year 2009 to the year 2011, it has shown an increasing trend, indicating that number
of times the inventory is sold or used has increased. But it has declined in 2012 and 2013
showing that number of times the inventory sold or used has decreased.

B) Fixed asset turnover ratio:-

Fixed asset turnover is the ratio of sales to value of fixed assets, indicating that how well
the company uses its fixed assets to generate sales.

Higher the ratio, the better it is because it would mean that the company has less amount
of money tied up in fixed assets for each unit of sales revenue.

A declining ratio indicates that the company has overinvested in plant, machinery, or
other fixed assets.

23
 FIXED ASSETS TURNOVER RATIO = NET SALES / FIXED ASSETS

(IN $ BILLION)
2009 2010 2011 2012 2013
NET SALES 401.09 408.21 421.85 446.95 496.16
FIXED 284.96 340.11 357.49 371.63 390.56
ASSETS
FIXED 1.41 1.20 1.18 1.20 1.27
ASSETS
TURNOVE
R RATIO

Fixed assets ratio

2013 1.27

2012 1.2

Fixed assets ratio

2011 1.18

2010 1.2

2009 1.41

1.05 1.1 1.15 1.2 1.25 1.3 1.35 1.4 1.45

Analysis:-

This ratio has declined all these years except 2013 where it has shown a bit of
improvement. This ratio shows that how much of sales is generated by using fixed assets.

24
C) Current assets turnover ratio:-

It indicates the companies capability of generating sales by effectively using its current
assets.

Higher current ratio is good for the company as it indicates that the company is able to
generate maximum amount of sales revenue with minimum amount of capital. Vice versa
would be the case if the ratio is low.

CURRENT ASSET TURNOVER RATIO = NET SALES / CURRENT ASSET

(IN $ BILLION)
2009 2010 2011 2012 2013
NET SALES 401.09 408.21 421.85 446.95 496.16
CURRENT
48.95 48.33 51.89 54.98 59.94
ASSET
CURRENT 8.19 8.45 8.13 8.13 8.28
ASSET
TURNOVE
R RATIO

25
 Current assets ratio
8.45
8.45
8.4
8.35
8.28
8.3
8.25
8.19 Current assets ratio
8.2
8.13 8.13
8.15
8.1
8.05
8
7.95
2009 2010 2011 2012 2013

Analysis: -

Current Assets Turnover Ratio is increasi

ng in one year and decreasing in another year and so forth. This means that the amount of
sales generated by current assets is increasing in one year and then decreasing in another
and so forth.

D) Assets turnover ratio.

Asset turnover is a financial ratio that measures the efficiency of a company's use of

its assets in generating sales revenue or sales income to the company.

ASSET TURNOVER RATIO = NET SALES / AVGRAGE ASSET

(IN $ BILLION)
2009 2010 2011 2012 2013
SALES 401.09 408.21 421.85 446.95 496.16
AVGRAGE 163.49 196.42 180.36 189.36 198.26
26
ASSETS
ASSET
TURNOVE
R RATIO 2.45 2.08 2.34 2.36 2.50

Assets turnover ratio

3

2.45
2.5 2.34 2.36 2.5
2.08
2

Assets turnover ratio

1.5

0.5

0
2009 2010 2011 2012 2013

Analysis: -

The company is able to increase its assets turnover ratio over the years. This increasing
trend in ratio shows increase in sales generated by increase in overall assets of the
company.

E) Working capital turnover ratio:

Working capital means current assets minus current liabilities. The working capital
turnover ratio is used to analyze the relationship between the money used to fund
operations and the sales generated from these operations. The higher the working capital
turnover, the better because it means that the company is generating a lot of sales
compared to the money it uses to fund the sales.

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 WORKING CAPITAL TURNOVER RATIO = NET SALES / WORKING
CAPITAL

(IN $ BILLION)
2009 2010 2011 2012 2013
NET SALES 401.09 408.21 421.85 446.95 496.16
WORKING 22.89 27.84 23.53 23.79 21.9
CAPITAL
WORKING 17.52 14.66 17.93 18.79 22.66
CAPITAL
TURNOVE
R RATIO

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 Working capital
20
18
16
14
12
Working capital
10
17.83 18.79
17.52
8
14.66
6
4
2
0
2009 2010 2011 2012 2013

Analysis

Working capital turnover ratio has increased since the year 2010. It indicates that lot of
sales is generated as compared to the money used in funding the sales.

4) Solvency ratio:-

Solvency ratio’s measures company ability to meet its long term obligations. It provides an
assessment of the likelihood of a company to continue congregating its debt obligations.

A) Debt equity ratio =

It is a long term solvency ratio which indicates how much part of the capital is provided
by shareholders and how much part by creditors.

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Also termed as external internal ratio, a 1:1 ratio indicates creditors and shareholders
have equal contribution in total capital.

A ratio higher than 1:1 means the portion of assets contributed by shareholders is more,
which creditors like because it gives more creditability of their money to them.

A ratio lower than 1:1 meansthe contribution of assets by creditors is more, which
shareholders like to get money from creditors.

DEBT EQUITY RATIO = DEBT / SHAREHOLDER’S FUND

(IN $ BILLION)
2009 2010 2011 2012 2013
DEBT 40.56 46.62 55.17 64.94 49.03
SHAREHOLDER’ 67.48 73.24 71.66 76.17 82.26
S FUND
DEBT EQUITY 0.60 0.64 0.77 0.85 0.60
RATIO

Debt equity
0.9

0.8

0.7

0.6

0.5 Debt equity

0.85
0.4 0.77
0.3 0.6 0.64 0.6

0.2

0.1

0
2009 2010 2011 2012 2013

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Analysis:-

Debt equity ratio has increased from the year 2009 to the year 2012 indicating that
outside creditors for the company has increased over the years. But in the year 2013, this
ratio has declined showing decrease in outside creditors.

Proprietary ratio:-

The proprietary ratio shows that how sound is the capital structure of the company. This
means what is the contribution of shareholders in the total capital structure of the
company.

An higher proprietary ratio indicates the contribution of the shareholders is more in the
capital structure and thus giving greater security to the creditors.

A lower ratio indicates the company is very heavily dependent on debt foe its operations,
thus reducing the interest of creditors in the company, increase in interest expenses and
also increase in risk of bankruptcy.

PROPRIETARY RATIO = TOTAL ASSETS / PROPRIETORS FUND

(IN $ BILLION)
2009 2010 2011 2012 2013
PROPRIETORS
65.29 70.75 68.54 71.32 76.34
FUND
TOTAL 333.91 388.44 409.38 426.61 450.5
ASSETS
PROPRIETAR 0.196 0.182 0.167 0.167 0.169
Y RATIO

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 Proprietary ratio

2013 0.17

2012 0.17

Proprietary ratio
2011 0.17

2010 0.18

2009 0.2

0.15 0.16 0.16 0.17 0.17 0.18 0.18 0.19 0.19 0.2 0.2

Analysis: -

This ratio has declined from the year 2009 to the year 2013. It indicates that the capital
structure of the company has more of debts as compared to proprietor’s fund.

B) Return on asset ratio:-

An indicator of how profitable a company is relative to its total assets. ROA gives an idea
as to how efficient management is at using its assets to generate earnings.

It indicates number of dollar earned on each dollar of asset.

Higher ratio means the company is earning more dollars per dollar of asset.

RETURN ON ASSET RATIO = NET PROFIT AFTER TAX / NET ASSETS

(IN $ BILLION)

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 2009 2010 2011 2012 2013
NET PROFIT 13.25 14.41 15.36 15.77 17
AFTER TAX
NET ASSETS 163.49 196.42 180.36 189.36 198.26
ROA RATIO 8.10% 7.34% 8.52% 8.33% 8.57%

ROA ratio
9.00%

8.50%

8.00%
ROA ratio

7.50% 8.52% 8.57%

8.33%
8.10%
7.00% 7.34%

6.50%
2009 2010 2011 2012 2013

Analysis:

Except the year 2010, it has shown an increasing trend. It shows that earning of company
is more as compare to each unit of asset.

C) Return on Equity (ROE)

Return on equity (ROE) measures the rate of return on the ownership interest

(shareholders' equity) of the common stock owners. It measures a firm's efficiency at
generating profits from every unit of shareholders' equity (also known as net assets or
assets minus liabilities). ROE shows how well a company uses investment funds to
generate earnings growth. ROEs between 15% and 20% are generally considered good.

RETURN ON EQUITY= PAT/AVG. SHAREHOLDER EQUITY

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 (IN $ BILLION)
2009 2010 2011 2012 2013
NET PROFIT
AFTER TAX 13.25 14.41 15.36 15.77 17.00
AVG.
SHAREHOLDE
R EQUITY 66.54 70.36 72.45 73.96 79.26
ROE RATIO
19.91% 20.48% 21.20% 21.32% 21.45%

ROE ratio

21.50%

21.00%

20.50% ROE ratio

21.32% 21.45%
21.20%
20.00%
20.48%

19.50% 19.91%

19.00%
2009 2010 2011 2012 2013

Analysis:

It has shown an increasing trend from the year 2009 till the year 2013. It indicates that
company’s efficiency in generating profit from shareholder’s equity has increased all
these years.

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 CHAPTER – 4 – CONCLUSION and
RECOMMENDATIONS

 Ratio analysis has a major significance in analyzing the financial performance of a

company over a period of time. Decisions affecting product prices, per unit costs,
volume or efficiency have an impact on the profit margin or turnover ratios of a
company.
 Financial ratios are essentially concerned with the identification of significant
accounting data relationships, which give the decision-maker insights into the
financial performance of a company.
 The analysis of financial statements is a process of evaluating the relationship
between component parts of financial statements to obtain a better understanding of
the firm‘s position and performance.
 The first task of financial analyst is to select the information relevant to the decision
under consideration from the total information contained in the financial statements.
The second step is to arrange the information in a way to highlight significant
relationships. The final step is interpretation and drawing of inferences and
conclusions. In brief, financial analysis is the process of selection, relation and
evaluation.

Ratio analysis in view of its several limitations should be considered only as a tool for
analysis rather than as an end in itself. The reliability and significance attached to

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