Advanced Financial Management

SYMBIOSIS LAW SCHOOL, PUNE

Constituent of Symbiosis International (Deemed) University, Pune

(Accredited by NAAC (UGC) with `A’ Grade)

ADVANCED FINANCIAL MANAGEMENT

INTERNAL ASSESSMENT - 1
‘Ratio Analysis’

Submitted by: -

Name- Pranjal Singh

PRN – 18010126137

Division - B

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Cadence Ltd
Balance Sheet (Amt in Rs. Cr)
Particulars FY16 FY15 FY14 FY13

Share Capital 11.3 11.3 11.3 11.3

Reserves 273.8 180.1 112.8 73.3
Total shareholder fund 285.1 191.5 124.2 84.6
Long Term loans 19.8 4.3 2.8 20.7
Defrred Tax Liability 6.8 3.3 3.1 3.1
Trade payables 101.3 74.0 49.1 12.7
Long term debt payable within 1 yr 43.3 0.2 0.1 0.0
Other Current Liabilities 83.3 60.7 41.0 46.4
Other provisions 143.9 91.5 52.2 23.7
Total Current Liabilities 371.8 226.4 142.4 82.9

Total Liabilities 683.5 425.4 272.5 191.4

Gross Block 289.2 137.4 83.5 75.5

Net Block 150.6 41.9 40.5 35.9
Capital WIP 89.0 50.9 23.5 23.7
Investments 0.4 0.4 0.4 0.4
Inventories 174.9 105.1 61.3 50.3
Sundry Debtors 106.0 74.7 60.3 48.9
Cash and Bank Balance 22.3 53.5 44.0 10.9
Loans and Advances 139.7 98.6 42.4 21.3
Other current assets 0.5 0.3 0.2
Total Current Assets, Loans & Advances 443.4 332.2 208.1 131.5
Total Assets 683.4 425.4 272.5 191.4

Cadence Ltd
Income Statement (Amt in Rs. Cr)
Particulars FY16 FY15 FY14 FY13
Sales (net) 1,106.5 767.8 509.1 401.8
Raw Material cost 617.9 409.8 264.6 221.5
Salaries & Wages 73.0 53.0 39.3 31.4
Other manufacturing expenses 34.2 25.2 20.4 17.7
Cost of Goods sold 725.1 488.0 324.4 270.6
Selling & admin exp 206.3 153.9 106.2 91.5
Expenses 931.4 641.9 430.6 362.0
EBIDTA 175.1 126.0 78.5 39.8
Depreciation 6.2 4.3 3.6 3.5
EBIT/ Operating Profit 168.9 121.7 74.9 36.3
Interest 5.6 0.8 3.5 7.3
PBT 163.3 121.0 71.4 29.0
Tax 49.9 36.6 23.0 6.6
PAT 113.4 84.3 48.5 22.4

Marketcap 3324 2232 612 89

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PART 1: Ratios

Ratios FY16 FY15 FY14

Current Ratio 1.19 1.47 1.46
Debt to Equity Ratio 0.069 0.022 0.022
Interest Coverage Ratio 30.16 152.125 21.40
Operating Profit Margin 15.26% 15.85% 14.712%
Net Profit Margin 10.24% 10.98% 9.53%
Return on Equity 47.58% 53.40% 46.45%
Return on Capital 67.46% 75.40% 64.48%
Employed
Fixed Asset Turnover Ratio 11.490 18.635 13.327
Debtors/Receivables 12.246 11.374 9.324
Turnover Ratio
Price to Earnings Ratio 29.312 26.476 12.618

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PART 2: Analysis

1. An ideal Current Ratio is suggested to be 2:1. The current Ratio of the given
company is quite consistent, but takes a slight dip in the year 2016.

2. The ideal debt to equity ratio is 1:2. The Debt to equity ratio is first seen to
decline, which suggests that the company’s earnings have been good and is
trying to pay off the debt. The sudden increase in debt in the year 2016 suggests
that the company prefers debt as a source for financing over equity, as the share
capital remains constant.

3. The increase in the interest coverage ratio from FY14 to FY15 suggests that
the company has paid off its majority debts and thereby the interest charged to
it has decreased. In FY16, the company has again taken a large debt, which is
suggestive of an expansion or a large investment, which implies a decrease in
the interest coverage ratio, as the interest charged on EBIT has increased.

4. The Fixed Asset Turnover Ratio of a company indicates the better

management of fixed assets by the company. The increase in the Fixed Asset
Turnover Ratio from FY14 to FY15 suggests that the sales of the company have
increased and the average fixed assets have decreased, which indicate a better
management of the latter. Whereas, the decrease in the Fixed Asset Turnover
Ratio from FY15 to FY16 suggests an influx in the investment of net fixed
assets, but the sales have not performed at par with the investment in the fixed
assets.

5. The Operating Profit Margin Ratio does not see much fluctuation over the
three Financial Years. A parallel increase in the sale as well as the operating
profit suggests of a

6. The Net Profit Margin Ratio sees low fluctuation as there is a sharp increase
in interest in 2016 since there is a sharp increase in sale and operating expenses.
Despite having a high interest cost in 2016 (As compared to FY15 and FY14),
the high interest cost is compensated by the very high sales (Sales have almost
doubled from FY15).

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7. The Return on equity has increased from FY14 to FY15, indicating that the
company has a good earning capacity and has paid off majority of its debts. The
Return on Equity Ratio takes a dip from FY15 to FY16 as the company’s profit
decreased owing to the increase in interest charged on the debt.

8. Return on Capital Employed determines the efficiency of the Long-Term

funds of the company. An increase in the same from FY 14 to FY15 suggests an
increase in the EBIT and decrease in the average Capital employed which
means that the long-term funds of the company have been deployed efficiently
and are giving and increasing profit. A decrease in the ROCE ratio from FY15
to FY16 suggests that the capital deployed by the company is large but the
return on that capital has relatively decreased.

9. The gradual increase in the Receivables Turnover Ratio over the years
indicates that the company has a good brand name. It further indicates
efficiency in management of debtors.

10.The Price to Earning Ratio indicates the amount that the investors are willing
to pay for every rupee earned by the company. This ratio has increased in the
past three financial years indicating a growth in the Market Capital. The
sentiment of the market is that of growth, indicating that the investors expect
that the company is in a growing phase. They expect higher returns on their
investment in the future, in term of higher dividend and earning per share.

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PART 3: Working Notes

1. Liquidity Ratios: Current Ratio-

Current Ratio = Current Assets

Current Liability

Financial year 2016 –

Current Assets = 443.4

Current Liabilities = 371.8

Current Ratio = 443.4/371.8

= 1.19
2. Leverage Ratio: Debt to Equity Ratio-

Debt to Equity Ratio = Debt (Long Term)

Shareholder’s Funds

Financial year 2016 –

Debt (Long Term) = 19.8

Shareholder’s Funds= 285.1

Debt to Equity Ratio = 19.8/285.1

= 0.069

3. Leverage Ratio: Interest Coverage Ratio-

Interest Coverage Ratio = EBIT

Interest Charges

Financial year 2016 -

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EBIT = 168.9
Interest Charges = 5.6

Interest Coverage Ratio = 168.9/5.6

= 30.16

4. Profitability Ratio: Operating Profit Margin-

Operating Profit Margin = EBIT*100

Net Sales
Financial Year 2016 –
EBIT = 168.9
Net Sales = 1,106.5

Operating Profit Margin = 168.9*100/1,106.5

= 15.26%

5. Profitability Ratio: Net Profit margin-

Net Profit Margin = Net Profit*100

Net Sale

Financial Year 2016 –

Net Profit = 113.4
Net Sales = 1,106.5

Net Profit Margin = 113.4*100/1,106.5

= 10.248%

6. Profitability Ratio: Return on Equity-

Return on Equity = Net Profit*100

Average Shareholder’s Funds (SHF)

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Average Shareholder’s Funds = Current SHF + Last Year’s SHF

2

Financial Year 2016 –

Net Profit = 113.4

Average Shareholder’s Funds = 285.1 + 191.5/2
= 238.5

Return on Equity = 113.4*100/238.5

= 47.5%

7. Profitability Ratio: Return on Capital Employed-

Return on Capital Employed = EBIT*100

Average Capital Employed (CE)

Average Capital Employed = Current CE + Last Year’s CE

2
Capital Employed (CE) = Long Term Debt + SHF

Financial Year 2016-

EBIT = 168.9
Average Capital Employed = 19.8 + 285.1 + 191.5 + 4.3/2

= 250.35

Return on Capital Employed = 168.9*100/250.35

= 67.46%

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8. Activity Turnover Ratios: Fixed Asset Turnover-

Fixed Asset Turnover Ratio = Sales

Average Net Fixed Asset

Average Net Fixed Asset = Current FA + Last Year’s FA

2
Financial Year 2016 –
Sales = 1,106
Average Net Fixed Asset = 150.6+41.9/2
= 96.25
Fixed Asset Turnover Ratio = 1,106/96.25

= 11.490

9. Activity Ratio: Debtors/Receivables Turnover Ratio-

Receivables Turnover Ratio = Sales

Average Debtors

Average Debtors = Current Year’s Debtors + Last Year’s Debtors

2

Financial Year 2016 –

Sales = 1,106

Average Debtors = 106 + 74.7/2

= 90.35

Receivables Turnover Ratio = 1,106/90.35

= 12.246

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10. Valuation Ratios: Price to Earnings Ratios-

Price to Earnings Ratio = Market Capital

Net Profit

Financial Year 2016 –

Market Capital = 3324

Net Profit = 113.4

Price to Earnings Ratio = 3324/113.4

= 29.312

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