Online Assignment II

Name : Nirmal Singh

Registration Number : 12000654

Roll Number : RQ2021A05

Section : Q2021

Subject : Management
Accounting And
Business Finance
(ACC224)
Introduction
Johnson Controls International is an American Irish-domiciled multinational
conglomerate headquartered in Cork, Ireland, that produces fire, HVAC, and security
equipment for buildings. Johnson Controls is a global diversified technology and
industrial leader serving customers in more than 150 countries. The Company creates
quality products, services and solutions to optimize energy and operational efficiencies
of buildings; lead-acid automotive batteries and advanced batteries for hybrid and electric
vehicles; and seating and interior systems for automobiles. Johnson Controls serves
customers worldwide.

The Company also provides residential air

conditioning and heating systems and
industrial refrigeration products .The
company's operations are segmented into two
business units: Building Efficiency and Global
Work Place Solutions.

The Building Technologies and Solutions business unit designs, produces, installs and
services heating, ventilation and air conditioning systems, industrial refrigeration,
building management systems, fire and security systems and mechanical equipment for
commercial and residential buildings.

The CEO of the company is George Oliver. Tomas Brannemo is the President of the
company. John Donofrio and Michael Ellis is The Vice- President of the Company

The Company Promises the honesty and transparency. Their Long-term strategic
relationships provide unique insights and the ability to deliver exceptional customer
experience and solution. The Company dedicated to working collaboratively together to
create the purposeful solution that propel the world forward.

Johnson Controls competitors include Schneider Electric, Siemens, GE Digital, Eaton and
Honeywell. Johnson Controls ranks 4th in Employee Net Promoter
Performance Of The Company As Compared To Last Year
SOLVENCY RATIOS

i. Debt Equity Ratio – The debt-equity ratio is a measure of the relative contribution
of the creditors and shareholders or owners in the capital employed in business.
Simply, ratio of the total long term debt and equity capital in the business is called
the debt-equity ratio.

Debt equity ratio = Long Term Debt/Shareholder’s Fund

In The Balance sheet of the Johnson ending on 31March 2021 the Long
Term Debt are 7506 Million and Shareholder Funds are 18753 Million. So,
2021 : 7506/18753 = 0.31
2020 : 7526/18533 = 0.40
Analysis: Since the debt-to-equity ratio is decreasing it indicates that a lower
amount of financing is done by debt as compared to equity.

ii. Proprietary Ratio - 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.

Proprietary Ratio = Shareholder’s funds / Total assets

In The Balance sheet of the Johnson ending on 31March 2021 the Total
assets are 48797 Million and Shareholder Equity are 18753 Million. So,
2021: 18753/48797 = 0.4
2021: 18533/51884 = 0.35
Analysis: An increase in proprietary ratio indicates a strong financial position of
the company and security for creditors to support the functions of the
business.

iii. Debt Ratio - The term debt ratio refers to a financial ratio that measures the extent
of a company’s leverage. The debt ratio is defined as the ratio of total debt to total
assets, expressed as a decimal or percentage.
 Debt Ratio: Total Debts/ Total Assets
In The Balance sheet of the Johnson ending on 31March 2021 the Long
Term Debt are 7506 Million and Total Assets are 48797 Million. So,
2021 : 7506/48797 = 0.18
2020 : 7426/51884 = 0.19
Analysis: Decrease in debt ratio usually implies a more stable business with the
potential of growing of the because a company with lower ratio also
has lower overall debt.

iv. Interest Coverage Ratio- The interest coverage ratio is a debt and profitability ratio
used to determine how easily a company can pay interest on its outstanding debt.
The interest coverage ratio is calculated by dividing a company's earnings before
interest and taxes (EBIT) by its interest expense during a given period.

Interest Coverage Ratio: EBIT/ Fixed Interest charges

In The Balance sheet of the Johnson ending on 31March 2021 the Earning
before Interest and Tax are 2559 Million and Fixed Interest Charges are 283
Million. So,
2021 : 2559/283 = 9.04
2020 : 1963/ 270 = 7.27
Analysis: An increase in Interest coverage ratio indicates the company is more
capable of meeting interest obligations, also indicate that a company is
looking opportunities to magnify their earnings through leverage.

Efficiency Ratio
1. Inventory Turnover Ratio -Inventory turnover is the rate that inventory
stock is sold, or used, and replaced. The inventory turnover ratio is
calculated by dividing the cost of goods by average inventory for the same
period.
 Inventory Turnover Ratio: COGS/ Average Stock

In The Balance sheet of the Johnson ending on 31March 2021 the Cost of
Goods Sold are 36178 Million and Total Stock Opening are 2010 Million
and Closing are 1282. So,
Average Stock is (1282+2010)2 = 2287 for 2021, and
(1802+1282)/2 = 2443 for 2020
2021 : 36178/2287 = 15.81
2020 : 37871/2443 = 15.50
Analysis: An increase in inventory turnover means a company is selling goods
fastly, and there is demand for their product in the market.

2. Debtors Turnover Ratio- The debtor turnover ratio is an accounting measure

used to quantify a company's effectiveness in collecting its accounts receivable,
or the money owed by customers or clients.

Debtors Turnover Ratio: Credit Sales /Average Debtors

In The Balance sheet of the Johnson ending on 31March 2021 the Credit
sales are 14053 Million and Total Debtor Opening are 7506 Million and
Closing are 7526. So,
Average Debtor is (7506+7526)/2 = 11269 for 2021, and
(7526+6089)/2 = 10570.5 for 2020

2021 : 14053/11269 = 1.24

2020 : 13068/10570.5 = 1.23
Analysis: An increase in receivables turnover ratio indicates that the company's
collection of accounts receivable is efficient and their customers pay
their debts quickly.

3.Credit Turnover Ratio – This ratio shows the relation between credit purchases
(cash purchases are ignored in this context) and the average creditors of a company
at any given time of the accounting year. This ratio is also the ‘accounts payable
turnover ratio’.
 Credit Turnover ratio: Net Credit Purchases/Average Creditors
In The Balance sheet of the Johnson ending on 31March 2021 the Credit
Purchase are 23010 Million, Returns are 7388 Million and Total Creditor
Opening are 1802 Million and Closing are 8202 Million. So,
Net Credit Purchase is : Purchase – Return
For 2021: 23010-7388 = 15622
For 2020: 27128-2314 = 24814
Average Creditor is (1802+8202)/2 = 5903 for 2021, and
(1802+7018)/2 = 4410 for 2020

2021 : 15622/5903 = 2.64

2020 : 24814/4410 = 5.62
Analysis: A decrease in the credit turnover ratio indicates that a company is
taking longer to pay off its suppliers than in previous year, It means
maybe a company is in financial distress.

4. Asset Turnover Ratio - The asset turnover ratio measures the efficiency of a
company's assets in generating revenue or sales. It compares the dollar amount of
sales (revenues) to its total assets as an annualized percentage.

Assets Turnover ratio: Net Sales/Average Total Assets

In The Balance sheet of the Johnson ending on 31March 2021 the Net sales
are 31400 Million, and Total Assets Opening are 48797 Million and Closing
are 51884 Million. So,

Average Assets is (48797+51884)/2 = 50340 for 2021, and

(51884+63179)/2 = 57531.5 for 2020

2021 : 31400/50340 = 0.62

2020 : 30172/57531.5 = 0.52
Analysis: A increase in asset turnover ratio indicates that a company is using
its assets efficiently and they utilize their assets in manner.
COMPARISION of Johnson Control, GE Digital, Eaton

1- Operating margin: - Operating margin also known as operating income margin,

operating profit margin, EBIT margin and return on sales is the ratio of operating
income to net sales, usually expressed in percent.

Operating Margins= Operating Income / Net Sales * 100

Johnson Control :(12308/31400) X 100 = 39.19%

GE Digital: (15030/30172) X 100 = 49.81%
Eaton: (19051/47209) X 100 = 40.35%
Analysis- Johnson Control has Less operating Margin as compare to their
competitors which mean is the company Operating- cost re too high, non-
operating costs are too high, or both have to high.

2- Return on assets: - Return on assets refers to a financial ratio that indicates how
profitable a company is in relation to its total assets. Corporate management,
analysts, and investors can use ROA to determine how efficiently a company uses
its assets to generate a profit.

Return On Assets= Net Profit After Tax /Average Total Assets

Johnson Control: (2842/50340) = 0.056
GE Digital: (6042/25131) = 0.042
Eaton: (1410/35524) = 0.039
Analysis: Since Johnson Control has more ROE It indicates that it generates more
profit without needing as much capital as compared to GE Digital and
Eaton.

3- Return on Investment: - Return on investment or return on costs is a ratio

between net income and investment. A high ROI means the investment's gains
compare favorably to its cost. As a performance measure, ROI is used to evaluate
the efficiency of an investment or to compare the efficiencies of several different
investments.

Return On Investment = EBIT / Capital Employed * 100

Johnson Control: (2559/27314) X 100 = 9.36%
 GE Digital : (1963/25848) X 100 = 7.59%
Eaton : (1371/31362) = 4.37%
Analysis: It can be noted that Johnson Control has very high ROI as compared
to GE Digital and Eaton which indicates that Johnson Control is
effectively utilizing their investments.

4- Return on equity: - The return on equity is a measure of the profitability of a

business in relation to the equity. Because shareholder's equity can be calculated
by taking all assets and subtracting all liabilities, ROE can also be thought of as a
return on assets minus liabilities.

Return on Equity =Net Profit After Tax /Equity Shareholder Funds

Johnson Control: (1513/17562) X 100 = 8.61 %
GE Digital: (1215/15856) X 100 = 7.66%
Eaton (631/17447) X 100 = 3.61%
Analysis: It can be noted that Johnson Control has the highest ROE as compared
to GE Digital and Eaton which indicates that Johnson Control is
increasing its profit generation without needing as much capital as
compared to GE Digital and Eaton. It also indicates how well a Johnson
Control management deploys shareholder capital.
WHETHER TO INVEST IN THE SHARES OF THE COMPANY AND
WHY/WHY NOT?

1. Market Share Price Johnson Control : Rs. 2,003.75

2. 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.

EPS: (Net profit after tax – Preference dividend) /No. of equity shares
Johnson Control ’s EPS - Rs. 22.30

3. Price-To-Earnings Ratio: The price-to-earnings ratio (P/E ratio) is the ratio for
valuing a company that measures its current share price relative to its earnings per
share (EPS). The price-to-earnings ratio is also sometimes known as the price
multiple or the earnings multiple.

P/E ratio = Market Price per Share/ EPS

Johnson Control P/E ratio = Rs. 89.85
Analysis: A high P/E ratio means that the company’s stock is overvalued, and the
investors are expecting high growth rates in the future.

4. Dividend pay-out ratio - The Dividend Pay-out Ratio (DPR) is the amount of
dividends paid to shareholders in relation to the total amount of net income the
company generates. In other words, the dividend pay-out ratio measures the
percentage of net income that is distributed to shareholders in the form of
dividends.

Dividend pay-out ratio: (Dividends per share / Earnings per share) X 100
Johnson Control’s Dividend pay-out ratio – (21 / 22.30) X 100 = 94.17
Analysis: A dividend pay-out ratio implies that the company is declaring the
almost of all the money it makes as dividends.

5. Interest Coverage Ratio-The interest coverage ratio is a debt and profitability

ratio used to determine how easily a company can pay interest on its outstanding
debt. The interest coverage ratio is calculated by dividing a company's earnings
before interest and taxes (EBIT) by its interest expense during a given period.

Interest Coverage Ratio: EBIT/ Fixed Interest charges

Johnson ’s Interest Coverage Ratio: 2559/83 = 30.04
Analysis: A high interest coverage ratio indicates that the company is capable to
meet their interests, Companies earning being sufficient to pay their debts.

OVERALL: Yes, I would invest in the Johnson Control Company because

the company performing very well, and it will give good returns on
investment. It is able to pay all the debts.
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Creation Date: 12-03-2022 21:58:00
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