A Study on financial Statement Analyses of Indigo Paints

Private. Ltd.

Research Project Submitted in Partial Fulfillment of the Requirements for the

Degree of
BCOM Honours

by

ALOK SAHU

to the

DEPARTMENT of COMMERCE

BHOPAL SCHOOL of SOCIAL SCIENCES

April, 2021

Submitted by Guided by

Alok Sahu Dr. Smitha Pillai

Assistant Professor

Department of Commerce
 CERTIFICATE

It is certified that the work contained in the project report titled A Study on financial
Statement Analyses of Indigo Paints Private. Ltd., by Alok Sahu, has been carried out under
my/our supervision and that this work has not been submitted elsewhere for a degree.

Signature of Supervisor: …………….

Name:
Dr. Smitha Pillai
Assistant Professor

Department: Commerce

Bhopal School of Social Sciences

30 April, 2021
 DECLARATION

I hereby declare that this project report entitled A Study on financial Statement Analyses of
Indigo Paints Private. Ltd. was carried out by me for the degree of B.COM Honours under
the guidance and supervision of Dr. Smitha Pillai, Assistant Professor of Department of
Commerce, BSSS College. The interpretations put forth are based on my reading and
understanding of the original texts and they are not published anywhere in any form. The
other books, articles and websites, which I have made use of are acknowledged at the
respective place in the text. This research report is not submitted for any other degree or
diploma in any other University.

Place: Bhopal

Name: Alok Sahu

Class & Section: B.Com (Honours) A’’ Final Year

Date: 30, April, 2021

 ACKNOWLEDGEMENT

I would like to thank our Principal Dr. Fr. John P.J. and Vice Principal Dr. Sr. Sonia Kurien
for their immense support and blessings. I thank our HOD Dr. Amit Kumar Nag for his
support. I would like to express my special thanks of gratitude to my research guide Dr.
Smitha Pillai, Assistant Professor of Department of Commerce for his valuable suggestions
and guidance and for giving me the golden opportunity to do this wonderful research project
on the topic: A Study on financial Statement Analyses of Indigo Paints Private. Ltd., Without
her help it would have been difficult for me to have reached this state of completion of my
project report. Also, I would like to thank my parents and friends who helped me a lot in the
preparation of this project.

I wish to acknowledge the help of all those who have provided me information, guidance and
other help during my research period.
 TABLE OF CONTENTS

CONTENTS PAGE No.

Chapter 1: Introduction of The Topic 1
1.1 Rationale of the Study 2
1.2 Introduction to Industry 3
1.2.1 The Indian Paint Industry 3

1.2.2 Market share of the paints industry in India 2020, by company 4

1.2.3 Industry background 5

1.3 Introduction to Company 7

Chapter 2: Review of Literature 11

Chapter 3: Research Methodology 15

3.1 Research Objective 16
3.2 Research Hypothesis 16
3.3 Scope of the Study 16
3.4 Limitation of the Study 19

Chapter 4: Data representation and Analysis 20

4.1 Data Representation and Interpretation 21
4.2 Hypothesis Testing 31

Chapter 5: Results and Discussion 32

5.1 Major Findings 33
5.2 Discussions and Suggestions 33
5.3 Conclusion 34

References 35
Annexure 38
 Chapter -1
Introduction to the topic

1.1 Rationale of the Study

1.2 Introduction to Industry

1.2.1 The Indian Paint Industry

1.2.2 Market share of the paints industry in India 2020, by

company

1.2.3 Industry background

1.3 Introduction to Company

1|Page
1.1 Rationale of the study
The primary objective of the study is to analyze financial statement of the Indigo paints and
measure the performance in terms of assets utilization, and profitability. It also determines,
forecast and evaluate the best of economic conditions and company’s performance in the
future. In detail the research methodology used for the study that has focused on the past and
present performance of Indigo paints.

Financial statement analysis is important for obliging with business laws and regulations,
whereas additionally meeting the wants of stakeholders and numerous alternative parties.
Organizations can benefit from financial statement analysis in a variety of ways. It gives
internal and external stakeholders the information they need to make informed investment
decisions. Financial statement analysis also gives lending institutions an unbiased picture of a
company's financial health, which is useful when making lending decisions.

2|Page
1.2 Introduction to the industry

1.2.1 The Indian Paint Industry

The Paints trade is one among the foremost heavily regulated industries within the world. the
arena consists of makers of paints, varnishes, lacquers, shellacs, stains and a spread of
alternative specialty coatings.

Three staple items needed to create paint.

• You need a pigment to urge the precise color you want.

• Binder to carry the paint along.
• Thinner in order that it may be applied simply

The Indian paint trade is over one hundred years previous. Its starting may be copied back to
the putting in place of a manufacturing plant by Shalimar Paints in urban center (now
Kolkata) in 1902. Till World War II, the trade consisted of little producers and 2 foreign
corporations. when the war, the imports stopped, that diode to the putting in place of
producing facilities by native entrepreneurs. Still, the foreign corporations continued to
dominate the market. Initially British paint corporations like Goodlass Walls (now Goodlass
Nerolac), ICI, British Paints (now Berger Paints), Jenson & Nicholson and Blundell &
Eomite dominates the market. There square measure presently twelve players inside the
organized sector of India's paint and coatings market and over 2,000 inside the unorganized
sector. In 2003-04, the organized sector command 70% share of the around $1.5 billion (Rs
6,800 crore) business, whereas the balance was created of the unorganized units. (The Indian
paint trade coatings world) (Devaraj, n.d.)

The major players square measure Asian Paints, Goodlass Nerolac, Berger, ICI and Shalimar.
Recently, world leaders like Akzo chemist, PPG, DuPont and BASF have established base in
Bharat with product ranges like motorcar refinishes, powder coatings and industrial coatings.
Kansai Paints of Japan, that entered into collaboration with Goodlass Nerolac in 1984, is
currently the company for Goodlass Nerolac with 52% equity holding. PPG features a
venture with Asian Paints to manufacture industrial coatings. Jenson & Nicholson and
Snowcem Bharat are not any longer active players thanks to dwindling sales in recent years.

In 1990, helped by a growing economy, the Indian paint trade recorded a healthy growth of
12-13% annually. This was chiefly because of a forceful reduction in excise from a
staggering four-hundredth to Sixteen Personality Factor Questionnaire. However, the
expansion was restricted in 2002-03 to single digits. There was a revival in 2003-04 with a
strong growth of thirteen.

The Indian paint trade has 2 main market segments-industrial and ornamental paints. whereas
industrial paints square measure used for cover against corrosion and rust on steel structures,
vehicles, white product and appliances, ornamental paints square measure utilized in
protective valuable assets like buildings.

3|Page
The Indian ornamental business features a share of roughly 77% in total sales. In foreign
countries 50-70% of the business is from the economic section.

The trends square measure possible to shift in Bharat too, however at a slower pace, in favor
of business paints. The per capita consumption of paint in Bharat is 700 grams versus
nineteen metric weight unit within the U.S. and 2.7 kg and 5.8 metric weight unit in
alternative developing countries like China and Brazil as a result of consumption relates to
affordability, the low Indian figure isn't a surprise. (Devaraj, n.d.)

Within the ornamental section, the share of exterior paints is 21%, interior emulsions 11% ,
distempers 30%, solvent-based enamel paint 36% and wood finishes 2%.

The exterior class, notably exterior emulsions, is that the quickest growing section at 200%
for the last 3 years.

The industrial coatings section includes high performance coatings with half-hour market
share, powder coatings with 10% part, coil coatings with 5 %, marine coatings 5 % and
automotive coatings.

While Asian Paints was a transparent market leader with a turnover of roughly $420 million
(Rs 1,943 crores) in 2003-04, Goodlass Nerolac was second with some $220 million (Rs
1,010 crores) throughout identical amount.

1.2.2 Market share of the paints industry in India 2020, by company

Asian Paints was the leading company in 2020, with a market share of regarding 39 %.
Within the organized phase, Asian Paints LED the ornamental market phase, whereas the
economic phase was LED by Kansai Nerolac. As of 2019, the Indian paint trade saw around
12 % growth in its output volumes and regarding 15 % growth in terms of its total worth.
Future growth within the trade is probably going to depend upon many factors like disposable
incomes, stability of crude costs and growth within the automotive and property sectors.
(Jaganmohan, 02)

A. Market leaders

The paint, varnishes, coatings and lacquers business is one the foremost heavily regulated
industries within the world. The Indian paint business was the second largest within the
APAC region in 2020. The world witnessed important growth over the past few years. In
2019, the Wholesale index number of paints and varnishes stood at 112.7, its highest price
compared to the last 5 years. In 2019, the trade price of the country’s paint business was over
57 trillion Indian rupees. Despite being the second largest business globally, the export price
of India’s paint business amounted to around 18 trillion rupees as opposition the import price
value or so thirty-nine trillion rupees. (Jaganmohan, 02)

4|Page
 B. Segmentation

The paint sector across the south Asian nation was generally classified into 2 segments –
industrial and ornamental. Exterior and interior wall paints, enamel and appurtenant product
and wood finishes created up the ornamental phase. Automotive, powder and protecting
coatings on the opposite hand summed up the economic phase. The Indian market was
dominated by the ornamental phase accounting for regarding 75 % of the market share
compared to industrial phase that had simply over 25 % of the share. Less technical power
and also the involvement of organized moreover as unorganized players contributed to the
current major distinction in market shares. (Jaganmohan, 02)

Source : (Investment shastra, 2021)

1.2.3 Industry background

The Indian paint trade is valued at | 54500 large integers and it's expected to grow at 12-tone
system CAGR in next 5 years. The ornamental paint phase constitutes ~74% of total paint
sales (i.e. ~| 40,300 large integer) and is probably going to grow to 74300 crore by FY24E
backed by shortening repainting cycle, rising urbanization and aspiration level of class family
in India. The domestic ornamental paint trade is basically dominated by organizes players
with ~67% market share, whereas unorganized/regional players hold rest 33 % market share.
(Parthasarathy, n.d.)

5|Page
Industrial paint class contributes rest ~26% in total paint sales and is probably going to grow
at CAGR of 100% to | 22800 large integer by FY24E supported by favorable base and revival
within the automotive business.

Source: (The indian paint industry coatings world)

Per capita paint consumption in Asian country has exaggerated by ~7% over the last seven
years. Compared to the world average consumption of ~14% kilogram per capita,
consumption of paints in Asian country is low, indicating a big chance for penetration going
forward. (Sanjay Manyal, Hitesh Taunk, 2021)

6|Page
 Source: (Sanjay Manyal, Hitesh Taunk, 2021)

1.3 Introduction to the company (INDIGO PAINTS)

Started within the year 2000, Indigo Paints had a modest starting. it's the 5th largest
ornamental paint company in Republic of India. It began with the manufacture of lower-end
Cement paints, and bit by bit dilated its vary to hide most segments of water-based paints like
Exterior Emulsions, Interior Emulsions, Distempers, Primers, etc. From associate early age,
the corporate unfold its footprints across the country, with the speedy growth of its reach
across Republic of India. these days the corporate stands out joined of the strongest
contenders within the Indian paint trade, being rated as associate innovative paint
manufacturer, that keeps starting off with distinctive merchandise never before offered within
the country. (indigopaints, n.d.)

Over time, the corporate found its niche within the paint trade through innovation. It
unbroken churning out bright new concepts for painting solutions, with horrific regularity.
Gradually, the trade began wanting upon the corporate as a artistic movement thinker and a
entrepot of recent development. (indigopaints, n.d.)

With dynamical time and trends, Indigo Paints revamped its identity showcasing a brand new
wave of thinking by the corporate. A number of years alone it clubbed all its multiple
completes for various product classes into one umbrella brand “INDIGO”. A new logo for the
brand and therefore the Company was created, that accurately mirrored the core philosophy
of the organization. The brand style was extended to any or all packaging style and different
kinds of company communication. (indigopaints, n.d.)

The company over the years introduced distinctive paints merchandise that has helped it to
expand its dealers touch domestic markets that is otherwise dominated by high four players.
The premium product class contributes 28.6% in topline whereas rest comes from the
opposite paint merchandise classes. The corporate has pan Republic of India reach with its
11230 dealer networks and it's growing 100% annually. For FY18-20, company according

7|Page
sales, PAT CAGR of 26%, 104% severally, supported by EDITDA margin enlargement of
~800 rate throughout identical amount. (Sanjay Manyal, Hitesh Taunk, 2021)

C. Strong presence in the semi urban and rural markets

The company has a significant in the semi urban and rural markets which contributes ~85%
of the total revenue. The significant presence in the semi urban and rural markets has helped
company to recover its lost sales quickly amid pandemic. The company now sees a
significant untapped (Sanjay Manyal, Hitesh Taunk, 2021)

D. Focus to rationalize advertisement expanses going forward

Indigo’s spend on advertisement and promotion at ~13% is one of the highest in the industry.
The higher expenditure could be attributable towards company’s efforts to strengthen the
“Indigo” brand. However, company is now (Sanjay Manyal, Hitesh Taunk, 2021)

E. Company Background

Over the years, the corporate has introduced a number of the distinctive paints merchandise
(where the presence of different paint firms is negligible) that helped indigo to expand its
dealer touch domestic markets that is otherwise dominated by high four players. Few
merchandises wherever indigo has 1st mover benefits are metal like Emulsions, Tile Coat
Emulsions, Bright Ceiling Coat Emulsions, Floor Coat Emulsions, Dirtproof & Waterproof
Exterior Laminate, Exterior and Interior Acrylic Laminate, and atomic number 94 Super
Gloss Enamel. The premium product class contributes 28.6% in topline whereas rest comes
from the opposite paint product classes. Indigo has total paint producing capability of ~1.95
lakh metric tons and its 3 plants are settled in Rajasthan, Kerala and Tamilnadu.

The company has pan Asian country reach with its 11,230 dealer networks and it's growing
~10% annually. For FY18-20, company reported sales, PAT CAGR of 26%, 104% severally,
supported by EDITDA margin growth of ~800 bits per second throughout identical amount.
Finally, the PAT grew at CAGR of 104% in FY18-20 to | 47.8 crore. (Sanjay Manyal, Hitesh
Taunk, 2021)

8|Page
 Source: (The indian paint industry coatings world)

Source: (IDirect_IndigoPaints_IPOReview)

F. Investment Rationale

9|Page
 • Continue to focus on developing differential products to grow market share

Indigo paints were the primary company to launch numerous new product classes that is
understood as premium class. Those merchandise are silver Emulsions, Tile Coat Emulsions,
Bright Ceiling Coat Emulsions, Floor Coat Emulsions, Dirtproof & Waterproof Exterior
Laminate, Exterior and Interior Acrylic Laminate, and PU Super Gloss Enamel. The revenue
from premium merchandise classes has registered CAGR of half-hour in FY18-20, whereas
the revenue contributes 27% in FY18 to 29% by FY20. The corporate has more planned to
extend revenue contribution of premium merchandise through dealer addition fresh entered
geo graphics. (Sanjay Manyal, Hitesh Taunk, 2021)

Source: (IDirect_IndigoPaints_IPOReview)

• Capacity additions in next three years to boost volume growth

Company’s put in capability has augmented at CAGR of 43% within the last 3 years. That
has helped company to attain volume CAGR of 27% in FY18-20. the corporate any plans to
extend the present capability of terrorist organization by adding capability at its Tamilnadu
facilities. Indigo has earmarked AN investment of a 150 crore to expand its Tamilnadu
primarily based capability, which is able to be mostly funded through commercialism yield.
Company presently manufactures solely solvent-based paints at its Tamilnadu facility; it's
currently getting to embrace producing of water primarily based paints (largely higher finish
products) to cater the growing demand of water-based paints. (Sanjay Manyal, Hitesh Taunk,
2021)

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Source: (The indian paint industry coatings world)

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 Chapter 2
Literature Review

(Dr Ajai Kumar Jain, Vishal Sharma, 2016) The history of Indian Paint business is as
previous because the history of the Indian folks. The earliest samples of Indian painting
square measure cave paintings going back to 10,000 B.C. The tradition of painting in Indian
landmass grew and developed over time, leading to a completely developed and finest vogue,
incorporating the culture and religion of the region and faith. Indian paints forever embrace
wealthy color and clear symbolism, exploitation specific picture to create spiritual figures
clearly recognizable (Indian Mirror July, 2015). Cave paintings representations traces are
found at Bhimbetka; getting ready to the Bhopal space in just about thousand caves. The date
set for these caves dates back to the Paleolithic amount (7000 BC). in this remote time the
inhabitants of this space were still forming the bases of the civilization and but already
pictorial realization square measure done on the walls of those dark caves used additionally
as protection from the weather and animals (Paint in ancient India, Oct-5, 2013).

12 | P a g e
(Rajender, 2020) Profit maximization is that the basic objective of each firm. Within the gift
competitive world, no firm will sustain while not profit. Typically profit suggests that
financial gain over expenditure of a firm. To gauge the money performance of firm, it's vital
to analyzing the gain position of firm over an amount of your time. In money accounting
there are many techniques and tools are accessible for measurement Performance of a
corporation. This study tries to research the money performance of the choose paint
corporations in Asian nation victimization quantitative relation analysis also as applied
mathematics techniques have wont to interpret the information. The study amount is of five
years from 2014-15 to 2018-19. The study ended that gain position of the choose Paint
corporations looks to be smart and satisfactory.

(Gandhi, 2018) Fundamental analysis helps to judge the proper worth of the shares. The
shareholders will invest their cash within the corporations by creating elementary analysis.
The most purpose of this analysis is to spot expensive or underpriced securities. The basic
analysis contains a correct framework. For this analysis prime Down (Economic, business
and Company Analysis) approach has been adopted. The Indian paint business is growing in
multifold. The innovation in product like friendly, odor free, and mud & waterproof paints
have attracted massive customers. The Paint business has bright prospects within the
returning year. Thus the investments in Paint business could ends up in profit. 2 leading
corporations, Asian Paints Ltd & Berger Paints Ltd, listed in National exchange area unit
chosen for the study. The analysis is distributed supported secondary knowledge. The info
collected from the reports printed by run, web site of NSE, Annual Reports for the 5 year
amount of the each the businesses. Elementary of each corporation is distributed by EIC
approach to work out the intrinsic worth.

(Krunal J. Kakkad, Dr. C.M. Thakkar, 2020) The paint trade is one amongst the foremost
necessary and hard-to-please industries within the world market. It includes producing and
selling of paints, varnishes, stains and completely different coatings. As per the literature, the
Indian paint trade is of federal agency 50,000 crores turnover. The trade is split in to 2
components, decorative/domestic (like homes, property, etc) and Industrial (which includes
cars, electronic things like icebox, washer, etc.). Out of those 2 segments of trade, three–
fourth contribution is returning from decorative/domestic whereas one fourth of the business
is causative by industrial paint phase. Among domestic phase Asian Paints is that the leading
company whereas in industrial phase Kansia Nerolac has captured market in Bharat.

(Biswas) The Indian paint trade is over a hundred years recent. Its starting are often copied
back to the fitting of a manufactory by Shalimar paints in Kolkata in 1902. The Indian paint
trade has 2 main segments-industrial and ornamental paints. Industrial paints area unit used
for cover against corrosion and rust on steel structures, vehicles, white product and
appliances. Because of the speedy urbanization, increasing disposable incomes and growing
infrastructure, a sturdy growth within the Indian paint trade is anticipated. 10 years
knowledge from year 2008 to 2017 of the four paint firms in Asian nation viz, Asian paints,
Kansai Nerolac, Berger Paints and Akzo altruist are collected for the study. The target of the
study is to seek out the correlation and regression between gain (net profit, come on internet
price and come on capital employed) and dividend payout magnitude relation of the choose
firms. It's found that just in case of Asian Paints there's correlation and regression between
gain and dividend payout magnitude relation.

(Ashok Mohanty, Neha Budhwani, Barun Ghosh, M. Tarafdar & Sanchita Chakravarty,
2013) The paint business in Asian nation is generally classified into 2 categories: organized

13 | P a g e
sector and unorganized sector. International and large Indian firms type the organized sector,
whereas the small- and medium-scale industries that turn out paints for the native market type
the unorganized sector. The current study was undertaken to work out the amount of lead in
ornamental paints in Asian nation. A complete of 148 paint samples sourced from four
organized sector firms and 6 unorganized sector firms were analyzed for the entire lead
content. Results of this study reveal that thirty-nine you look after the entire paints tested (n =
148) contain lead quite three hundred ppm, the voluntary limit prescribed by Bureau of
Indian Standards, BIS (IS 15489:2011), and forty five you look after the tested paints contain
lead quite ninety ppm, the U.S.A. limit. any analysis of the information indicates that solely
five you look after the tested paints factory-made by organized sector firms contain lead quite
three hundred ppm (n = 91), whereas ninety three you look after the tested paints factory-
made by unorganized sector firms contain lead quite three hundred ppm (n = 57).
Comparison with earlier according information suggests that whereas organized sector firms
area unit bit by bit abandoning the employment of lead-based compounds in their paints, the
unorganized sector firms area unit still adding lead-based compounds advisedly in their paints
despite the potential health hazards related to it. The utmost concentration of lead obtained
was eighty, 350 ppm in one in every of the paints factory-made by associate degree
unorganized sector company. The presence of high concentration of lead in yellow and
inexperienced color paints indicates that colors are often a predictor of lead content in
ornamental paints.

(BURRA & MEGHE, 2016) Demand foretelling may be a preliminary and obligatory
exercise for a corporation to strategically accomplish its designing and execution route map
the least bit levels and business functions. Foretelling becomes easier if the trade and
therefore the organization are operational for a substantial quantity of your time because the
historical knowledge may be consumed to make familiar alternatives for higher cognitive
process. One amongst these techniques that facilitate America in creating higher forecast is
statistic with seasonality. Historically Indian paint trade has been driven by seasonality,
which has been established by wide discussions and analysis. Off late, this trend is
experiencing a paradigm shift that has been known by trade bigwigs however the empirical
proof has not however been established within the obtainable literature each at trade and
structure level. So, the target of this paper is to grasp the seasonality pattern and latest
demand trends in Indian paint trade, not solely at trade level however additionally for every
organized player specifically, thereby paving the means for knowledge driven demand
foretelling & management and combination designing. The statistic with seasonality
technique is being applied to grasp the demand patterns within the Indian paint trade.

14 | P a g e
 Chapter-3
Research Methodology

15 | P a g e
3.1 Research Objective

3.2 Research Hypothesis

3.3 Scope of the Study

3.4 Research Design and Methodology

3.5 Limitation of the Study

3.1 Objective of the study

1. To compare and analyze the financial statements for the past three financial years.

2. To know the profitability position of indigo paints.

3. To forecast the annual growth rate of income of the company with the help of Trend
analysis.

4. To provide suggestions for improving the overall finance performance of the Indigo Paints.

16 | P a g e
3.2 Hypothesis

H:0 There is no significant difference in financial performance of Indigo paints in 3 years.

3.3 SCOPE OF THE STUDY

The data for a period of 3 years from 2017-18 to 2019-20 has been taken into consideration to
assess the financial strength and weaknesses of the Indigo paints. These statements include
the income statement, balance sheet, statement of cash flows, and a statement of retained
earnings.

17 | P a g e
Research design is the framework of research methods and techniques chosen by a
researcher. The design allows researchers to hone in on research methods that are suitable for
the subject matter and set up their studies up for success.

The research design use in the study is analytical research has to analysis the financial
statement which is historical data derive conclusion form it.

Analytical analysis is a type of study that entails the use of critical thinking skills as well as
the assessment of facts and relevant data for the study.

18 | P a g e
The design of a research topic explains the type of research (experimental, survey,
correlation, semiexperimental, review) and also its sub-type (experimental design, research
problem, descriptive case-study).

Tools used for data analysis:

The type of research problem an organization is facing will determine the research design and
not vice-versa. The design phase of a study determines which tools to use and how they are
used. The last 3 years annual report of the company is compiled and tabulated for the purpose
of study.

The techniques used are:

• Comparative study of Balance sheet

• Comparative study of Profit and loss account for the FY 2013-14& 2014-15.

• Trend Analysis

• Ratio Analysis

➢ Profitability ratio.
➢ Turnover ratio.
➢ Solvency ratio.
➢ Current ratio.

Data collection tools

For the success of the present study data was collected mainly from secondary sources like
annual reports of Indigo from the FY 2017-18 to FY 2019-20, newsletter, magazines and
journals of the company. Research involves gathering data that describe events and then
organizes, tabulates, depicts and describes the data collection it often uses visual aids such as
graphs and charts to aid the reader in understanding the data.

Period of study:

The data for a period of 3 years from 2017-18 to 2019-20 has been taken into consideration to
assess the financial strength and weaknesses of the company.

3.4 LIMITATIONS OF THE STUDY:

1. The study is based on secondary data. Hence, it may not provide accurate information

19 | P a g e
2. The study is restricted to the past three years (2017-20) financial information only.

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 Chapter – 4

Data Representation and Analysis

4.1 Data Representation and Interpretation

4.1.1 Analysis-1
4.1.2 Analysis-2
4.1.3 Analysis-3

4.2 Hypothesis Testing

21 | P a g e
4.1 Data Representation and Interpretation

4.1.1 Analysis-1
To compare and analyze the financial statements for the past three financial years.

A. Total current assets and liabilities

All amount in Lakh rupees
2018 2019 2020
Non-current assets 11054.63 16294.57 21072.81

Current Assets 17711.8 21023.68 21123.13

Total Assets 28766.43 37318.25 42195.94
Equity 11775.91 14746.43 19705.44
Non-current liabilities 1550.41 3548.71 3268.39

Current liabilities 15440.11 19023.11 19222.11

Total Equity and
28766.43 37318.25 42195.94
Liabilities
Source: (indigo paints, n.d.)

25000

20000

15000

10000

5000

0
Non-current Current Assets Equity Non-current Current
assets liabilities liabilities

2018 2019 2020

Source: (indigo paints, n.d.)

Interpretation

As per the figure, company continuously increasing their operation and in 2018 total assets &
liabilities were Rs. 28766.43 lakh, in 2019 total assets & liabilities were Rs. 37318.25 lakh

22 | P a g e
which was increased by approx. 30 percent then previous year. In 2020 total assets &
liabilities were Rs. 42195.94 lakh which was increased by 13 per cent approx. Share capital
of the company seems to continuously increasing, the total amount raised by the company by
the sale of share/equity at the growth rate of 26 percent from year 2018 to 2019 and 34 per
cent from 2019 to 2020.

B. Revenue & expenses & Net profit of 3 consecutive years

2018 2019 2020
Total revenue 4115776322 5613336497 6264060000
Total Expenses 4090074159.00 5399861699.00 5786933000.00
Net Profit 25702163 213474798 477127000

Total revenue Total Expenses

6264060000
5613336497
5786933000.00
4115776322 5399861699.00

4090074159.00

2018 2019 2020

Source: (indigo paints, n.d.)

Interpretation

As per the figure, total revenue is highest in 2020 in three consecutive years. The net profit
seems to be continuously increasing. In 2020 net profit is Rs. 477127000, in 2019 Rs.
213474798 and in 2018 Rs. 25702163. The growth rate of net profit is more than 700 per
cent in 2019 and more than 123 per cent in 2020.

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 C. Cash Inflows
2018 2019 2020
Net cash flow from 270377152 451260523 858641000
operating Activities
Net cash flow from -227326873 -602027288 -751222000
Investing Activities
Net cash flow from -43783176 -222953061 -168997000
Financing Activities
Source: (indigo paints, n.d.)

CASH FLOW
Net cash flow from Financing Activities
Net cash flow from Investing Activities
Net cash flow from operating Activities
50%
40%
30%
20%
10%
0%
-10% 2018 2019 2020

-20%
-30%

Source: (indigo paints, n.d.)

Interpretation

As per the figure the cash out flow from financing activities is highest in 2019 which is
amounted to Rs. 222953061, in 2020 amounted to Rs. 168997000 and in 2018 amounted to
Rs. 43783176. Cash flow from financing activities (CFF) measures the movement of cash
between a firm and its owners, investors, and creditors. This report shows the net flow of
funds used to run the company including debt, equity, and dividends.

The cash out flow from investing activities is highest in 2020 which is amounted to Rs.
751222000, which is increased by approx. 25 per cent. In 2019 cash out flow from investing
activity was Rs. 602027288, which was increased by approx. 165 percent. And In 2018 cash
out flow from investing activities Rs. 227326873. Investing activities include purchases of
physical assets, investments in securities, or the sale of securities or assets.

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Cash flow from operating is highest in 2020, amounted to Rs. 858641000 which is increased
by approx. 91 per cent. In 2019 cash flow from operating activities was Rs. 451260523 which
was increased by 67 per cent. And in 2018 cash flow from operating activities was amounted
to Rs.270377152.

4.1.2 Analysis-2
To know the profitability position of indigo paints.

A. Profitability Ratio
Profitability ratios are a class of financial metrics that are used to assess a business's ability to
generate earnings relative to its revenue, operating costs, balance sheet assets,
or shareholders' equity over time, using data from a specific point in time.

Profitability ratios can be compared with efficiency ratios, which consider how well a
company uses its assets internally to generate income (as opposed to after-cost profits).

1. Return on Equity
This ratio measures Profitability of equity fund invested the company. It also measures how
profitably owner’s funds have been utilized to generate company’s revenues. A high ratio
represents better the company is.

Formula: Profit after Tax ÷ Net worth Where, Net worth = Equity share capital, and
Reserve and Surplus.

2. Earnings Per Share

This ratio measures profitability from the point of view of the ordinary shareholder. A high
ratio represents better the company is.

Formula: Net Profit ÷ Total no of shares outstanding

3. Cash earnings Per Share

Cash earnings per share (cash EPS), or more commonly called operating cash flow, is a
financial performance measure comparing cash flow to the number of shares outstanding.

4. Return on Capital Employed

This ratio computes percentage return in the company on the funds invested in the business
by its owners. A high ratio represents better the company is.

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Formula: Operating Cash Flow ÷ Diluted Shares Outstanding

5. Return on Assets
This ratio measures the earning per rupee of assets invested in the company. A high ratio
represents better the company is.

Formula: Net Profit ÷ Total Assets

6. Net Profit Margin

This ratio measures the overall profitability of company considering all direct as well as
indirect cost. A high ratio represents a positive return in the company and better the company
is.

Formula: Net Profit ÷ Sales × 100 Net Profit = Gross Profit + Indirect Income – Indirect
Expenses

Formula: Net Operating Profit ÷ Capital Employed × 100 Capital Employed = Equity
share capital, Reserve and Surplus, Debentures and long-term
Loans Capital Employed = Total Assets – Current Liability

7. Total Debt/Equity (X)

The debt-to-equity (D/E) ratio is used to evaluate a company's financial leverage and is
calculated by dividing a company’s total liabilities by its shareholder equity.

Formula: Total Liabilities ÷ Total shareholder equity

Profitability Ratio of Indigo Paints.

2018 2019 2020
Return on Equity (%) 2.57 20.8 26.74
Earnings Per Share Basic EPS 0.9 9.32 16.5
Diluted EPS 0.57 5.9 10.5
Cash earnings per share (%) 6.85 15.22 23.23
Return on Capital Employed (%) 5.72 20.89 30.84
Return on Assets (%) 0.91 7.2 11.33
Net Profit Margin (%) 0.62 5.01 7.65
Total Debt/Equity (X) 0.32 0.47 0.25

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 35 30.84
30
25 23.23
20.89
20 16.5 15.22
15 10.5 11.33
9.32 7.65
10 5.9 6.85 5.72 7.2
5.01
5 0.9 0.57 0.91 0.62 0.320.470.25
0
BASIC EPS DILUTED EPS
EARNINGS PER SHARE CASH EARNING RETURN ON RETURN ON NET PROFIT TOTAL
PER SHARE CAPITAL ASSETS MARGIN DEBT/EQUITY
EMPLOYED (X)

2018 2.57 2019 20.8 2020 26.74

Interpretation

Return on Equity is highest 2020 which is 26.74 per cent, in 2019 return on equity was 20.8
per cent. And in 2018 return on equity was 2.57 per cent.

The higher a company's EPS, the more profitable it is considered to be. A higher EPS
indicates greater value because investors will pay more for a company's shares if they think
the company has higher profits relative to its share price. Basic Earnings per share is highest
in 2020 which is 16.5 per cent, in 2019 it was 9.32 per cent. And in 2018 basic EPD was 0.9
percent. Diluted earning per share is highest in 2020 which is 10.5 per cent. In 2019 diluted
EPS was 5.9 percent. And in 2018 Diluted EPS was 0.57 per cent. Cash earnings per share is
also highest in 2020 which is 23.23 per cent and 2019 cash EPS was 15.22 per cent. And in
2018 cash EPS was 6.85 per cent.

Return on capital employed or ROCE measures how efficiently a company can generate
profits from its capital employed by comparing net operating profit to capital employed.
ROCE is highest in 2020 which is 30.84 percent. In 2019 ROCE was 20.89 per cent and
lowest in 2018 which is 5.72 percent in three consecutive years.

Return on assets (ROA) is an indicator of how well a company utilizes its assets in terms of
profitability. The ROA figure gives investors an idea of how effective the company is in
converting the money it invests into net income. The higher the ROA number, the better,
because the company is earning more money on less investment. ROA is highest in 2020
which was 11.33 per cent, in 2019 ROA was 7.2 percent and lowest in 2018 which was 0.91
per cent in three consecutive years.

Net profit margin is one of the most important indicators of a company's financial health. By
tracking increases and decreases in its net profit margin, a company can assess whether
current practices are working and forecast profits based on revenues. The highest net profit
margin was in 2020 which is 7.65 per cent than in 2019 which was 5.01 percent and lowest in
2018 which was 0.62 in these three consecutive years.

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The debt-to-equity (D/E) ratio compares a company’s total liabilities to its shareholder equity
and can be used to evaluate how much leverage a company is using. Higher leverage ratios
tend to indicate a company or stock with higher risk to shareholders. D/E ratio is highest in
2018 which was 0.47 then in 2018 which was 0.32 and lowest in 2020 which was 0.25.

2018 2019 2020

Inventory Turnover Ratio (X) 8.15 7.73 8.14

Debtors Turnover Ratio 4.50 5.15 6

Interest Coverage Ratio 1.94 8.23 13.06

30
25
13.06
20 8.23
15 1.94
4.5 5.15 6
10
8.15 7.73 8.14
5
0
2018 2019 2020

Inventory Turnover Ratio (X) Debtors Turnover Ratio Interest Coverage Ratio

Interpretation

Inventory turnover measures how many times in a given period a company is able to replace
the inventories that it has sold. A slow turnover implies weak sales and possibly excess
inventory, while a faster ratio implies either strong sales or insufficient inventory. Inventory
turnover ratio seems to be in the year 2018 and 2020 which is approx. 8.15 and lower in 2018
which was 7.73.

The highest debtor turnover was in 2020 and the ratio was 6. A high receivables turnover
ratio may indicate that a company’s collection of accounts receivable is efficient and that the
company has a high proportion of quality customers that pay their debts quickly. In 2019
debtor turnover ratio was 5.15 land in 2018 the ratio was 4.50. A low receivables turnover
ratio could be the result of inefficient collection, inadequate credit policies, or customers who
are not financially viable or creditworthy.

The interest coverage ratio is used to measure how well a firm can pay the interest due on
outstanding debt. Also called the times interest earned ratio, this ratio is used by creditors and
prospective lenders to assess the risk of lending capital to a firm. A higher coverage ratio is

28 | P a g e
better, although the ideal ratio may vary by industry. The interest coverage ratio was highest
in 2020 which is 13.06 times. 2019 it was 8.23 And lowest in 2018 which was 1.94.

B. LIQUIDITY RATIOS

Liquidity ratios are an important class of financial metrics used to determine a debtor's ability
to pay off current debt obligations without raising external capital. Liquidity ratios measure a
company's ability to pay debt obligations and its margin of safety through the calculation of
metrics including the current ratio, quick ratio, and operating cash flow ratio.

1. Current Ratio

The current ratio measures a company's ability to pay off its current liabilities (payable within one
year) with its total current assets such as cash, accounts receivable, and inventories. The higher the
ratio, the better the company's liquidity position:

Formula: Current Ratio= Current Assets / Current Liabilities

//

2. The Quick Ratio

The quick ratio measures a company's ability to meet its short-term obligations with its most
liquid assets and therefore excludes inventories from its current assets. It is also known as the
"acid-test ratio":

Formula: (cash & cash equivalents + Marketable securities + Account receivable) ÷

Current liabilities

2018 2019 2020

Current Ratio 1.17 1.12 1.14
Quick Ratio 0.84 0.75 0.73

2.5

2 0.84
0.75 0.73

1.5
Quick Ratio
1.17 1.12 1.14
1 Current Ratio

0.5

0
2018 2019 2020

29 | P a g e
Interpretation

After calculating, analyzing and interpreting the various financial reports of the company, we
have come to the conclusion, that the company has a good liquidity statement in 2018 than
preceding year, because the company has more short-term assets to cover the liabilities short-
term, which means that there is more working capital. Also, we know that current assets are
also constituted by customer requirements and if it happens that customers do not pay their
debts, then the company may become insolvent and this would affect the reputation of the
company. In 2018 quick ratio is 0.84 and current ratio is 1.17, in 2019 quick ratio is 0.75 and
current ratio is 1.12 and in 2020 quick ratio is 0.73 and current ratio is 1.14.

4.1.3 Analysis-3.

To forecast the annual growth rate of income of the company with the help of Trend analysis.

ANNUAL FY 2020 FY 2019 FY 2018

Total Revenue 626.41 537.25 414.26

Total Revenue Growth (%) 16.6 29.69 42.7
Total Expenses 558.98 503.23 410.68
Total Expenses Growth (%) 11.08 22.53 33.39
Profit after Tax (PAT) 47.81 26.87 2.57
PAT Growth (%) 77.95 945.43 -
Operating Profit Margin (%) 11.68 7.21 1.78
Net Profit Margin (%) 7.65 5.01 0.62
Basic EPS (₹) 16.5 9.32 0.9

800 50
626.41 42.7
600 537.25 40
29.69
414.26 30
400 16.6
20
200 10
0 0
FY 2020 FY 2020
FY 2019 FY 2019
FY 2018 FY 2018

Total Revenue Total Revenue Growth (%)

Source: (economic times, n.d.)

Interpretation

The growth of revenue of the company continuously increasing in the preceding years. The
total revenue in the financial year 2020 was 62640.60 lakh which was increased by 16.6

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percent than the previous year. In 2019 total revenue was amounted to Rs. 53724.54 lakh
which was increased by 29.69 percent than the previous year. And in 2018 total revenue was
41157.76 lakh which was increased by 16.6 percent than the previous year.

558.98
600 503.23 40
33.39
410.68 30
400 22.53
20 11.08
200
10
0 0
FY 2020 FY 2020
FY 2019 FY 2019
FY 2018 FY 2018

Total Expenses Total Expenses Growth (%)

Source: (economic times, n.d.)

Interpretation

As the operation of the company continuously increasing expenses of the business also
increases, the highest expenses incurred in the year 2020 was amounted to Rs. 55897.92 lakh
which was increased by 11.08 per cent than the previous year. In year 2019 total expenses
was Rs. 50323.03 lakh was increased by 22.53 percent than previous year. And in 2018 total
expenses was amounted to Rs. 41068 which was increased by 33.39 per cent than the
previous year.

47.81
50 15
11.68
40
26.87 10
30 7.21
20
5
10 1.78
2.57
0 0
FY 2020 FY 2020
FY 2019 FY 2019
FY 2018 FY 2018

Profit after Tax (PAT) Operating Profit Margin (%)

Source: (economic times, n.d.)

Interpretation

Profit after Tax was highest in the year 2020 which was amounted to Rs. 4781.48 lakh and
the operating profit margin was 11.68 percent. In the year 2019 PAT was Rs. 2686.97 lakh
and operating profit margin was 7.21 percent. And in the year 2018 PAT was Rs. 25702.163
lakh and operating profit margin was 1.78 percent.
31 | P a g e
4.2 Hypothesis Testing

Mean Standard deviation

Current Ratio 1.143 0.02
Quick Ratio 0.773 0.047
Return on Equity (%) 16.703 2.572
Basic EPS 8.906 6.375
Diluted EPS 5.656 4.057
Cash earnings per share (%) 15.1 6.687
Return on Capital Employed (%) 19.15 10.328
Return on Assets (%) 6.48 4.284
Net Profit Margin (%) 4.426 2.899
Total Debt/Equity (X) 0.346 0.091
Inventory Turnover Ratio (X) 8 0.195
Debtors Turnover Ratio 5.216 0.614
Interest Coverage Ratio 7.743 4.552

Interpretation
A low standard deviation means that the data is very closely related to the average, thus
current ratio, Quick ratio, debt to equity ratio, inventory turnover ratio, debtor turnover ratio
seems to be very reliable and consistence.

A high standard deviation means that there is a large variance between the data and the
statistical average, thus return on equity, Basic EPS, Diluted EPS, Cash earnings per share,
Return on capital employed, Return on assets, Net profit margin and Interest coverage ratio is
not as reliable & inconsistence. And the reason, there was hug growth in each succeeding
year as compared to the previous year.

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 Chapter – 5

Results and Discussion

5.1 Major Findings

5.2 Discussions and Suggestions

5.3 Conclusion

33 | P a g e
5.1 Major Findings

1. Indigo Paint has strong liquidity position.

2. Indigo Paints is very much efficient in utilizing its assets. It has the lowest level of
inventory days (on an average 44 days).

3. Return on capital employed has increased from 5.72% to 30.84% which shows that the
efficiency and profitability of the company has improved.

4. The companies earn adequate profit during the study although the performance of Indigo
Paints was far better in FY 2020.

5. From the analysis it has been cleared that the short term solvency position of Indigo Paints
is satisfactory during the period under study.

5.2 Discussions & Suggestions

1. Investors should analyze the financial statements first in order to make investment
decision.

2. Companies should focus more in efficiency and asset utilizations.

3. A company can earn more profit by increasing its sales and controlling its cost.

4. Management is able to identify weak points and enforce corrective measures in order to
progress more.

34 | P a g e
5.3 Conclusion
The analysis of the financial statements is a very important process, even necessary for
making accurate decisions. Information obtained from financial analysis, together with
accounting, are the basis for making decisions, both internally and externally. This study
presents a model for the financial statement’s analysis of Indigo paints during the period from
2018 to 2020 on profitability that traced the measurement of performance. The research finds
out that there is continuously growth profitability ratios and subsequently the performance of
Indigo paints, during the three years and the highest in 2020. In conclusion, ROE is the most
comprehensive measure of profitability of a firm; it considers the operating and investing
decisions made as well as the financing and tax related decisions. After calculating, analyzing
and interpreting the various financial reports of the company, we have come to the conclusion
that in terms of liquidity, the state of the company is better in 2020, because this year the
company has more short-term assets to cover short-term liabilities which means that there is
more working capital. Regarding profitability ratios, there is a better situation in 2020 as
compared to previous years and it is more effective in using assets to generate revenues,
hence, there is a greater turnover this year as well as greater return on capital. From turnover
assets ratio can be seen that the company is more effective in 2020 because in this year it was
more likely to collect customer debts (Receivable Accounts), but it was also more effective in
inventory sales, whilst with regard to payable accounts the company has more debts to
suppliers in 2018 and 2019.

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Annexure`

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Source: (indigo paints, n.d.)

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Source: (indigo paints, n.d.)

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Source: (indigo paints, n.d.)

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Source: (indigo paints, n.d.)

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Source: (indigo paints, n.d.)

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