A Report

On
“FINANCIAL ANALYSIS OF STATE BANK OF
INDIA”

Devanshi Chavda - 23058

Submitted To:
Dr. P.K. Priyan

Post Graduate Department of Business Management

DECLARATION

I
I hereby certify that I am the only author of this project work and that
all of this project work has not been submitted to another university or
institution with a degree. I believe that, within my knowledge and
beliefs, my project work does not infringe copyright or ownership,
and ideas and techniques from the work of others are contained in my
project documentation. Whether citations or other material is
published, otherwise, it is fully credited by standard cross-reference
practices. I declare this to be a true copy of my project work.

Place: Vallabh Vidyanagar

Date: 12/04/2024

Devanshi Chavda

PREFACE
As a part of our curriculum of financial management, we were
required to Present and draft a report on “Financial Analysis of State
Bank of India” to enhance our report writing skills. As we know that

II
human being can’t survive without blood similarly finance is also
lifeblood of business organization. As when human feels deficiency
of blood so he or she may be died similarly if organization are short
of funds than they me liquidated, so they have to manage funds in
very optimum manner so proper utilization can be done. Therefore, to
do proper optimum utilization financial management is done.

Financial Management is that management activity which is

concerned with the planning and controlling of the firm financial
resources. Hence there are three types of decision in financial
management, the function of raising funds, investing them in assets
and distributing returns earned from assets to shareholders are
respectively known as financing decision, investment decision,
dividend decision. A firm attempt to balance cash inflows and
outflows while performing these functions. This is called liquidity
decision.

Thus, financial manager is a person who is responsible, in a

significant way to carry out the finance functions. We can simply say
that there is direct relationship between finance and all other functions
such as operations, production, marketing because without finance
such activities can’t be completed.

ACKNOWLEDGEMENT

III
The success of the presentation and report required a lot of guidance
and I am fortunate that I got all that was required for the completion
of the same. Whatever I have done and accomplished was under the
guidance of Dr P.K. Priyan. I would like to express gratitude towards
sir for giving me such opportunity. I am very grateful that, I was able
to deliver and do it to my best. All this would not have been possible
without the great effort put in.

EXECUTIVE SUMMARY

INTRODUCTION:

The purpose of this project is to conduct a comprehensive financial analysis of the State Bank
of India (SBI) over the last 10 years. This analysis aims to provide an in-depth understanding
of SBI’s financial health and market performance during this period.

IV
The project will focus on various financial ratios, including profitability ratios, market-related
ratios, and leverage ratios. These ratios will help assess SBI’s profitability, efficiency,
liquidity, solvency, and market performance.
By analyzing these ratios over a decade, we aim to identify trends, strengths, and areas of
concern in SBI’s financial performance. This analysis will not only contribute to academic
knowledge but also provide valuable insights for investors, financial analysts, and other
stakeholders.
The project will conclude with recommendations based on the findings of the analysis. These
recommendations will aim to suggest strategies for improving financial performance and
enhancing shareholder value.
This project represents an opportunity to apply theoretical knowledge to a real-world context,
thereby enhancing understanding of financial analysis and its practical applications. It is
hoped that this project will contribute to a deeper understanding of financial management in
the banking sector.
Please note that the data used for this analysis will be sourced from publicly available
financial statements and market data. All analysis and interpretations made in this project are
solely for academic purposes.
Looking forward to embarking on this decade-long journey of financial exploration of the
State Bank of India.

REVIEW OF LITERATURE:

Ken little, (1994) defined fundamental analysis is the process of looking at a business at the
basic or fundamental financial level. This type of analysis examines key ratios of a business
to determine its financial health and gives you an idea of the value its stock. The goal is to
determine the current worth and more importantly, how the market values the stock. In this
article he is also saying that return on equity (ROE) is one measure of how efficiently a
company uses its asset to produce earnings
Stephen H. Penman, (1996) Financial statement analysis has traditionally been seen as part of
the fundamental analysis required for equity valuation. But the analysis has typically been ad
hoc. Drawing on recent research on accounting-based valuation; this paper outlines a
financial statement analysis for use in equity valuation.
Anthony C.Greig (1989) in his paper, stated fundamental analysis identifies equity values not
currently reflected in stock prices and thus systematically predicts abnormal returns.

V
Ken little, (1994) defined
fundamental analysis is the
process of looking at a
business at the basic
or fundamental financial
level. This type of analysis
examines key ratios of a
business to
determine its financial health
and gives you an idea of
the value its stock. The goal
is to
determine the current worth
and more importantly, how
the market values the stock.
In this

VI
article he is also saying that
return on equity (ROE) is one
measure of how efficiently a
company
uses its asset to produce
earnings
OBJECTIVES:

1. To conduct a comprehensive financial analysis of the State Bank of India over the last
10 years, providing an in-depth understanding of its financial health and market
performance.
2. To analyze various financial ratios, including profitability ratios, market-related ratios,
and leverage ratios, to assess SBI’s profitability, efficiency, liquidity, solvency, and
market performance.
3. To Understand Financial Statements: Learn to interpret the balance sheet, income
statement, and cash flow statement of SBI.
4. To Perform DuPont Analysis: Carry out a DuPont analysis to dissect SBI’s Return on
Equity (ROE) into its components.
5. To Compare with Peers: Compare SBI’s financial performance with that of other
major banks in India.
6. To Write a Detailed Report: Compile a detailed report presenting the findings of your
analysis.

METHODOLOGY:

The methodology for this project will involve a detailed analysis of the financial statements
of the State Bank of India over the last 10 years. The data will be sourced from publicly
available financial statements and market data. Various financial ratios including profitability

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ratios, market-related ratios, and leverage ratios will be calculated and analyzed to assess
SBI’s financial performance.

SIGNIFICANCE OF THE STUDY:

The significance of this study lies in its potential to provide valuable insights into the
financial performance of one of India’s leading public sector banks. It can help investors,
financial analysts, and other stakeholders make informed decisions. Additionally, it can
contribute to academic knowledge in the field of financial management in the banking sector.

LIMITATIONS:

Data Availability: The analysis is dependent on the availability and accuracy of publicly
available data. Any inaccuracies in the data could impact the findings of the study.
Scope: The study is limited to the last 10 years. Therefore, it may not capture the impact of
events or trends outside this period.
Subjectivity: While financial ratios can provide valuable insights, they are subject to
interpretation. Different analysts may interpret the same ratios differently.
External Factors: The study may not fully account for external factors such as changes in the
economic environment, regulatory changes, or market conditions that might have impacted
SBI’s performance.

VIII
 TABLE OF CONTENT
SR PARTICULARS PAGE
NO NO

1. Introduction to project 1
2. Overview of Industry 5
3. Overview of company 8
4. Ratio Analysis & Interpretation 15
8. Conclusion
Annexure-1

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 1. Introduction to Financial Analysis
Financial analysis is the process of identifying the financial strengths
and weakness of the firm by properly establishing relationship
between the items of the balance sheet and profit and loss account.
Financial analysis can be undertaken by the management of the firm,
or by parties outside the firm viz., owners, creditors, investors, and
others. The nature of analysis will differ depending on the purposes of
the analyst. Financial analysis is the starting point for making plans,
before using any sophisticated forecasting and planning procedure.

Financial analysis is the process of examining a company’s

performance in the context of its industry and economic environment
in order to arrive at a decision or recommendation. Often, the
decisions and recommendations addressed by financial analysts
pertain to providing capital to companies—specifically, whether to
invest in the company’s debt or equity securities and at what price. An
investor in debt securities is concerned about the company’s ability to
pay interest and to repay the principal lent. An investor in equity
securities is an owner with a residual interest in the company and is
concerned about the company’s ability to pay dividends and the
likelihood that its share price will increase.

Overall, a central focus of financial analysis is evaluating the

company’s ability to earn a return on its capital that is at least equal to
the cost of that capital, to profitably grow its operations, and to
generate enough cash to meet obligations and pursue opportunities.
Fundamental financial analysis starts with the information found in a
company’s financial reports. These financial reports include audited
financial statements, additional disclosures required by regulatory
authorities, and any accompanying (unaudited) commentary by
management. Basic financial statement analysis—as presented in this
reading—provides a foundation that enables the analyst to better
understand other information gathered from research beyond the
financial reports.

Types of financial analysis:

1. Fundamental analysis
2. Technical analysis

1. Fundamental Analysis:
The fundamental analysis gives you the perspective of a company's
intrinsic value by examining related economic and financial factors.
Generally, analysts used this technique to evaluate the major factors
that influence security’s value, either from macroeconomic factors
like state policies, environmental factors supporting particular
industries to microeconomic factors like the company’s management.

❖ It is a technique that gives you a better conviction to identify

companies for long term investment and create wealth.
❖ Analysts prefer this technique to find stocks that are currently
trading at undervalued or overvalued, and then decide a fair market

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 value of those stocks to help the investors in their investment
decisions.

For example, if a stock is trading higher than its fair market value
means the stock is overvalued in the current market then the sell
recommendation is given by analysts.
Types of Fundamental Analysis
The various factors of Fundamental Analysis can be divided in two
broad categories: 1. Qualitative analysis:
It includes the quality of company’s executives, vision, brand-name
recognition, patents and proprietary information, technology.
Generally, it is related to the nature of business and standard of
organization rather than sticking to its quantity.

2. Quantitative analysis:
Quantitative analysis of financial statements is used to understand a
company's financial performance better before making an investment
decision. The three most important financial statements being used for
quantitative analysis are income statements, balance sheets and cash
flow statements.

2. Technical Analysis:
On the contrary, in technical analysis analysts evaluate the investment
opportunities by analysing past statistical trends such as volume and
price. Technical analysts assume that prices of the stock are more
likely to follow the past trend rather than move strangely.

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In the stock market everything is related to market psychology or
market emotions, technical analysts use past data charts to analyse
these emotions and market fluctuations to better understand trends
related to stock.
Technical analysts believe the fact that history will repeat itself and
we can better understand the opportunities to invest if we understand
the past patterns or trends.
However, fundamental analysis and technical analysis both needed to
make an effective market strategy.

There are four tools of financial analysis:

❖ Ratio Analysis
❖ Flow Analysis
❖ Leverage Analysis
❖ Working Capital Analysis

2. Overview of Industry
India is the largest provider of generic drugs globally. Indian
pharmaceutical sector supplies over 50% of global demand for
various vaccines, 40% of generic demand in the US and 25% of all
medicine in the UK. Globally, India ranks 3rd in terms of
pharmaceutical production by volume and 14th by value. The

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domestic pharmaceutical industry includes a network of 3,000 drug
companies and ~10,500 manufacturing units.

India enjoys an important position in the global pharmaceuticals

sector. The country also has a large pool of scientists and engineers
with the potential to steer the industry ahead to greater heights.
Presently, over 80% of the antiretroviral drugs used globally to
combat AIDS (Acquired Immune Deficiency Syndrome) are supplied
by Indian pharmaceutical firms.

According to the Indian Economic Survey 2021, the domestic market

is expected to grow 3x in the next decade. India's domestic
pharmaceutical market is at US$ 42 billion in 2021 and likely to reach
US$ 65 billion by 2024 and further expand to reach ~US$ 120-130
billion by 2030.

India's biotechnology industry comprises biopharmaceuticals,

bioservices, bio-agriculture, bio-industry, and bioinformatics. The
Indian biotechnology industry was valued at US$ 70.2 billion in 2020
and is expected to reach US$ 150 billion by 2025.

India's medical devices market stood at US$ 10.36 billion in FY20.

The market is expected to increase at a CAGR of 37% from 2020 to
2025 to reach US$ 50 billion. As of August 2021, CARE Ratings
expect India's pharmaceutical business to develop at an annual rate of
~11% over the next two years to reach more than US$ 60 billion in
value. In the global pharmaceuticals sector, India is a significant and
rising player. India is the world's largest supplier of generic

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medications, accounting for 20% of the worldwide supply by volume
and supplying about 60% of the global vaccination demand. The
Indian pharmaceutical sector is worth US$ 42 billion and ranks 3rd in
terms of volume and 13th in terms of value worldwide.
In August 2021, the Indian pharmaceutical market increased at 17.7%
annually, up from 13.7% in July 2020. According to India Ratings &
Research, the Indian pharmaceutical market revenue is expected to be
over 12% Y-o-Y in FY22.
Indian pharmaceutical exports stood at US$ 24.44 billion in FY21 and
US$ 22.21 billion in FY22 (until February 2022). India is the 12th
largest exporter of medical goods in the world. The country's
pharmaceutical sector contributes 6.6% to the total merchandise
exports. As of May 2021, India supplied a total of 586.4 lakh
COVID19 vaccines, comprising grants (81.3 lakh), commercial
exports (339.7 lakh) and exports under the COVAX platform (165.5
lakh), to 71 countries. Indian drugs are exported to more than 200
countries in the world, with the US being the key market. Generic
drugs account for 20% of the global export in terms of volume,
making the country the largest provider of generic medicines globally.
India's drugs and pharmaceuticals exports stood at US$ 3.76 billion
between April 2021 and May 2021. The Indian drugs and
pharmaceuticals sector received cumulative FDIs worth US$ 19.19
billion between April 2000December 2021. The foreign direct
investment (FDI) inflows in the Indian drugs and pharmaceuticals
sector reached US$ 1.206 billion between April-December 2021. In
FY21, North America was the largest market for India's pharma
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exports with a 34% share and exports to the U.S., Canada, and
Mexico recorded a growth of 12.6%, 30% and
21.4%, respectively.

Major states for

Pharmaceuticals
❖ Karnataka
❖ Maharashtra
❖ Gujarat
❖ Uttar Pradesh
❖ Delhi NCR
❖ Tamil Nadu
❖ Telangana

3. Overview of Company
Lupin Ltd. is a leading pharmaceutical company from India and is
amongst the top 10 generic companies in the world. It started its
business in 1968 and over the years has become one of the largest
pharmaceutical companies in India and the world. Its businesses
include formulations, Active Pharmaceutical Ingredients (API), drug
delivery systems and biotechnology. The Lupin story began in 1968

6
when Dr. DeshBandhu Gupta founded the company in Mumbai to
harness the power of science in improving health outcomes.

After success with Lupin, in 1988 Gupta founded the group's CSR
arm, the Lupin Human Welfare & Research Foundation (LHWRF).
This initiative was dedicated to sustainable rural development with the
aim to uplift families living below the poverty line.

In July 2015 the company announced its intention to acquire Gavis

Pharmaceuticals and Novel Laboratories for $880 million.

The founder, Desh Bandhu Gupta died in June 2017 and was
subsequently replaced as chairman by his wife, Manju Deshbandhu
Gupta.

In October 2019, Lupin announced the Appointment of Sreeji

Gopinatham as Chief Information Officer (CIO).

In March 2019, the US FDA put several Lupin drugs plants on notice
for quality problems, and indicated it might not approve future Lupin
drug applications.

Lupin's research program covers the entire pharma product chain. The
company's R&D program is headquartered in the Lupin Research
Park located near Pune and Aurangabad that houses over 1,400
scientists.
Lupin's R&D covers:

❖ Generics Research
❖ Process Research
❖ Pharmaceutical Research

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 ❖ Advanced Drug Delivery Systems (ADDS) Research
❖ Intellectual Property Management
❖ Novel Drug Discovery and Development (NDDD)
❖ Biotechnology Research

Lupin's businesses encompass the entire pharmaceutical value chain,

ranging from branded and generic formulations, APIs, advanced drug
delivery systems to biotechnology. The company's drugs reach 70
countries with a footprint that covers advanced markets such as USA,
Europe, Japan, Australia as well as emerging markets including India,
the Philippines and South Africa to name a few.

Key markets
United States

Headquartered in Baltimore, Maryland, Lupin Pharmaceuticals Inc.

(LPI), the company's US subsidiary is a $891 million enterprise. ]It has
a presence in the branded and generics markets of the US. In the
branded business, Lupin operates in the CVS and Paediatric segments.

The company is the market leader in 28 products out of the 77

products marketed in the US generics market, of which it is amongst
the Top 3 by market share in 57 of these products (IMS Health,
December 2014): Suprax (Cefixime), a paediatric antibiotic, is Lupin's
top-selling product here. Other products in Lupin's branded portfolio
include Antara< (Fenofibrate), Locoid lotion, Alinia (Nitazoxanide)
and InspiraChambers (Anti-static valved holding chamber). The
company is also the 5th largest and fastest growing generics player in
the US (5.3% market share by prescriptions, IMS Health). Lupin's US

8
brands business contributed 9% of total US sales whereas the generics
business contributed 91% during FY 2014–15.

India Region Formulations (IRF)

Lupin's IRF business focuses on Lifestyle diseases and Chronic

disease therapy segments, particularly in Cardiology, Central Nervous
System (CNS), Diabetology, Anti-Asthma, Anti-Infective, Gastro
Intestinal and Oncology. The IRF business contributed 24% of the
company's overall revenues for FY 2014–15, growing by 20% and
recording revenues of ₹29,676 million (US$370 million) for FY
201415 as compared to ₹24,794 million (US$310 million) for FY
2013–14.

It has 12 manufacturing plants and 2 Research plants in India, as

Jammu(J&K), Mandideep & Indore (Madhya pradesh), Ankaleswar &
Dabasa (Gujarat), Tarapur, Aurangabad and Nagpur (Maharashtra),
Goa, Visakhapatnam (Andhra Pradesh) and Sikkim; where research
centre at Pune and Aurangabad. Among these the baby plant is
Nagpur plant which will the biggest formulation unit for Lupin in
coming year. Europe
Lupin's focus in the European Union encompasses Anti-Infectives,
Cardiovascular, and CNS therapy areas, along with niche
opportunities in segments like Oral Contraceptives, Dermatology and
Ophthalmics. The company's presence in France is by way of a trade
partnership; in

9
Germany, it operates through its acquired entity Hormosan Pharma
GmbH.] (Hormosan); while the UK business is a direct-to-market
initiative.

Japan

Lupin is the fastest-growing Top 10 generic pharmaceuticals player in

Japan (IMS). It operates in Japan through its subsidiary, Kyowa
Pharmaceutical Industry Co. Ltd. (Kyowa), a company acquired in
2007, and I ’rom, Pharmaceutical Co. Ltd (IP), acquired in 2011.
Kyowa has an active presence in Neurology,
Cardiovascular, Gastroenterology and the Respiratory therapy
segments. I ‘rom is a niche injectables company.

In 2014, Lupin entered into a strategic joint venture agreement with

Toyama-based Japanese pharmaceuticals company, Yoshindo Inc. to
create YL Biologics (YLB). YLB will be jointly managed by both
partners and will be responsible for conducting clinical development
of certain biosimilars including regulatory filings and obtaining
marketing authorization in Japan.

In 2019, Lupin exited the generic pharmaceuticals business in Japan

by divesting its stake in Kyowa to private equity firm Unison for an
enterprise value of Japanese 57,361 million yen (Rs 3,702.4 crore).

South Africa

Lupin's South African subsidiary, Pharma Dynamics (PD) is the

fastest growing and the 4th largest generic company in the South
African market (IMS). The company is a market leader in the

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Cardiovascular segment and has a growing presence in Neurology,
Gastroenterology and the Over the Counter (OTC) segments.

Australia

Lupin entered the Australian market through its subsidiary, Generic

Health Pte. Ltd. (GH). It subsequently acquired the worldwide
marketing rights to the over-100-year-old Australian brand Goanna,
used for pain management.

Philippines

Lupin's Philippines subsidiary Multicare Pharmaceuticals (Multicare),

is a branded generic company focused on Women's Health, Pediatrics,
Gastro-Intestinal and Diabetes care. FY 2012 also marked its foray
into the Neurology segment when it entered into a strategic marketing
partnership with Sanofi.

Mexico & Latin America

In 2014, Lupin acquired 100% equity stake in Laboratories Grin, S.A.

De C.V. (Grin), Mexico, a specialty pharmaceutical company engaged
in the development, manufacturing and commercialization of branded
ophthalmic products. This marked their entry into Mexico and the
larger Latin American pharmaceuticals market. In May 2015, Lupin
entered the Brazilian market with its acquisition of 100% stake in
Medquímica Indústria Farmacêutica S.A., Brazil, (Medquímica).

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BOARD OF DIRECTORS:

❖ Manju D Gupta: Chairman

❖ Dr Kamal K Sharma: Vice chairman (non-executive)

❖ Vinita Gupta: Chief Executive Officer

❖ Nilesh D Gupta: Managing Director

❖ Ramesh Swaminathan: Executive Director, Global CFO & Head

Corporate Affairs

❖ Jean LUC Belingard: Independent Director

❖ Christine Mundkur: Independent Director

❖ KBS Anand: Independent Director

MANAGEMENT TEAM:

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❖ Anil Kaushal: Head-lupinlife

❖ Dr Cryus Karkaria: President Biotechnology

❖ Debabrata Chakravorty: President- Global Sourcing

❖ Dr Fabrice Egros: President- Global Corporate Development &

Growth Market

❖ Naresh Gupta: President API plus & Global institutional business

❖ Rajeev Sibal: President- Indian region formulations

❖ Yashwant Mahadik: President-Global Human Resources

4.Ratio Analysis
Ratio Analysis is a powerful tool of financial analysis. A ratio is
defined as “the indicated quotient of two mathematical expressions”
and as “the relationship between two or more things”. Ratio analysis
is a popular technique of financial analysis. It is used to visualize and
extract information from financial statements.

Ratio Analysis is the process of determining and interpreting

numerical relationship based on financial statements. Ratio Analysis
is an attempt to derive quantitative measures or guides concerning the
financial health and profitability of business enterprise.

Uses of Ratio Analysis: -

1) Comparisons:

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One of the uses of ratio analysis is to compare a company’s financial
performance to similar firms in the industry to understand the
company’s position in the market. Obtaining financial ratios, such as
Price/Earnings, from known competitors and comparing it to the
company’s ratios can help management identify market gaps and
examine its competitive advantages, strengths, and weaknesses. The
management can then use the information to formulate decisions that
aim to improve the company’s position in the market.

2) Trend line:

Companies can also use ratios to see if there is a trend in financial

performance. Established companies collect data from the financial
statements over a large number of reporting periods. The trend
obtained can be used to predict the direction of future financial
performance, and also identify any expected financial turbulence that
would not be possible to predict using ratios for a single reporting
period.

3) Operational efficiency:

The management of a company can also use financial ratio analysis to

determine the degree of efficiency in the management of assets and
liabilities. Inefficient use of assets such as motor vehicles, land, and
building results in unnecessary expenses that ought to be eliminated.

14
Financial ratios can also help to determine if the financial resources
are over- or under-utilized.

15
 TYPES OF RATIOS

Liquidity Leverage Activity Profitability

Ratio Ratio Ratio Ratio

Current Debt to Equity Assets Gross profit

Ratio Ratio Ratio
Turnover

Interest
Quick Ratio Coverage Inventory Operating
Ratio Turnover Profit Ratio

Receivable Net Profit

Turnover Ratio

Return on
Capital
Employed

16
Liquidity Ratio: - It measures the ability of the firm to meet its
current obligations. In fact, analysis of liquidity needs the preparation
of cash budgets and cash and fund flow statements; but liquidity
ratios, by establishing a relationship between cash and other current
assets to current obligations, provide a quick measure of liquidity.

The most two important ratios are: (i) Current Ratio (ii) Quick ratio.
Other ratio includes cash ratio, interval measure and networking
capital ratio.

(i) Current ratio is calculated by dividing current assets by current

liabilities.

Current Ratio = Current Assets/ Current Liabilities

Current assets include cash and those assets that can be converted into
cash within a year, such as marketable securities, debtors and
inventories. Prepaid expenses are also included in current assets as
they represent the payments that will not be made by the firm in the
future.

Current liabilities include creditors, bills payable, accrued expenses,

short -term bank loan, income-tax liability and long-term debt
maturing in the current year.

(ii)Quick ratio, also called Acid-test ratio establishes a relationship

between quick or liquid assets and current liabilities. An asset is liquid
if it can be converted into cash immediately or reasonably soon
without the loss of value. Inventories normally require some time for
realizing into cash; their value also has tendency to fluctuate.

17
Quick ratio = Current assets - Inventories

Current Liabilities

Leverage Ratio: - To judge the long-term financial position of the

firm, financial leverage or capital structure ratios are calculated.
These, ratio indicates mix of funds provided by owners and lenders.
First, from debt and equity, debt is more, risky from firm point of
view. the firm has legal obligations to pay interest to debtholders,
irrespective of the profit made or loss incurred by the firm. Thus,
leverage ratio is calculated to measure the financial risk and the firm’s
ability of using debt to shareholder’s advantage.

(i) Debt-Equity Ratio: - The firm may be interested in knowing the

proportion of the interest-bearing debt (also called funded debt) in the
capital structure. It may, therefore compute debt ratio by dividing total
debt (TD) by capital employed (CE) or net assets (NA). Total debt
will include short and long-term borrowings from financial
institutions, debentures/bonds, deferred payments arrangements for
buying capital equipment, bank borrowings, public deposit and any
other interestbearing loan. Capital employed will include total debt
and net worth.

Debt-Equity ratio = Total Debt / Net worth

18
(ii)Interest Coverage ratio: - It shows the number of times the interest
charges are covered by funds that are ordinarily available for their
payment. Since taxes are computed after interest, interest coverage is
calculated in relation to before tax earnings.

Interest Coverage = EBIT/ Interest

Interest Coverage = EBITDA/ Interest

EBIT: - Earning Before Interest and Tax

EBITDA: - Earning before Interest Tax Depreciation and

Amortization

Activity Ratio: - Activity Ratio are employed to evaluate the

efficiency with which the firm manages and utilizes its assets. These
ratios are also called turnover ratios because they indicate the speed
with which assets are being converted or turned into sales. Activity
ratios, thus, involve a relationship between sales and assets. A proper
balance between sales and assets generally reflects thatassets are
managed well.

(i) Inventory Turnover: - It indicates the efficiency of the firm in

producing and selling its product.

Inventory Turnover = sales / Inventory

Days of inventory holdings = Inventory/sales * 360

19
(ii)Assets Turnover: - Assets are used to generate sales. Therefore, a
firm should manage assets efficiently to maximize sales. The
relationship between sales and assets is called assets turnover

Net Assets turnover = sales / net assets

Total Assets turnover = sales / total assets

Fixed Assets turnover = sales / net fixed assets

Current Assets turnover = sales / net current assets

(iii) Debtors Turnover: - It indicates the number of times debtors

turnover each year. Generally, the higher the value of debtor turnover,
the more efficient is the management of the credit. Debtors Turnover
= credit sales / Average debtors

Average Collection period = Debtors / sales * 360

Profitability Ratio: - Profitability ratio are calculated to measure the

operating efficiency of the company. Besides the management of the
company, creditors and owners of the company are also interested in
the profitability of the firm. Creditors want to get a interest and
repayment of principal regularly. Owners want to get required rate of
return on their investment.

Generally, two major types of profitability ratios are calculated:

❖ Profitability in relation to sales

❖ Profitability in relation to investments

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(i) Gross Profit Margin: - The gross profit margin reflects the
efficiency with which management produces each unit of product.
This ratio indicates the average spread between the cost of goods
sold and the sales revenue.

Gross Profit Margin = Gross Profit / Sales

(ii) Net Profit Margin: - It establishes the relationship between net

profit and sales and indicates management efficiency in
manufacturing, administering and selling the products. This ratio
overall measure of the firm’s ability to turn each rupee sales into
net profit. This ratio also indicates the firm capacity to withstand
adverse economic conditions. A firm with high net margin ratio
would be advantageous position to survive in the face of falling
selling prices, rising cost of production or declining demand for
the product.

Net Profit Margin = Profit After Tax / Sales

OR

EBIT(1-tax) / Sales

OR

EBITDA(1-tax) / Sales

(iii) Operating Profit Ratio: - It explain the changes in the profit

margin ratio. The ratio is computed by dividing operating

21
 expenses, viz., cost of goods sold plus selling expenses and
general & administrative expenses by sales.

Operating Profit ratio = Operating profit / sales

(iv) Return on Capital Employed: - Profit After Tax

Net Worth (Equity)

Standards of comparison:

The ratio analysis involves comparison for a useful interpretation of

the financial statements. A single ratio in itself does not indicate
favourable or unfavourable condition. It should be compared with
some standards:

❖ Past ratios, i.e., ratio calculated from the past financial

statements of the same firm.
❖ Competitor ratio, i.e., ratio of some selected firms, especially
the most progressive and successful competitor, at same point
in time.
❖ Industry ratio, i.e., ratios of industry to which the firm belong.
❖ Projected ratio, i.e., ratios developed using the projected, or
proforma, financial statement of the same firm.

Data Analysis & Interpretation

Current Ratio: - Current Assets / Current Liabilities

22
Year Current
Ratio 3.5
2013 1.5 3
6 2.5
2014 2.3 2
3 1.5
2015 2.6 1
6 0.5
2016 2.9 0
6 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

2017 2.8
3
2018 2.7
9
2019 3.1
4
2020 3.0
5
2021 2.7
9
2022 2.2
8

23
Quick Ratio: - Current Assets – Inventories
Current Liabilities
3.5
Year Quick
Ratio 3

2013 1.98 2.5

2014 2.6
2
2015 1.87
2016 3.3 1.5
2017 2.53 1
2018 2.71
0.5
2019 2.54
2020 2.36 0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2021 2.055
2022 1.65

24
Debt-to-Equity Ratio
Debt -to-Equity Ratio= Total Debt = Long
Term + Short Term debt

Total Equity Equity + Reserves+

Surplus
0.25
Years Debt
To 0.2

Equity 0.15
2013 0.21
2014 0.07 0.1

2015 0.01 0.05

2016 0.02
0
2017 0.04
2012 2014 2016 2018 2020 2022 2024
2018 0.02
2019 0
2020 0
2021 0.01
2022 0.04

Interest Coverage Ratio

Interest Coverage Ratio= EBITDA/ Interest

25
 EBITDA: - Earnings before Interest, Taxes, Depreciation,
Amortization

700
Years Interest
Coverage 600
Ratio 500
2013 52.8
2014 150.55 400
2015 656.55 300
2016 160.44
200
2017 143.05
2018 54.97 100
2019 75.89 0
2020 33.45 2012 2014 2016 2018 2020 2022 2024
2021 41.12 -100
2022 -1.78

Inventory Turnover Ratio

Inventory Turnover Ratio = Sales /

Inventories

Inventory Holding Period = Inventory/ Sales * 360

26
 8
Years Inventories
7
Turnover
2013 5.85 6

2014 6.67 5
2015 6.33 4
2016 6.21 3
2017 6.31 2
2018 4.69
1
2019 5.06
0
2020 4.6 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2021 4.26
2022 4

Creditors Turnover Ratio

Creditors Turnover Ratio = Credit Purchase / Accounts Payable

Creditors collection Period = Accounts Payable/ Credit Purchase *

360

27
 2

1
Years Creditors Days
Turnover 0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Ratio
2013 4.98 51
2014 4.56 57
2015 4.29 54
2016 4 54
2017 3.84 60
2018 3.10 79
2019 2.98 65
2020 2.84 58
2021 3.56 59
2022 3.97 50

Days
90
80
70
60
50
40
30
20
10
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

28
 Debtors Turnover Ratio

Debtors Turnover ratio = Credit sales / Account Receivable

Debtors Collection Period = Account receivable *360

Credit Sales

4.5
Years Ratio Days 4
(Times)
3.5
4.27 85
2013 3

2014 3.81 96 2.5

2015 3.66 100 2

2016 3.21 114 1.5

2017 3.02 121 1
2018 2.28 160 0.5
2019 2.62 139 0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
2020 3 122
2021 3.25 112
2022 3.98 92

29
 Days
180
160
140
120
100
80
60
40
20
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

30
Fixed Assets Turnover Ratio: - Sales / Fixed Assets
4.5
Years FAT
4
2013 2.79
3.5
2014 3.07
3
2015 3.08
2.5
2016 3.81
2017 4.04 2

2018 2.51 1.5

2019 2.47 1
2020 2.11 0.5
2021 1.86 0
2022 1.82 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Gross Profit Margin: -

Sales – Cost of goods sold / Sales
Gross Profit / Sales

Year Ratio
2013 26.55

31
 15

10

5
2014 36.89
0
2015 36.09 2012 2014 2016 2018 2020 2022 2024
2016 36.79
2017 35.87
2018 21.98
2019 27.46
2020 20.66
2021 19.66
2022 3.26

Net Profit Margin: - Profit After Tax / Sales

30
Year Ratio
2013 17.54 25

2014 25.77
20
2015 24.35
2016 24.96 15
2017 24.63
2018 13.33 10

2019 15.36
5
2020 10.46
2021 11.38 0
2022 -1.88 2012 2014 2016 2018 2020 2022 2024

-5

32
Return on Investment: -
ROI= EBIT(1-T) / Total Assets
ROI= EBIT(1-T) /Net Assets

60
Year Ratio
2013 33.47 50
2014 49.36
40
2015 39.25
2016 35.62 30
2017 29.86
20
2018 11.51
2019 16.06 10
2020 9.95
0
2021 8.95 2012 2014 2016 2018 2020 2022 2024
2022 -0.67 -10

33
 DUPONT Analysis:
RONA or ROCE is the measure of the firm’s operating performance.
It indicates the firm earning power. It is a product of the asset
turnover, gross profit margin and operating leverage. Thus, RONA
can be computed as follows:
RONA= EBIT/NA=Sales/NA * GP/Sales * EBIT/ GP
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
Year 13 14 15 16 17 18 19 20 21 22

PBIDT/Sales (%) 26.55 36.89 36.09 36.79 35.87 21.98 24.69 14.73 19.66 3.62

Sales/Net Assets 1.28 1.25 1.07 0.91 0.81 0.63 0.65 0.61 0.57 0.61

PBDIT/Net Assets 0.34 0.46 0.39 0.33 0.29 0.14 0.16 0.09 0.11 0.02
-
PAT/PBIDT (%) 66.09 69.84 67.46 67.82 68.67 60.65 54.88 44.81 57.92 44.28
Net Assets/Net
Worth 1.15 1.03 1.02 1.05 1.06 1.02 1.02 1.03 1.05 1.07

ROE (%) 29.38 39.31 29.95 27.04 23.54 8.8 10.6 6.67 6.98 -1.2

34
 Return on Equity
45

40

35

30

25

20

15

10

0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
-5

35
 5.Fund Flow Analysis

Fund Flow Analysis:

A fund flow statement is a statement prepared to analyse the reasons
for changes in the financial position of a company between two
balance sheets. It portrays the inflow and outflow of funds i.e.,
sources of funds and applications of funds for a particular period.
The most interested users of fund flow statements are the lenders of
capital. They pay more attention to the fund Flow Statements than the
Profit and Loss and Balance sheet.

For Example, Bankers who lend money to the company as Overdraft

or Cash Credit in return for interest. The bankers use the information
provided by the company in its profit and loss statement and balance
sheet in preparing fund flow statements, which then enables them to
take decisions as whether to provide its overdraft or cash credit
facilities to its clients or not.

Benefits of preparing a fund flow Statement

❖ It helps to explain the managers of funds as to why the
company is sitting in liquidity strain despite making profits as
reflected in profit and loss statement.

❖ On the contrary, it helps the managers to understand as to how a

company is financially strong despite losses made by it in its
operation.

❖ A fund flow statement helps us to analyse whether any short-

term funds are being used for long term purposes. The grey area
which can only be highlighted by preparation of fund flow
Statement.

36
Steps for preparing Fund Flow:
❖ PAT + Non-Cash Expense – Gain on Sale of Assets
❖ Finding of single figure changes Net working Capital
❖ Head-on Comparison Change in Non-Current assets
❖ Head-on comparison Change in Non-Current liabilities

Fund flow statement format:

Sources of Funds Application of Funds
Capital xxx Funds utilised in creation of xxx
Fixed assets
Debts xxx
Funds utilised in creation of xxx
Funds generated from xxx other non-current assets.
operations
Funds utilised in repaying
Sale of assets (if any) existing loans. xxx

Funds utilised for paying

dividends, taxes xxx
(Bal.fig) Excess usage of
funds over sources.
*(Bal.fig) Excess of Funds
[Decrease in working over application of funds – xxx
capital]

[ Increase in working
capital]

Total xxx xxx

37
Cash Flow Analysis:
Cash flow is the amount of cash and cash equivalents, such as
securities, that a business generates or spends over a set time period.
Cash on hand determines a company’s runway—the more cash on

38
hand and the lower the cash burn rate, the more room a business has
to manoeuvre and, normally, the higher its valuation.

Cash flow differs from profit. Cash flow refers to the money that
flows in and out of your business. Profit, however, is the money you
have after deducting your business expenses from overall revenue.

There are three cash flow types that companies should track and
analyse to determine the liquidity and solvency of the business: cash
flow from operating activities, cash flow from investing activities and
cash flow from financing activities. All three are included on a
company’s cash flow statement.

❖ Cash from operating activities represents cash received from

customers less the amount spent on operating expenses. In this
bucket are annual, recurring expenses such as salaries, utilities,
supplies and rent.
❖ Investing activities reflect funds spent on fixed assets and
financial instruments. These are long-term, or capital investments,
and include property, assets in a plant or the purchase of stock or
securities of another company.
❖ Financing cash flow is funding that comes from a company’s
owners, investors and creditors. It is classified as debt, equity and
dividend transactions on the cash flow statement.

39
Cashflow Analysis: ( Amt in Rs cr)

6. Working Capital Analysis

Working capital is the amount of an entity's current assets minus its
current liabilities. This represents the amount of assets that can be
liquidated in the near future to pay off a firm’s more pressing
obligations. Working capital analysis is used to determine the
liquidity and sufficiency of current assets in comparison to current

40
liabilities. This information is needed to determine whether an
organization needs additional long-term funding for its operations, or
whether it should plan to shift excess cash into longer-term
investment vehicles.
Operating cycle is the time elapsed between raw material purchased,
converting into work-in-progress, converting into finished goods,
converting into account receivable and finally converting into cash,
There are two types of operating cycle:
❖ Gross Operating Cycle
❖ Net Operating Cycle
1.Raw material Conversion Period: Raw Material Inventory * 360

Raw Material Consumed

2.Work In Progress Conversion Period: WIP Inventory * 360

Cost of Production
3.Finished Goods Conversion Period: Finished Goods Inventor*360

Cost of Goods Sold

4.A/C Receivable Conversion Period: Debtors Closing Balance *360

Cost of sales
5.Account Payable: Creditors Closing balance * 360

Credit Purchase
Thereby by adding 1+2+3+4= Gross operating cycle
Gross Operating Cycle – 5 = Net Operating Cycle

41