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**Meenachil Rubber wood Limited, Kottayam, Kerla-686582
**

Financial Statement analysis by Prit Ranjan Jha C07DPM029

02/24/08

pritranjanjha@yahoo.co.in

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Notes

• All amounts worked here are in terms of Rupees.

Numerator Denominator

02/24/08

pritranjanjha@yahoo.co.in

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I Liquidity Ratios Year 2005 2004 1 Current ratio: Current assets / Current Liabilities 11,890,488.27 10,811,111.00 6,708,649.18 = 1.772 times 5,887,001.00 = 1.836 times

The ratio is not very The ratio is not very comfortable as 2:1 is comfortable as 2:1 is generally considered generally considered comfortable. (For some comfortable. (For some sectors even 1.5:1 or sectors even 1.5:1 or 2.75:1 is considered 2.75:1 is considered comfortable) pritranjanjha@yahoo.co.in comfortable) 02/24/08 3

I Liquidity Ratios Year 2005 2004 2 Quick ratio or Acid test ratio: (Current assetsinventories)/ Current Liabilities

11,890,488.27-8,480,078.71 6,708,649.18 10,811,111.00-8,392,313.00 5,887,001.00

3,410,409.56/ 6,708,649.18 2,418,798.00/ 5,887,001.00

= = 0.508 times

= 0.411 times

Not ideal, as ideal ratio Not ideal, as ideal ratio is is 1:1 1:1

02/24/08

pritranjanjha@yahoo.co.in

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I Liquidity Ratios Year 2005 2004 3 Cash ratio or Absolute liquidity ratio: (Cash +Marketable securities)/Current liabilities 3,402,27.73+0 1,458,46.00+0 6,708,649.18 5,887,001.00 = 0.0507 times Not ideal , as Ideal ratio is 0.5:1 = 0.0248 times Not ideal , as Ideal ratio is 0.5:1

02/24/08

pritranjanjha@yahoo.co.in

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II Solvency Ratios Year 2005 2004 1 Debt – equity ratio: Long term debt/ equity (net worth) 20,997,360.18+12,135, 22,888,154+11,262,052 169.00+1,066,166.00 +1,157,105.00 18,202,910+1,578,039 18,069,910+1,578,039 = 34,198,695.18/ 19,780,949 35,307,311/ 19,647,949 = 1.729 times = 1.797 times Note ‘Deferred tax liability’ is included in ‘debt’ and : ‘reserves and surplus’ is included in ‘equity’.

02/24/08 pritranjanjha@yahoo.co.in 6

II Solvency Ratios Year 2005 2004 2 Debt ratio: debt (long term)/ (debt (long term) + equity) or debt/capital employed

34,198,695.18 35,307,311 35,307,311+ 19,647,949 35,307,311 /54955260

=

34,198,695.18+ 19,780,949 34,198,695.18/ 53,979,644.18

= 0.6335 times

= 0.6425 times

02/24/08

pritranjanjha@yahoo.co.in

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II Solvency Ratios Year 2005 2004 3 Interest Coverage ratio : (earnings before interest and tax) / Interest :(“profit/loss before finance charges”/ “finance charges”) 2,263,114.68 Not applicable, since there is loss (-522,817) 1,998,991.00 = 1.132 times = 0 times

02/24/08

pritranjanjha@yahoo.co.in

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III Turnover Ratios Year 2005 2004 1 Inventory turnover: Cost of goods sold or net sales/Average (or closing) inventory. 26,597,615.15 22,300,393.00 (7,487,074.37+7,339,9 (7,339,965+8,807,063+1 65+2,65,251.2+1,22,43 ,22,432+35,764)/ 2 2)/ 2 44,600,786/ 16,305,224 = 53,195,230.3/ 15,214,722.57 = 3.496 times = 2.735 times

02/24/08 pritranjanjha@yahoo.co.in 9

III Turnover Ratios Year 2005 2004 2 Days of Inventory holding: Number of days in the year (say 360)/ Inventory turnover ratio. 360 360 3.496 = 102.975 ≈ 103 days 2.735 = 131.625 ≈ 132 days

02/24/08

pritranjanjha@yahoo.co.in

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III Turnover Ratios Year 2005 2004 3 Debtors turnover ratio: Credit sales or net sales/ Average (or closing) debtors (or accounts receivable (total debtors +bills receivable) 26,597,615.15 22,300,393.00 2,139,619.18 1,389,537.00 = 12.43 times = 16.05 times

02/24/08

pritranjanjha@yahoo.co.in

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III Turnover Ratios Year 2005 2004 4 Collection period: Number of days in the year (say 360)/ Debtors turnover 360 360 12.43 = 28.96 ≈ 29 days 16.05 = 22.43 ≈ 23 days

02/24/08

pritranjanjha@yahoo.co.in

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III Turnover Ratios Year 2005 2004 5 Current assets turnover: Net sales/ Current assets 26,597,615.15 22,300,393.00 11,890,488.27 = 2.237 times 10,811,111.00 = 2.063 times

02/24/08

pritranjanjha@yahoo.co.in

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III Turnover Ratios Year 2005 2004 6 Net current assets turnover: Net sales/ Net current assets 26,597,615.15 22,300,393.00 5,181,839.09 = 5.133 times 4,924,110.00 = 4.53 times

02/24/08

pritranjanjha@yahoo.co.in

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III Turnover Ratios Year 2005 2004 7 Fixed assets turnover: Net sales/ Net fixed assets 26,597,615.15 22,300,393.00 10,761,828.49 = 2.4715 times 11,664,142.00 = 1.912 times

02/24/08

pritranjanjha@yahoo.co.in

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III Turnover Ratios Year 2005 2004 8 Net assets turnover: Net sales/ Net assets or capital employed : (Net assets = all assets – accumulated depreciation) 26,597,615.15 22,300,393.00 (10,761,828.49+11,890 (11,664,142.00+10,811, ,488.27) 111.00) = 26,597,615.15/22,652, 22,300,393.00/22,475,2 316.76 53.00 = 1.174 times

02/24/08

= 0.992 times

pritranjanjha@yahoo.co.in 16

IV Year 1 2005

Profitability Ratios 2004 Margin: (Profit before interest and tax (PBIT)/ Net sales)×100 2,263,114.68 ×100 26,597,615.15 = 0.085 ×100 = 8.5%

02/24/08 pritranjanjha@yahoo.co.in 17

No profit, (PBIT is -5,22,817)

IV Profitability Ratios Year 2005 2004 2 Net margin: Profit after tax (PAT) ×100 / Net sales : (Here PAT ≡ “profit/loss after deferred taxation”) 1,93,915.68 ×100 No net margin as PAT is negative (Loss) 26,597,615.15 = 0.007291 ×100 = 0.729 %

02/24/08

pritranjanjha@yahoo.co.in

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IV Profitability Ratios Year 2005 2004 3 Before tax return on investment: (PBIT/Net assets) ×100 2,263,114.68 ×100 There is a loss 22,652,316.76 = 9.99 %

02/24/08

pritranjanjha@yahoo.co.in

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IV Profitability Ratios Year 2005 2004 4 Return on equity: (PAT/Equity (net worth)) ×100 193,915.68 ×100 There is loss 19,780,949 = 0.980%

02/24/08

pritranjanjha@yahoo.co.in

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V Equity-related Ratios Year 2005 2004 1 Earning per share (EPS): PAT/Number of ordinary shares

There is net loss, so ignored

There is net loss, so ignored

02/24/08

pritranjanjha@yahoo.co.in

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V Equity-related Ratios Year 2005 2004 2 Dividends per share (DPS): Dividends/ Number of ordinary shares

There is net loss, so ignored

There is net loss, so ignored

02/24/08

pritranjanjha@yahoo.co.in

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V Equity-related Ratios Year 2005 2004 3 Pay out ratios: DPS/EPS or Dividends/PAT

There is net loss, so ignored

There is net loss, so ignored

02/24/08

pritranjanjha@yahoo.co.in

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V Equity-related Ratios Year 2005 2004 4 Dividend Yield: DPS/Market value per share

There is net loss, so ignored

There is net loss, so ignored

02/24/08

pritranjanjha@yahoo.co.in

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V Equity-related Ratios Year 2005 2004 5 Price/Earning ratio: Market value per share/ EPS

There is net loss, so ignored

There is net loss, so ignored

02/24/08

pritranjanjha@yahoo.co.in

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V Equity-related Ratios Year 2005 2004 6 Earning Yield: EPS/ Market value per share

There is net loss, so ignored

There is net loss, so ignored

02/24/08

pritranjanjha@yahoo.co.in

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V Equity-related Ratios Year 2005 2004 7 Book value per share: Net worth/ Number of ordinary shares

There is net loss, so ignored

There is net loss, so ignored

02/24/08

pritranjanjha@yahoo.co.in

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VI Investment-related Ratios Year 2005 2004 1 Return on assets or earning power (ROA): (PAT/ Average total assets (of the given years, here 2004&05)) ×100 or ((PAT+ Interest)/Average fixed assets) ×100 1,93,915.68 ×100 (10,761,828.49+11,890 ,488.27+11,664,142+1 0,811,111)/2 = (1,93,915.68 /22,563,784.88) ×100 = 0.859% There is net loss, so 02/24/08 pritranjanjha@yahoo.co.in 28 ignored

VI Investment-related Ratios Year 2005 2004 2 Return on capital employed (ROCE): (EBIT(PBIT)/Capital employed) ×100 :(“profit before finance charges” ×100 / “sources of funds”) 2,263,114.68 ×100 53,979,644.18 = 0.0419 ×100 = 4.19% There is net loss, so ignored

02/24/08 pritranjanjha@yahoo.co.in

(Capital employed=owners equity+ long tern debt funds or net working capital+ fixed assets)

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VII Return on Equity (ROE) Year 2005 2004 1 ROTSE (return on total shareholders equity): (PAT/ Total shareholders equity) ×100

There is net loss, so ignored

There is net loss, so ignored

02/24/08

pritranjanjha@yahoo.co.in

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VII Return on Equity (ROE) Year 2005 2004 2 ROOSE (return on ordinary shareholders equity) / RONW (return on net worth): ((PAT-preferential dividends)/Net worth) ×100

There is net loss, so ignored

There is net loss, so ignored

02/24/08

pritranjanjha@yahoo.co.in

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• Liquidity ratios of the company is not comfortable, so the firm has poor ability to meet its short-term (usually up to 1 year) obligations • Solvency ratios are also not comfortable. • (Debt equity ratio is positive and greater than 1. (A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense) • Debt ratio is +ve & <1. Hence the capital employed is more than the debts. This is somewhat good indication. • Interest coverage ability has improved in the present year)

Conclusion

02/24/08

pritranjanjha@yahoo.co.in

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• Turnover ratios of the company is in relatively better position. In both the years the company has made good sales and has good turnovers from the debtors. • Profitability ratios are not in better condition and the company has incurred net loss in both the years. But it is showing improvements in the present year. • Depreciation has major chunk in reducing the profit. In prior years the company has suffered huge losses.

02/24/08 pritranjanjha@yahoo.co.in 33

• Equity related ratios does not comes into the picture. So in present scenario, Share holders has no advantage in purchasing the shares of this company. • Investment related ratios are also not in comfortable positions. • Hence it can be said that the company is not in a financially sound position but it has lots of potential to do well and is also trying its best to improve itself. • Those who wants to invest in the company needs to be very careful.

02/24/08 pritranjanjha@yahoo.co.in 34

• Class notes of Sudha madam, books from the library of IIPM. • • • • • • •

References

http://www.investopedia.com/terms/d/debt http://www.investopedia.com/terms/d/debtequi equityratio.asp http://www.icmrindia.org/casestudies/icmr_cas http://www.icmrindia.org/casestudies/icmr http://www.econ.uconn.edu/ _case_studies.htm http://www.morningstar.com http://www.econ.uconn.edu/ http://www.morningstar.com

02/24/08

pritranjanjha@yahoo.co.in

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02/24/08

pritranjanjha@yahoo.co.in

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