Financial Statement Analysis

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Notes
‡ All amounts worked here are in terms of Rupees in Crores (1 crore =10000000=10^7). ‡ MS Excel sheet has been used for computing the ratios.

3:Current assets.Loans and advances 6289. the higher the ratio.4) 1.59 (II.63 times says that the company is in relatively good short-term financial standings.72 II. The ratio is an indication of a company's ability to meet shortterm debt obligations. .I Liquidity Ratios Year 2007 1 Current ratio: Current assets / Current Liabilities II.630479133 The current ratio of 1.4:Current liabilities and provisions 3857. the more liquid the company is.3/II.

. :Current liabilities and provisions II. quick ratios vary greatly from industry to industry and ITC does not have as such any worries in getting creditors.6 . The small µQuick ratio¶. : Current assets. 61016 II. 0. In general. i. -II. however.I Year 2 Liquidity Ratios 2007 Quick ratio or Acid test ratio: Current assetsinventories / Current Liabilities 6289.72 5 .Loans and advances Less:II.0 .e. a / II. a:Inventories II. ITC has strong financial positions in many other aspects. a quick ratio of 1 or more is accepted by most creditors. 0. 6 times says that the company's financial strength is not so strong.

The cash ratio of 0. But there is no such liquidity need for the company and so the small value of the ratio has no such important implications. 3 0. 3 times says that the company is not in the position to very quickly liquidate its assets and cover short-term liabilities. c . 00. . 333 . urrent liabilities and provisions . c dd . The ratio is of 7 7 interest to short-term creditors .I Year Liquidity Ratios 2007 Cash ratio or Absolute liquidity ratio: Cash +Marketable securities /Current liabilities ash and bank Balances arketable securites .

The ratio of 0. which means that the company has not been aggressive in financing its growth with debt. .02 times. The company has better support from the shareholders. .II Solvency Ratios Year 2007 1 Debt ± equity ratio: Long term debt/ equity net worth . oan funds . 0. hareholders funds . Thus its earnings are stable. 8 8 .019246763 .

II Solvency Ratios Year 2007 2 Debt ratio: debt long term / debt long term + equity or debt/capital employed . 9 9 . . . oan funds hareholders funds .0 888 2 The ratio of 0. . . . Thus the company is efficiently utilizing its loan funds. . .02 times signifies that the company has employed more capitals over its debts. . 0.

a The ratio of 713 . 10 10 .III II. a Interest accrued ut not due on loans P. II. 713 . .II Year Solvency Ratios 2007 Interest Coverage ratio : earnings before interest and tax / Interest P IIIprofit eforeta ationan e ception item d al s . times is magnificently very high and hence the company has very sound financial position. It has no tension of paying interests over its loans.

13 times signifies that the company is efficient in selling its stocks.12 51525 The ratio of 2. 11 11 . 2. .III Year 1 Turnover Ratios 2007 Inventory turnover: Cost of goods sold or net sales/Average or closing inventory. a . Net sales . a n ento ies .

12 12 .III Turnover Ratios Year 2007 2 Days of Inventory holding: umber of days in the year say 0 / Inventory turnover ratio. 6 16 days or about five and half months periods for the liquidation of stocks is quiet efficient. um of da s in a ear ber nventories turnover ratios 16 .

2 1 The ratio of 11. .III Year Turnover Ratios 2007 Debtors turnover ratio: Credit sales or net sales/ Average or closing debtors or accounts receivable total debtors +bills receivable e s le t as .b . 1 . b u d d b rs n ry e to .2 times signifies that the company is getting good returns and has no visible risk but benefits out of its debtors. 13 13 .

III Year Turnover Ratios 2007 Collection period: umber of days in the year say 0 / Debtors turnover u b o d ysinth ye me f a e a e tostun b oe 3. 2 2 2 . 14 14 . The debt collection period of 32 days is quiet good and the company is efficient in getting back its dues.

the company is efficient in making sales revenue.13 times signifies that . 15 15 . 13 . in spite of the current liabilities.1 .III Year Turnover Ratios 2007 Current assets turnover: et sales/ Current assets .lo n a a v n s rre t sse a s n a ce . . The ratio of 1. e sa s t le u n a ts.

III Year Turnover Ratios 2007 et current assets turnover: et sales/ et current assets e sa s t le e u n sse t rre t ts 23 . . 3 . 16 16 . 3 times signifies that the company is highly efficient in utilizing its net current assets and generating sales revenue. The ratio of 2.

. et sales et ixed ssets .27 times signifies that the company is very efficiently utilizing its fixed assets for generating sales revenue. 1.III Turnover Ratios Year 2007 7 Fixed assets turnover: et sales/ et fixed assets . 17 17 . .271763404 The ratio of 1.

0. 18 18 . . .III Year Turnover Ratios 2007 et assets turnover: et sales/ et assets or capital employed : et assets = all assets ± accumulated depreciation . . . . et et et sales et i e ssets nvestments urrent assets assets .6 times signifies that the company has still to be more efficient in utilizing its net assets in generating sales revenue.6 0 The ratio of 0.

03% is quiet impressive and the company is making good profits.IV rofitability Ratios Year 2007 1 Margin: rofit before interest and tax sales ×100 BIT / et rofit e taa a dE ce tion ite s fore tion n p a m . . 55. 19 .0 553 et aes The rofit margin of 55.

20 20 . 3 . . and the company is performing well. 3 228 7 7 The net margin of 37. 3% is quiet impressive.IV Year 2 rofitability Ratios 2007 et margin: rofit after tax AT ×100 / et sales ro a r taa n fit fte tio e as t le .

3 % is quiet good and company is performing well.77 2 2.1 et i ed ssets .1 11110. 1 0 7.7 10. 21 21 . 1 35.IV Year rofitability Ratios 2007 Before tax return on investment: BIT/ et assets ×100 L rofit before ta ation and ceptional items .3 125775 The Return of 35.2 n estments et urrent assets et assets L ×100 2 .

86% is quiet good and the company is utilizing the shareholders funds in a better way. .IV Year rofitability Ratios 2007 Return on equity: AT/ quity net worth ×100 rofit after ta ation . The ratio of 25.86 . hareholders funds 25. 22 22 .

1/share the of Rs. 23 23 .V Year 1 quity-related Ratios 2007 arning per share S : AT/ umber of ordinary shares roi er ^ io er o ordi rys res o s di g .18 is very good. iv Weig ed ver ge o o ver i er r ee 7.7.185 871 S In comparison to the face value of Re.

1.103 Dividend per share D S is a simple and intuitive number. Re.e.10 is quiet good. 24 24 . i.3. D S of Rs. It is the amount of the dividend that shareholders have or will receive.V quity-related Ratios Year 2007 2 Dividends per share D S : Dividends/ ordinary shares umber of o osed i ide d i eig ted e ge u e o o di s es outst di g to o e t i to u it u es 3. In compared to the face value of the shares. over an year. for each share they own.00/share.

3 . 3 a very low payout ratio indicates that a company is primarily focused on retaining its earnings rather than paying out dividends.V Year quity-related Ratios 2007 ay out ratios: D S/ S or Dividends/ AT . the more secure the dividend because smaller dividends are easier to pay out than larger dividends. 0. . 3 times is quiet good. The payout ratio also indicates how well earnings support the dividend payments: the lower the ratio. 25 25 So the value of 0.

V Year quity-related Ratios 2007 Dividend Yield: D S/Market value per share e have to get the Market value per share of the relevant period . Market Price Per Share The closing price of the common or preferred stock as reported on the applicable stock exchange consolidated tape as of the date indicated 26 26 .

S 27 27 .V Year quity-related Ratios 2007 rice/ arning ratio: Market value per share/ e have to get the Market value per share of the relevant period .

V Year arning Yield: quity-related Ratios 2007 S/ Market value per share e have to get the Market value per share of the relevant period . 28 28 .

e. ³Here ³diluted´ value in considering numbers of shares is not considered.00. The book value.77 is far higher than the face value of each share.V quity-related Ratios Year 2007 7 Book value per share: et worth/ umber of ordinary shares . i.1.77 .27.e. Rs.´ 29 29 .1 hareholders funds 1 iv eighted average umber of ordinar shares outstanding 10 27. i.1 10 to convert into unit ru es . Re. drastically different than what the market is valuing the stock at.0 0 799 BV is considered to be the accounting value of each share.

.VI Investment-related Ratios Year 2007 Return on assets or earning power ROA : AT/ Average 1 total assets of the given years. 53 arning power of the company.e. . . 1 . 30 30 . . . here 200 &07 ×100 or AT+ Interest /Average fixed assets ×100 o it a te ta a tio n i e d a s s e ts n e s tm e n ts u e n t a s s e ts i e d a s s e ts n e s tm e n ts u e n t a s s e ts e a g e to ta l a s s e ts 1 .2 . i.25% is quiet good and the company is doing well. . .

o rce o u d u s f ns The ROC of 35. . 31 31 .VI Investment-related Ratios Year 2007 2 Return on capital employed ROC : BIT BIT / Capital employed ×100 rofit e taa a d ce tion ite s fore tion n p a m .3 % signifies that the company is getting good return out of its investment decisions. .

since there are no preference shares. h re o e fu s a h rs n )/(P/L:IB)×100 . .8 17 5 The ratio 25. 2 . 32 32 .VII Return on quity RO Year 2007 1 ROTS return on total shareholders equity : AT/ Total shareholders equity ×100 ro a r taa n fit fte tio .87 times) is same as that of ³Return on equity´.

87 times) is same as that of ³Return on equity´.VII Return on quity RO ) Year 2007 2 ROOS return on ordinary shareholders equity) / return on net worth): AT-preferential RO dividends)/ et worth) ×100 rofit after ta ation . ) ) 25.8 7 The ratio 25. and ³return on total shareholders equity´ since there are no preference shares. hareholders funds . 33 33 . .

Du Pont Analysis 34 .

Du Pont analysis for year 2007: 35 .

Du Pont analysis for year 2006 36 .

Du Pont analysis for year 2005: 37 .

Du Pont analysis for year 2004: 38 .

00 20.00 5.00 1 2 3 4 22. The ROA ratio is a central measure of the overall profitability and operational efficiency of a firm it shows the interaction of Profitability and activity Ratios.00 25.00 10. 39 .00 0. the company has to maintain more consistent and increasing trend in its ROA in the following years.44 28.69 Years:1~2004:2~2005:3~2006:4~2007 Du Pont chart portrays the earning power of a firm. It implies that the performance of a firm can be improved either by generating more sales volume per rupee of investment or by increasing the profit margin per rupee of sales.37 22.Du Pont Analysis Return on total assets (%) 30. So as per the analysis.00 15.55 23.

books from the library of GBS.org/casestudies/icmr_c ase_studies.com 40 40 . ‡ http://www.htm ‡ http://www.econ.com/terms/d/debte quityratio.References Class notes of Nupur mishra.morningstar.investopedia.asp ‡ http://www.icmrindia.uconn.edu/ ‡ http://www.

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