GRP 9 Ma

Contents
RATIO .......................................................................................................................................................... 2 ANALYSIS ................................................................................................................................................... 2 MEANING AND CLASSIFICATION OF RATIOS ................................................................................... 2 Classification of ratios .................................................................................................................................. 4 Leverage or Capital Structure Ratio.............................................................................................................. 5 Activity Ratio or Turnover Ratio .................................................................................................................. 7 RATIO .......................................................................................................................................................... 10 CALCULATIONS ............................................................................................................................................ 10 Net Profit Ratio. .......................................................................................................................................... 11 Profitability Ratios ...................................................................................................................................... 13 Leverage or Capital Structure Ratio............................................................................................................ 14 Liquidity Ratio ............................................................................................................................................ 17 LIQUIDITY RATIO ................................................................................................................................... 19 TURNOVER RATIOS. .............................................................................................................................. 20 MANAGEMENT RELATED RATIOS ..................................................................................................... 25 TATA STEELS........................................................................................................................................... 31 Calculation and interpretation of various categories of ratios. ................................................................... 31 Leverage or Capital Structure Ratio............................................................................................................ 35 Liquidity Ratio ............................................................................................................................................ 39 Debtors Turnover Ratio .............................................................................................................................. 43 MANAGEMENT RELATED RATIOS ..................................................................................................... 47 [9] ................................................................................................................... Error! Bookmark not defined. CONCLUSION ......................................................................................................................................... 53
Tolani Institute of Management Studies.
Page 1
RATIO ANALYSIS MEANING AND CLASSIFICATION OF RATIOS
Meaning of Ratio:A ratio is simple arithmetical expression of the relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions.According to Accountants Handbook by Wixom, Kell and Bedford, a ratio is an expression of the quantitative relationship between two numbers. Ratio may be expressed in the following three ways:
1.
Pure Ratio or Simple Ratio:
It is expressed by the simple division of one number by another. For example, if the current assets of a business are Rs. 200000 and its current liabilities are Rs. 100000, the ratio of Current assets to current liabilities will be 2:1.
2.
Rate or So Many Times:
In this type, it is calculated how many times a figure is, in comparison to another figure. For example , if a firms credit sales during the year are Rs. 200000 and its debtors at the end of the year are Rs. 40000 , its Debtors Turnover Ratio is 200000/40000 = 5 times. It shows that the credit sales are 5 times in comparison to debtors.
Page 2
3.
Percentage:
In this type, the relation between two figures is expressed in hundredth. For example, if a firms capital is Rs.1000000 and its profit is Rs.200000 the ratio of profit capital, in term of percentage, is 200000/1000000*100 = 20%
How ratios are compared?

1. Comparison with the past. 2. Comparison with ideal ratio (1.33:1). 3. Comparison with competitors.
Page 3
Classification of ratios
Profitability Ratio or Income Ratio

The main object of every business concern is to earn profits. A business must be able to earn adequate profits in relation to the risk and capital invested in it. The efficiency and the success of a business can be measured with the help of profitability ratio. It includes the following ratios.
a) Gross Profit Ratio

This ratio shows the relationship between gross profit and sales.
Formula:Gross Profit Ratio = Gross Profit / Net Sales *100 b) Net Profit Ratio
This ratio shows the relationship between net profit and sales. It may be calculated by two methods
Formula:Net Profit Ratio = Net Profit / Net sales *100
c) Operating Ratio
This ratio measures the proportion of an enterprise cost of sales and operating expenses in comparison to its sales.
Formula:Operating Ratio = Cost of Goods Sold + Operating Expenses/ Net Sales *100
Page 4
Leverage or Capital Structure Ratio

This ratio discloses the firms ability to meet the interest costs regularly and Long term indebtedness at maturity.
a) Debt Ratio
Formula: b) Debt Equity Ratio

The objective of computing this ratio is to measure the relative proportion of debt and equity in financing the assets of a firm.
Formula:Debt Equity Ratio = Long term debt / Shareholders equity
Page 5
Liquidity Ratio
It refers to the ability of the firm to meet its current liabilities. The liquidity ratio, therefore, are also called Short-term Solvency Ratio. These ratios are used to assess the shortterm financial position of the concern. They indicate the firms ability to meet its current obligation out of current resources. In the words of Salomon J. Fink, Liquidity is the ability of the firms to meet its current obligations as they fall due.
a) Current Ratio
This ratio explains the relationship between current assets and current liabilities of a business.
Formula:Current Ratio = Current Assets/ Current Liabilities b) Quick Ratio or Acid Test Ratio
Quick ratio indicates whether the firm is in a position to pay its current liabilities within a month or immediately.
Formula:Quick Ratio = Liquid Assets/ liquid Liabilities c) Net Working Capital Ratio:
This ratio indicates the companys liquidity position.
Formula:
Net Working Capital = Current Asset Current Liabilities
Page 6
Activity Ratio or Turnover Ratio

These ratios are calculated on the bases of cost of sales or sales, therefore, these ratios are also called as Turnover Ratio. Turnover indicates the speed or number of times the capital employed has been rotated in the process of doing business. Higher turnover ratio indicates the better use of capital or resources and in turn leads to higher profitability.
a) Inventory Turnover Ratio

This ratio indicates the relationship between the cost of goods during the year and average stock kept during that year.
Formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
b) Debtors Turnover Ratio

This ratio indicates the relationship between credit sales and average debtors during the year
Formula: Debtor Turnover Ratio = Net Credit Sales / Average Debtors
c) Assets Turnover Ratio

This ratio indicates the efficiency with which total assets are utilized.
Formula: Net Sales/ Total Assets
Page 7
d) Working Capital Turnover Ratio

The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations.
Formula:sales revenue / working capital (Current assets Current liabilities) e) Return on Equity Shareholders Funds
Equity Shareholders of a company are more interested in knowing the earning capacity of their funds in the business. As such, this ratio measures the profitability of the funds belonging to the equity shareholders.
Formula:Return on Equity Shareholders Funds = Net Profit (after int., tax &
preference dividend) / Equity Shareholders Funds *100
f) Earnings Per Share

This ratio measures the profit available to the equity shareholders on a per share basis. All profit left after payment of tax and preference dividends are available to equity shareholders.
Formula: Earning Per Share = Net Profit Dividend on Preference Shares / No. of Equity
Shares
g) Dividend per Share

Profits remaining after payment of tax and preference dividend are available to equity shareholders.But of these are not distributed among them as dividend. Out of these profits is retained in the business and the remaining is distributed among equity shareholders as dividend. D.P.S. is the dividend distributed to equity shareholders divided by the number of equity shares.
Formula:D.P.S. = Dividend paid to Equity Shareholders / No. of Equity Shares *100
Page 8
h) Price Earnings Ratio

Price earnings ratio is the ratio between market price per equity share & earnings per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company & is widely used by investors to decide whether or not to buy shares in a particular company.
Formula:market price of a share / earning per share
Page 9
RATIO CALCULATIONS Calculation and interpretation of various categories of ratios.
PROFITABILITY RATIO. 1. Gross Profit Ratio.
Working Note:GROSS PROFIT STATEMENT

Particulars Sales (-) C.O.G.S. G.P. 2009-10 7367.59 4763.93 2603.66 2010-11 9573.63 6526.22 3047.41 2011-12 13333.95 7158.55 6175.40
Formulae:-Gross Profit Ratio = Gross Profit x 100

Sales
Calculation:2010 2011 2011 2012
2009 2010
= 35.33%
= 31.83%
= 46.31%
Interpretation:This ratio indicates an average gross margin earned on a sale of Rs 100. Higher the ratio, the more efficient is the production or purchase management. In current year ratio is comparatively higher than the previous year.
Page 10
Net Profit Ratio.

Working note
NET PROFIT STATEMENT

Particulars PAT Sales 2009-10 1479.68 7367.59 2010-11 2064.12 9573.63 2011-12 2110.65 13333.95
Formulae:-Net Profit Ratio = PAT x 100

Sales
Calculation:2009 2010 2010 2011 2011 2012
= 20.085%
= 21.56%
= 15.829%
Interpretation:The ratio indicates an average net margin earned on a sale of Rs 100. The current year net profit has decreased compared to last two years. It implies that proportion of administrative and selling expense have increased a bit.
Page 11
3) Operating Expense Ratio.

Formulae:-Adm. Expenses + Fin. Expenses +Selling & Dis. Expenses+COGSx 100
Sales
Calculation:2009 2010 2010 2011 2011 2012
= 75.33%
= 80.39%
= 56.18%
Interpretation :The ratio indicates an average of net margin earned on a sale of Rs 100. In the current year operating ratio implies is 56.18% is consumed by operating expense and 43.82% left to cover tax and earning. Lower the ratio, greater is the operating profit to cover the non operating expenses, to pay dividend and to create reserves and vice versa.
Page 12
Profitability Ratios
90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2009-10 2010-11 2011-12 GP Ratio NP Ratio Op. Exp. Ratio
Page 13
1. Debt Ratio Formulae: Total Debt Total Assets

2009 2010 2010 2011 2011 2012
= 0.21
=0.637
= 0.6768
Interpretation :
It indicates the amount of total assets with the company in front of total liabilities. More the debt ratio, it shows that there are more assets compared to liabilities. The debt ratio has increased in current year comparatively.
Page 14
2 Debt-Equity Ratio.
o
Formulae:- Debt-Equity Ratio = Debt x 100

Equity
Calculation:2010 2011
*100
2009 2010
4235.16
2011 2012
*100
= 62.7%
= 63.6%
= 79.79%
Interpretation:The Margin of safety to long-term Debt. A low debt equity ratio implies the use of more equity than debt. which means a larger safety margin for debt provides since owners equity is treated as a margin of safety by debenture holder and vice-versa. Here the ratio is similar in all the three years.
Debt Ratio
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2009-10 2010-11 2011-12 Debt Ratio
Page 15
Debt-Equity Ratio
DedtEquity Ratio
90.00% 80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2009-10 2010-11 2011-12 DedtEquity Ratio
Page 16
Liquidity Ratio 1. Current Ratio. Formulae:- Current Ratio =

Current Assets Current liabilities Calculation:2009 2010
5876.90
2010 2011
2011 2012
= 1.385
= 1.72
= 0.7
Interpretation:- Current ratio in the year 2011-12 is poor then compared to the year 2009-10 and 2010-11, which shows the amount of liquidity position as a whole is satisfactory in 2010-11 because, ideal current ratio is 2:1.
2. Quick Ratio
o
Working Note:-
Particulars Quick Assets Quick liabilities
2009-10 4548.4 4242.11
2010-11 5893.68 4706.95
2011-12 6049.93 12991.01
a. Quick Assets = Current Assets Stock. b. Quick Liability=Current liability- Bank o/d
Formulae:-Quick Ratio =
Quick Assets Quick liabilities
Page 17
4548.20
2010 2011
2011 2012
= 1.07
= 1.253
= 0.465
Interpretation
It indicates rupees of quick assets available for each rupee of liability due on short term notice. Quick ratio of 1:1 is considered to be satisfactory ratio. If firm has a ratio of more than 1 , it may not be meeting its short term obligation in time. But in the current year the ratio has declined which may be due to efficiency in meeting its short term obligations in time because of its very efficient debtors management.
Page 18
LIQUIDITY RATIO
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2009-10 2010-11 2011-12 Current Ratio Quick Ratio
Page 19
TURNOVER RATIOS.
a) Inventory Turnover Ratio Formulae:- sales Average inventory Calculation:2009 2010

7367.59
2010 2011
2011 2012
= 11.304
= 11.10
= 10.59
Interpretation :
It indicates the speed with which the inventory is converted into sales. In general, a high ratio indicates efficient performance. A too high ratio may be the result of a very low inventory levels which may result in frequent stock outs and thus the firm may incur high stock out costs. On the other hand, a too low ratio may be the result of excessive inventory levels, slow moving or obsolete inventory and thus, the firm may incur high carrying costs. Thus, a firm should have neither a very high ratio or low ratio. Here the companys inventory ratio has declined comparatively which may be due to poor performance in sales.
Page 20
Debtors Turnover Ratio
Formulae:- =Debtors + B/R

Credit Sales
Calculation:2010 2011 2011 2012
2009 2010
7367.59
= 11.838
= 12.99
= 14.732
Interpretation
The objective of computing this ratio is to determine the efficiency with which the trade debtors are managed. It shows the efficiency of collection policy of the firm. High Debtors T/O ratio =shorter debtors ratio = quick recovery of money. Low debtors T/O ratio = higher debtor ratio = delay in recovery of money. The current year ratio suggest satisfactory position than the previous year as the ratio is increasing.
Page 21
Total Assets Turn Over Ratio: Formulae:-= Calculation:2009 2010

7367.59
sales Total Assets
2010 2011
2011 2012
= 0.3668
= 0.3628
= 0.328
Interpretation:How efficiently assets are employed in business
Interpretation: The objective of this ratio is to calculate How efficiently assets are employed in business. This ratio suggests how a rupee of assets contribute to earn sales more the ratio more efficiently assets are used in gainful operation. In current year the total assets t/o ratio is Rs 0.328, which is decreasing than the previous year. It suggests that there is not proper utilization of assets in the firm.
Page 22
Working Capital Turnover Ratio Working note Calculation:2009 2010

7367.59
2010 2011
2011 2012
= 0.21
= 0.3628
= N.A.
Formulae:- sales revenue / working capital (Current assets Current liabilities)
Interpretation:The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In the current year, the current liabilities have exceeded the current assets.
Page 23
Chart for Turnover Ratios
16 14 12 10 8 6 4 2 0 2009-10 2010-11 2011-12
Inventory T/O Ratio Debtors' T/ Ratio Asset T/O Ratio Working Capital T/O Ratio
Page 24
MANAGEMENT RELATED RATIOS Return on Equity Shareholders Funds Working note Calculation:2009 2010
1479.68*100
2010 2011
*100
2011 2012
*100
= 21.93%
= 23.7%
=19.47%
Formulae:- = Net Profit (after int., tax & preference dividend) / Equity Shareholders
Funds *100
Interpretation:The objective of computing this ratio is to find out how efficiently the funds belonging to the shareholders (equity and preference) have been used. This ratio indicates the firms ability of generating profit per 100 rupees of shareholders funds. Higher the ratio, the more efficient the management and utilization of shareholders funds. Here the company in current year has not utilized the funds efficiently compared to last two years.
Page 25
Return on investment:
Working note FORMULA: Return on Inv. = = Calculation:2009 2010 2010 2011
Profit After Tax + Interest (1-T) _____ Long Term Liabilities + Shareholders Fund
2011 2012
*100
1614.409
*100
= 24.67%
= 14.70%
=12.75%
Interpretation:
Higher the ratio, the more efficient the management and utilization of Capital Invested. Here, the companys ratio has declined compared to last two years.
Page 26
Earnings Per Share Working note

o
Calculation:2010 2011 2011 2012
2009 2010
14796800000
= Rs.15.89
= Rs.22.09
= Rs.22.58
Formulae:- = Net Profit Dividend on Preference Shares / No. of Equity Shares Interpretation:
EPS helps in determining the market price of the equity share of the company. The EPS is increasing gradually from 2009-10 to 2011-12 , which is good for the company.
Dividend per Share Working note Calculation:2009 2010

116.52
2010 2011
2011 2012
= 1.25
= 1.50
=1.59
Formulae:-= Dividend paid to Equity Shareholders / No. of Equity Shares *100
Page 27
Interpretation:Due to increase in the profits, company is paying more dividend as compared to the last year two years therefore the current year ratio is satisfactory.
Price Earnings Ratio Working note Calculation:2011 2012
=15.94
Formulae:-market price of a share / earning per share

Price earnings ratio is the ratio between market price per equity share & earnings per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company & is widely used by investors to decide whether or not to buy shares in a particular company. Here, the price earning ratio is 15.94.
Interpretation:-
Page 28
Chart for ROI and ROE

30.00%
25.00%
20.00%
15.00%
ROE ROI
10.00%
5.00%
0.00% 2009-10 2010-11 2011-12
Page 29
Chart for EPS and Dividend Per Share
25
20
15 EPS 10 Dividend Per Share
0 2009-10 2010-11 2011-12
Page 30
TATA STEELS Calculation and interpretation of various categories of ratios.
PROFITABILITY RATIO. 1.Gross Profit Ratio.
Working Note:GROSS PROFIT STATEMENT

Particulars Sales (-) C.O.G.S. G.P. 2009-10 25021.98 16396 8625.98 2010-11 29396.35 18162.27 11234.08 2011-12 33933.46 13200.78 20732.68
Formulae:-Gross Profit Ratio = Gross Profit x 100

Sales
Calculation:2010 2011 2011 2012
2009 2010
= 34.47%
= 38.215%
= 61.09%
Interpretation:This ratio indicates an average gross margin earned on a sale of Rs 100. Higher the ratio, the more efficient is the production or purchase management. In the current year ratio is comparatively higher than the last two years.
Page 31
Net Profit Ratio.

Working note
NET PROFIT STATEMENT

Particulars PAT Sales 2009-10 5046.80 25021.98 2010-11 6865.69 29396.35 2011-12 6696.42 33933.46
Formulae:-Net Profit Ratio = PAT x 100

Sales
Calculation:2009 2010 2010 2011 2011 2012
= 20.17%
= 23.355%
= 19.73%
Interpretation:The ratio indicates an average net margin earned on a sale of Rs 100.The current year net profit has decreased compared to last year.
Page 32
3) Operating Expense Ratio.

Formulae:-Adm. Expenses + Fin. Expenses +Selling & Dis. Expenses+COGSx 100
Sales
25021.98
2010 2011
2011 2012
= 72.85%
= 66.88%
= 56.58%
interpretation :The ratio indicates an average of net margin earned on a sale of Rs 100. In the current year operating ratio implies is 56.58% is consumed by operating expense and 43.42% left to cover tax and earning. Lower the ratio, greater is the operating profit to cover the non operating expenses, to pay dividend and to create reserves and vice versa.
Page 33
PROFITABILITY RATIO
80.00% 70.00% 60.00% 50.00% GP Ratio 40.00% 30.00% 20.00% 10.00% 0.00% 2009-10 2010-11 2011-12 NP Ratio Op. Exp. Ratio
Page 34
1. Debt Ratio Formulae: Total Debt Total Assets

2009 2010 2010 2011 2011 2012
= 0.467
= 0.4388
= 0.429
Interpretation:
The debt ratio has declined in current year as compared to the last two years. It indicates the amount of total assets with the company in front of total liabilities. More the debt ratio, it shows that there are more assets compared to liabilities.
Page 35
3 Debt-Equity Ratio.
o
Formulae:- Debt-Equity Ratio = Debt x 100

Equity
* 100
2009 2010
25239.20
2011 2012
* 100
= 68.28%
= 60.28%%
= 46.35%
Interpretation:The Margin of safety to long-term Debt. A low debt equity ratio implies the use of more equity than debt. which means a larger safety margin for debt provides since owners equity is treated as a margin of safety by debenture holder and vice-versa. Here the ratio has decreased to 46.35% in the current year compared which is good for the company.
Page 36
Debt Ratio
0.47 0.46 0.45 0.44 0.43 0.42 0.41 2009-10 2010-11 201-12
Debt Ratio
Page 37
Debt Equity Ratio

80.00% 70.00% 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2009-10 2010-11 2011-12 Debt Equity Ratio
Page 38
Liquidity Ratio 2. Current Ratio. Formulae:- Current Ratio =

Current Assets Current liabilities Calculation:2009 2010
12246.69
2010 2011
2011 2012
= 1.36
= 2.201
= 0.76
Interpretation:Current ratio in the year 2011-12 is poor then compared to the year 2009-10 and 201011, which shows the amount of liquidity position as a whole is unsatisfactory in 2010-11 because, ideal current ratio is 2:1.
Page 39
3. Quick Ratio
o
Working Note:-
Particulars Quick Assets Quick liabilities
2009-10 9792.7 8999.61
2010-11 20974.72 10995.81
2011-12 8105.51 16903.64
a. Quick Assets = Current Assets Stock. c. Quick Liability=Current liability- Bank o/d
Formulae:-Quick Ratio =
Quick Assets Quick liabilities
9792.7
2010 2011
2011 2012
= 1.088
= 1.9075
= 0.47
Interpretation
It indicates rupees of quick assets available for each rupee of liability due on short term notice. Quick ratio of 1:1 is considered to be satisfactory ratio. If firm has a ratio of more than 1 , it may not be meeting its short term obligation in time. The ratio has increased in 2010-11 and then decreased in 2011-12 to 0.47 which may be due to efficiency in meeting its short term obligations in time because of its very efficient debtors management.
Page 40
LIQUIDITY RATIOS
2.5
1.5 Current Ratio 1 Quick Ratio
0.5
0 2009-10 2010-11 2011-12
Page 41
TURNOVER RATIOS. a)Inventory Turnover Ratio Formulae:sales Average inventory
25021.98
2010 2011
2011 2012
= 18.297
= 21.196
= 21.42
Interpretation :
It indicates the speed with which the inventory is converted into sales. In general, a high ratio indicates efficient performance. A too high ratio may be the result of a very low inventory levels which may result in frequent stock outs and thus the firm may incur high stock out costs. On the other hand, a too low ratio may be the result of excessive inventory levels, slow moving or obsolete inventory and thus, the firm may incur high carrying costs. Thus, a firm should have neither a very high ratio or low ratio. Here the companys inventory ratio has increased comparatively which may be due to good performance in sales.
Page 42
Debtors Turnover Ratio
Formulae:- =Net sales

Debtors+B/R
Calculation:2010 2011 2011 2012
2009 2010
25021.98
= 57.54
= 68.67
= 37.537
Interpretation
The objective of computing this ratio is to determine the efficiency with which the trade debtors are managed. The objective of computing this ratio is to determine the efficiency with which the trade debtors are managed. It shows the efficiency of collection policy of the firm. High Debtors T/O ratio =shorter debtors ratio = quick recovery of money. Low debtors T/O ratio = higher debtor ratio = delay in recovery of money. The current year ratio suggests the unsatisfactory position than the previous year as the ratio is deccreasing.
Page 43
Total Assets Turn Over Ratio: Formulae:-= Calculation:2009 2010

25021.98 73236.31
sales Total Assets
2010 2011
2011 2012
= 0.34
= 0.328
= 0.352
Interpretation:-
The objective of this ratio is to calculate how efficiently assets are employed in business. This ratio suggests how a rupee of assets contribute to earn sales. More the ratio more efficiently assets are used in gainful operation. In current year the total assets t/o ratio is Rs 0.352, which is increasing than the previous year. It suggests that there is proper utilization of assets in the firm.
Working Capital Turnover Ratio Working note Calculation:Formulae:- sales revenue / working capital (Current assets Current liabilities)
2009 2010
25021.98
2010 2011
2011 2012
= 7.7059
= 2.224
= N.A.
Page 44
Formulae:- sales revenue / working capital (Current assets Current liabilities)
Interpretation:
The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In the current year, the current liabilities have exceeded the current assets.
Page 45
TURNOVER RATIOS
80 70 60 50 40 30 20 10 0 2009-10 2010-11 2011-12 Inventory T/O Debtors T/O Total Assests T/O Working Capital T/O
Page 46
MANAGEMENT RELATED RATIOS Return on Equity Shareholders Funds Working note Calculation:2009 2010
5046.80
2010 2011
*100
2011 2012
*100
= 6.10%
= 14.60%
=12.725
Formulae:- = Net Profit After int.& tax / Equity Shareholders Funds *100
Interpretation:The objective of computing this ratio is to find out how efficiently the funds belonging to the shareholders (equity and preference) have been used. This ratio indicates the firms ability of generating profit per 100 rupees of shareholders funds. Higher the ratio, the more efficient the management and utilization of shareholders funds. Here the company in current year has not utilized the funds efficiently compared to last year.
Page 47
Return on investment:Working note FORMULA: Return on Inv.

= Profit After Tax + Interest (1-T) _____ Long Term Liabilities + Shareholders Fund
Calculation:2009 2010 2010 2011 2011 2012
6102.68
*100
= 15.88% =14.78%
*100
= 15.559%
Interpretation:
Higher the ratio, the more efficient the management and utilization of Capital Invested. Here, the companys ratio has declined compared to last two years.
Page 48
ROI AND ROE

18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2009-10 2010-11 2011-12 ROE ROI
Page 49
Earnings Per Share Working note

o
Calculation:2010 2011 2011 2012
2009 2010
50468000000 887214196
= Rs.56.88
= Rs.71.576
= Rs.68.88
Formulae:- = Net Profit Dividend on Preference Shares / No. of Equity Shares Interpretation:EPS helps in determining the market price of the equity share of the company. The EPS has increased in 2010-11,but has decreased in the current year.
Page 50
Dividend per Share Working note Calculation:2009 2010

7097700000
2010 2011
2011 2012
= Rs.8
= Rs.12
= Rs. 12
Formulae:-= Dividend paid to Equity Shareholders / No. of Equity Shares *100

Due to increase in the profits, company is paying more dividend as compared to 2009-10. In current year the dividend per share is same as last year.
Interpretation:-
Price Earnings Ratio Working note Calculation:2011 2012
=5.426
Formulae:- market price of a share / earning per share
Page 51
`Interpretation:-
Price earnings ratio is the ratio between market price per equity share & earnings per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company & is widely used by investors to decide whether or not to buy shares in a particular company. Here, the price earning ratio is 15.94.
EPS AND DIVIDEND PER SHARE
80 70 60 50 40 30 20 10 0 2009-10 2010-11 2011-12 EPS Dividend Per Share
YEAR
Page 52
CONCLUSION
The net profit of the Tata steel pvt. ltd. in 2009-10, has declined from
20.17% to 19.73% in 2011-12 and the percentage of Rate of Return on investment has also declined gradually from 0.155% to 0.1478%. The Current ratio was 1.36% in 200910and is now declined to 0.7610% in 2011-12.
The net profit of the Jindal steel pvt. ltd. in 2009-10, has declined from
20.0852% to 15.829% in 2011-12 and the percentage of Rate of Return on investment has also declined gradually from 0.147% to 0.1275%. The Current ratio was 1.385% in 2009-10and is now declined to 0.70% in 2011-12
Page 53

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Contents

Tolani Institute of Management Studies.

RATIO ANALYSIS MEANING AND CLASSIFICATION OF RATIOS

Pure Ratio or Simple Ratio:

Rate or So Many Times:

Tolani Institute of Management Studies.

How ratios are compared?

Tolani Institute of Management Studies.

Profitability Ratio or Income Ratio

a) Gross Profit Ratio

Formula:Net Profit Ratio = Net Profit / Net sales *100

Tolani Institute of Management Studies.

Leverage or Capital Structure Ratio

Formula: b) Debt Equity Ratio

Formula:Debt Equity Ratio = Long term debt / Shareholders equity

Tolani Institute of Management Studies.

Tolani Institute of Management Studies.

Activity Ratio or Turnover Ratio

a) Inventory Turnover Ratio

Formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

b) Debtors Turnover Ratio

Formula: Debtor Turnover Ratio = Net Credit Sales / Average Debtors

c) Assets Turnover Ratio

Formula: Net Sales/ Total Assets

Tolani Institute of Management Studies.

d) Working Capital Turnover Ratio

f) Earnings Per Share

g) Dividend per Share

Formula:D.P.S. = Dividend paid to Equity Shareholders / No. of Equity Shares *100

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h) Price Earnings Ratio

Formula:market price of a share / earning per share

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RATIO CALCULATIONS Calculation and interpretation of various categories of ratios.

PROFITABILITY RATIO. 1. Gross Profit Ratio.

Working Note:GROSS PROFIT STATEMENT

Formulae:-Gross Profit Ratio = Gross Profit x 100

Calculation:2010 2011 2011 2012

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Net Profit Ratio.

NET PROFIT STATEMENT

Formulae:-Net Profit Ratio = PAT x 100

Calculation:2009 2010 2010 2011 2011 2012

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3) Operating Expense Ratio.

Calculation:2009 2010 2010 2011 2011 2012

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Leverage or Capital Structure Ratio

1. Debt Ratio Formulae: Total Debt Total Assets

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Formulae:- Debt-Equity Ratio = Debt x 100

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Liquidity Ratio 1. Current Ratio. Formulae:- Current Ratio =

Particulars Quick Assets Quick liabilities

2009-10 4548.4 4242.11

2010-11 5893.68 4706.95

2011-12 6049.93 12991.01

Quick Assets Quick liabilities

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Tolani Institute of Management Studies.

Tolani Institute of Management Studies.