RATIO ANALYSIS

1. PROFITABILITY RATIOS :
Measure the degree of operating success of a company. The only reason why
investors are interested in a company is that think they will earn a reasonable return in
the form of capital gain and dividends on their investment. Therefore, they are keen to
learn about the ability of the company to earn revenues in excess of its expenses. They
will not be interested in a company that doesnot earn a sufficient margin on its sales.
Failure to earn an adequate rate of profit over a period will also drain the companys
cash and impair its liquidity. The commonly used ratios to evaluate profitability are :
a. Profit Margin Ratio: Profit Margin ratio provides some indication of the cushion
available to the company in the event of an increase in costs, drop in selling prices
in the face of recession or greater competition. Profit Margin was 25.28% in 2002
and thereafter it went on decreasing till 2004 due to rising costs since company
was in fierce competition and was expanding its wings. PMR rose in between and
kept on fluctuating before experiencing the decades low of 13.83% in 2009 all
because of the recession of the previous year. The pressure of margin is realised
by looking at major categories of expenses, such as materials, salaries and wages,
and advertising.
PROFIT MARGIN RATIO = PROFIT AFTER TAX * 100
SALES

PROFIT AFTER
TAX

SALES

PROFIT
MARGIN
RATIO

Mar '11

26,300.50

4,843.70

18.4167601

Mar '10

22,922.00

4,898.00

21.368118

Mar '09

21,507.30

2,973.80

13.8269332

Mar '08

17,492.60

3,063.30

17.5119765

Mar '07

13,683.90

2,842.10

20.7696636

Mar '06

10,227.12

2,020.48

19.7560995

Mar '05

7,233.16

1,494.82

20.6662095

Mar '04

5,134.89

914.88

17.8169347

Mar '03

3,992.01

813.23

20.371442

Mar '02

3,425.39

866.11

25.285004

30000

30

25000

25

20000

20
Sum of SALES

15000

15

10000

10

5000

Sum of PROFIT AFTER TAX

Sum of PROFIT MARGIN
RATIO

Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

b. Asset Turnover: This is a measure of a firms efficiency in utilising its assets. It

indicates how many times in a year assets were turned over in a period in order to
generate sales. If the asset turnover is high, we can infer that the enterprise is
managing its assets efficiently. A low asset turnover implies the presence of more
assets than a business needs for its operations. Averages rather than year-end
amounts of assets are a better measure of the level of assets held during the year.
As is clear from the table that asset turnover has been almost decreasing through
the decade with a decades low of 1.06 in 2011. The decrease can be mainly
attributed to excess capacity, frequent equipment breakdown, non-availability of
raw materials or power, strikes and lock-outs, and so on. Asset turnover values
differ from one industry to another.

ASSET TURNOVER =

SALES
AVERAGE TOTAL ASSETS

SALES
Mar '11

26,300.50

Mar '10

22,922.00

Mar '09

21,507.30

Mar '08

17,492.60

Mar '07

13,683.90

Mar '06

10,227.12

Mar '05

7,233.16

Mar '04

5,134.89

Mar '03

3,992.01

Mar '02

3,425.39

AVERAGE
TOTAL ASSETS
24643.7
20375.65
16481
12495.75
8018.255
5716.92
4282.01
3504.19
2979.86
1279.815

ASSET
TURNOVER
1.06723016
1.12497025
1.30497543
1.39988396
1.70659327
1.78892131
1.68919736
1.46535719
1.33966361
2.67647277

30000

25000

2.5

20000

2
Sum of SALES

15000

1.5

10000

5000

0.5

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Sum of AVERAGE TOTAL

ASSETS
Sum of ASSET TURNOVER

c. Return on Assets: Also known as return on investment, this is a measure of

profitability from a given level of investment. It is an excellent indicator of
companys overall performance.
As is clear from the table that return on assets has been almost fluctuating since
2002 when it was maximum at 67.67 and thereafter it experienced a low of 18.04
in 2009 . Although it experienced a few rises during 2004-05. 2005-06, 2006-07
and then 2009-2010. The decreases in other years indicates deterioration in
companys overall profitability. It can be further explained by DuPont system of
financial analysis which brings out the effect of two drivers on return on assets.

RETURN ON ASSETS =

PROFIT AFTER
TAX
Mar '11

4,843.70

Mar '10

4,898.00

Mar '09

2,973.80

Mar '08

3,063.30

Mar '07

2,842.10

Mar '06

2,020.48

Mar '05

1,494.82

Mar '04

914.88

Mar '03

813.23

Mar '02

866.11

PROFIT AFTER TAX * 100

AVERAGE TOTAL ASSETS
AVERAGE TOTAL
RETURN ON
ASSETS
ASSETS
24643.7
19.6549219
20375.65
24.0384969
16481
18.043808
12495.75
24.514735
8018.255
35.4453681
5716.92
35.3421073
4282.01
34.9093066
3504.19
26.1081734
2979.86
27.2908794
1279.815
67.6746248

30000

80
70

25000

60
20000

50

15000

40
30

10000

20
5000

10

0
MarMarMarMarMarMarMarMarMarMar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Sum of PROFIT AFTER

TAX
Sum of AVERAGE
TOTAL ASSETS
Sum of RETURN ON
ASSETS

d. Return on equity :This is a measure of profitability from the shareholders

standpoint. It measures the efficiency in use of shareholders funds.

RETURN ON EQUITY =

PROFIT
AFTER TAX
Mar '11

4,843.70

Mar '10

4,898.00

Mar '09

2,973.80

Mar '08

3,063.30

Mar '07

2,842.10

Mar '06

2,020.48

Mar '05

1,494.82

Mar '04

914.88

Mar '03

813.23

Mar '02

866.11

PROFIT AFTER TAX * 100

AVERAGE SHAREHOLDER'S EQUITY
AVERAGE
SHAREHOLDERS
EQUITY
19506.55
15103.6
12062.85
10465.55
7874.17
5660.795
4200.62
3418.96
2931.555
2248.985

25000

RETURN
ON EQUITY
24.8311465
32.4293546
24.6525489
29.2703202
36.0939629
35.6925132
35.5856993
26.7590144
27.7405677
38.5111506

45
40

20000

35
30

15000
25
20

Sum of AVERAGE
SHAREHOLDERS EQUITY

15

Sum of RETURN ON
EQUITY

10000

10

5000

5
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Sum of PROFIT AFTER TAX

e. Earnings per share: EPS is useful in comparing performance over time. The
increase in EPS means that the company did better from the shareholders
perspective but the EPS is not of much help in making comparisons across firms
because the number of equity shares can differ even if all of them happen to
have identical amount of shareholders equity.
Now, we can see that EPS has been fluctuating throughout the decade with a
high of 0.45 in 2004 when the increase in profits outdid the increase in weighted
number of equity shares. This was primarily the emerging stage of wipro when it
started overshadowing its competitors.

EARNINGS PER SHARE = NET PROFIT AFTER MINORITY INTERESTS

WEIGHTED AVERAGE NUMBER OF EQUITY SHARES

Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Mar '06
Mar '05
Mar '04
Mar '03
Mar '02

NPAMI
WANES
EPS
5705.5
24544.09 0.23245922
5688.8
14682.11 0.38746474
3547.9
14649.81 0.24218062
3469.7
14615 0.23740677
3176.2
14590 0.21769705
2306.57
14257.54 0.16177896
1749.96
7035.71 0.24872543
1056.13
2327.59
0.453744
902.54
2325.64 0.38808242
939.38
2324.66
0.4040935

30000

0.5
0.45

25000

0.4
0.35

20000

0.3
15000

0.25
0.2

10000

0.15
0.1

5000

0.05
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Sum of NPAMI
Sum of WANES
Sum of EPS

f. Cash Return to Shareholder Ratio:Its again been calculated from shareholders

standpoint.

CASH RETURN TO SHAREHOLDER RATIO

Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Mar '06
Mar '05
Mar '04
Mar '03
Mar '02

SHAREHOLDERS
CASH FLOW
EQUITY
CR/SQ
3710.5
21320.9 0.17403112
4477.4
17692.2 0.25307198
4344.5
12515 0.34714343
715.9
11610.7 0.06165864
2674.6
9320.4 0.28696193
1912.25
6427.94 0.29749033
1666.42
4893.65 0.34052701
913.91
3507.59 0.26055212
736.66
3330.33 0.2211973
857.82
2532.78 0.33868713

25000

0.4
0.35

20000

0.3

Sum of CASH FLOW

0.25

15000

0.2
10000

0.15
0.1

5000

Sum of
SHAREHOLDERS
EQUITY
Sum of CR/SQ

0.05
Mar '11

Mar '10

Mar '09

Mar '08

Mar '07

Mar '06

Mar '05

Mar '04

Mar '03

0
Mar '02

g. Cash Return on asset: A ratio used to compare a businesses performance

among other industry members. The ratio can be used internally by the
company's analysts, or by potential and current investors. The ratio does not
however include any future commitments regarding assets, nor does it include
the cost of replacing older ones. A high cash return on assets ratio can indicate
that a higher return is to be expected. This is because the higher the ratio, the
more cash the company has available for reintegration into the company,
whether it be in upgrades, replacements or other areas
7

CASH RETURN ON ASSET = AVERAGE TOTAL ASSETS

CASH FLOW FROM OPERATIONS

Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Mar '06
Mar '05
Mar '04
Mar '03
Mar '02

CASH RETURN
ATA
CASH FLOW
ON ASSET
24643.7
3710.5
6.64161164
20375.65
4477.4
4.55077724
16481
4344.5
3.79353205
12495.75
715.9
17.4546026
8018.255
2674.6
2.99792679
5716.92
1912.25
2.98963002
4282.01
1666.42
2.5695863
3504.19
913.91
3.83428346
2979.86
736.66
4.04509543
1279.815
857.82
1.49193887

30000

20
18

25000

16
14

20000

12
15000

10
8

10000

6
4

5000

Sum of ATA
Sum of CASH FLOW
Sum of CASH RETURN ON
ASSET

2
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

h. Return on capital : The Return on Capital ratio (ROC) tells us how much
profit we earn from the investments the shareholders have made in their
company. :
8

RETURN ON CAPITAL = PROFIT AFTER TAX

AVERAGE CAPITAL

PROFIT
AFTER TAX
Mar '11

4,843.70

Mar '10

4,898.00

Mar '09

2,973.80

Mar '08

3,063.30

Mar '07

2,842.10

Mar '06

2,020.48

Mar '05

1,494.82

Mar '04

914.88

Mar '03

813.23

Mar '02

866.11

AVERAGE
CAPITAL
392.2
293.3
292.65
292.05
288.475
212.93
93.63
46.53
46.5
23.245

6000

RETURN
ON
CAPITAL
12.3500765
16.699625
10.1616265
10.4889574
9.85215357
9.48894003
15.9651821
19.6621534
17.4888172
37.2600559

40
35

5000
30
4000
25
3000

20

Sum of PROFIT AFTER TAX

Sum of AVERAGE CAPITAL

15
2000
10
1000
5
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Sum of RETURN ON CAPITAL

i. Operating Margin: Operating margin is a measurement of what proportion of

a company's revenue is left over after paying for variable costs of production
such as wages, raw materials, etc. A healthy operating margin is required for a
company to be able to pay for its fixed costs, such as interest on debt. Also
known as "operating profit margin" or "net profit margin"

OPERATING MARGIN = NET PROFIT FROM OPERATIONS

SALES
NPFO
Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Mar '06
Mar '05
Mar '04
Mar '03
Mar '02

SALES

5760.9
5501.5
4758.7
3715.6
3254.5
2483.89
1855.24
1142.44
990.88
966.19

26300.5
22922
21507.3
17492.6
13683.9
10227.12
7233.16
5134.89
3992.01
3425.39

OM
0.21904146
0.2400096
0.22125976
0.21240982
0.23783424
0.24287287
0.25649094
0.22248578
0.24821581
0.28206715

30000

0.3

25000

0.25

20000

0.2

15000

0.15

Sum of NPFO
Sum of SALES

10000

0.1

5000

0.05

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

10

Sum of OM

j. Return on investment: Return on Investment (ROI) analysis is one of several commonly

used financial metrics for evaluating the financial consequences of business investments,
decisions, or actions. ROI analysis compares the magnitude and timing of investment gains
directly with the magnitude and timing of investment costs. A high ROI means
that investment gains compare favorably to investment costs. Over the years, ROI has
become a central financial metric for asset purchase decisions (computer systems, factory
machines, or service vehicles, for example), approval and funding decisions for projects and
programs of all kinds (such as marketing programs, recruiting programs, and training
programs), and more traditional investment decisions (such as the management of stock
portfolios or the use of venture capital).

RETURN ON INVESTMENT = NET PROFIT BEFORE TAX

SHAREHOLDERS EQUITY

NBPT

SHAREHOLDERS EQUITY

ROI

Mar '11

5705.5

21320.9

0.26760127

Mar '10

5688.8

17692.2

0.32154283

Mar '09

3547.9

12515

0.28349181

Mar '08

3469.7

11610.7

0.29883642

Mar '07

3176.2

9320.4

0.34077937

2340.42

6427.94

0.3641011

Mar '05

1757.02

4893.65

0.3590408

Mar '04

1079.24

3507.59

0.30768704

918.81

3330.33

0.27589158

938.56

2532.78

0.37056515

Mar '06

Mar '03
Mar '02

11

25000

0.4
0.35

20000
0.3
0.25

15000

0.2

Sum of NBPT
Sum of SE

10000

0.15

Sum of ROI

0.1
5000
0.05
0

0
Mar
'02

Mar
'03

Mar
'04

Mar
'05

Mar
'06

Mar
'07

Mar
'08

Mar
'09

Mar
'10

Mar
'11

2. LIQUIDITY RATIOS :
Liquidity is the ability of a business to meet its short-term obligations when they fall
due. An enterprise should have enough liquid and other current assets which can be
converted into cash so that it can pay its supppliers and lenders on time. Different
types of liquidity ratios are:
a. Current Ratio: A current ratio of more than one means that a business has more
current assets per rupee of current liabilities, implying that it may be able to pay
its current liabilities using current assets. Now, wipros current ratio has been
greater than one throughout with the maximum at 2.32.
Current ratios are commonly explained as a measure of a company's ability to pay
the current debt liabilities. For the lenders, current ratio is very helpful for them to
determine whether a company has a sufficient level of liquidity to pay liabilities.
They would prefer a high current ratio since it reduces their risk. For the
shareholders, current ratio is also important to them to discover the weakness in
the financial position of a business. They would prefer a lower current ratio so that
more of the companys assets can be used for growing business. Although current
ratio is an indicator of liquidity, investors should be aware that it can not give us
the comprehensive information about companys liquidity. Every industry has its
own norms of current ratio. The better way to evaluate it is to check a companys
current ratio against its industry average. More importantly, investors should look
at the trend of the current ratio of the company, types of current assets the
company has and how quickly these can be converted into cash to meet
companys current liability
12

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITIES

CURRENT
ASSETS

CURRENT
LIABILITIES

CURRENT
RATIO

Mar '11

8840.4

5290

1.67115312

Mar '10

7561.6

4874.2

1.55135202

Mar '09

6808.1

5564.3

1.22353216

Mar '08

7826.8

3361.6

2.32829605

Mar '07

4671.9

2998.9

1.55787122

Mar '06

2939.14

1776.83

1.65414812

Mar '05

2070.77

1211.14

1.70976931

Mar '04

1454.51

856.32

1.69855895

Mar '03

1137.9

591.07

1.92515269

Mar '02

1001.84

536.66

1.8668058

10000

2.5

9000
8000

7000
6000

1.5

Sum of CURRENT ASSETS

Sum of CURRENT
LIABILITIES

5000
4000

Sum of CURRENT RATIO

3000
2000

0.5

1000
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

13

b. Quick Ratio: The quick ratio, defined also as the acid test ratio, reveals a
company's ability to meet short-term operating needs by using its liquid assets. It
is similar to the current ratio, but is considered a more reliable indicator of a
companys short-term financial strength. The difference between these two is that
the quick ratio subtracts inventory from current assets and compares the quick
asset to the current liabilities. Similar to the current ratio, value for the quick ratio
analysis varies widely by company and industry. In theory, the higher the ratio
is, the better the position of the company is. However, a better benchmark is to
compare the ratio with the industry average.
Quick ratios are often explained as measures of a companys ability to pay their
current debt liabilities without relying on the sale of inventory. Compared with the
current ratio, the quick ratio is more conservative because it does not include
inventories which can sometimes be difficult to liquidate. For lenders, the quick
ratio is very helpful because it reveals a companys ability to pay off under
the worst possible condition. Although the quick ratio gives investors a better
picture of a companys ability to meet current obligations the current ratio,
investors should be aware that the quick ratio does not apply to the handful of
companies where inventory is almost immediately convertible into cash (such as
retail stores and fast food restaurants).

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITIES

QUICK ASSETS

CURRENT
LIABILITIES

QUICK RATIO

Mar '11

8115.5

5290

1.53412098

Mar '10

6954.7

4874.2

1.42683928

Mar '09

6348.5

5564.3

1.14093417

Mar '08

7378.7

3361.6

2.19499643

Mar '07

4431.5

2998.9

1.47770849

Mar '06

2790.49

1776.83

1.57048789

Mar '05

1943.4

1211.14

1.60460393

Mar '04

1352.43

856.32

1.57935118

Mar '03

1060.53

591.07

1.79425449

Mar '02

927

536.66

1.72735065

The company maintained a quick ratio of greater than 1 throughout which

explains for the stability of the company and for 2008 the ratio is almost 2. During

14

the period of recession, the company had the faith of investors reposed in itself
because it was better off than other companies around the globe.
9000

2.5

8000
2

7000
6000

1.5
5000

Sum of QUICK ASSETS

Sum of CURRENT LIABILITIES

4000
1
3000
2000

Sum of QUICK RATIO

0.5

1000
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

b. Debtor Turnover

DEBTOR TURNOVER = SALES

AVERAGE DEBTORS
AVERAGE
DEBTORS

SALES

DEBTOR
TURNOVER

Mar '11

26,300.50

5398.85

4.87150041

Mar '10

22,922.00

4731.4

4.84465486

Mar '09

21,507.30

4046.5

5.31503769

Mar '08

17,492.60

3114.45

5.61659362

Mar '07

13,683.90

2275.185

6.01441201

Mar '06

10,227.12

1687.29

6.06126985

Mar '05

7,233.16

1234.425

5.85953784

Mar '04

5,134.89

927.465

5.53647847

Mar '03

3,992.01

718.04

5.55959278

Mar '02

3,425.39

321.745

10.6462882

15

30000

12

25000

10

20000

15000

Sum of SALES
Sum of AVERAGE DEBTORS

10000

5000

Sum of DEBTOR TURNOVER

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

d. Inventory Turnover
INVENTORY TURNOVER = COST OF GOODS SOLD
AVERAGE INVENTORIES

AVERAGE
INVENTORIES

COGS

INVENTORY
TURNOVER

Mar '11

17722.9

665.9

26.6149572

Mar '10

15118.3

533.25

28.3512424

Mar '09

14530.4

453.85

32.0158643

Mar '08

10848.2

344.25

31.5125635

Mar '07

7864

194.525

40.4266804

Mar '06

6691.61

138.01

48.486414

Mar '05

4631.37

114.725

40.3693179

Mar '04

2137.14

89.725

23.8187796

Mar '03

1709.13

76.105

22.4575258

Mar '02

1473.15

37.42

39.367985

16

20000

60

18000
50

16000
14000

40

12000
10000

30

8000
20

6000
4000

10

Sum of COGS
Sum of AVERAGE
INVENTORIES
Sum of INVENTORY
TURNOVER

2000
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

e. Gearing Ratio:
GEARING RATIO = LONG TERM DEBT
SHAREHOLDERS EQUITY
LONG TERM
DEBT
Mar '11

4,744.10

Mar '10

5,530.20

Mar '09

5,013.90

Mar '08

3,822.40

Mar '07

238

Mar '06

50.16

Mar '05

62.09

Mar '04

100.69

Mar '03

69.75

Mar '02

26.86

SHAREHOLDERS
GEARING
EQUITY
RATIO
21320.9
0.22250937
17692.2
0.31257842
12515
0.40063124
11610.7
0.32921357
9320.4
0.02553538
6427.94
0.00780343
4893.65
0.01268787
3507.59
0.02870632
3330.33
0.02094387
2532.78
0.01060495

17

25000

0.45
0.4

20000

0.35
0.3

15000

Sum of LONG TERM DEBT

0.25
0.2

10000

0.15
0.1

5000

Sum of SHAREHOLDERS
EQUITY
Sum of GEARING RATIO

0.05
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

f. Cash Ratio

CASH RATIO = CASH

CURRENT LIABILITIES
CURRENT
LIABILITIES

CASH

CASH RATIO

Mar '11

2,334.20

5,290.00

0.44124764

Mar '10

1,938.30

4,874.20

0.39766526

Mar '09

1,902.10

5,564.30

0.34183994

Mar '08

3,732.10

3,361.60

1.11021537

Mar '07

1,849.20

2,998.90

0.6166261

Mar '06

822.42

1,776.83

0.46285801

Mar '05

536.89

1,211.14

0.4432931

Mar '04

290.09

856.32

0.33876355

Mar '03

267.94

591.07

0.45331348

Mar '02

283.51

536.66

0.52828607

18

6000

1.2

5000

4000

0.8
Sum of CASH

3000

0.6

2000

0.4

1000

0.2

Sum of CURRENT
LIABILITIES
Sum of CASH RATIO

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

3. SOLVENCY RATIO:
The lone term solvency of a business is affected by the extent of debt used to finance
the assets of the company. The presence of heavy debt in a companys capital
structure is thought to reduce the companys solvency because debt is more risky than
equity. The debt-to-equity ratio and the interest coverage ratio are important
indicators of solvency. The following are different types of solvency ratios:
a. Debt-to-Equity Ratio : A wise mix of debt and equity can increase the return on
equity for two reasons Debt is generally cheaper than equity
Interest payments are tax-deductible expenses, whereas dividends are paid
from taxed profits. In addition, dividend payment attracts dividend
distribution tax.
The ratio indicates the extent of use of financial leverage . A high debt-toequity ratio indicates aggressive use of leverage and a highly leveraged
company is more risky for creditors. A low ratio, on the other hand, suggests
that the company has a small degree of leverage and is too conservative.

19

a. Debt-to-Equity Ratio:

DEBT-TO-EQUITY RATIO = SECURED LOANS + UNSECURED LOANS

SHAREHOLDERS EQUITY

SHAREHOLDERS
EQUITY

SL+USL

DEBT-TOEQUITY RATIO

Mar '11

4744.1

21320.9

0.22250937

Mar '10

5530.2

17692.2

0.31257842

Mar '09

5013.9

12515

0.40063124

Mar '08

3822.4

11610.7

0.32921357

Mar '07

238

9320.4

0.02553538

Mar '06

50.16

6427.94

0.00780343

Mar '05

62.09

4893.65

0.01268787

Mar '04

100.69

3507.59

0.02870632

Mar '03

69.75

3330.33

0.02094387

Mar '02

26.86

2532.78

0.01060495

25000

0.45
0.4

20000

0.35
0.3

15000

Sum of SL+USL

0.25
0.2

10000

0.15
0.1

5000

0.05
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

20

Sum of SHAREHOLDERS
EQUITY
Sum of DEBT-TO-EQUITY
RATIO

b. Liabilities-to-Equity Ratio: A variant of the debt-to-equity ratio as the numerator

has not only debt but also current liabilities and deferred tax liability in order to
get the firms total liabilities.
Now, as we can see that wipro has almost constant liabilities-to-equity ratio which
means that its dependence on liabilities, too, is almost constant. Since wipro has a
stable financial condition and is not amongst the firms which keep rolling over
short term obligations therefore this ratio is not a useful indicator of wipros
condition.
LIABILITIES-TO-EQUITY RATIO = ALL LIABILITIES
SHAREHOLDERS EQUITY

ALL LIABILITIES
Mar '11

26,065.00

Mar '10

23,222.40

Mar '09

17,528.90

Mar '08

15,433.10

Mar '07
Mar '06

9,558.40
6,478.10

Mar '05

4,955.74

Mar '04

3,608.28

Mar '03

3,400.08

Mar '02

2,559.64

SHAREHOLDERS
EQUITY
21320.9
17692.2
12515
11610.7
9320.4
6427.94
4893.65
3507.59
3330.33
2532.78

30000

LIABILITIESTO-EQUITY
RATIO
1.22250937
1.31257842
1.40063124
1.32921357
1.02553538
1.00780343
1.01268787
1.02870632
1.02094387
1.01060495

1.6
1.4

25000

1.2
20000

15000

0.8
0.6

10000

0.4
5000

0.2

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

21

Sum of ALL LIABILITIES

Sum of SHAREHOLDERS
EQUITY
Sum of LIABILITIES-TOEQUITY RATIO

c. Interest Cover: This is a measure of protection available tothe creditors for

payment of interest charges by the company. It shows whether the company has
sufficient income to cover its interest requirements by a wide margin. Now, we
can see that interest cover has been the highest in 2006 i.e. the profit before
interest and tax has been 842.11 times the interest expense which implies adequate
safety for payment of interest. Interest cover has been the lowest in 2009 with just
21.73 times the interest expense and the brunt of its low goes to the ripples of
depression of 2008 which cast its effect on the company in 2009.

INTEREST COVER = PROFIT BEFORE INTEREST AND TAX

INTEREST EXPENSE

Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Mar '06
Mar '05
Mar '04
Mar '03
Mar '02

PBIT
6364.2
6368.2
4278.3
4042.5
3543.2
2635.81
1948.56
1234.36
1059.68
1083.34

INTEREST
EXPENSE
58.6
99.8
196.8
116.8
7.2
3.13
5.57
3.52
2.93
2.89

7000

INTEREST
COVER
108.604096
63.8096192
21.7393293
34.6104452
492.111111
842.111821
349.831239
350.670455
361.665529
374.858131

900
800
700
600
500
400
300
200
100
0

6000
5000
4000
3000
2000
1000
0

Sum of PBIT
Sum of INTEREST EXPENSE
Sum of INTEREST COVER

Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

d. Current liability to inventory ratio: Indicates reliance onf the available

inventory for the payment of debt

22

CURRENT LIABILITY TO INVENTORY RATIO

CURRENT
LIABILITIES

INVENTORIES

Mar '11

5,290.00

724.9

Mar '10

4,874.20

606.9

Mar '09

5,564.30

459.6

Mar '08

3,361.60

448.1

Mar '07
Mar '06

2,998.90

240.4

1,776.83

148.65

Mar '05

1,211.14

127.37

Mar '04

856.32

102.08

Mar '03

591.07

77.37

Mar '02

536.66

74.84

6000

14

5000

12

CL/I
7.29755828
8.03130664
12.106832
7.5018969
12.4746256
11.9531113
9.50883254
8.38871473
7.63952436
7.1707643

10

4000

8
3000
2000

Sum of INVENTORIES

Sum of CL/I

1000

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

The ratio being the highest during 2007 because company

23

Sum of CURRENT LIABILITIES

e. Current liability to net worth ratio: Indicates reliance on the equity for the
payment of debt. It is one of the measures of solvency of the firm and, as a rule of
thumb, should not exceed 0.6. Higher than this would mean significant pressure
on future cash flows. Wipro, as seen from the table, has been stable enough to
keep this ratio well below 0.6 except for the high of 0.44 in 2008 when due to the
depression, the company tended to be increasingly dependent on the shareholders
equity.

CURRENT LIABILITY TO NET WORTH

RATIO

CURRENT
LIABILITIES

NET WORTH

Mar '11

5,290.00

21,320.90

Mar '10

4,874.20

17,692.20

Mar '09

5,564.30

12,515.00

Mar '08

3,361.60

11,610.70

Mar '07
Mar '06

2,998.90
1,776.83

9,320.40
6,427.94

Mar '05

1,211.14

4,893.65

Mar '04

856.32

3,507.59

Mar '03

591.07

3,330.33

Mar '02

536.66

2,532.78

25000

CL/NW
0.24811335
0.27549994
0.44461047
0.28952604
0.32175658
0.27642293
0.24749216
0.24413344
0.17748091
0.21188575

0.5
0.45

20000

0.4
0.35

15000

0.3
0.25

10000
5000

0.2

Sum of NET WORTH

0.15

Sum of CL/NW

0.1
0.05

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

24

Sum of CURRENT LIABILITIES

4. CAPITAL MARKET RATIO:

a. Price-earnings Ratio: It is the ratio of current market price of a share to the
annual earnings per share. It is often seen as an indicator of a firms growth
prospects. Often used as a screen to detect mispriced stocks.
A high priced-earnings ratio indicates the stock markets confidence in the
companys future growth.
From wipros annual reports, the companys high stock price in March 2011 in
Bombay Stock Exchange was 482.2 and the low stock price was 425.91.
Similarly, it went on so for the rest of the years as well and the average stock price
thus yielded was the average of highs and lows of the prices in March of that
particular year. It went on increasing from 2002 to 2011 which indicates the
peoples increasing faith in the company.

PRICE-EARNINGS RATIO = AVERAGE STOCK PRICE

EARNIGS PER SHARE

Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Mar '06
Mar '05
Mar '04
Mar '03
Mar '02

AVERAGE EARNINGS PRICESTOCK

PER
EARNINGS
PRICE
SHARE
RATIO
474.55
17.74 26.75028185
422.955
33.36 12.67850719
146.805
20.3 7.231773399
258.9
20.96 12.35209924
338.775
19.48 17.39091376
336.3
14.17 23.73323924
198.155
21.25 9.324941176
137.185
39.31 3.489824472
124.69
34.97 3.565627681
169.62
37.26 4.552334944

25

500

30

450
25

400
350

20

300
250

15

200
10

150
100

Sum of AVERAGE STOCK

PRICE
Sum of EARNINGS PER
SHARE
Sum of PRICE-EARNINGS
RATIO

50
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

b. Dividend Yield Ratio:

DIVIDEND YIELD = DIVIDEND PER SHARE

AVERAGE STOCK PRICE

Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Mar '06
Mar '05
Mar '04
Mar '03
Mar '02

DIVIDEND AVERAGE
PER
STOCK
SHARE
PRICE
4.0001483
474.55
5.9998188
422.955
4.0000519
146.805
5.9972631
258.9
5.9883482
338.775
5.000021
336.3
5.000064
198.155
28.999953
137.185
1.0001548
124.69
1.0001463
169.62

26

DIVIDEND
YIELD
0.842935055
1.418547795
2.724738175
2.316439971
1.767647608
1.486774024
2.52330951
21.13930294
0.802113077
0.589639346

500

25

450
400

20

350
300

15
Sum of DIVIDEND PER SHARE

250

Sum of AVERAGE STOCK PRICE

200

10

Sum of DIVIDEND YIELD

150
100

50
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

c. Price-to-book Ratio:

PRICE-TO-BOOK RATIO = MARKET PRICE PER SHARE

BOOK VALUE PER SHARE

Mar '11
Mar '10
Mar '09
Mar '08
Mar '07
Mar '06
Mar '05
Mar '04
Mar '03
Mar '02

MARKET
PRICE
PER
SHARE
474.55
422.955
146.805
258.9
338.775
336.3
198.155
137.185
124.69
169.62

BOOK
VALUE
PER
SHARE
86.86
120.49
85.42
79.05
63.86
45.03
69.54
150.7
143.2
108.94

27

PRICE-TOBOOK RATIO
5.463389362
3.51029131
1.718625615
3.275142315
5.304963984
7.46835443
2.849511073
0.910318514
0.870740223
1.557003855

500

450

400
6
350
5

300
250

200

150
2
100
1

50
0

0
Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar
'02 '03 '04 '05 '06 '07 '08 '09 '10 '11

28

Sum of MARKET PRICE PER

SHARE
Sum of BOOK VALUE PER
SHARE
Sum of PRICE-TO-BOOK
RATIO