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ADVANCED FINANCIAL

ACCOUNTING

RATIO ANALYSIS
THE RAYMOND

KATHIRVEL S

Table of Contents
1 LIQUIDITY RATIOS............................................................................................2
1.1 Current Ratio.............................................................................................2
1.2 Quick Ratio................................................................................................2
2 LEVERAGE RATIOS...........................................................................................3
2.1 Debt Ratio.................................................................................................3
2.2 Debt to Equity Ratio..................................................................................3
2.3 Coverage ratio..........................................................................................3
3 TURNOVER RATIOS..........................................................................................4
3.1 Inventory Turnover Ratio..........................................................................4
3.2 Debtors’ turnover ratio..............................................................................4
3.3 Investment Turnover Ratio........................................................................4
3.4 Total assets turnover ratio........................................................................5
4 PROFITABILITY RATIOS....................................................................................5
4.1 Gross profit Margin ratio...........................................................................5
4.2 Net Profit Margin ratio...............................................................................5
4.3 Operating Profit Margin.............................................................................6
4.4 Return on Assets.......................................................................................6
4.5 Earnings per share (EPS)...........................................................................6
5 APPENDICES....................................................................................................7
5.1 Balance Sheet of Raymond.......................................................................7
5.2 Profit & Loss account of Raymond.............................................................8
5.3 Cash Flow of Raymond..............................................................................9
5.4 Yearly Results of Raymond.......................................................................9
5.5 Key Financial Ratios of Raymond............................................................10
Key Financial Ratios of Raymond
1 LIQUIDITY RATIOS
Liquidity ratios measure the amount of cash or investments that can be converted to
cash to pay expenses and short-term debts. Liquidity ratios determine your ability to meet
current liabilities.

1.1 Current Ratio


It measures whether the company has enough liquidity to pay its short term
obligations. Theoretically, a current ratio of 2.0 is preferred for most companies. It is
important to watch this ratio closely. If it begins to go down, then a company’s cash position
may erode quickly. The quickest way to increase cash is to improve sales.

Current ratio = current assets / current liabilities


Mar 2008 Mar 2009 Mar2010

1.23 1.36 1.6

Year on year increase in ratio indicates that liquidity status of Raymond is good.

1.2 Quick Ratio


This ratio is also referred to as the acid test. It measures whether the company’s assets
minus inventory will provide enough liquidity to cover its short-term obligations.

Quick Ratio = (Current assets – Inventory) / Current liabilities


(Or)
Quick ratio = (cash + marketable securities + net receivables) / current liabilities

Mar 2008 Mar 2009 Mar2010

1.4 1.26 1.42

A 1.0 ratio is usually preferred. Since it has increased in 2010 as compared to 2009,
sales are strong enough to meet daily cash obligations.
2 LEVERAGE RATIOS
Risk ratios measure what portion of the company belongs to people outside the
company including how much money the owners could lose to creditors.

2.1 Debt Ratio


It measures the proportion of assets that are financed by creditors’ funds (debt). It tells
a debt ratio of more than 1 means negative net worth. In other words, if a company could sell
all of the assets for full value, it would still not have enough money to meet all its obligations.

Debt Ratio = Total liabilities / Total assets


The ratio for all the year period is 1 which means the company has enough money to meet its
obligations.

2.2 Debt to Equity Ratio


It measures how much the company relies on debt versus equity financing. It tells the
more a company’s debt exceeds its net worth, the less likely it is to obtain financing.

Debt-equity ratio = long-term debt / shareholder's equity


Mar 2008 Mar 2009 Mar2010

0.63 1.19 1.07

As this number is increasing, the company’s ability to obtain financing decreases. The
debt to equity is increasing due to the increase in the debts of the company.

2.3 Coverage ratio


It measures the ability of the firm to pay back the interest for the loans & debts it has
borrowed.

Coverage ratio = EBIT / Interest


Mar 2008 Mar 2009 Mar2010

1.25 1.27 0.68

In the year 2010 the ratio is almost decreased to half which means that the company
cannot pay the interest for its borrowings with ease.
3 TURNOVER RATIOS
Efficiency ratios tell how well business is being conducted. These ratios measure how
quickly inventory moves, how well the company collects its accounts receivable, and what
kind of sales a company’s assets generate.

3.1 Inventory Turnover Ratio


It measures how often inventory turns over. This ratio shows how efficiently
inventory is being managed. High turnover is generally good. However, high turnover may
also indicate that a company does not have enough merchandise and is losing sales.

Inventory Turnover Ratio = Cost of goods sold / Inventory

Mar 2008 Mar 2009 Mar2010

4.35 4.39 5.12

The increase in the turnover conveys that the inventory is being managed efficiently
by Raymond.

3.2 Debtors’ turnover ratio


It measures average number of days it takes customers to pay their bills. This ratio
shows how effective a company is at collecting money and how much float it must finance. It
also shows how effective the company’s credit policies are. The tighter the credit policy, the
lower the ratio will be. That policy, however, may also reduce sales.

Debtors’ turnover ratio = Credit Sales / Average Debtors


Mar 2008 Mar 2009 Mar2010

4.79 4.71 4.51

The collecting period has been reducing a little year on year. Raymond is effective in
collecting money from the debtors.

3.3 Investment Turnover Ratio


The turnover ratio shows how efficiently a company uses its assets. The measurement
shows how quickly and how often an asset (piece of machinery or investment) pays for itself.
If an older piece of equipment works more slowly but pays for itself three times in a year,
while a newer model takes two years to pay for itself, the owner must reflect on whether the
payoff is worth the greater investment.

Investment Turnover Ratio = Net sales / Total assets


Mar 2008 Mar 2009 Mar2010

4.35 4.39 5.12


The amount of sales generated by the investments is increasing. This measurement
shows that Raymond’s investments are quickly paying for themselves.

3.4 Total assets turnover ratio


It measures the amount of sales generated by the total assets of the company. The total
assets turnover ratio shows how efficiently a company uses its assets. The measurement
shows how quickly and how often an asset (piece of machinery or investment) pays for itself.

Total assets turnover ratio = Sales / Total Assets


Mar 2008 Mar 2009 Mar2010

0.58 0.57 0.56

The assets turnover is decreasing across the 2 years, which indicates that the assets
which were paying for themselves quickly have now slowed down.

4 PROFITABILITY RATIOS
Profitability ratios help us evaluate the profitability of a business. By comparing
certain numbers, these ratios can help identify elevated expenses, inefficient operations, and
profitable margins.

4.1 Gross profit Margin ratio


This rough measurement of overall profits (gross margin) tells companies how well
they are controlling direct costs. If costs are increasing faster than sales, then the direct costs
are out of control. Owners of the business would want to do some research to determine why
the costs are increasing.

Gross profit Margin ratio = Gross profit or (sales-COGS) / sales


Mar 2008 Mar 2009 Mar2010

0.78 2.18 1.28

During the 2008-09 the ratio has risen from 0.78 to 2.18, which means that the profit
percentage of Raymond after subtraction of its’ directs costs is increasing. Whereas during
the next fiscal there is a dip in the ratio which implies rising direct costs associated with the
production of goods and services.

4.2 Net Profit Margin ratio


It is the ratio of net income to net sales. A falling net margin may signal problems in
controlling costs or prices.

Net Profit Margin ratio = Net income / sales


Mar 2008 Mar 2009 Mar2010
4.71 -18.34 1.87

The fall in the ratio from 2008 to 2009 (4.71 to -18.34) indicates that the company’s
costs have risen drastically. During the next year the rise in the ratio to 1.87 means that the
company has got the costs under control to a little extent.

4.3 Operating Profit Margin


Operating margins show how well a company is managing its overhead costs. If the
company’s gross margins are rising while its operating margins are falling, management
knows immediately that the company is having difficulty controlling indirect costs.

Operating Margin = Operating income / Net sales


Mar 2008 Mar 2009 Mar2010

6.84 8.52 9.48

Year on year, the operational efficiency has improved. Although there is dip in the
gross profit in the year 2010, operational efficiency has improved a little. This shows that the
company has been able to control the indirect costs during this period.

4.4 Return on Assets


It measures Profits against assets. ROA can be used to compare the profitability of
companies of different sizes. Assets remain fairly stable, so an increasing ROA indicates
greater profitability, while a decreasing ROA indicates less profitability.

Return on Assets (ROA) = Net income / Total assets


Mar 2008 Mar 2009 Mar2010

227.8 183.61 191.09

Profit against asset has drastically come down in the year 2009. This shows that
effectiveness in generating profits with its available assets has reduced. During the next year
2010 effectiveness has increased a little.

4.5 Earnings per share (EPS)


Earnings per share = Profit after tax / No. of Shares
Mar 2008 Mar 2009 Mar2010

10.77 -44.05 4.3

Since the company has gone into the loss during the year 2008-2009, the share
holders wouldn’t receive any benefits. In the next year company has able to show a little
profit
5 APPENDICES
5.1 Balance Sheet of Raymond

Balance Sheet of
Raymond ------------------- in Rs. Cr. -------------------
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths
Sources Of Funds
Total Share Capital 61.38 61.38 61.38 61.38 61.38
Equity Share Capital 61.38 61.38 61.38 61.38 61.38
Share Application Money 0 0 20.87 20.87 0
Preference Share Capital 0 0 0 0 0
Reserves 1,128.56 1,294.78 1,336.90 1,065.60 1,111.53
Revaluation Reserves 0 0 0 0 0
Net worth 1,189.94 1,356.16 1,419.15 1,147.85 1,172.91
Secured Loans 546.68 566.86 504.98 868.85 756.96
Unsecured Loans 221.2 220.75 382.03 476.22 495.75
Total Debt 767.88 787.61 887.01 1,345.07 1,252.71
Total Liabilities 1,957.82 2,143.77 2,306.16 2,492.92 2,425.62

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths
Application Of Funds
Gross Block 1,366.73 1,230.03 1,345.40 1,700.64 1,713.39
Less: Accum. Depreciation 677.66 553.98 625.88 701.6 772.98
Net Block 689.07 676.05 719.52 999.04 940.41
Capital Work in Progress 156.05 85.69 13.58 62.11 41.64
Investments 736.6 984.48 1,047.30 888.59 889.54
Inventories 319.04 283.66 329.74 340.4 284.5
Sundry Debtors 248.47 268.77 289.89 304.48 296.94
Cash and Bank Balance 24.12 24.69 20.9 35.79 17.67
Total Current Assets 591.63 577.12 640.53 680.67 599.11
Loans and Advances 197.19 265.77 324.07 361.59 402.17
Fixed Deposits 0.92 0.92 0.93 11 8.89
Total CA, Loans & Advances 789.74 843.81 965.53 1,053.26 1,010.17
Deferred Credit 0 0 0 0 0
Current Liabilities 345.91 365.63 364.23 450.43 403.04
Provisions 67.71 80.64 75.54 59.67 53.11
Total CL & Provisions 413.62 446.27 439.77 510.1 456.15
Net Current Assets 376.12 397.54 525.76 543.16 554.02
Miscellaneous Expenses 0 0 0 0 0
Total Assets 1,957.84 2,143.76 2,306.16 2,492.90 2,425.61

Contingent Liabilities 544.05 297.08 428.23 446.45 221.57


Book Value (Rs) 193.86 220.94 227.8 183.61 191.09

5.2 Profit & Loss account of Raymond

Profit & Loss account of


Raymond ------------------- in Rs. Cr. -------------------
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths
Income
Sales Turnover 1,354.84 1,315.95 1,352.33 1,414.21 1,360.84
Excise Duty 20.33 15.59 14.79 14 4.16
Net Sales 1,334.51 1,300.36 1,337.54 1,400.21 1,356.68
Other Income 71.76 190.12 122.21 -250.43 76.22
Stock Adjustments 6.34 6.28 50.89 28.99 -47.86
Total Income 1,412.61 1,496.76 1,510.64 1,178.77 1,385.04
Expenditure
Raw Materials 529.19 491.26 572.95 536.93 464.17
Power & Fuel Cost 93.81 85.33 82.16 89.83 89.66
Employee Cost 203.98 225.58 233.16 261 254.54
Other Manufacturing Expenses 73.05 79.17 83.93 83 71.38
Selling and Admin Expenses 143.89 188.81 221.98 251.45 232.95
Miscellaneous Expenses 101.26 89.61 102.73 87.64 67.42
Preoperative Exp Capitalised -1.5 -1.79 0 0 0
Total Expenses 1,143.68 1,157.97 1,296.91 1,309.85 1,180.12

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 197.17 148.67 91.52 119.35 128.7


PBDIT 268.93 338.79 213.73 -131.08 204.92
Interest 36.24 48.59 60.3 85.2 98.17
PBDT 232.69 290.2 153.43 -216.28 106.75
Depreciation 72.71 63.06 81.07 88.81 111.31
Other Written Off 0 0 0 0 0
Profit Before Tax 159.98 227.14 72.36 -305.09 -4.56
Extra-ordinary items 2.44 11.96 15.64 6.38 23.29
PBT (Post Extra-ord Items) 162.42 239.1 88 -298.71 18.73
Tax 41.41 36.98 15.57 -27.15 -6.32
Reported Net Profit 122.29 201.25 66.12 -270.4 26.37
Total Value Addition 614.49 666.71 723.96 772.92 715.95
Preference Dividend 0 0 0 0 0
Equity Dividend 30.69 30.69 15.35 0 0
Corporate Dividend Tax 4.3 5.22 2.61 0 0
Per share data (annualised)
Shares in issue (lakhs) 613.81 613.81 613.81 613.81 613.81
Earnings Per Share (Rs) 19.92 32.79 10.77 -44.05 4.3
Equity Dividend (%) 50 50 25 0 0
Book Value (Rs) 193.86 220.94 227.8 183.61 191.09

5.3 Cash Flow of Raymond

Cash Flow of
Raymond ------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
12 mths 12 mths 12 mths 12 mths 12 mths

Net Profit Before Tax 173.65 156.99 86.15 -58.75 18.88


Net Cash From Operating
Activities 157.56 57.18 15.52 120.54 75.14
Net Cash (used in)/from -287.35 -194.22 -13.11 -361.13 23.9
Investing Activities
Net Cash (used in)/from
Financing Activities 141.58 137.62 -6.2 265.57 -119.27
Net (decrease)/increase
In Cash and Cash
Equivalents 11.78 0.58 -3.79 24.97 -20.24
Opening Cash & Cash
Equivalents 13.25 25.03 25.61 21.82 46.8
Closing Cash & Cash
Equivalents 25.03 25.61 21.82 46.8 26.56

5.4 Yearly Results of Raymond


Yearly Results of
Raymond ------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Sales Turnover 1,324.74 1,284.19 1,322.51 1,399.31 1,354.43


Other Income 69.47 70.02 86.24 42.73 51.39
Total Income 1,394.21 1,354.21 1,408.75 1,442.04 1,405.82
Total Expenses 1,125.84 1,103.35 1,215.99 1,349.56 1,192.55
Operating Profit 198.9 180.84 106.52 49.75 161.88
Profit On Sale Of Assets -- -- -- -- --
Profit On Sale Of
Investments -- -- -- -- --
Gain/Loss On Foreign
Exchange -- -- -- -- --
VRS Adjustment -- -- -- -- --
Other Extraordinary
Income/Expenses -- -- -- -- --
Total Extraordinary
Income/Expenses -9.95 81.25 -4.45 -238.8 1.17
Tax On Extraordinary
Items -- -- -- -- --
Net Extra Ordinary
Income/Expenses -- -- -- -- --
Gross Profit 268.37 250.86 192.76 92.48 213.27
Interest 23.12 29.94 25.54 63.06 84.39
PBDT 235.3 302.17 162.77 -209.38 130.05
Depreciation 72.71 63.06 81.07 88.81 111.31
Depreciation On
Revaluation Of Assets -- -- -- -- --
PBT 162.59 239.11 81.7 -298.19 18.74
Tax 41.41 36.99 15.57 -27.15 -6.32
Net Profit 121.18 202.12 66.13 -271.04 25.06
Prior Years
Income/Expenses -0.18 -- 6.29 -0.5 --
Depreciation for Previous
Years Written Back/
Provided -- -- -- -- --
Dividend -- -- -- -- --
Dividend Tax -- -- -- -- --
Dividend (%) -- -- -- -- --
Earnings Per Share 19.74 32.93 10.77 -- 4.08
Book Value -- -- -- -- --
Equity 61.38 61.38 61.38 61.38 61.38
Reserves 1,128.56 1,294.78 1,336.91 1,065.60 1,111.53
Face Value 10 10 10 10 10
5.5 Key Financial Ratios of Raymond

Key Financial Ratios of


Raymond ------------------- in Rs. Cr. -------------------

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Investment Valuation
Ratios
Face Value 10 10 10 10 10
Dividend Per Share 5 5 2.5 -- --
Operating Profit Per Share (Rs) 32.12 24.22 14.91 19.44 20.97
Net Operating Profit Per Share
(Rs) 217.41 211.85 217.91 228.12 221.03
Free Reserves Per Share (Rs) 179.55 206.35 215.57 171.33 175.41
Bonus in Equity Capital 69.28 69.28 69.28 69.28 69.28
Profitability Ratios
Operating Profit Margin (%) 14.77 11.43 6.84 8.52 9.48
Profit Before Interest And Tax
Margin (%) 9.07 6.38 0.74 2.07 1.23
Gross Profit Margin (%) 14.55 10.59 0.78 2.18 1.28
Cash Profit Margin (%) 14.21 19.72 5.71 9.16 6.14
Adjusted Cash Margin (%) 11.45 7.66 5.71 9.16 6.14
Net Profit Margin (%) 8.91 15.01 4.71 -18.34 1.87
Adjusted Net Profit Margin (%) 6.15 2.96 4.71 -18.34 1.87
Return On Capital Employed
(%) 8.28 5.84 3.25 4.18 2.75
Return On Net Worth (%) 10.28 14.84 4.72 -23.99 2.24
Adjusted Return on Net Worth
(%) 7.09 2.92 -0.06 4.11 -2.12
Return on Assets Excluding
Revaluations 5.16 220.94 227.8 183.61 191.09
Return on Assets Including
Revaluations 5.16 220.94 227.8 183.61 191.09
Return on Long Term Funds
(%) 8.71 6.4 3.6 4.64 2.93
Liquidity And Solvency
Ratios
Current Ratio 1.3 1.02 1.23 1.36 1.6
Quick Ratio 1.09 1.21 1.4 1.26 1.42
Debt Equity Ratio 0.65 0.58 0.63 1.19 1.07
Long Term Debt Equity Ratio 0.56 0.44 0.49 0.99 0.94
Debt Coverage Ratios
Interest Cover 4.62 2.7 1.25 1.27 0.68
Total Debt to Owners Fund 0.65 0.58 0.63 1.19 1.07
Financial Charges Coverage
Ratio 6.48 3.88 2.59 2.27 1.82
Financial Charges Coverage
Ratio Post Tax 6.38 6.44 3.44 -1.13 2.4
Management Efficiency
Ratios
Inventory Turnover Ratio 4.3 4.72 4.35 4.39 5.12
Debtors Turnover Ratio 5.62 5.03 4.79 4.71 4.51
Investments Turnover Ratio 4.63 4.92 4.35 4.39 5.12
Fixed Assets Turnover Ratio 1.89 1.63 1.01 0.83 0.8
Total Assets Turnover Ratio 0.68 0.61 0.58 0.57 0.56
Asset Turnover Ratio 0.98 1.07 1.01 0.83 0.8

Average Raw Material Holding 69.76 51.02 32.98 30.66 34.43


Average Finished Goods Held 38.91 43.1 46.16 55.76 36.55
Number of Days In Working
Capital 101.46 110.06 141.51 139.65 147.01
Profit & Loss Account
Ratios
Material Cost Composition 39.65 37.77 42.83 38.34 34.21
Imported Composition of Raw
Materials Consumed 35.04 38.15 54.22 37.47 38.22
Selling Distribution Cost
Composition 8.73 10.01 10.03 10.43 9.92
Expenses as Composition of
Total Sales 20.14 17.38 11.32 13.39 9.53
Cash Flow Indicator Ratios
Dividend pay-out Ratio Net
Profit 28.61 17.84 27.15 -- --
Dividend Pay-out Ratio Cash
Profit 17.94 13.58 12.19 -- --
Earning Retention Ratio 58.58 9.54 2,139.42 -- 100
Cash Earning Retention Ratio 77.74 65.06 77.62 100 100
Adjusted Cash Flow Times 4.89 7.67 11.06 9.95 14.5

Mar '06 Mar '07 Mar '08 Mar '09 Mar '10

Earnings Per Share 19.92 32.79 10.77 -44.05 4.3


Book Value 193.86 220.94 227.8 183.61 191.09