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Financial Ratios Analysis

By : Apurva Kale Ayushi Chandra Naveen Kadyan Sahil Gambhir Shri harsh

Indian tyre industry size estimated to be around Rs 35300 Cr, dominated by truck and bus category
Key Financial Data
J.K. Tyre
Financial Parameters (in Cr) Turnover Gross Profit Profit After Tax Total Debt Net Worth(Equity) 2010-2011 2009-2010

Apollo Tyres
2010-2011 2009-2010

7,452 1,745 -38 4,211.18 755.32

6,382 1,283 63 3,281.28 858.34

12,902 3,681 412 5,058.14 2,832.77

9,378 3,249 441 4,509.15 2,412.53

Liquidity Ratios: Provides information on a companys ability to meet its short term, immediate obligations
Current Ratio Cash ratio

Quick ratio

Overall Apollo Tyres has better ability to meet its short term obligations, although both companies have very low cash ratio

Profitability Ratios: Provides information on the amount of income from each dollar of sales

J.K. Tyre

Apollo Tyres

Financial Parameters
Operating Profit Margin(%) ROE Gross Profit Margin(%) Net Profit Margin(%)

20112012
5% -5% 25% -1%

20102011
5% 7% 22% 1%

2011-2012
10% 15% 30% 3%

20102011
11% 18% 37% 5%

ROA

-1%

1%

5%

6%

Overall Apollo Tyres is more profitable than JK Tyre mainly due to higher gross margins

Activity Ratio: Relates information on a companys ability to manage its resources(its assets) efficiently
J.K. Tyre
Financial Parameters Asset Turnover Ratio Account receivable turnover ratio Accounts payable turnover Inventory Turnover Ratio Average age of inventory 2012-2011 1.47 2011-2010 1.50

Apollo Tyres
2012-2011 1.55 2011-2010 1.32

6.89
2.32 6.49

7.16
2.92 5.96

10.60
3.48 4.37

9.30
3.02 3.49

56.23

61.24

83.57

104.60

J.K. Tyre is better at managing inventory and thus has better working capital management. Also higher asset turnover for J.K. Tyre shows higher utilization of assets. Both the companies have low receivables turnover ratio.

Solvency Ratios: Solvency ratios provides information on a companys ability to meet its long term obligations

Year 2011- 2012

Year 2010- 2011

Both the companies have high leverage although J.K. Tyres debt/equity ratio is unusually high, and thus poses very high risk of insolvency.

Shareholder ratio: A shareholder ratio describes the companys financial condition in terms of amounts per share of stock
J.K. Tyre
Financial Parameters EPS P/E Book value per share Dividend yield Dividend payout ratio 2012-2011 (9.31) (9.13) 183.96 0.12 -27% 2011-2010 15.23 6.15 209.05 0.13 20%

Apollo Tyres
2012-2011 8.18 9.70 56.20 0.32 6% 2011-2010 8.75 7.95 47.87 0.36 6%

J.K. tyres is incurring losses and thus destroying shareholder wealth. Even though J.K. has very high leverage as well as net losses, it continues give dividends.

Dupont Analysis
The ROE of either companies can be calculated as follows : (Total Sales / Assets) ROE = (PAT/Totalon Sales X Asset Turnover X Leverage Return Sales) (Assets / Equity)
JK Tyre Factors ROS 20112012 -0.55% 1.47 6.81 -5.06% 20102011 1.05% 1.51 5.02 7.29% Factors ROS Apollo Tyres 20112012 3.39% 1.55 2.96 14.55% 20102011 4.99% 1.32 3.04 18.27%

ATO Leverage
ROE

ATO Leverage
ROE

The main reason for negative ROE is negative returns on sales and high leverage. Also, high degree of leverage poses financial risk

Even tough Return on assets in only 3% for 2011-12, ROE is much higher due to high leverage

Bibliography
Financial Ratios for JK Tyres
Formulas Mar '12 Liquidity Ratios Mar '11 Mar '10 Mar '09 Liquidity Ratios

Financial Ratios for Apollo Tyres


Mar '12 Mar '11 Mar '10 Mar '09 Yearly trend The current ratio of the two companies is quite comparable. While for Apollo the ratio has been consistently higher than 1 for JK it has been slightly less than 1 except for the last year.

Current asset/Current liability

Current Ratio

0.87

1.06

0.91

0.93 Current Ratio

1.32

1.43

1.28

1.30

(Current asset-prepaid expensesQuick ratio inventory)/Current liability Cash+Cash advances/Current Liabilities Cash ratio

0.51 0.05

0.57 0.07

0.51 0.06

0.51 Quick ratio 0.04 Cash ratio

0.53 0.07

0.56 0.09

0.67 0.18

A higher Quick ratio further empahises the fact that 0.52 Apollo Tyres has a better managed liquidity prospects than JK tyres. Apollo tyres has a higher cash ratio than JK Tyres for all 0.24 the years

Operating Profit/Net Sales Net Profit/Equity

Profitability Ratio Operating Profit Margin(%) ROE

5% -5.06%

5% 7.29%

13% 25.85%

Profitability Ratio 6% Operating Profit Margin(%) -16.20% ROE

10%

11%

15%

9% Average op. Margin is higher for Apollo Apollo tyres has a higher ROE than JK Tyres for all the years Apollo tyres has a higher Gross Profit Margin(%) than JK Tyres for all the years Apollo tyres has a higher Net Profit Margin(%) than JK Tyres for all the years Apollo tyres has a higher Return On Capital Employed(%) than JK Tyres for all the years Apollo tyres has a higher ROA than JK Tyres for all the years

14.548% 18.271% 33.202% 10.310%

Gross Profit/Net Sales PAT/Net Sales Profit+Interest(after tax)/Debt+Net worth Net Profit/Total Assets

Gross Profit Margin(%) Net Profit Margin(%) Return On Capital Employed(%) ROA

25% -1% 1%

22% 1% 5%

33% 5% 18%

22% Gross Profit Margin(%) -2% Net Profit Margin(%) -3% Return On Capital Employed(%)

30% 3% 12%

37% 5% 12%

41% 8% 22%

28% 3% 11%

-1%

1%

7%

-4% ROA

5%

6%

11%

4%

Activity Ratios

Activity Ratios Apollo tyres has a higher Asset Turnover Ratio than JK Tyres for all the years

Net Sales/Asset

Asset Turnover Ratio

1.47

1.51

1.33

3.31 Asset Turnover Ratio

1.55

1.32

1.68

2.82

Net Credit Sales/Account Receivables

Account receivable turnover ratio

6.89

7.16

7.28

10.06

Account receivable turnover ratio

10.60

9.30

10.32

22.23

COGS/Accounts payable

Accounts payable turnover

2.32

2.92

2.18

3.64 Accounts payable turnover

3.48

3.02

2.89

4.51

Apollo tyres has a higher Accounts payable turnover than JK Tyres for all the years

COGS/Average Inventory

Inventory Turnover Ratio

6.49

5.96

5.45

8.73 Inventory Turnover Ratio

4.37

3.49

4.69

5.74

Apollo tyres has a lower Inventory Turnover Ratio than JK Tyres for all the years

365/Inventory Turnover Ratio

Average age of inventory Solvency Ratios

56.23

61.24

66.91

41.83 Average age of inventory Solvency Ratios

83.57

104.60

77.84

63.59

Apollo tyres has a higher Average age of inventory than JK Tyres for all the years

Debt/Assets Debt ratio 0.82 0.76 0.71 0.76 Debt ratio 0.60 0.62 0.54 0.48

Apollo tyres has a higher Debt ratio than JK Tyres for all the years

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