Financial Accounting Ratio analysis of Indian companies

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Financial Accounting Ratio Analysis

Financial AccountingRatio AnalysisManufacturing : Birla EricssonBANK: ICICI IT: Wipro

BIRLA ERICSSONLiquidity RatioAnalysis:

The ratios in 2009 & 2010 (3.4*4.48) show a very strong liquidity position of the company.

In 11 & 12 the decrease in ratio may be due to the reduction in cash balances, the company may have utilised these funds for the purchase of fixed assets

YearCurrent RatioQuick RatioMAR'083.8486055781.804211725MAR'093.4949076582.291859166MAR'104.4824857563.189312903MAR'111.515592450.994797229MAR'121.2586952580.879818113Profitability RatioAnalysis:

Profit Margin: After a increase in 2010 the profit margin has decreased considerably. This is due to decrease in turn over of the company.Return on Equity: The ratio of the company has been on a decreasing trend due to decrease in the amount of net income of the company. This indicates low managerial efficiency and low productivity of the capital utilized.

YearProfit MarginPOAROEMAR'09-0.0480698971.325494421.111651789MAR'100.0286799271.1185063490.983608547MAR'11-0.0624071240.7544073310.577992019MAR'12-0.062351760.7347447160.510221794FormulasPROFIT MARGIN = net profit/net revenuePROFIT ON ASSET = NET INCOME / TOTAL ASSETSRETURN ON EQUITY = net income/avg stockholder's equity

4Turnover RatioAnalysis:Inventory Turn over Ratio: this ratio has decreased from 4137 to 3.44 in 2009 & 2010 resp. This may be due to high inventory/reduction in selling price and the accumulation of stocks. Asset Turn Over Ratio: The decrease in the ratio from the year 2010 to 2011 shows the inability of the company to use its assets to efficiently generate sales.

YearInventory Turnover RatioAsset Turnover RatioMAR'095.9584725311.308147749MAR'104.137720681.098216194MAR'113.4445298350.729297431MAR'123.5307792710.713254882FormulasINVENTORY TURNOVER RATIO = COST OF GOODS SOLD/AVG INVENTORYASSET TURNOVER RATIO = SALES REVENUE/TOTAL ASSETS

5Solvency RatioAnalysis:

The debt equity ratio of the company is less than 1, which indicates that the majority of the assets are financed through equity and not by debt.

This shows that the common share holder has low risk in investing in the company.

YearDEBT CAPITILISATIONDEBT EQUITYMAR'090.4217153140.393392767MAR'100.3662854090.338435846MAR'110.0274323880.943972875MAR'120.0127147860.984717786Formulas:.Debt Capitalisation = LONG TERM DEBT/ TOTAL INVESTED CAPITAL(EQUITY).Debt Equity = TOTAL LIABILITIES/EQUITY

6Income and Funds FlowAnalysis:Operating working capital is reducing over the years, because of increasing current liabilities.YearOperating working capitalOperating CashMar'094331.01404.75Mar'104290.91449.33Mar'111462.71267.88Mar'121198.68167.7Analysis:

The net Income is reducing which shows that the organisation is not doing well

The Operating Working Capital is negative due to higher Current Liabilities than Current Assets. If it can Wipe of this debt then itll make good profits.

The Operating Cash is Directly proportional to Net Income and follows the same trend.

Formulas:Operating Cash = NOPAT + Depreciation & Amortization.NET WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

7WIPROLiquidity RatioAnalysis: CURRENT RATIO: The current ratio of the company fell from 2.1 times to 1.1 times in the year 2008-09, but has shown an increasing trend in the next 3 years. In the year 2012 the current ratio has improved to 2.35 which indicates the company has worked on its liquidity management in a positive way.

QUICK RATIO: The increasing trend in quick ratio after a fall in 2009, is a positive working capital indicator. In the year 2012, the quick ratio has risen to 2.2 which shows the strong cash position in managing the day to day affairs of the company.

YearCurrent RatioQuick RatioMar'082.1762851022.042985483Mar'091.1038577331.021259802Mar'101.9712978541.846785113Mar'111.9681474481.831115312Mar'122.3596470712.228451589Formulas

9Profitability RatioAnalysis:

PROFIT MARGIN RATIO: This ratio of the company has been consistent over past five year though a good sign but the company has made investments and has expanded its production thereby using its profitsefficiently.RETURN ON EQUITY: The ROE ratio of the company has to steady at 0.9 over the past five years. This is almost to the standard ratio level of 1:1..this states that the company is giving steady results to its shareholders.

Profit MarginROAROE0.17012191.1667455020.9580626450.1414539241.1993393770.9103587360.2049398111.0291658050.8506260540.1798265481.0333934390.8590464040.1456678351.0867423310.903962631FormulasPROFIT MARGIN = net profit/net revenuePROFIT ON ASSET = NET INCOME / TOTAL ASSETSRETURN ON EQUITY = net income/avg stockholder's equity

10Turnover RatioAnalysis:INVENTORY TURNOVER RATIO : Company shows control over its stocks and material management.The inventory turnover ratio of 7times, 6times and 5.7 times over the last 5 years shows the company has control over its stock and material management. the conversion of stock into finished product which is more than the standard of 4times, shows theefficiencyof production of the company.ASSET TURNOVER RATIO : This ratio signifies the relationship between asset and turnover. The ratio of 1and above for the past five years shows that assets are optimallyutilizedto getproportionate sales. The operating income has been efficiently applied in assets.

YearInventory Turnover RatioAsset Turnover RatioMar'087.0051327831.144170646Mar'097.8172323761.232980963Mar'106.4429065740.99069433Mar'115.5253138361.012898523Mar'126.2645522861.074595296FormulasINVENTORY TURNOVER RATIO = COST OF GOODS SOLD/AVG INVENTORYASSET TURNOVER RATIO = SALES REVENUE/TOTAL ASSETS

11Income and Funds FlowYearOWCOperating CashMar'083954.216045.83708Mar'09577.89618648.54571Mar'104734.320387.19459Mar'115121.523013.37174Mar'128136.425915.22883Analysis:Company made considerable investments in buying assets, but in turn the liabilities of the company are not increased , thus the operating working capital of the company is strong.Net operating profit of the company is increased marginally over the years. Since the operating income of the company is increased, the company has strong base of operating cash. Formulas:Operating Cash = NOPAT + Depreciation & Amortization.NET WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITIES

Analysis:

The net Income is reducing which shows that the organisation is not doing well

The Operating Working Capital is negative due to higher Current Liabilities than Current Assets. If it can Wipe of this debt then itll make good profits.

The Operating Cash is Directly proportional to Net Income and follows the same trend.

12ICICISolvency RatioAnalysis:Majority of the assets are financed through equity and not by debt.Debt/Asset ratio increased in the year 2009, in this year company made investments and changes in business plans.The consistent Debt/asset ratio shows that the company is in line with the industry. There is considerable drop in the ratio from 40% to 21%YearDEBT CAPITILISATIONDEBT EQUITYMar'080.329213571.32921357Mar'090.4006312431.400631243Mar'100.3125819581.312593262Mar'110.2225093691.222509369Mar'120.2153043841.215304384AnalysisFormulas:.Debt Capitalisation = LONG TERM DEBT/ TOTAL INVESTED CAPITAL(EQUITY).Debt Equity = TOTAL LIABILITIES/EQUITY

14Liquidity RatioAnalysis:

The current ratio has shown an increasing trend from 2010, which shows sound liquidity position of the bank. The current ratio of the bank is much higher than the standard ratio of the bank.YearCurrent LiabilitiesCurrent RatioMar'0842895.391.335629773Mar'0943746.431.196391797Mar'1015501.183.613464265Mar'1115896.353.003678203Mar'1217576.983.171438438

Formulas

Analysis:

The current ratio has shown an increasing trend from 2010, which shows sound liquidity position of the bank. The current ratio of the bank is much higher than the standard ratio of the bank.15Profitability RatioAnalysis:The ROE has fallen from 2008 to 2009 but has shown improvement in 2011 to 2012 which indicates the bank is trying to utilise the capital in an optimal way.The profit margin has increased minimally but the proportion to net income which acts as a sound indicator of consistency.YearPROFIT MARGINRETURN ON EQUITYRETURN ON ASSSETSMar'080.1048150880.8472236670.099218807Mar'090.0958454550.7860452310.103375193Mar'100.1219714560.6392948870.090807337Mar'110.1557106740.6005155480.081438252Mar'120.15597450.686211050.087513997FormulasPROFIT MARGIN = net profit/net revenuePROFIT ON ASSET = NET INCOME / TOTAL ASSETSRETURN ON EQUITY = net income/avg stockholder's equity16Turnover RatioAnalysis:. Asset Turn Over Ratio: The decrease in the ratio shows that the bank is struggling to manipulate its assets to improve the turn over. The ratio has shown a decreasing trend after2009

YearTOTAL ASSETSASSET TURNOVER RATIOMar'08399795.070.099218807Mar'09379300.960.103375193Mar'10363399.710.090807337Mar'11406233.670.081438252Mar'12473647.090.087513997Analysis:. Asset Turn Over Ratio: The decrease in the ratio shows that the bank is struggling to manipulate its assets to improve the turn over. The ratio has shown a decreasing trend after2009

FormulasINVENTORY TURNOVER RATIO = COST OF GOODS SOLD/AVG INVENTORYASSET TURNOVER RATIO = SALES REVENUE/TOTAL ASSETS

17Solvency RatioAnalysis:

The debt equity ratio has increased from 2010 to 2011 which indicates increase in volume of deposits and borrowings of the bank.

YearDEBT EQUITY RATIOMar'086.622769953Mar'095.726828688Mar'105.739820339Mar'116.083694539Mar'126.550173536Formulas:.Debt Capitalisation = LONG TERM DEBT/ TOTAL INVESTED CAPITAL(EQUITY).Debt Equity = TOTAL LIABILITIES/EQUITY