Download doc - Annual Report Emami

STUDY ON FINANCIAL REPORT OF EMAMI AND CALCULATION OF RATIOS

CONTENTS

Acknowledgement 2

Synopsis 3

CHAPTER 1:

Introduction 4

Organizational Profile 6

CHAPTER 2:

Data analysis 13

P & L Account 14

Balance Sheet 16

CHAPTER 3:

Data Interpretation 18

Ratio 1

Calculation Of Ratios 21

Formulas 23

CHAPTER 4:

SWOT Analysis 29

CHAPTER 7:

Conclusion 30

CHAPTER 8:

Bibliography

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ACKNOWLEDGEMENT

I wish to express my sincere gratitude to Ms. Chandrika, Faculty, Management Department, International School of Business and Design, Mysore for providing me an opportunity and support to do my project work titled

“STUDY ON FINANCIAL REPORT OF EMAMI AND CALCULATION OF RATIOS”

My special thanks to Professor B.S Shankar, HOD, Management Department, ISBD, Mysore for giving his valuable inputs on this project.

Last but not the least my beloved Parents and Family members for their support, strength and help in completing this project.

SIGNATURE

Ms. Chandrika

Faculty, ISBD

Mysore

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SYNOPSIS

Financial Report analysis is a useful tool to dig out valuable information on an organizations financial health. Ratios are widely used tools of financial analysis, and are the best indicators to understand your organization and managerial arsenal.

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Chapter 1

INTRODUCTION

About the Project:

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This project deals with collecting the annual report of “EMAMI” and calculating different ratios.

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Organizational Profile:

Emami Group, a conglomerate born out of Bengal has a pan India presence through its battery of brands and business initiatives that blossomed under the parentage of Mr R S Agarwal and Mr R S Goenka since 1974. With an aggregate group turnover of about Rs 2200 crore the group has business interests in FMCG (fast moving consumer goods), paper and news print, writing instruments, edible oil and cultivation, bio-diesel, hospitals, contemporary art, pharmacy, cement, real estate and retail. The Group’s fountain of strength are its ingrained value system, innovativeness and an over 20,000 passionate and dedicated staff, engaged in knowledge sharing.

Emami Limited, the flagship company of the Group, is a coveted Rs 755 crore business entity , a leading player in the personal and healthcare consumer products industry in India engaged in manufacturing and marketing of health, beauty and personal care products that are based entirely on ayurvedic formulation.

Emami Limited has over 30 brands under its portfolio. The focus is on providing the consumers with innovative products which are capable of meeting their multiple needs and add value by enhancing the quality of day-to-day life. By repeatedly outperforming the industry standard, Emami Ltd has maintained a CAGR of 25% over the last few years.

Understanding the human needs and fulfilling them by dint of technical research is a positive feature of Emami. This is being made possible by Himani Ayurveda Science Foundation (HASF) that generates the very best of ayurvedic formulations. The foundation’s unique range of healthcare products aptly caters to consumer needs. The world class quality control methods and processes maintained by HASF ensure optimum utility of each ingredient. The foundation is completely engaged in constant innovation and pharmaceutical enhancements. The power brands of the company are Boroplus and Navratna. Boroplus brand is the market leader in the antiseptic cream segment; the Navratna Oil is also in the pole position in the cool oil segment. Fair and Handsome is the pioneer in the fairness cream for men segment. Emami’s products in different categories like cool oil, antiseptic cream and fairness cream for men have carved a niche for themselves in their respective segments.

Today the Navratna Brand is worth Rs. 300 crore followed by the Boroplus Brand standing at Rs. 175 crore and Fair and Handsome standing at Rs. 80 crore. Sona Chandi Chyawanprash, Mentho Plus and Fast Relief are also doing well in their respective categories. Hairlife (crème herbal hair pack) and Malai Kesar Cold Cream are also major players. Brand extensions have helped Emami consolidate its position in the market and also cater to varied consumer needs. Emami has entered the glycerine soap category with Emami Pure Skin, petroleum jelly category with Vasocare and shampoo category with Emami 5 in 1 shampoo.

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Emami has also launched a range of baby products under the brand name Emami Healthy and Fair baby range which includes a soap, talc and oil.

Emami Limited with an investment of Rs 700 crore has acquired major stake in Zandu Pharmaceuticals Works Ltd on the basis of huge business synergy between Zandu and Emami. Post the acquisition of Zandu Pharmaceuticals a century old household name in India, some of its prominent brands like Zandu Balm, Zandu Chyawanprash, Zandu Kesri Jeevan, Zandu Pancharishta, Sudarshan and Nityam Churna are also under Emami’s basket of brands. The FMCG business of Zandu will be demerged into Emami. This will help consolidation of FMCG business of Emami and Zandu into one entity.

Emami has successfully established its brands through strong celebrity endorsements. It is the only corporate entity in the country to have both Amitabh Bachchan and Shah Rukh Khan as brand endorsers for the same brand, Navratna. The concept of brand endorsement by celebrities has been successfully experimented in case of most of its brand launches. Besides Amitabh and Shah Rukh, other celebrity endorsers of Emami’s brand include Madhuri Dixit, Kareena Kapoor, Govinda, Sourav Ganguly, Chiranjeevi, Surya and Upendra among others.

Emami has also taken up a major revamping project to enhance the sales and distribution, human resources development and logistics with the globally renowned professional advisory services firm, Ernst and Young. ‘Project Navodaya’, as it is truly called, will help Emami fast track its top line and bottom line growth and build a robust platform for growth initiatives.

Emami covers all the states with 29 depots across India. Its supply-chain management assumes immense significance which was aptly reflected through remarkable expansion in dealer-distribution network, outlets and manpower. The domestic sales and distribution division directly covers 4.15 lac outlets all across the country along with an additional 2100 modern retail outlets. Emami’s products reach out to nearly 30 lac retail outlets across India through 2500 distributors.

Emami’s quality products not only have a pan India presence, but also have a deep imprint in over 60 countries across the world including GCC, UK, Sri Lanka, Bangladesh, Nepal, African and the CIS countries. Emami Limited has two subsidiary companies Emami UK Limited in London and Emami International FZE in UAE.

The company has 6 ultra modern manufacturing facilities at Kolkata (West Bengal), Abhoypur and Amingaon (Assam), Pondicherry, Uttaranchal and Baddi (Himachal Pradesh). It has adopted the Total Quality Management system and all its manufacturing facilities have received cGMP and ISO 9001:2000 certifications.

Emami Ltd has recently been conferred the Most Enterprising Company of the Year by IIPM (Indian Institute of Planning and Management) and The Sunday Indian publication of the

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Planman Media Group. In 2007, the company received the Institute of Cost and Works Accountants of India (ICWAI) Award for Excellence in Cost Management.

COMPANIES UNDER EMAMI GROUP:

EMAMI PAPER MILLS LIMITED

EMAMI CHISEL ART

CRI LIMITED

SOUTH CITY PROJECTS (KOLKATA) LTD

ADVANCED MEDICARE & RESEARCH INSTITUTE LTD (AMRI)FRANK ROSS LIMITED EMAMI REALTY LIMITED

EMAMI RETAIL PVT LIMITED (STARMARK) EMAMI BIOTECH LIMITED

EMAMI CEMENT LTD

MANAGEMENT

MANAGEMENT - EMAMI

NAME DESIGNATION

R S AGARWAL CHAIRMAN

R S GOENKA DIRECTOR

K N MEMANI DIRECTOR

S N JALAN DIRECTOR

VAIDYA S CHATURVEDI DIRECTOR

A V AGARWAL DIRECTOR

SUSHIL KR GOENKA MANAGING DIRECTOR

VIREN J SHAH DIRECTOR

S K TODI DIRECTOR

K K KHEMKA DIRECTOR

MOHAN GOENKA DIRECTOR

H V AGARWAL DIRECTOR

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REGISTERED OFFICE:Emami Tower687, Anandapur, EM BypassKolkata 700 107, West BengalPhone: +91-33-6613 6264Fax: +91-33-6613 6600E-mail: [email protected]

COMPETITORS

Competitors Last Price Market Cap. Sales Net Profit Total Assets

(Rs. cr.) Turnover

HUL 237.25 51,754.71 20,601.56 2,496.45 2,483.46

Dabur India 165.7 14,345.98 2,417.91 373.56 877.17

Colgate 723.45 9,838.40 1,770.82 290.22 220.98

Godrej Consumer 238.05 7,336.46 1,088.01 161.55 599.8

Marico 102.05 6,217.71 1,921.85 142.12 676.21

P and G 1,761.55 5,718.12 772.81 178.85 440.02

Godrej Ind 150.5 4,780.25 880.97 19.33 1,628.10

Gillette India 1,342.95 4,376.03 661.51 113.13 490.89

Emami 521.6 3,763.09 722.35 87.52 736.1

Jyothy Labs 160.3 1,163.28 350.85 40.88 352.51

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mailto:[email protected]


BRANDS:

Emami Limited is one of the major health and personal care FMCG companies in India with its brand presence globally. Leveraged by celebrity endorsements, Emami believes in building categories by meeting unfulfilled consumer needs. Emami Limited has over 25 brands under its portfolio. The focus is on providing the consumers with innovative products which are capable of meeting their multiple needs and add value by enhancing the quality of life. Through innovative and power brands, Emami touches the lives of all consumers, spanning across various income groups in both urban and rural India. Emami’s success story is not only weaved around the holistic healing system of ayurveda, but also in its product innovation, dynamic and focused leadership, a strong supply-chain management and unwavering commitment to partners and stakeholders. The popular brands like Boroplus, Navratna, Fast Relief and Fair and Handsome are an outcome of deeper understanding of Indian consumers. A brand is a commitment to consumers and in Emami, its brands are a synthesis of innovation, cutting-edge technology; product efficacy and intelligent pricing that have made them the people’s choice

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BRANDS AMBESSADORSBoroplus Antiseptic Cream and Talc Kareena KapoorNavratna Oil Amitabh BachchanFair and Handsome SRKNavratna Cool Talc SRKSona Chandi Chyawanprash SRKZandu Balm Sachin TendulkarHimani Fast Relief Amitabh BachchanMentho plus Balm Emami Healthy & Fair Madhuri DixitEmami Malai Kesar Cold Cream Lalima Sardi Ja Zandu Pancharishta Emami Pure Skin Glycerine Bar Emami Vasocare Petroleum Jelly Beauty Secrets by Madhuri Madhuri Dixit


CORPORATE INFORMATION:

Turnover increased 29.1% from Rs. 578.9 cr in 2007-08 to Rs. 747.5 cr. Exports grew 60% from Rs. 63.5 cr in 2007-08 to Rs. 101.6 cr, the slowdown

notwithstanding. EBIDTA grew 36.3% to Rs. 135.2 cr in 2008-09. EBIDTA margin strengthened from 17.1% in 2007-08 to 18.1%. Profit after tax at Rs. 91.9 cr increased marginally, despite higher incidence of interest on

acquisition. Acquired a controlling stake of 68.9% in The Zandu Pharmaceutical Works Limited in

November 2008. Consolidated FMCG and realty businesses of Emami and Zandu in separate listed entities

through de-merger under a court sanctioned scheme of arrangement. Ranked 179th among BT-500 most valuable companies of India in private sector as per a

survey conducted by Business Today in November 2009 Raised equity of Rs. 310 cr through QIP in July 09.

OPERATIONS AND MARKETING:

Navratna Oil, Boroplus Antiseptic Cream, Fair & Handsome fairness cream for men and Zandu Balm continued to enjoy number one status in their respective categories.

Boroplus Antiseptic Cream continues to be the largest selling antiseptic cream not only in India, but also in Ukraine, Russia and Nepal.

Fair & Handsome became the number one UAE brand in men’s face care. Launched new products like Navratna Extra Thanda Oil, Navratna Lite Oil, Boroplus

Summer Lotion, Pureskin Glycerine Soap and Vasocare Petroleum Jelly across multiple categories.

Zandu balm and Boroplus ranked 62nd and 77th among India’s most trusted brands across all categories (Source: Brand Equity Survey of The Economic Times, 2009).

Himani Fast Relief’s advertisement won the Goafest 2009 awards, the Oscars of Indian advertising.

Navratna was awarded the best packaging award by Paper Film & Foil Converters Association.

State-of-the-art manufacturing unit enjoying 10 years excise and income tax exemption started production at Abhoypur in Guwahati.

Abhoypur unit received ISO 9001:2008, ISO 14001:2004 and ISO 18001:2007 certification.

Zandu balm production commenced in a new plant in Pantnagar (Uttaranchal) in May 2009 with a 10-year excise and income tax exemption.

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Roped in E&Y and initiated project ‘Navodaya’ for improved sales and distribution and supply-chain management.

Initiated steps for cost reduction and margin improvements in Zandu. Commenced integrating each facet of Zandu’s business – marketing, R&D, supply chain,

sales and distribution, procurement, operations and HRD with Emami’s

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CHAPTER 2

DATA ANALYSIS

FINANCIAL INFORMATION

P&L Account

PROFIT & LOSS ACCOUNT

------------------- IN RS. CR. -------------------

MAR '05 MAR '06 MAR '07 MAR '08 MAR '09

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12 MTHS 12 MTHS 12 MTHS 12 MTHS 12 MTHS

INCOME

SALES TURNOVER 225.62 307.37 519.22 585.9 739.6EXCISE DUTY 6.77 6.5 3.43 2.19 17.25NET SALES 218.85 300.87 515.79 583.71 722.35OTHER INCOME 1.68 5.65 13.91 21.62 5.86STOCK ADJUSTMENTS 3.48 -1.85 -0.65 -0.52 11.58TOTAL INCOME 224.01 304.67 529.05 604.81 739.79EXPENDITURE

RAW MATERIALS 129.81 173.85 225.56 248.14 321.17POWER & FUEL COST 1.03 1.21 1.15 1.29 3.42EMPLOYEE COST 11.89 14.47 21.95 31.18 44.69OTHER MANUFACTURING EXPENSES 0.64 0.73 0.99 1.26 1.75SELLING AND ADMIN EXPENSES 35.56 46.77 178.49 194.22 214.17MISCELLANEOUS EXPENSES 8.69 9.32 20.7 11.09 13.02PREOPERATIVE EXP CAPITALISED 0 0 0 0 0TOTAL EXPENSES 187.62 246.35 448.84 487.18 598.22OPERATING PROFIT 34.71 52.67 66.3 96.01 135.71PBDIT 36.39 58.32 80.21 117.63 141.57INTEREST 2 1.41 1.08 5.43 31.57PBDT 34.39 56.91 79.13 112.2 110DEPRECIATION 2.97 6.69 4.65 7.28 17.89OTHER WRITTEN OFF 0 0 0 0 0PROFIT BEFORE TAX 31.42 50.22 74.48 104.92 92.11EXTRA-ORDINARY ITEMS 0.16 0.07 0.01 0 0.26PBT (POST EXTRA-ORD ITEMS) 31.58 50.29 74.49 104.92 92.37TAX 2.09 0.95 8.57 12.18 14.5REPORTED NET PROFIT 29.44 49.36 65.92 92.75 87.52TOTAL VALUE ADDITION 57.81 72.49 223.28 239.04 277.05PREFERENCE DIVIDEND 0 0 0 0 0EQUITY DIVIDEND 6.12 12.23 24.86 27.97 34.05CORPORATE DIVIDEND TAX 0.86 1.72 3.67 4.75 5.79PER SHARE DATA (ANNUALISED) SHARES IN ISSUE (LAKHS) 611.5 611.5 611.5 621.45 621.45EARNING PER SHARE (RS) 4.81 8.07 10.78 14.92 14.08EQUITY DIVIDEND (%) 50 100 200 225 225BOOK VALUE (RS) 12.8 15.8 37.49 46.5 47.52

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______________________________________________________________________________

BALANCE SHEET AS ON 31-03-2009

BALANCE SHEET ------------------- IN RS. CR. -------------------

MAR '05 MAR '06 MAR '07 MAR '08 MAR '09

12 MTHS 12 MTHS 12 MTHS 12 MTHS 12 MTHS

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SOURCES OF FUNDS TOTAL SHARE CAPITAL 12.23 12.23 12.23 12.43 12.43EQUITY SHARE CAPITAL 12.23 12.23 12.23 12.43 12.43SHARE APPLICATION MONEY

0 0 0.2 0 0.7

PREFERENCE SHARE CAPITAL

0 0 0 0 0

RESERVES 66.02 84.4 216.99 276.57 282.9REVALUATION RESERVES 238.59 238.59 0 0 0NETWORTH 316.84 335.22 229.42 289 296.03SECURED LOANS 33.76 31.24 22.81 35.19 373.06UNSECURED LOANS 0.22 0.22 0.36 0 67.02TOTAL DEBT 33.98 31.46 23.17 35.19 440.08TOTAL LIABILITIES 350.82 366.68 252.59 324.19 736.11APPLICATION OF FUNDS GROSS BLOCK 320.21 321.96 68.59 105.73 706.44LESS: ACCUM. DEPRECIATION

105.63 128.79 21.79 27.91 93.87

NET BLOCK 214.58 193.17 46.8 77.82 612.57CAPITAL WORK IN PROGRESS

4.05 9.28 34.49 13.47 36.7

INVESTMENTS 53.91 87.1 78.18 102.97 39.89INVENTORIES 36.75 36.62 41.2 40.1 73.2SUNDRY DEBTORS 35.25 36.68 45.77 34.03 50.75CASH AND BANK BALANCE 0.31 0.8 3.38 2.77 10.71TOTAL CURRENT ASSETS 72.31 74.1 90.35 76.9 134.66LOANS AND ADVANCES 26.76 46.79 56.01 156.01 79.94FIXED DEPOSITS 0.03 0.02 15.04 0.04 0.06TOTAL CA, LOANS & ADVANCES

99.1 120.91 161.4 232.95 214.66

DEFFERED CREDIT 0 0 0 0 0CURRENT LIABILITIES 13.86 25.18 50.63 56.21 115.7PROVISIONS 6.97 18.61 17.63 46.8 52.02TOTAL CL & PROVISIONS 20.83 43.79 68.26 103.01 167.72NET CURRENT ASSETS 78.27 77.12 93.14 129.94 46.94MISCELLANEOUS EXPENSES 0 0 0 0 0TOTAL ASSETS 350.81 366.67 252.61 324.2 736.1CONTINGENT LIABILITIES 7.73 23.14 29.23 26.45 117.49

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BOOK VALUE (RS) 12.8 15.8 37.49 46.5 47.52

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Chapter 3

DATA INTERPRETATION

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Definition of Accounting Ratios:

The term "accounting ratios" is used to describe significantrelationship between figures shown on a balance sheet, in a profit and loss account, in a budgetary control system or in any other part of accounting organization. Accounting ratios thus shows the relationship between accounting data.

Ratios can be found out by dividing one number by another number. Ratios show how one number is related to another. It may be expressed in the form of co-efficient, percentage, proportion, or rate. For example the current assets and current liabilities of a business on a particular date are $200,000 and $100,000 respectively. The ratio of current assets and current liabilities could be expressed as 2 (i.e. 200,000 / 100,000) or 200 percent or it can be expressed as 2:1 i.e., the current assets are two times the current liabilities. Ratio sometimes is expressed in the form of rate. For instance, the ratio between two numerical facts, usually over a period of time, e.g. stock turnover is three times a year.

Advantages of Ratios Analysis:

Ratio analysis is an important and age-old technique of financial analysis. The following are some of the advantages / Benefits of ratio analysis:

1. Simplifies financial statements: It simplifies the comprehension of financial statements. Ratios tell the whole story of changes in the financial condition of the business

2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios highlight the factors associated with with successful and unsuccessful firm. They also reveal strong firms and weak firms, overvalued and undervalued firms.

3. Helps in planning: It helps in planning and forecasting. Ratios can assist management, in its basic functions of forecasting. Planning, co-ordination, control and communications.

4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future.

5. Help in investment decisions: It helps in investment decisions in the case of investors and lending decisions in the case of bankers etc.

Limitations of Ratios Analysis:

The ratios analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, they suffer from serious limitations.

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1. Limitations of financial statements: Ratios are based only on the information which has been recorded in the financial statements. Financial statements themselves are subject to several limitations. Thus ratios derived, there from, are also subject to those limitations. For example, non-financial changes though important for the business are not relevant by the financial statements. Financial statements are affected to a very great extent by accounting conventions and concepts. Personal judgment plays a great part in determining the figures for financial statements.

2. Comparative study required: Ratios are useful in judging the efficiency of the business only when they are compared with past results of the business. However, such a comparison only provide glimpse of the past performance and forecasts for future may not prove correct since several other factors like market conditions, management policies, etc. may affect the future operations.

3. Ratios alone are not adequate: Ratios are only indicators, they cannot be taken as final regarding good or bad financial position of the business. Other things have also to be seen.

4. Problems of price level changes: A change in price level can affect the validity of ratios calculated for different time periods. In such a case the ratio analysis may not clearly indicate the trend in solvency and profitability of the company. The financial statements, therefore, be adjusted keeping in view the price level changes if a meaningful comparison is to be made through accounting ratios.

5. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are no well accepted standards or rule of thumb for all ratios which can be accepted as norm. It renders interpretation of the ratios difficult.

6. Limited use of single ratios: A single ratio, usually, does not convey much of a sense. To make a better interpretation, a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any good decision.

7. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to interpreted and different people may interpret the same ratio in different way.

8. Incomparable: Not only industries differ in their nature, but also the firms of the similar business widely differ in their size and accounting procedures etc. It makes comparison of ratios difficult and misleading.

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CALCULATION OF RATIOS

INVESTMENT VALUATION RATIOS

FACE VALUE 2DIVIDEND PER SHARE 4.5OPERATING PROFIT PER SHARE (RS) 21.84NET OPERATING PROFIT PER SHARE (RS) 116.24FREE RESERVES PER SHARE (RS) 45.39BONUS IN EQUITY CAPITAL 45.17PROFITABILITY RATIOS OPERATING PROFIT MARGIN(%) 18.78PROFIT BEFORE INTEREST AND TAX MARGIN(%) 15.95

GROSS PROFIT MARGIN(%) 16.31CASH PROFIT MARGIN(%) 14.32ADJUSTED CASH MARGIN(%) 14.32NET PROFIT MARGIN(%) 11.85ADJUSTED NET PROFIT MARGIN(%) 11.85RETURN ON CAPITAL EMPLOYED(%) 18.2RETURN ON NET WORTH(%) 29.63ADJUSTED RETURN ON NET WORTH(%) 29.76RETURN ON ASSETS EXCLUDING REVALUATIONS --

RETURN ON ASSETS INCLUDING REVALUATIONS --

RETURN ON LONG TERM FUNDS(%) 20.05LIQUIDITY AND SOLVENCY RATIOS CURRENT RATIO 0.72QUICK RATIO 0.83DEBT EQUITY RATIO 1.49LONG TERM DEBT EQUITY RATIO 1.26DEBT COVERAGE RATIOS INTEREST COVER 4.24TOTAL DEBT TO OWNERS FUND 1.49

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FINANCIAL CHARGES COVERAGE RATIO 4.81FINANCIAL CHARGES COVERAGE RATIO POST TAX

4.34

MANAGEMENT EFFICIENCY RATIOS INVENTORY TURNOVER RATIO 10.2DEBTORS TURNOVER RATIO 17.04INVESTMENTS TURNOVER RATIO 10.2FIXED ASSETS TURNOVER RATIO 3.22TOTAL ASSETS TURNOVER RATIO 2.85ASSET TURNOVER RATIO 3.22 AVERAGE RAW MATERIAL HOLDING 53.8AVERAGE FINISHED GOODS HELD 34.17NUMBER OF DAYS IN WORKING CAPITAL 23.4PROFIT & LOSS ACCOUNT RATIOS MATERIAL COST COMPOSITION 44.46IMPORTED COMPOSITION OF RAW MATERIALS CONSUMED

0.4

SELLING DISTRIBUTION COST COMPOSITION 25.55

EXPENSES AS COMPOSITION OF TOTAL SALES 8.06

CASH FLOW INDICATOR RATIOS DIVIDEND PAYOUT RATIO NET PROFIT 45.51DIVIDEND PAYOUT RATIO CASH PROFIT 37.78EARNING RETENTION RATIO 54.7CASH EARNING RETENTION RATIO 62.36

ADJUSTEDCASH FLOW TIMES

4.16

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RATIO ANALYSIS FORMULA’S:

Analysis of Profitability:

General profitability:

Gross profit ratio = (Gross profit / Net sales) × 100

Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales.

Operating ratio = (Operating cost / Net sales) × 100

Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is generally expressed in percentage. It measures the cost of operations per dollar of sales. This is closely related to the ratio of operating profit to net sales.

Expense ratio = (Particular expense / Net sales) × 100

Expense ratios indicate the relationship of various expenses to net sales. The operating ratio reveals the average total variations in expenses. But some of the expenses may be increasing while some may be falling. Hence,expense ratios are calculated by dividing each item of expenses or group of expense with the net sales to analyze the cause of variation of the operating ratio.

The ratio can be calculated for individual items of expense or a group of items of a particular type of expense like cost of sales ratio, administrative expense ratio, selling expense ratio, materials consumed ratio, etc. The lower the operating ratio, the larger is the profitability and higher the operating ratio, lower is the profitability.

While interpreting expense ratio, it must be remembered that for a fixed expense like rent, the ratio will fall if the sales increase and for a variable expense, the ratio in proportion to sales shall remain nearly the same.

Operating profit ratio = (Operating profit / Net sales) × 100

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http://www.accountingformanagement.com/operating_ratio.htm

http://www.accountingformanagement.com/operating_ratio.htm


Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It is generally expressed in percentage. It measures the cost of operations per dollar of sales. This is closely related to the ratio of operating profit to net sales

Overall profitability:

Return on shareholders' investment or net worth = Net profit after interest and tax / Shareholders' funds

It is the ratio of net profit to share holder's investment. It is the relationship between net profit (after interest and tax) and share holder's/proprietor's fund. This ratio establishes the profitability from the share holders' point of view. The ratio is generally calculated in percentage

Return on equity capital = (Net profit after tax – Preference dividend) / Paid up equity capital

In real sense, ordinary shareholders are the real owners of the company. They assume the highest risk in the company. (Preference share holders have a preference over ordinary shareholders in the payment of dividend as well as capital. Preference share holders get a fixed rate of dividend irrespective of the quantum of profits of the company). The rate of dividends varies with the availability of profits in case of ordinary shares only. Thus ordinary shareholders are more interested in the profitability of a company and the performance of a company should be judged on the basis of return on equity capital of the company.

Earnings per share (EPS) ratio = (Net profit after tax – Preference dividend) / Number of equity shares

Return on gross capital employed = (Adjusted net profit / Gross capital employed) × 100

Return on net capital employed = (Adjusted net profit / Net capital employed) × 100

Capital employed and operating profits are the main items. Capital employed may be defined in a number of ways. However, two widely accepted definitions are "gross capital employed" and "net capital employed". Gross capital employed usually means the total assets, fixed as well as current, used in business, while net capital employed refers to total assets minus liabilities. On the other hand, it refers to total of capital,

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capital reserves, revenue reserves (including profit and loss account balance), debentures and long term loans.

Dividend yield ratio = Dividend per share / Market value per share

Dividend yield ratio is the relationship between dividends per share and the market value of the shares.

Share holders are real owners of a company and they are interested in real sense in the earnings distributed and paid to them as dividend. Therefore, dividend yield ratio is calculated to evaluate the relationship between dividends per share paid and the market value of the shares

Dividend payout ratio or pay-out ratio = Dividend per equity share / Earnings per share

Dividend payout ratio is calculated to find the extent to which earnings per share have been used for paying dividend and to know what portion of earnings has been retained in the business. It is an important ratio because ploughing back of profits enables a company to grow and pay more dividends in future.

Short Term Financial Position or Test of Solvency:

Current ratio = Current assets / Current liabilities

Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is also known as "working capital ratio". It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities

Quick or acid test of liquid ratio (for immediate solvency) = Liquid assets / Current liabilities

Liquid ratio is also termed as "Liquidity Ratio", "Acid Test Ratio" or "Quick Ratio". It is the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due.

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Absolute liquid ratio = Absolute liquid assets / Current liabilities

Absolute liquidity is represented by cash and near cash items. It is a ratio of absolute liquid assets to current liabilities. In the computation of this ratio only the absolute liquid assets are compared with the liquid liabilities. The absolute liquid assets are cash, bank and marketable securities. It is to be observed that receivables (debtors/accounts receivables and bills receivables) are eliminated from the list of liquid assets in order to obtain absolute4 liquid assets since there may be some doubt in their liquidity.

Current Assets Movement, Efficiency or Activity Ratios:

Inventory / Stock turnover ratio = Cost of goods sold / Average inventory at cost

Stock turnover ratio and inventory turnover ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Stock turnover ratio / Inventory turnover ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not.

Debtors of receivables turnover ratios = Net credit sales / Average trade debtors

Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year.

Average collection period = (Trade debtors No. of working days) / Net credit sales

The Debtors / Receivable Turnover ratio when calculated in terms of days is known as Average Collection Period or Debtors Collection Period Ratio. The average collection period ratio represents the average number of days for which a firm has to wait before its debtors are converted into cash

Creditors or payables turnover ratio = Net credit purchase / Average trade creditors

This ratio is similar to the debtor’s turnover ratio. It compares creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in paying creditors. Accounts payable include both sundry creditors and bills payable. Same as debtor’s

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turnover ratio, creditor’s turnover ratio can be calculated in two forms, creditors’ turnover ratio and average payment period

Average payment period = (Trade creditors No. of working days) / Net credit purchase

Average payment period ratio gives the average credit period enjoyed from the creditors.

Working capital turnover ratio = Cost of sales / Net working capital

Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio represents the number of times the working capital is turned over in the course of year.

Analysis of Long Term Solvency:

Debt to equity ratio = Outsiders funds / Shareholders funds or External funds / Internal funds

Debt-to-Equity ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. It is also known as external internal equity ratio. It is determined to ascertain soundness of the long term financial policies of the company

Ratio of long term debt to shareholders funds (Debt equity) = Long term debt / Shareholders funds

Proprietary of equity ratio = Shareholders funds / Total assets

This is a variant of the debt-to-equity ratio. It is also known as equity ratio or net worth to total assets ratio. This ratio relates the shareholder's funds to total assets. Proprietary / Equity ratio indicates the long-term or future solvency position of the business

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Fixed assets to net worth = Fixed assets after depreciation / Shareholders' funds

Fixed assets to proprietor’s fund ratio establish the relationship between fixed assets and shareholders funds. The purpose of this ratio is to indicate the percentage of the owner's funds invested in fixed assets.

Fixed assets ratio or fixed assets to long term funds = Fixed assets after depreciation / Total long term funds

Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets

Ratio of current assets proprietors' funds = Current assets / Shareholders' funds

Current Assets to Proprietors' Fund Ratio establishes the relationship between current assets and shareholder's funds. The purpose of this ratio is to calculate the percentage of shareholders funds invested in current assets.

Debt service or interest coverage ratio = Net profit before interest and tax / Fixed interest charges

Interest coverage ratio is also known as debt service ratio or debt service coverage ratio. This ratio relates the fixed interest charges to the income earned by the business. It indicates whether the business has earned sufficient profits to pay periodically the interest charges

Capital gearing ratio = Equity share capital / Fixed interest bearing funds

Closely related to solvency ratio is the capital gearing ratio. Capital gearing ratio is mainly used to analyze the capital structure of a company. The term capital structure refers to the relationship between the various long-term form of financing such as debentures, preference and equity share capital including reserves and surpluses. Leverage of capital structure ratios are calculated to test the long-term financial position of a firm.

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Chapter 4

SWOT ANALYSIS

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Strengths:

1. Strong and well differentiated brands with leading share positions.

2. Distinctly placed products providing reach to every segment of society.

3. Consumer understanding and systems for building consumer insight.

4. Integrated supply chain and well spread manufacturing units.

5. Distribution structure with wide reach, high quality coverage.

6. Well placed to take advantage of growth in rural India and lower strata of the society by

introducing products in order to cater to changing consumer tastes and opportunities in Baby

Care sector.

7. It can be a leader in exports by positioning itself as a sourcing hub for Emami companies in

various countries.

Weaknesses:

1. Price positioning in some categories allows for low price competition.

2. Limited success in changing eating habits of people.

3. Competitors focusing on a particular product and eating up Emami’s share.

Opportunities:

1. Growing consumer base due to increasing income levels and new consumers from lower strata

of the society.

2. Untapped market in branded Ayurvedic medicines and other such consumer products.

3. Expansion of horizons towards more and more countries.

Threats:

1. Unfavorable raw material prices due to inflation, reducing profitability.

2. Heavy onslaught of competition in the core categories from emerging players like Johnson and

Johnson will result in higher advertising expenditure

3. Spurious/counterfeit products in rural areas and small towns.

4. Reduction in real income of consumers due to high inflation.

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BIBILOGRAPHYhttp://www.accountingformanagement.com/

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