pragya azad - ratio analysis

8/7/2019 Pragya Azad - RATIO ANALYSIS

http://slidepdf.com/reader/full/pragya-azad-ratio-analysis 1/28

CORPORATE ACCOUNTS

A PROJECT ON

“RATIO ANALYSIS”

FOR

RAYMOND LIMITED

(Financial Year: 2007 & 2008)

Submitted to

Ms. Kamini

Submitted by

Pragya Azad

Roll No. 598

B. Com (H) 2nd Year

Bharati College, New Delhi

~ 1 ~



BHARATI COLLEGE

C-4 JANAK PURI, NEW DELHI-11064

~ 2 ~



CONTENTS

1. Company Profile2. Ratio’s

Return on Investment Ratios

1. Rate of Net Worth (RONW)

2. Earnings Per Share (EPS)

Solvency Ratios

1. Net Asset Value (NAV)

2. Debt Equity

3. Interest Coverage Ratio

Liquidity Ratios

1. Current Ratio

2. Quick Ratio

3. Collection Period Allowed to Customers

4. Suppliers Credit

5. Inventory Holding Period

Turnover Ratio

1. Fixed Assets Turnover

2. Inventory Turnover

Profitability Ratio

1. Gross Profit Margin

2. Net Profit Margin

Valuation Ratio

1. P/E Ratio

2. Market Capitalisation

3. Financial performance of company

~ 3 ~



~ 4 ~



~ 5 ~



Company Profile

The Company is a market leader in the textiles sector in India, has a powerful brand

‘Raymond’ and strong retail presence in the form of ‘The Raymond Shop’ (‘TRS’)

domestically. While focusing on its vision of being the leader in fashion and lifestyle

segment, company is now also establishing itself as a preferred supplier of value-

added premium fabric in the international markets.

The Company continues to focus on the booming retail sector and is now

concentrating on penetrating into the Tier 3 and 4 towns of the country. The

Company has also forayed into the women’s wear segment with offerings in the

corporate and smart clothing category. The company is on its way to become a

lifestyle solution for discerning customers with an offering of a range of fabrics,

garment and accessories in a premium shopping environment.

The Company plans to invest significantly in the coming years in expanding its state

of the art manufacturing capacities, strengthening and extending the product

offerings under its brand and expanding its marketing and distribution network.

To cater to the growing domestic and export markets, the Company has undertaken

the following initiatives:

• Implementation of ERP in textile division;

• Addition of a manufacturing facility at Vapi with latest machinery which became

fully operational and providing efficient and cost effective production lines.

• Setting up a suit plant at Bangalore to cater to the growing demand.

India has been on a high growth path for some years now. However, during the past

few months, worrying developments like the housing crisis in USA, high inflation –

especially in food, fuel and commodities – have emerged. This could increase costs

of operations, dampen consumer sentiment and moderate growth going forward.

~ 6 ~



RATIO’s

Return on Investment Ratios (ROI)

1. Return on Net Worth (RONW)

Note: This ratio measures the net profit earned on the equity shareholders

fund.

Current Year –:

RONW =

= 5.38 %

Previous Year –:

RONW =

= 7.92%

ANALYSIS-

The return on net worth has dropped down drastically with comparison to last year.

Also company has created more reserves for its future projects. This implies-

Overall profitability of company has fallen down. The reason could the

economic conditions of the economy.

~ 7 ~



Shareholders will receive low dividends in contrast to last year.

New investors will not find the company lucrative to invest.

Suppliers will strict the credit policy as risk for them has increased.

2. Earnings Per Share (EPS)

Note: The ratio measures the overall profitability in terms of per equity share of capital contributed by the owners.

Current Year -:

EPS =

= Rs. 12.28

Previous year -:

EPS =

= Rs. 17.51

ANALYSIS-

Last year EPS of company was Rs. 17.51 which has fallen to Rs. 12.28. This is not

good for company as well as for investors. This ratio shows that with the same

shareholders fund the profit of the company decreased.

The investors in the company will be highly disappointed because of its

performance. Their earnings have fallen down.

~ 8 ~



Also company won’t be able to attract new investors. Moreover chances of

existing shareholders selling their shares also increase.

Company needs to increase its EPS as it is a important measure which helps

company to survive in future.

In case company want to raise funds through initial public offer company

won’t be able to attract many investors.

Solvency Ratios

1. Net Asset Value Ratio (NAV)

Note: This ratio seeks to assess as to what extent the value of equity share of a

company contributed at par or at premium or the value created for the

shareholders.

Current Year -:

NAV =

= Rs. 227.80

Previous Year -:

NAV =

= Rs. 220.94

ANALYSIS-

~ 9 ~



Even though the profit of company has fallen down still Net Asset Value of company

has increased though marginally. This shows the efficiency of company

management. Company has created more of reserves as it has undertaken many new

projects. So it can rely on these reserves for internal financing. NAV of company

will help it to raise further capital- borrowed as well as equity because investors will

believe that company has significant growth prospects.

2. Debt- Equity Ratio

Note: This ratio measures the debt- equity proportion in capital structure of the

company.

Current Year -:

Debt- Equity Ratio =

= 0.485 times

Previous Year -:

Debt – Equity Ratio =

= 0.435 times

ANALYSIS-

Last year when the profitability of company was high As the profitability of

company has reduced significantly they are playing safe by not raising more debt.

They have reduced the risk of defaulting in payment of interest. It is a prudent

practice i.e. not to put shareholders fund at risk when profitability of company is

low. But in comparison to last year this ratio has increased. Company has raised

~ 10 ~



more secured loan and foreign currency loans from banks as they have undertaken

few foreign projects also.

3. Interest Coverage Ratio

Note: This ratio measures the capacity of the company to pay the interest liability it

has incurred on its long term borrowings, out of the profit.

Current Year -:

Interest Coverage Ratio =

=

= 5.17 times

Previous Year -:

Interest Coverage Ratio =

=

= 5.95 times

ANALYSIS-

Company has adequate amount to fulfil its interest liability out of its revenue.

Though in comparison to last year, interest coverage ratio has fallen down. But still

company was able to maintain it at 5 times which implies it has funds to pay its

~ 11 ~



interest by 5 times. The risk of default in payment is not much. So the suppliers and

other creditors need not be worried about their funds. This also develops the

creditability of company in market.

Liquidity Ratio

1. Current Ratio

Note: The ratio measures the ability of a company to discharge its day to day bills,

or current liabilities as and when they become due out of cash or current assets.

Current Year -:

Current Ratio =

=

= 2.27 times

Previous Year -:

~ 12 ~



Current Ratio =

=

= 1.97 times

ANALYSIS-

The standard current ratio should be 1.33:1. Where as company has current ratio of

2.27 in current year and 1.97 in previous year. This shows that company is not

employing its resources fully. Short term investments and dividend, interest subsidy

and interest receivable have increased a lot. Whereas current liabilities fallen down.

Though, from this ratio it can be predicted that company’s short term default risk is

reduced. It will be able to discharge its obligations in time but it needs to reduce this

ratio by putting current assets to use.

2. Quick Ratio

Note: This ratio measures as how quickly company is able to discharge its current

liabilities, net working capital out of cash or current assets it possesses.

Current Year -:

~ 13 ~



Quick Ratio =

=

= 1.24 times

Previous Year -:

Quick Ratio =

=

= 0.965 times

ANALYSIS

The standard quick ratio is 1:1. Company has improved its quick ratio which means

now it has the ability to discharge its current liabilities as and when due out of its

most liquid assets. Last year company’s liquidity was not good. Possibility of default

in payment to suppliers was there. But now this risk is eliminated. Now it has some

assets which are not put to use efficiently.

3. Collection Period Allowed to Customers

~ 14 ~



Note: The ratio measures the credit period allowed by the company to its debtors on

credit sales or how fast a company is able to realise its outstanding dues.

Current Year -:

Collection Period Allowed to Customers =

= 79.10 days

= 79 days

Previous Year -:

Collection Period Allowed to Customers =

= 75.48 days

= 75 days

ANALYSIS-

The company is able to receive its debts in 2-3 months. It has also extended its credit

period by 4 days. The reason behind this could be increase in sales. But debtors have

also increased. This shows company is selling more on credit.

~ 15 ~



4. Suppliers Credit

Note: The ratio measures the average credit period allowed to the company by its

creditors or how much leverage it possesses to settle its outstanding payables.

Current Year -:

Suppliers Credit =

= 129.88 days

= 130 days

Previous Year -:

Suppliers Credit =

= 159.37 days

= 159 days

ANALYSIS-

~ 16 ~



Company is enjoying an excellent period of credit. It is dictating good terms with its

suppliers. It has to pay to its creditors in about 4 months. Though this period has

decreased in comparison to last year. This also shows company is purchasing less on

credit as creditors as reduced despite increase in purchases.

~ 17 ~



5. Inventory Holding Period

Note: The ratio measures the number of days that cash is blocked in inventory or

how fast a company is able to convert its inventory into cash.

Current Year -:

Inventory Holding Period =

= 129.63 days

= 130 days

Previous Year -:

Inventory Holding Period =

= 117.4 days

= 117 days

ANALYSIS

Company is facing long inventory holding period. That means it is holding inventory

for long time. Also inventory holding period has increased which shows company

has blocked a lot of cash in inventory. It further implies that company is not able to

sell its goods at faster rate. So it needs to take action in that respect may be by

~ 18 ~



reducing its selling price. But this can be because company is facing difficulty in

procuring raw material because of increase in the cost of raw material.

~ 19 ~



Turnover Ratio

1. Fixed Assets Turnover

Note: The ratio measures the volume of gross income generated by the fixed assets

of the company.

Current Year -:

Fixed Assets Turnover =

=

= 1.84 times

Previous Year -:

Fixed Assets Turnover =

=

= 1.89 times

ANALYSIS

Sales have increased by 2.98%. And fixed assets have increased by 6.4%. This

shows company is not using its resources efficiently. There is under usage of fixed

assets. In comparison to last year this ratio has also decreased. This under usage can

be the cause of lower operating revenues. Company should improve its management

and look towards efficient convention of its fixed assets.

~ 20 ~



2. Inventory Turnover

Note: This ratio measures the level of inventory.

Current Year -:

Inventory Turnover =

= 2.815 times

Previous Year -:

Inventory Turnover =

= 3.108 times

ANALYSIS

A lower turnover ratio indicates overstocking, obsolescence and deficiencies in

product line. The company is having adequate inventory turnover. It is not too much

and not too less. But in respect to last year this ratio has decreased. This means that

to sell more it has to keep a stock of more goods.

~ 21 ~



Profitability Ratio

These ratios measure several intermediate profit margin indicators.

1. Gross Profit Margin

Current Year -:

Gross Profit Margin =

= 29.79 %

Previous Year -:

Gross Profit Margin =

= 31.33%

ANALYSIS

This ratio indicates the change in gross profit margin. This shows that sales have

increased but the gross profit has fallen. This implies change in cost of goods sold is

much more than change in sales. In comparison to Net Profit Margin it can

concluded that company spends more on its operating and manufacturing activities.

~ 22 ~



2. Net Profit Margin

Current Year -:

Net Profit Margin =

= 5.69 %

Previous Year -:

Net Profit Margin =

= 8.37 %

ANALYSIS

From this ratio it can be interpreted that overall profitability of company has fallen

down drastically. The expenses incurred by company have increased much more

than increase in income.

Valuation Ratio

1. P/E Ratio

Note: The ratio measures as to how many times an equity share is priced in stock

market in relation to its EPS.

~ 23 ~



Current Year -:

P/E Ratio =

= 15.475 times

Previous Year -:

P/E Ratio =

= 14.625 times

ANALYSIS

Though the market price of equity and earnings per share has reduced in comparison

to last year but still its P/E ratio has increased. Despite the existing situation of

markets still P/E ratio has increased. So investors should hold on the shares as its

performance in past has also been good. So it has scope of recovery and leading to

increase in P/E ratio.

2. Market Capitalisation

Note: The ratio provides a base for total valuation of the company based on itsmarket price.

Current Year -:

Market Capitalisation =

= Rs. 1140.44 crores

~ 24 ~



Previous Year - :

Market Capitalisation =

= Rs. 1571.94 crores

ANALYSIS

This ratio tells the value of the company. As the market price has decreased the

valuation has also shrunk. But from the past performance of the company it can be

inferred that valuation of company will improve in future.

Notes –

1. Profit After Tax

Particulars Current year Previous Year

Profit for year after tax 6612.17 20125.28

Add/ (Less): Prior period

adjustments

1.03 88.05

Add/ (Less): Tax in

respect of earlier years

629.10 (1.03)

PAT including

exceptional items

7242.3 20212.3

Add/(Less): Exceptional

items

293.87 (9461.84)

PAT excluding

exceptional items

7536.17 10750.19

2. Cost of Goods Sold

Particulars Current Year Previous Year

Material Costs 46855.29 37737.82

Manufacturing and

Operating Costs

26467.16 27099.12

(Increase)/ Decrease in (3792.31) 791.45

~ 25 ~



finished and process

stock

Employment Costs 23315.98 22558.39

COGS 92846.12 88186.78

3. Gross Profit

Particulars Current Year Previous Year

Sales 132251.15 128419.35

COGS 92846.12 88186.78

Gross Profit 39405.03 40232.57

~ 26 ~



Financial Analysis Of Company

The key business segments of the Company are Textile and Files & Tools Divisions.

The erstwhile denim division of the Company was combined with the denim

business of UCO NV, Belgium, to form a 50:50 joint venture from August 1, 2006.

Consequently the current year ending March 31, 2008 financials are not strictly

comparable with the previous year ending March 31, 2007.

Company performance has deteriorated for the following reasons.

• Raw Material

Wool prices have remained at a high level throughout the year due to a severedrought in Australia. Alternate vendors have been developed in other countries

like South Africa to mitigate the risk of higher price.

• Economy

The economy has been witnessing a high inflationary situation together with

steep rises in prices of steel in the last quarter of the year due to increased

inputs costs like coke, iron ore. Consequent input price increases for the

company during the year is a likely scenario. Rupee appreciation adversely

affected export realizations.

Growth And Opportunities for company

• During the year, the Company continued to focus on expansion of

retail space through its exclusive branded stores. These stores have enhanced

the brand image and uplifted the Brand positioning. The Company continued

to lay emphasis on product innovation.

• During the year, Company launched “Raymond” Brand under ready to wear

premium segment and also launched Brand Extension of ‘Park Avenue’ in

women’s wear.

• With all these developments, this year has seen a spectacular growth in the

branded apparel business of the Company with high growth rates being

sustained quarter after quarter. In the coming years, the Company plans to

increase its distribution reach further.

~ 27 ~



The overall performance of company has fallen down in comparison to last year

performance. The profit earned has fallen down about 64% in respect of last year.

Despite fierce competition in domestic and international markets and inspite of the

challenges faced including teething issues in the ERP implementation, the Company

witnessed an increase in net revenues. The net sales of the company grew marginally

from Rs.128419.35 lacs to Rs.132251.15 lacs, an increase of 2.98%. The growth in

revenues was largely due to an increase in volumes. High wool prices, employment

cost increases and issues in the ERP implementation however resulted in a decline in

profit before interest and tax of the division from Rs. 15172.47 lacs to Rs. 8614.85

lacs but this fall in performance is temporary and because of the current economic

situation of India. Company has undertaken many new projects last year. Growth in

each project will be gradually leading to overall growth of company.

Shareholders need not worry. The pattern of share is similar to that of the BSE

Sensex as can be seen from the diagram. This implies with gradual increase in BSE

Sensex the share will also recover. So shareholders should hold on the shares.

pragya azad - ratio analysis

Documents