Ratio Analysis Presented by

Swapnil Chavan P 04Sanchi Gaikwad P 07Avinash Karde P 14 Saidas Naik P 23 Ambrish Shah P 32Manoj Vishwakarma P 37Rupesh Zambad P 39Sneha Sharma P 41Kavita Singh P 44

BASF INDIA LTD.

BASF India Ltd is the flagship company of BASF group in India.

Company is listed on the NSE and BSEHeadquarters in Mumbai, with manufacturing facilities in

Thane, Manglore and dadraIt manufactures and markets expandable polystyrene ,

tanning agents, leather chemicals and auxilieries.BASF is also involved in trading of chemicals.

Types of ratios

TRADITIONAL MODERN

B/S RATIO P/L RATIO COMPOSITE

SOLVENCY RATIO PROFITABILITY RATIO

ACTIVITY RATIO VALUATION RATIO

Net Profit RatioThis ratio indicates relations between net profit with net

sales.It shows profitability or operational efficiency of entire

business.Increase in ratio is favorable

Net profit ratio = Net profit before tax x 100

Net Sales

Calculation of Net Profit Ratio

For 2007

NPR= 500.9 x 100

7685.3

= 6.51 %

For 2008

NPR= 593.7 x 100

9072.0

= 6.54 %

Liquidity ratios 

Current ratio

Quick ratio 

Current Ratio

• An indication of a company's ability to meet short-term debt obligations, the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations.

• current ratio= current assets/ current liabilities

• Standard ratio=2:1

Quick Ratio • A measure of a company's liquidity and ability to

meet its obligations. Quick ratio, often referred to as acid-test ratio, is obtained by subtracting inventories from current assets and then dividing by current liabilities. Quick ratio is viewed as a sign of company's financial strength or weakness (higher number means stronger, lower number means weaker).

• Quick ratio= quick assets/quick liabilities

• i.e CA-stock-prepaid/CL-bank OD

• Standard ratio: 1:1

CURRENT ASSETS, LOANS AND ADVANCES

SCHEDULE

MARCH 31, 2008 Rs. In millions

MARCH 31,2007 Rs. In millions

inventories 7 1249.2 1152.6

Sundry debtors 8 1586.9 1450.8

Cash and bank balance 9 81.6 24.4

Loans and advances 10 977.1 782.6

3894.8 3410.4

Less: current liabilities and provisions

current liabilities 11 1513.1 1259.3

provision 12 336.1 295.8

1849.2 1555.1

Net current assets 2045.6 1855.3

TOTAL 3396.8 3039.1

Calculation of Ratio2008 2007

Current ratio 3894.8/1849.2 3410.4/1555.1

=2.11 =2.19

Quick ratio 3894.8-1249.2/1849.2

3410.4-1152.6/1555.1

=2645.6/1849.2 =2257.8/1555.1

=1.43 =1.45

Debt Equity Ratio This ratio indicates the relative proportion of debt and

equity in financing the assets of the firm. It is calculated by dividing long-term debt by shareholder’s funds.

Debt equity ratio = long-term debts

Shareholders funds

Acceptable Ratio is 2:1

Continue…

Calculations: (Not taken long term loans in last 4 years) 5 years back it was 0.28 : 1

Significance :

i) Company is not exercising borrowing power properly.

2008 2007

Proprietary Ratio

This ratio indicates the general financial strength of the firm and the long- term solvency of the business. This ratio is calculated by dividing proprietor’s funds by total funds.

Proprietary ratio = Proprietor’s fundsx 100

Total funds/assets

As a rough guide a 65% to 75% proprietary ratio is advisable

Shareholders Fund :

For 2008 - 281.9+3114.9 = 3396.8For 2007 - 281.9+2752.1 = 3034.0

Total Assets :

For 2008 - 1208+119.0+23.6+3894.8 = 5245.4For 2007 - 1044.9+119.0+19.9+3410.4 = 4594.2

Proprietary ratio = Proprietor’s funds x 100

Total funds/assets

For year 2008

= 3396.8 x 100

5245.4

= 64.74 %

For Year 2007

= 3034.0 x 100

4594.2

= 66.03%

Significance :

i) Higher the ratio, greater the satisfaction for creditors of all types. So Creditors of the company are happy.

Inventory Turnover Ratio or Stock Turnover Ratio (ITR):

This 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

It also indicates whether investment in stock is within proper limit or not.

Formula of Stock Turnover/Inventory Turnover Ratio:

Inventory turnover ratio = C.O.G.S

Avg Inventory= Net Sales

Avg inventory at cost= Net Sales

Avg inventory at selling price= Net Sales

Inventory

Inventory Turnover Ratio

For the Year 2008Sales = 9118.9Inventory = 1249.2 Sales = 9118.9

Inventory 1249.2

= 7.29 times

For the year 2007Sales = 7722.4Inventory = 1152.6Sales = 7722.4

Inventory 1152.6

= 6.69 times

Significance of ITR:

Inventory turnover ratio measures the velocity of conversion of stock into sales

The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit, a low ratio signifies low profit

Capital Gearing Ratio:

This Ratio indicates the relation between funds bearing fixed rate of interest & dividend and funds not bearing fixed rate of interest & dividend.

Capital gearing ratio is mainly used to analyze the capital structure of a company.

Capital Gearing Ratio Capital Gearing Ratio

= Borrowed Funds + Pref Share Capital

Equity Shareholders Fund (Equity Share Capital + Reserves – Misc Exp)

If the ratio is:

Above 1 Company highly geared

At 1 Company evenly geared

Below 1 Company lowly geared

Debtors & creditors Turnover Ratio:

Definition:

Debtors 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.

Formula of Debtors Turnover Ratio:

Debtors Turnover Ratio = Net Credit SalesAverage Debtors +

Average Bills Receivable

Debtors Turnover Ratio:

CALCULATION

AVG DEBTORS = 1586.9+1450.8

2

= 3037.7 / 2

= 1518.85

DEBTORS TURNOVER RATIO

= 9072_______

1518.85+ NIL

= 5.97 times

AVERAGE COLLECTION PERIOD

= 365

5.97

= 61 days

Significance of the Ratio:

This ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors turnover the more efficient is the management of debtors or more liquid the debtors are and vice-versa. It is the reliable measure of the time of cash flow from credit sales.

Creditors Turnover Ratio:

Definition and Explanation:

This Ratio is similar to the debtors turnover ratio. It compares creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in paying creditors.

Formula:

Creditors Turnover Ratio = Credit Purchase

Average Creditors + Average Bills

Payable

CALCULATIONAVG CREDITORS = 1395.6 + 1122 2 = 1819.8

CREDITORS TURNOVER RATIO

= 4735.7_____ 1819.8 + NIL

= 7.60 times

AVERAGE PAYMENT PERIOD

= 365

7.60

= 140 days

Significance of the Ratio:

The average payment period ratio represents the number of days by the firm to pay its creditors. A high creditors turnover ratio or a lower credit period ratio signifies that the creditors are being paid promptly. This situation enhances the credit worthiness of the company.

Stock Working Capital RatioThis ratio indicates extent of closing stock in the working capital of the company. Stock being a non-quick asset should be below 100% .

Stock Working Capital Ratio = Stock

-----------------------

Working Capital

Standard Ratio = 1:1

For year 2008=1249.2 2045.6= 0.61

For year 2007

= 1152.6

1855.3

=0.62

Return on Equity CapitalThis ratio indicates return available on equity share capital .It is the max. Rate of dividend what a shareholder's can expect out of current year profit.

Return on Equity Capital

= (Net profit after tax − Preference dividend) × 100

Equity share capital + Reserve & Surplus

For year 2008= 593.7 x 100 281.9+3114.9= 17.47 %

For year 2007= 500.9 x 100 281.9+2752.1= 16.50 %

Return on Capital Employed

A ratio that indicates the efficiency and profitability of a company's capital investments.

Return on capital employed = EBIT x 100

CE

Where ,

EBIT = Earnings before Interest & Tax

CE = Capital Employed

Calculation of Capital Employed

For 2008

ROCE = 930.0 + 12.8 x 100

3396.8

= 27.75 %

For 2007

ROCE = 781.0 + 15.1 x 100

3039.1

= 26.19 %

Significance of Capital Employed

To prove the value the business gains from its assets and liabilities

Best measure of profitability

Trend Analysis

Earnings per share (EPS)

This ratio measures the profit available to the equity shareholders on a per share basis. This ratio is calculated by dividing net profit available to equity shareholders by the number of equity shares.

Earnings per share = Net profit after tax – Preference Dividend

Number of equity shares

Calculation of EPS

For 2008

EPS = 59,37,00,000

2,81,90,148

= Rs. 21.06

For 2007

EPS = 50,09,00,000

2,81,90,148

= Rs. 17.06

Significance of EPS

Valuation basis on per share

Comparison of two companies

Dividend Payout Ratio

The Dividend Payout Ratio measures the percentage of Dividends per share to the Earnings Per Share, showing how the company is paying for its dividend . The dividends paid should be coming from the earnings the company generates.

Dividend payout ratio = Dividend Per Share X 100

Earning Per Share

Calculation of Dividend Payout Ratio

For 2007

DPR = 7 x 100

17.77

= 39 %

For 2008

DPR = 7 x 100

21.06

= 33.23 %

Importance of Dividend Payout Ratio

Conservative

Moderate

Liberal

Dividend yield RatioThis ratio indicates the relationship between dividend and

market price. It shows the returns available on investment. It

should be higher than dividend declared by similar other

company.

Dividend yield ratio = Dividend Per Share X 100

Market Price Per Share

Calculation of Dividend Yield Ratio

For 2007

DYR = 7 x 100

236

= 2.96 %

For 2008

DYR = 7 x 100

182

= 3.85 %

Significance of Dividend Yield Ratio

Not all companies pay out dividends, but this ratio can be used

for those that do. The Dividend Yield will change more often

due to fluctuations in stock price more so than the Dividends

Per Share figure, but both values should be watched.

Interest Coverage RatioThis ratio measures the debt servicing capacity of a firm in so far as the fixed interest on long-term loan is concerned. It shows how many times the interest charges are covered by EBIT out of which they will be paid.

Interest coverage ratio = EBIT

Interest

Calculation of Interest Coverage Ratio

For 2008

ICR = 942.8

12.8

= 73.65

For 2007

ICR = 796.1

15.1

= 52.72

Significance of Interest Coverage Ratio

Assessment for borrowers

Bond Rating

Price Earning Ratio (P/E)

It measures the expectations of the investors and market appraisal of the performance of the firm.

Price earning ratio = Market price per share

Earnings per share

Calculation of P/E Ratio

For 2008

P/E = 182

21.06

= 8.64

For 2007

P/E = 236

17.06

= 13.83

Significance of P/E Ratio

Stock Analysis

“ Multiple ”

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