Analysis & Its Need

Analysis is the process of breaking a complex topic or substance into smaller parts to gain a better understanding of it. The technique has been applied in the study of mathematics and logic. There are mainly two types of analysis that are technical analysis & fundamental analysis. Technical analysis is related to companys past data, trend, industrys trend, sectors and activities that effect company, where fundamental analysis is related to financials of a company. I will do fundamental analysis.

Ratio Analysis
Ratio is a relationship between two figures expressed mathematically. Financial ratios provide numerical relationship between two relevant financial data. Financial ratios are calculated from the balance sheet and profit and loss account. The relationship can be either expressed as a percent or as a quotient. Ratios summarize the data for easy understanding, comparison and interpretations. So, I will do ratio analysis of Muthoot Finance on the basis of its past years ratio, ratios of Gruh Finance and ratios of this industry. The importance of making analysis of Financial Statement may be better understood from this fact that Financial Statement, though itself reflects the net results for a particular period and state of affairs of the company till now by using current scenario statements. So, ratio analysis is arithmetic relationship of various items.

Company Overview of Muthoot Finance & Gruh Finance

Muthoot Finance Ltd is the largest gold company in India. The company provides personal and business loans secured by gold jewellery, or Gold Loans, primarily to individuals who possess gold jewellery but could not access formal credit within a reasonable time, or to whom credit may not be available at all, to meet unanticipated or other short-term liquidity requirements. As of March 31, 2012, the Company had 3,678 branches across 21 states. Gruh Finance Ltd (formerly known as Gujarat Rural Housing Finance Corporation) was incorporated in 1986 to provide financial services mainly for rural housing, construction/up gradation of dwelling units, and to developers. The company received a rating of "MA+" (19992000) for its fixed deposit programme from Investment Information & Credit Rating Agency of India.

Financial Ratio Analysis

Firstly, I will calculate some ratios of Muthoot Finance Ltd, Gruh Finance Ltd and industry ratios. For industry analysis I have chosen Money Matters financial services, Microsec Financial Services, JM Financial companies. These companies are chosen because these are top competitor companies of IIFL and are listed in both NSE & BSE. I will analysis by calculating following ratios:

Current Ratio Gross profit Ratio Net Profit Ratio Return on Asset Return on Investment Earnings per share Dividend Per Share Dividend payout ratio Price Earnings Ratio Debt to Equity ratio

1. Current Ratio: -It is 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 shortterm 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

Current Ratio
YEARS

Mar'09 Mar'10 Mar'11 Mar'12 1.54 35.06 8.31 1.41 32.34 7 1.08 12.59 14.25 1.02 34.91 12.17

Muthoot Finance GRUH Finance Industry

40 35 30 25 20 15 10 5 0 Mar'09 Mar'10 Mar'11 Mar'12 Muthoot Finance GRUH Finance Industry

INTERPRETATION :- In current ratio we can see that muthoot Finance current ratio is decreased consistently from 2009-12. It means that companys liquidity is very less. To compete it has to increase its liquidity. On the other hand GRUH Finance has very good liquidity position in CR as compare to industry also,but in 2011 GRUHs CR gone down to 12.59 & it recovered from the crisis & maintain the level as the previous years. Muthoots CR is very much less than GRUH as well as industries . So in matter of liquidity company really has to work upon it for better performance in future although it has not a bad period in this matter.

2. Gross Profit Ratio: - Gross profit ratio is what remains from sales after
a company pays out the cost of goods sold. To obtain gross profit margin, divide gross profit by sales. Gross profit margin is expressed as a percentage.

Gross profit ratio= Gross profit/Net sales*100

Gross profit Ratio

YEARS

Mar'09 Mar'10 Mar'11 Mar'12 74.52 91.67 63.75 75.50 88.79 74.08 77.61 90.63 64.32 81.30 93.14 46.17

Muthoot Finance GRUH Finance Industry

100 90 80 70 60 50 40 30 20 10 0 Mar'09 Mar'10 Mar'11 Mar'12 Muthoot Finance GRUH Finance Industry

INTERPRETATION :- From the above graph we can see that Muthoot Finance g.p ratio contineously increased from 2009-12 i.e 74.52 to 81.30.On the other hand GRUH has maintain its level in g.p ratio from 2009-2012. GRUH is very much up in this context. It has more gross profit ratio even from industry.but if we look the industries g.p ratio its increased from 63.75 to 74.08 in the year 2009-10 but from the year 2010 it decreased contineously till 2012 i.e 74.08 to 46.17.

3. Net Profit Ratio: - Net profit ratio is calculated by subtracting a companys total indirect
expenses from total indirect income that shows what the company has earned or lost in a given period of time. It is called net income or net earnings.

Net profit ratio= Net profit/Net sales*100

Net Profit Ratio

YEARS

Mar'09 Mar'10 Mar'11 Mar'12 15.75 17.08 33.31 20.89 22.37 48.79 21.33 25.49 36.1 19.60 23.68 81.56

Muthoot Finance GRUH Finance Industry

90 80 70 60 50 40 30 20 10 0 Mar'09 Mar'10 Mar'11 Mar'12

Muthoot Finance GRUH Finance Industry

INTERPRETATION :- As Muthoot is performing good in gross profit, so it is also performing good in net profit also. Muthoot & GRUHs net profit has contineously increased from 2009-11 but in 2012 their net profit slightly decreased to 19.60 & 23.68 respectively.

4. Return on Asset:- ROA is computed as the product of the net profit margin and the total
asset turnover ratios. This ratio indicates the firm's strategic success. With a successful product differentiation strategy, ROA will rise because of a rising profit margin. ROA = (Net Profit/Total Assets)

Return on Asset
YEARS

Mar'09 Mar'10 Mar'11 Mar'12

73.96 63.74 42.94 19.41 76.21 48.37 41.67 90.43 88.10 78.71 109.22 101.87

Muthoot Finance GRUH Finance Industry

120 100 80 60 40 20 0 Mar'09 Mar'10 Mar'11 Mar'12 Muthoot Finance GRUH Finance Industry

INTERPRETATION :- In return on asset Muthoot has 73.96 in the year 2009 then in the year 2010 it suddenly fall to 19.41 & its took 3 years i.e 2012 to maintain same level i.e to reach 78.71.but in case of GRUH Finance it contineously increased from 63.74 to 109.22 over the year from 2009-12 and the industries ROA growth rate also increased contineously from 2009-12. From 2011 its growth rate suddenly increased from 48.37 to 88.10 & it continue till 2012 i.e 101.87.

5. Return on Investment:- ROI is the return on capital invested in business, i.e., if an

investment Rs 1 crore in men, machines, land and material is made to generate Rs. 25 lakhs of net profit, then the ROI is 25%. The computation of return on investment is as follows: Return on Investment (ROI) = (Net profit/Equity investments) x 100

Return on Investment
YEARS

Mar'09 Mar'10 Mar'11 Mar'12 1297.74 3034.26 6589.06 393.42 410.30 210.75 264.02 914.89 492.79 301.31

Muthoot Finance GRUH Finance Industry

722.45 1396.34

7000 6000 5000 4000 3000 2000 1000 0 Mar'09 Mar'10 Mar'11 Mar'12 Muthoot Finance GRUH Finance Industry

INTERPRETATION :- According the graph Muthoot ROI is very much higher than both GRUH & industries i.e from1297.74 to 6589.06 but in 2012 suddenly its ROI fall to 914.89.As the investors would like to invest only where the return is higher so Muthoot Finance would be attractive for investment.

6. Earnings per share:- This ratio determines what the company is earning for every share.
For many investors, earnings are the most important tool. EPS is calculated by dividing the earnings (net profit) by the total number of equity shares. The computation of EPS is as follows: Earnings per share = Net profit/Number of shares outstanding

Earnings per share

YEARS

Mar'09 Mar'10 Mar'11 Mar'12 19.94 14.51 14.97 7.56 19.86 14.94 15.43 26.03 9.45 24.00 34.09 14.72

Muthoot Finance GRUH Finance Industry

40 35 30 25 20 15 10 5 0 Mar'09 Mar'10 Mar'11 Mar'12 Muthoot Finance GRUH Finance Industry

INTERPRETATION :- In Earning per share Muthoot has 19.94 in the year 2009 then in the year 2010 it suddenly fall to 7.56 & its took 3 years i.e 2012 to cross the level i.e to reach 24.but in case of GRUH Finance it contineously increased from 14.51 to 34.09 over the year from 2009-12 But in case of industries EPS growth rate its very much consistent in last 4 years near 14 i.e 2009-12 except in the year 2011 its EPS decreased to 9.45.

7. Dividend per Share:- The extent of payment of dividend to the shareholders is measured
in the form of dividend per share. The dividend per share gives the amount of cash flow from the company to the owners and is calculated as follows: Dividend per share = Total dividend payment / Number of shares outstanding

Dividend per Share

YEARS

Mar'09 Mar'10 Mar'11 Mar'12 0 4.80 1 0 6.50 1.8 0 11.00 2.77 4.00 11.50 3.62

Muthoot Finance Gruh Finance Industry

14 12 10 8 6 4 2 0 Mar'09 Mar'10 Mar'11 Mar'12 Muthoot Finance Gruh Finance Industry

INTERPRETATION :- According to the graph Muthoot Finance has zero dividend per share from 2009-11 & suddenly it rose to 4, but in case of GRUH finance it is very much up in this context. It has more dividend per share even from industry. The industries DPS also contineously increased from the year 2009-12 i.e from 1 to 3.62.

8. Dividend payout ratio:- From the profits of each company a cash flow called dividend is
distributed among its shareholders. This is the continuous stream of cash flow to the owners of shares, apart from the price differentials (capital gains) in the market. The return to the shareholders, in the form of dividend, out of the company's profit is measured through the payout ratio. The payout ratio is computed as follows Payout Ratio = (Dividend per share / Earnings per share) * 100

Dividend payout ratio

YEARS

Mar'09 Mar'10 Mar'11 Mar'12 0 33.08 42.98 0 32.72 23.39 0 42.25 105.33 16.66 33.73 39.08

Muthoot Finance GRUH Finance Industry

120 100 80 60 40 20 0 Mar'09 Mar'10 Mar'11 Mar'12 Muthoot Finance GRUH Finance Industry

INTERPRETATION:- Dividend payout ratio is the percentage of earnings paid to shareholders in dividends. As Muthoot finance has zero Dividend per share, so its Dividend payout ratio is also zero from 2009-11 & as same in 2012 it rose to 16.66. In case of GRUH & Industries both are fluctuated very much from 2009-12, except in the year 2011, when the industries Dividend payout ratio suddenly increased to 105.33.

9. Price Earnings Ratio:- The P/E multiplier or the price earnings ratio relates the current
market price of the share to the earnings per share. This ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company. This is computed as follows: Price Earnings ratio = Current market price / Earnings per share

Price Earnings Ratio

YEARS

Mar'09 Mar'10 Mar'11 Mar'12 0 1.27 36.91 0 2.19 14.53 11.42 2.78 41.87 5.26 3.72 10.12

Muthoot Finance GRUH Finance Industry

45 40 35 30 25 20 15 10 5 0 Mar'09 Mar'10 Mar'11 Mar'12 Muthoot Finance Gruh Finance Industry

INTERPRETATION:- According to the graph Muthoot Finance has zero price earning ratio in the year 2009-10.& in the year 2011 its price earning ratio rose to 11.42, but in the next year its again fall into 5.26. The PE ratio of GRUH has very less,but it contineously increased over the year from 2009-12 i.e from 1.27 to 3.72. In case of industries the PE ratio of industry has very much fluctuate.

10. Debt to Equity ratio:- Debt-Equity ratio is used to measure the claims of outsiders and
the owners against the firms assets. The debt-equity ratio is calculated to measure the extent to which debt financing has been used in a business. It indicates the proportionate claims of owners and the outsiders against the firms assets. This is computed as follows:

Debt-to-equity ratio = Outsiders Funds (total debt) / Shareholders Funds (total equity)

Debt to Equity ratio

YEARS

Mar'09 Mar'10 Mar'11 Mar'12

8.53 10.17 3.77 9.03 8.78 3.56 8.95 9.33 3.66 5.29 9.93 3.04

Muthoot Finance Gruh Finance Industry

12 10 8 Muthoot Finance 6 4 2 0 Mar'09 Mar'10 Mar'11 Mar'12 GRUH Finance Industry

INTERPRETATION:-According to the graph Muthoot Finance is not doing good in this ratio. because its debt is very much than its equity. In 2012 it equity little increased then debt to 5.29.In case of GRUH,it has also very poor position as compare to Muthoot Finance.But in case of industries the debt equity ratio is good as compare to both Muthoot & GRUH.because its equity is greater than its debt. Conclusion:-