BALANCE SHEET ANALYSIS: VIP INDUSTRIES by Avinash Katoch (Roll No 17A EPGDIB 2013-15)

Introduction The study of Balance Sheet of VIP Industries pertains to the financial year 2012-13 where all the figures have been given in Crores. It has been analysed to get answers to the following questions:Question 1. Can the firm meet its financial obligation? Question 2. How much money has already been invested in this company? Question 3. What kind of assets has the company purchased with its financing?

Financial Results (FY2012-13)

VIP Industries has not posted very encouraging financial results for FY 201213. The key takeaways are as under:1.

a. While the total revenue from operations and other income increased marginally from 861.68 Cr to 876.86 Cr, the profit before tax decreased substantially from 95.96 Cr to 45.36 Cr showing a drop of more than 50%. b. Profit Margin Profit Margin = PAT / Revenue or Net Sales FY 11 :(31.52/876.86) = 0.036 FY 12 : (67.69/861.68) = 0.0785 Profit margin decreased by almost 50% in FY 2012 which is not a positive sign for the company. c. EPS (earning per share): It represent overall profitability of the company. EPS = PAT/ No of shares. FY 2012-13 = 4.79 FY 2011-12 = 21.94 There has been a significant drop in earnings per share for the firm thereby leading to erosion in investor confidence.

d.

P/E ratio

P/E ratio of the firm is calculated as under:-

FY 2012-13 = 62.45/4.79 = 13.03

FY 2012-13 = 99.50/21.94 = 4.53 There has been a considerable decrease in P/E not commensurate with EPS. Low P/E suggests that investors are not expecting higher earnings growth in future from the company.

Ratio Analysis There are broadly three types of ratios: 2. Liquidity Ratios; Leverage Ratios; and Profitability Ratios

Liquidity Ratio

(a)

Current Ratio = Current Assets / Current Liabilities. FY 2012-13 = = 301.97/152.28 1.98 FY 2011-12 320.21/185.41 1.73

While there is no fixed norm, a benchmark norm is 1.5:1; i.e., current assets should be 1.5 times that of current liabilities. The company scores well on this account.

(b) Acid Test Ration = (Current Assets Inventory) / Current Liabilities FY 2012-13 FY 2011-12

= (301.97-145.25)/152.28 (320.21-144.12)/ 185.41 = 1.08 0.95

Acid-Test Ratio has increased in FY 2012-13 to 1.08 suggesting that the firm will not have any problem in meeting its current liabilities.

(c)

Working Capital = Current Assets - Current Liabilities FY 2012-13 = = 301.97-152.28 149.69 Cr FY 2011-12 320.21-185.41 134.8 Cr

Working Capital is simply the amount that current assets exceed current liabilities. The higher the amount, the greater is the security to the investors that the firm will be able to meet its financial obligations. Many times, a company does not have enough liquidity. This is often the cause of being over leveraged. VIP Industries working capital has increased from 134.8 Cr to 149.69 Cr YoY.

3.

Leverage Ratio

(a)

Leverage Ratio = Long-term Debt / Total Equity FY 2012-13 = 3.23/257.52 = 0.013 FY 2011-12 4.27/242.58 0.018

VIP industries is almost a zero debt company. Leverage is a ratio that measures a company's capital structure. In other words, it measures how a company finances its assets. A further reduction in leverage ratio provides the firm the ability to raise more debt easily.

4.

Profitability Ratios

(a)

Return on assets = Earnings after Taxes / Total Assets FY 2012-13 = 31.52/413.03 = 0.076 or 7.6% FY 2011-12 67.69/432.26 0.16 or 16%

ROA tells how well management is performing on all the firm's resources. A return of 7.6% on assets is on the lower side and the firm needs to work towards improving this ratio. (b) Return on equity (ROE) = Earnings after Taxes / Equity

FY 2012-13 = = 31.52/257.52 12.24%

FY 2011-12 67.69/242.58 27.9%

ROE measures how well management is doing for the investor, because it tells how much earnings they are getting for each rupee of their investments. VIP Industries has posted a decent figure on ROE when the stock market is not doing that well though YoY the figure has declined by more than 50%.

5.

Turnover Ratios

(a) Inventory Turnover Ratio = Cost of Sales/Average Inventory The ratio gives an indication of how quickly inventory gets converted into cash. Where inventory figure average is not available, it is calculated simply as: (Opening Inventory + Closing Inventory) 2 FY 2012-13 Inventory Turnover Ratio= 449.25/145.24 = 3.07 FY 2011-12 413.99/144.12 2.87

VIP Industries has a healthy turnover ratio and is able to realise good return from its inventory.

(b)

Receivables Turnover Ratio = Credit Sales/Average Receivables FY 2012-13 FY 2011-12

______45.70______ (104.10+124.65)/2 0.40

______40.61_________ (124.65+139.34)/2 0.29

VIP Industries as has a very healthy RTR which means that it is able to maintain good turnover of their receivables or their conversion into cash.

Cash Flow Analysis 6. Information about the cash flows of an entity is useful in providing users of financial reports with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilize those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an entity to generate cash and cash equivalents and the timing and certainty of their generation.

(a) Cash Flow from Operations. The total cash generated from operations stood at 82.43 Cr versus 112.06 Cr in the previous year showing a decline of 26.4%.

(a) Cash Flow from Investing Operations. Net cash used in investing activities decreased from 20.46 Cr to 15.05 showing a decline of 25%.

(a) Cash Flow from Financing Operations. Cash from financing activities increased from 55.19 Cr to 61.52 Cr showing an increase of 10.3%. This was mainly on account of decrease in interest payment on borrowings. Analysis 7. During the year under review, there was continued pressure on gross margins due to the weak Rupee against US Dollar on imported soft luggage, which constitutes majority of the Company's sales. VIP Industries was able to pass on only part of the cost increases to its customers due to weak macroeconomic demand. Highly uncertain market conditions and weak economic scenario in European and Asia Pacific Countries led to decline in business and is the prime reason for overall decline in exports. 8. The outlook for the current year is challenging across traditional trade and modern retail sales channels mainly due to a sluggish economy. The company needs to work on strengthening its distribution network to increase international sales. It needs to introduce new ranges to further strengthen its market share in the coming years. Its subsidiary in Bangladesh also needs to deliver on promise to take the company to the next level.