FINNANCIAL ANNALYSIS OF RELIANCE MEDIA

WORKS
ANALYSIS & FINDINGS

I.

RETURN ON INVESTMENT (ROI) RATIOS:

1. RONW (%) = PAT Preference dividend.
Equity shareholders fund.

2010-2011

- 2562100000 x 100
5432430000

= - 47.16 %

2009-2010

- 1043700000 x 100
5464050000

= -19.10%

FINNANCIAL ANNALYSIS OF RELIANCE MEDIA

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2008-2009
- 297260000 x 100
5548280000

= - 5.36%

2007 2008
459050000 x 100
6780840000

=6.77%

2006 2007
833833000

x 100

3111862000

= 26.80%

Inference:
The ratio was high in 2006 2007 and declined in coming five years due to market depressions
and crisis. A high ratio usually means a high dividend, suppliers willing to extend more favorable
terms, strengthening of the financial position of the company, better prospects.

FINNANCIAL ANNALYSIS OF RELIANCE MEDIA

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But the ratios continuously declines here and had dipped to 47.16% which shows continuous
depression in the return on equity shareholders fund and companys inability to perform up to the
mark.

2. Earning per share = PAT Preference Dividend

Weighted average number of Equity share

Objective

It is widely used ratio to measure the profits available to the equity shareholders on a per
share basis. EPS is calculated on the basis of current profits and not on the basis of
retained profits.
As such, increasing EPS may indicate the increasing trend of current profits per equity
share. However, EPS does not indicate how much of the earnings are paid to the owners
by way of dividend and how much of the earnings are retained in the business.

2010-2011

- 2562100000
46126170

= Rs (55.55)

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2009-2010

- 1043700000
46126170

= Rs (22.63)
2008-2009
- 297260000
461261170

= Rs (6.44)

2007 2008
459050000
46126170

= Rs 9.95

2006 2007
833833000
39800750
= Rs 20.95
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Inference:
The company had an adequate EPS in 2006 2007 but it declined in the subsequent years to
follow which dipped to a Rs -55.55 in the year 2010 - 2011. The decline in EPS shows drop in
the profitability in terms of per equity share of capital contributed by the owner and hence
decreases the shareholders wealth. The company also stopped giving dividend to its shareholders
after 2007 2008 which shows companys unsound financial performance.

II. SOLVENCY RATIOS

The term solvency implies ability of an enterprise to meet its long term indebtness and thus,
solvency ratios convey the long term financial prospects of the company. The shareholders,
debenture holders and other lenders of the long-term finance/term loans may be basically
interested in the ratios falling under this group.

Following are the different solvency ratios:

1. NAV = Equity shareholders fund
No. of Equity shares outstanding
2010-2011
5432430000
46126170

= Rs 117.77

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2009-2010

5464050000
46126170

= Rs 118.46

2008-2009
5548280000
461261170

= Rs 120.28

2007 2008
6780840000
46126170

= Rs 147.00

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2006 2007
3111862000
39800750

= Rs 78.19

Inference:
There has been a significant rise in the NAV of the company in 2007 2008 which shows the
efficiency of the company management in building up back-up of reserves and surplus to fall
back upon but it declined in the subsequent years to follow as the company had undergone a vast
corporate restructuring by acquiring many companies and expanding its operations.

2. Debt Equity = Long term debt

Total Net worth

The debt-equity ratio is worked out to ascertain soundness of the long term financial policies of
the firm. This ratio expresses a relationship between debt (external equities) and the equity
(internal equities).
Debt means long-term loans, i.e., debentures, public deposits, loans (long term) from financial
institutions. Equity means shareholders funds, i.e., preference share capital, equity share capital,
reserves less losses and fictitious assets like preliminary expenses.
Objective

The objective of this ratio is to arrive at an idea of the amount of capital supplied to the
concern by the proprietors and of asset cushion or cover available to its creditors on
liquidation of the organization equity.
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It also indicates the extent to which the firm depends upon outsiders for its existence. In
other words, it portrays the proportion of total funds acquired by a firm by way of loans.
A high debt-equity ratio may indicate that the financial stake of the creditors is more than
that of the owners. A very high debt-equity ratio may make the proposition of investment
in the organization a risky one.
While a low ratio indicates safer financial position, a very low ratio may mean that the
borrowing capacity of the organization is being underutilized.
The debt/equity ratio also depends on the industry in which the company operates. For
example, capital-intensive industries such as auto manufacturing tend to have a
debt/equity ratio above 2, while personal computer companies have a debt/equity of
under 0.5.
The readers of financial management may remember that to borrow the funds from
outsiders is one of the best possible ways to increase the earnings available to the equity
shareholders, basically due to two reasons:
a) The expectations of the creditors in the form of return on their investment are
comparatively less as compared to the returns expected by the equity shareholders.

b) The return on investment paid to the creditors is a tax-deductible expenditure

2010-2011

19128800000
1702500000

= 11.24 times.

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2009-2010

17951300000
4296200000

= 4.18 times.
2008-2009
12147300000
5424100000

= 2.24 times.

2007 2008
9226900000
6780800000

= 1.36 times
2006 2007
= 5834200000
3111900000

= 1.87 times.
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Inference:
It shows a trend of increasing debt to equity ratio which shows the company is gradually
increasing its long term debt which can be fulfilled by its equity shareholders fund and therefore
it indicates unsound capital structure. As it is increasing gradually it shows the company is
presently not in a position to raise more funds. The long term debt of the company is increasing
at a fast pace to meet its expanding operations but it is unable to meet it with its present networth
which is not good for the company.

III. LIQUIDITY RATIO

Liquidity ratios measure the short term solvency, i.e., the firms ability to pay its current dues and
also indicate the efficiency with which working capital is being used.
Commercial banks and short-term creditors may be basically interested in the ratios under this
group. They comprise of following ratios:

1. Current ratio = current assets /Current Liabilities

Current ratio is a relationship of current assets to current liabilities.current assets means the
assets that are either in the form of cash or cash equivalents or can be converted into cash or cash
equivalents in short time(say within a year) like cash, bank balances, marketable securities,
sundry debtors, stock, bills receivables, prepaid expenses.
Current liabilities means liabilities repayable in as short time like sundry creditors, bills
payable, outstanding expenses, bank overdraft.

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Objective

The ratio is mainly used to give an idea of the company's ability to pay back its shortterm liabilities with its short-term assets.
The higher the current ratio, the more capable the company is of paying its obligations. A
ratio under 1 suggests that the company would be unable to pay off its obligations if they
came due at that point.
While this shows the company is not in good financial health, it does not necessarily
mean that it will go bankrupt - as there are many ways to access financing - but it is
definitely not a good sign.
The current ratio can give a sense of the efficiency of a company's operating cycle or its
ability to turn its product into cash.
An acceptable current ratio varies by industry. For most industrial companies 1.5 is an
acceptable CR. A standard CR for a healthy business is close to 2.
However, a blind comparison of actual current ratio with the standard current ratio may
lead to unrealistic conclusions. A very high ratio indicates idleness of funds, poor
investment policies of the management and poor inventory control, while a lower ratio
indicates lack of liquidity and shortage of working capital.

2010-2011

= 12043920000
2095900000

= 5.75 times.

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2009-2010
= 12369490000
1800930000

= 6.87 times

2008-2009
= 10196170000
1401910000

= 7.27 times.
2007 2008
= 7369590000
2137370000

= 3.45 times

2006 2007
= 7026976000
2168303000

= 3.24 times.
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Inference:
The company has fluctuating current ratio but an acceptable value and can meet its current
obligations. It had a rise in 2008 2009 which shows its sound position to meet its obligations
but it decreased to 5.75 in the year 2010 2011 which is not good for the company.

2. Quick ratio =

current assets, Loans & Advances - inventories +

Short term investments_____________________
Current Liabilities + Provisions

Liquid ratio is a relationship of liquid assets with current liabilities. It is fairly stringent measure
of liquidity.
Liquid assets are those assets which are either in the form of cash or cash equivalents or can be
converted into cash within a short period. Liquid assets are computed by deducting stock and
prepaid expenses from the current assets. Stock is excluded from liquid assets because it may
take some time before it is converted into cash. Similarly, prepaid expenses do not provide cash
at all and are thus, excluded from liquid assets.

Objective

The ratio of current assets less inventories to total current liabilities. This ratio is the most
stringent measure of how well the company is covering its short-term obligations, since the
ratio only considers that part of current assets which can be turned into cash immediately
(thus the exclusion of inventories).
The ratio tells creditors how much of the company's short term debt can be met by selling
all the company's liquid assets at very short notice also called acid-test ratio.
The current ratio does not indicate adequately the ability of the enterprise to discharge the
current liabilities as and when they fall due. Liquid ratio is considered as a refinement of
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current ratio as non-liquid portion of current assets is eliminated to calculate the liquid
assets. Thus it is a better indicator of liquidity.
A quick ratio of 1:1 is considered standard and ideal, since for every rupee of current
liabilities, there is a rupee of quick assets. A decline in the liquid ratio indicates overtrading, which, if serious, may land the company in difficulties.

2010-2011

= 12043920000 - 72450000
2095900000

= 5.71 times.

2009-2010

= 12369490000 - 59680000
1800930000

= 6.84 times

2008-2009
= 10196170000 - 51830000
1401910000

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= 7.24 times.
2007 2008
= 7369590000 - 19180000
2137370000

= 3.44 times

2006 2007
= 7026976000 - 16152000
2168303000

= 3.23 times.
Inference:
The quick ratio is in line with generally accepted 1:1 and has grown adequately in 2008 2009
which shows better position of the company to meets its obligations. But it declined in the
following years, but is in an acceptable condition due to strong back of Reliance group.

IV. RESOURCES EFFICIENCY OR TURNOVER RATIOS

1. Fixed Assets Turnover Ratio (times) = Net sales

Net Block of Fixed Assets

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2010-2011

= 4866920000
8626780000

= 0.56 times.

2009-2010

= 4600410000
8482750000

= 0.54 times

2008-2009
= 4852680000
6679700000

= 0.73 times.

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2007 2008
= 2703540000
5239030000

= 0.52 times

2006 2007
= 761540000
1786040000

= 0.42 times.
Inference:
The ratio had a rise in 2008 2009 compared to its previous year but then had steep decline in its
subsequent years which shows under utilization of its fixed assets for generating income for the
company.

2. Debtors Turnover Ratio (times) =

Sales
Average Debtors

Objective

This ratio indicates the speed at which the sundry debtors are converted in the form of
cash. However this intention is not correctly achieved by making the calculations in this
way.

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2010-2011

= 4866920000
2061790000

= 2.36 times.

2009-2010

= 4600410000
2336520000

= 1.97 times

2008-2009
= 4852680000
1958085000

= 2.48 times.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA

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2007 2008
= 2703540000
1040305000

= 2.60 times

2006 2007
= 761540000
525720000

= 1.45 times.

Inference:
The collection procedure of the company has been appropriate throughout
these five years. It has been viewed that the ratio was very appropriate in
2007 2008 but has slightly dropped in 2010 2011. It shows the ability of the company to
convert the debtors of the company to cash receivables and recover its dues.

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V. PROFITABILITY / PROFIT MARGIN RATIOS:

1. Net Profit Margin = Net Profit / loss x 100

Net sales
2010-2011

= - 2562100000 x 100
5428740000

= - 47.20 %

2009-2010

= - 1043700000 x 100
4907730000

= -21.27%
2008-2009
= - 297260000 x 100
5508280000

= - 5.40%
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2007 2008
= 459050000 x 100
3242070000
=14.16%

2006 2007
= 833833000

x 100

3938534000

= 21.17%

Inference:
The profitability has a high ratio in the year 2006 2007 at 21.17% but has decreased to
-47.20% in the year 2010 2011 which shows the gross profit margin had decreased
which is not healthy for the company.

2. Asset Turnover Ratio =

Sales
Average total assets

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2010-2011

= 4866920000
23988275000

= 0.20 times

2009-2010

= 4600410000
20555450000
= 0.22 times
2008-2009
= 4852680000
16851635000

= 0.29 times

2007 2008
= 2703540000
12541165000
=0.22 times
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2006 2007
= 761540000
8590945000

= 0.09 times.

Inference
The company had a low asset turnover ratio in the year 2006 2007 i.e. 0.09 times but rised
2008 2009 to 0.29 but then subsequently decreased in the year 2010 2011 to 0.20 times. It
indicates a significant drop in the utilization of the assets.

3. Return on Asset or Return on Investment = Profit / loss after tax x 100

Average total asset

2010-2011

= - 2562100000 x 100
23988275000

= -10.68%

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2009-2010

= - 1043700000 x 100
20555450000

= -5.08%

2008-2009
= - 297260000 x 100
16851635000

= - 1.76%
2007 2008
= 459050000 x 100
12541165000
=3.66%

2006 2007
= 833833000

x 100

8590945000

= 9.71%
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Inference
The Reliance Media Works ltds return on asset declined from 9.71% in the year 2006 2007 to
-10.68% , indicating a fall in the overall profitability of the company.

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