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FINANCIAL ANALYSIS OF MASTEK LIMITED

MEANING OF FINANCIAL ANALYSIS

Financial analysis is the examination of a business from a variety of


perspectives in order to fully understand the greater financial situation and
determine how best to strengthen the business. A financial analysis looks at
many aspects of a business from its profitability and stability to its solvency
and liquidity. For example, these elements are typically reviewed in a
financial analysis:

1. PROFITABILITY: The business needs to review the levels of current


and past profitability and decide what they need to do to increase
profitability in the future.
2. SOLVENCY: Businesses are also concerned with making sure that they
do not fold because they are in debt. A financial analysis will highlight
the debts they owe, and help create a pay-off plan.
3. LIQUIDITY: A business needs to understand its cash position and
make sure that it has the ability to maintain a positive cash flow, while
still being able to pay for what they need immediately.
4. STABILITY: The business also wants to make sure that it is financially
stable, and does not have components that could cause it to fold. They
are thinking long term about the future of the company. They want to
make sure they do not get into financial trouble.

DEFINITION OF FINANCIAL ANALYSIS

The process of evaluating businesses, projects, budgets and other finance-


related entities to determine their suitability for investment. Typically,
financial analysis is used to analyze whether an entity is stable, solvent,
liquid, or profitable enough to be invested in. When looking at a specific
company, the financial analyst will often focus on the income statement,
balance sheet, and cash flow statement. In addition, one key area of financial

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FINANCIAL ANALYSIS OF MASTEK LIMITED

analysis involves extrapolating the company's past performance into an


estimate of the company's future performance.

INTRODUCTION OF MASTEK LIMITED

Mastek Ltd. is a leading software company in India with several development


centers located across the country, while its head office is located in the
financial capital of the country, Mumbai. Mastek Limited offers high-end
vertically-focused enterprise technology solutions and platforms to its global
clients, which help them to unleash their potential and transform their
business. Mastek nicely blends its offshore resource capabilities and industry
domain experience with onsite operations to come up with business solutions
that unleash the potential of its clients.

Established in 1982 by Ashank Desai, K Sundar and Ketan Mehta in Mumbai,


Mastek Ltd. has come up a long way in the past 27 years to become one of
the biggest names in the Indian software industry. Currently, Mastek has got
its operations across the world including U.S, U.K, Canada, Europe, Asia-
Pacific and Middle East. Besides, it has 8 global delivery centers in Indian and
Malaysia. Currently more than 3,500 employees work with Mastek Ltd. For
the fiscal year ended on June 2009, Mastek recorded its revenue at more
than US$ 200 million.

ORGANIZATIONAL CULTURE

Mastek believes in open atmosphere, which creates easy access for all the
employees of the organization across all levels and functions. As an
organization, Mastek Ltd. believes in seven values that are practiced
throughout the organization religiously:

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Open Atmosphere
Outstanding Teamwork
Pride in Work
Respect for the Individual
Customer Intimacy
Ling-term Relationship
Commitment to Results
Offerings

Mastek Ltd. offers a range of solutions and services to its clients worldwide. It
offers services in the following verticals:

Insurance
Life Insurance
General Insurance
Pensions
Government / Public Sector
Financial Services Sector
Healthcare

SERVICES

Following are the services offered by Mastek:

Application Security
IT Consulting
Portals
Systems Integration
Data Warehousing & Business Intelligence
Custom Application Development
Application Management Outsourcing
System Rationalization
Testing
Legacy Modernization
CRM

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FINANCIAL ANALYSIS OF MASTEK LIMITED

INDUSTRY SOLUTIONS

Following are the industry solutions provided by Mastek Ltd.:

Life, Annuity and Pensions


Elixir4
ElixirAsia
Elixir Distribution Management
New Business Underwriting
Vector New Business Underwriting
Vector Policy Administration
General Insurance
STG Policy Administration
STG Claims
STG Billing
STG Point of Sale
STG Financials
Government
Healthcare
Transport
Justice and Public Safety
Education
Social Services
Public Finance
Military and Aerospace
E-governance
Financial Services

STRENGTHS

There are several reasons why Mastek has become a successful name in
Indian software industry. The biggest strength of the organization is its strong
vertical focus. It also has got experiential IP in Government vertical. Besides

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FINANCIAL ANALYSIS OF MASTEK LIMITED

these, the company owns a range of intellectual property in insurance like


Elixir, Vector for Life and Annuity and STG for General Insurance. Mastek also
has got the required experience and expertise in handling large complex
projects.

PERFORMANCE STANDARDS
Mastek has the following performance standards:
SEI CMMI Level 3
Delivery processes certified at ISO 9001-2008
ISO 27001:2005 (Information Security Management)

AWARDS AND RECOGNITIONS


Found place in the list of top Global Outsourcing 100 list by the
International Association of Outsourcing Professionals (IAOP) in the
year 2007 and 2009.
Ranked among the list of top 50 global outsourcing providers,
published in "The Black Book of Outsourcing" by the Brown-Wilson
Group).
As per NASSCOM survey, Mastek ranked among top 15 Indian IT
companies in 2007.
Excellence in Education Award by LOMA in 2009.

INTRODUCTION OF RATIO ANALYSIS

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FINANCIAL ANALYSIS OF MASTEK LIMITED

A sustainable business and mission requires effective planning and financial


management. Ratio analysis is a useful management tool that will improve
your understanding of financial results and trends over time, and provide key
indicators of organizational performance. Managers will use ratio analysis to
pinpoint strengths and weaknesses from which strategies and initiatives can
be formed. Funders may use ratio analysis to measure your results against
other organizations or make judgments concerning management
effectiveness and mission impact.

For ratios to be useful and meaningful, they must be:

Calculated using reliable, accurate financial information (does your


financial information reflect your true cost picture?)
Calculated consistently from period to period
Used in comparison to internal benchmarks and goals
Used in comparison to other companies in your industry
Viewed both at a single point in time and as an indication of broad
trends and issues over time
Carefully interpreted in the proper context, considering there are many
other important factors and indicators involved in assessing
performance.

Ratios can be divided into four major categories:

Profitability Sustainability
Operational Efficiency
Liquidity
Leverage (Funding Debt, Equity, Grants)

The ratios presented below represent some of the standard ratios used in
business practice and are provided as guidelines. Not all these ratios will
provide the information you need to support your particular decisions and
strategies. You can also develop your own ratios and indicators based on
what you consider important and meaningful to your organization and
stakeholders.

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FINANCIAL ANALYSIS OF MASTEK LIMITED

DEFINITION OF 'RATIO ANALYSIS'

Quantitative analysis of information contained in a companys financial


statements. Ratio analysis is based on line items in financial statements like
the balance sheet, income statement and cash flow statement; the ratios of
one item or a combination of items - to another item or combination are
then calculated. Ratio analysis is used to evaluate various aspects of a
companys operating and financial performance such as its efficiency,
liquidity, profitability and solvency. The trend of these ratios over time is
studied to check whether they are improving or deteriorating. Ratios are also
compared across different companies in the same sector to see how they
stack up, and to get an idea of comparative valuations. Ratio analysis is a
cornerstone of fundamental analysis.

1. PROFITABILITY SUSTAINABILITY RATIOS

How well is our business performing over a specific period, will your social
enterprise have the financial resources to continue serving its constituents
tomorrow as well as today?

RATIO WHAT DOES IT TELL YOU

SALES GROWTH = Percentage increase (decrease) in


sales between two time periods.
Current Period Previous Period Sales
Previous Period Sales If overall costs and inflation are
increasing, then you should see a
corresponding increase in sales. If
not, then may need to adjust pricing
policy to keep up with costs.
RELIANCE ON REVENUE SOURCE Measures the composition of an

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= organizations revenue sources


(examples are sales, contributions,
Revenue Source Total grants).
RevenueTotal Revenue
The nature and risk of each revenue
source should be analyzed. Is it
recurring, is your market share
growing, is there a long term
relationship or contract, is there a
risk that certain grants or contracts
will not be renewed, is there
adequate diversity of revenue
sources?

Organizations can use this indicator


to determine long and short-term
trends in line with strategic funding
goals (for example, move towards
self-sufficiency and decreasing
reliance on external funding).
Operating Self-Sufficiency = Measures the degree to which the
organizations expenses are covered
Business Revenue by its core business and is able to
Total Expenses function independent of grant
support.

For the purpose of this calculation,


business revenue should exclude any
non-operating revenues or
contributions. Total expenses should

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include all expenses (operating and


non-operating) including social costs.
A ratio of 1 means you do not depend
on grant revenue or other funding.
GROSS PROFIT MARGIN = How much profit is earned on your
products without considering indirect
Gross Profit Total Sales costs.
Total Sales Is your gross profit margin
improving? Small changes in gross
margin can significantly affect
profitability. Is there enough gross
profit to cover your indirect costs. Is
there a positive gross margin on all
products?
NET PROFIT MARGIN = How much money are you making
per every $ of sales. This ratio
Net Profit measures your ability to cover all
Sales operating costs including indirect
costs
SGA TO SALES = Percentage of indirect costs to sales.

Indirect Costs (sales, general, admin) Look for a steady or decreasing ratio
Sales which means you are controlling
overhead
RETURN ON ASSETS = Measures your ability to turn assets
into profit. This is a very useful
Net Profit Average measure of comparison within an
Total Assets industry.

A low ratio compared to industry may


mean that your competitors have

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FINANCIAL ANALYSIS OF MASTEK LIMITED

found a way to operate more


efficiently. After tax interest expense
can be added back to numerator
since ROA measures profitability on
all assets whether or not they are
financed by equity or debt
RETURN ON EQUITY = Rate of return on investment by
shareholders.
Net Profit
Average Shareholder Equity This is one of the most important
ratios to investors. Are you making
enough profit to compensate for the
risk of being in business?

How does this return compare to less


risky investments like bonds?

2. OPERATIONAL EFFICIENCY RATIOS

How efficiently are you utilizing your assets and managing your liabilities?
These ratios are used to compare performance over multiple periods.

RATIO WHAT DOES IT TELL YOU

OPERATING EXPENSE RATIO = Compares expenses to revenue.

Operating Expenses A decreasing ratio is considered


Total Revenue desirable since it generally indicates
increased efficiency.
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ACCOUNTS RECEIVABLE Number of times trade receivables


TURNOVER = turnover during the year.

Net Sales The higher the turnover, the shorter


Average Accounts Receivable the time between sales and
collecting cash.
DAYS IN ACCOUNTS RECEIVABLE
= What are your customer payment
habits compared to your payment
Average Accounts terms. You may need to step up your
Receivable Sales x 365 collection practices or tighten your
credit policies. These ratios are only
useful if majority of sales are credit
(not cash) sales.
INVENTORY TURNOVER = The number of times you turn
inventory over into sales during the
Cost of Sales year or how many days it takes to
Average Inventory sell inventory.

DAYS IN INVENTORY = This is a good indication of


production and purchasing efficiency.
Average Inventory A high ratio indicates inventory is
Cost of Sales x 365 selling quickly and that little unused
inventory is being stored (or could
also mean inventory shortage). If the
ratio is low, it suggests overstocking,
obsolete inventory or selling issues.
ACCOUNTS PAYABLE TURNOVER The number of times trade payables
= turn over during the year.

Cost of Sales The higher the turnover, the shorter

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Average Accounts Payable the period between purchases and


payment. A high turnover may
DAYS IN ACCOUNTS PAYABLE = indicate unfavourable supplier
repayment terms. A low turnover
Average Accounts Payable may be a sign of cash flow problems.
Cost of Sales x 365
Compare your days in accounts
payable to supplier terms of
repayment.
TOTAL ASSET TURNOVER = How efficiently your business
generates sales on each dollar of
Revenue assets.
Average Total Assets
An increasing ratio indicates you are
FIXED ASSET TURNOVER = using your assets more productively.

Revenue
Average Fixed Assets

3. LIQUIDITY RATIOS

Does your enterprise have enough cash on an ongoing basis to meet its
operational obligations? This is an important indication of financial health.

RATIO WHAT DOES IT TELL YOU

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CURRENT RATIO = Measures your ability to meet short


term obligations with short term
Current Assets assets., a useful indicator of cash
Current Liabilities flow in the near future.

(also known as Working Capital A social enterprise needs to ensure


Ratio) that it can pay its salaries, bills and
expenses on time. Failure to pay
loans on time may limit your future
access to credit and therefore your
ability to leverage operations and
growth.

A ratio less that 1 may indicate


liquidity issues. A very high current
ratio may mean there is excess cash
that should possibly be invested
elsewhere in the business or that
there is too much inventory. Most
believe that a ratio between 1.2 and
2.0 is sufficient.

The one problem with the current


ratio is that it does not take into
account the timing of cash flows. For
example, you may have to pay most
of your short term obligations in the
next week though inventory on hand
will not be sold for another three
weeks or account receivable

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FINANCIAL ANALYSIS OF MASTEK LIMITED

collections are slow.


QUICK RATIO = A more stringent liquidity test that
indicates if a firm has enough short-
Cash +AR + Marketable Securities term assets (without selling
Current Liabilities inventory) to cover its immediate
liabilities.

This is often referred to as the acid


test because it only looks at the
companys most liquid assets only
(excludes inventory) that can be
quickly converted to cash).

A ratio of 1:1 means that a social


enterprise can pay its bills without
having to sell inventory.
WORKING CAPITAL = WC is a measure of cash flow and
should always be a positive number.
Current Assets Current Liabilities It measures the amount of capital
invested in resources that are subject
to quick turnover. Lenders often use
this number to evaluate your ability
to weather hard times. Many lenders
will require that a certain level of WC
be maintained.
ADEQUACY OF RESOURCES = Determines the number of months
you could operate without further
Cash + Marketable Securities + funds received (burn rate)
Accounts Receivable
Monthly Expenses

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FINANCIAL ANALYSIS OF MASTEK LIMITED

CLASSIFICATION OF RATIO
1. Profitability ratio

[1.1] Gross Profit Ratio:

Meaning:

It is expresses relationship between Gross Profit earned to net sales. It


is a significant indicator of the profitability of business.
It expresses in percent. For example, a ratio shows that for a sale of
every Rs. 1000 a margin of 250 rupees is available from which
operating expenses of business are recovered.
The ratio shows whether the mark up obtained on cost of production is
sufficient or not. There is no calibration against reasonability of gross
profit ratio. However it must be enough to cover its operating
expenses. In many industries, there are more or less recognized gross
profit ratios and the business should strive to maintain this standard.
If this ratio is low, it indicates that the cost of sales is high or that the
purchasing is inefficient.
Alternatively, it may also mean that due to depression, the selling price
is reduced but there are may be no corresponding reduction, the
selling price is reduced but there may be no corresponding reduction in
cost of sales. In such a case, the management must investigate the
causes and try to bring up this ratio.

Implementation:

Gross profit is result of the relation between price, sales volume and
costs. A change in the gross margin can be brought about by changes
in any of these factors.
The gross profit ratio can also be used in determining the extent of loss
caused by theft, spoilage, damage and so on in the case of those firms
which follow the policy of fixed gross profit margin in pricing their
product.
The gross margin represents the limit beyond which fall in sales price
are outside the tolerance limit.

Formula: Gross profit X 100


sales

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FINANCIAL ANALYSIS OF MASTEK LIMITED

FOR GROSS PROFIT RATIO

Particulars 2009 2008 2007 2006 2005 2004 2003

Gross 2382.3 3071.2 2551.2 1761.7 1264.7 604.2


profit(EBD
T)
Net Sales 20530.1 17891.6 14696.3 12015.9 10923.8 9104.4 7180.1

Gross 11.6039 17.1655 17.3594 16.9392 16.12717 13.89108 8.414924


Profit Ratio 37 97 71 22 19 56 58

INTERPRETATION:
As mentioned above the gross profit ratio indicates the relationship
between gross profit and net sales. Here from the table we can judge
the financial position of Maruti Suzuki year wise.
Here 6 consecutive years from 2004 to 2009 are taken into
consideration. The changes in the gross profit ratio in percent are as
follows.
Here, negative sign indicates that the percent is decreased compare to
immediate previous year, while positive sign indicates that the percent
is decreased in the gross profit compare to immediate previous year.
For consecutive four years the gross profit ratio is positive. It indicates
better financial position of the company.

[1.2] Net Profit Ratio:


Meaning:
Net profit ratio is valuable for the purpose of ascertaining the over-all
profitability of business and shows the efficiency of operating the business
Implementation:
The net profit ratio is indicative of managements ability to operate the
business with sufficient success not only to recover from revenue of
the period the cost of merchandise or services, the expenses of
operating the business and the cost of the borrowed funds, but also to
leave a margin of reasonable compensation to the owners for providing
their capital at risk.
The ratio of net profit ratio to sales essentially expresses the cost price
effectiveness of the operation.

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FINANCIAL ANALYSIS OF MASTEK LIMITED

A high net profit margin would ensure adequate return to the owners
as well as enable a firm to withstand adverse economic conditions
when selling price is declaiming, cost of production raising and a low
net profit margin has the opposite implication.
It indicates the portion of sales revenue is left to the proprietors after
all operating expenses are paid.
The higher the ratio, the better will be the profitability. In order to have
a better idea of profitability, the gross profit ratio and net profit ratio
may be simultaneously considered. If the gross profitability increases
over the five years but net profit is declining, it indicates that
administrative expenses are slowly rising.
Formula: Gross profit X 100
sales

FOR GROSS PROFIT RATIO


Particulars 2009 2008 2007 2006 2005 2004 2003
Net 1072.63 1669.71 1535.29 1197.07 860.1 621.82 129.72
profit(EBD
T)
Net Sales 20530.1 17891.6 14696.3 12015.9 10923.8 9104.4 7180.1
Net Profit 5.22467 9.33236 10.4467 9.96238 7.873633 6.829884 1.806660
Ratio 01 82 79 31 72 45 07

Interpretation:
Here 6 consecutive years from 2004 to 2009 are taken into
consideration. The changes in the net profit ratio in percent are as
follows.
Higher the net profit ratio shows better financial position of the
company.
Due to various reasons this ratio goes down. If the administration
department is not sufficient then net profit ratio goes down or the
control mechanism is not efficient at all check points then also it
affects net profit of the company.
Net profit is the profit that is available to the proprietors of the firm
after clearing all outstanding and expenses. Thus, higher the ratio
yields higher profit.

[1.3] Expenses Ratio:


Meaning:

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This ratio shows relationship between expanses to sales.


Above table shows that for the year 2004 05 it was 88.64 % the
increase in 2005 06 up to 89.23% that indicates there is increase in
operating expenses for the year 2006 07 it is 92.03% and it is higher
than previous year which shows increase in operating expenses.
For the year 2008-09 there is 2.43 increases in the net profit ratio
which gives signal of better financial position of the company.
This operating expense may be due to growth in the organization or it
may reflect inefficacy of administrative control on expenses.
Here negative sign shows decrease in operating expenses.

Implementation:
Some accountants calculate expenses ratio in respected of raw
material consumed, direct wages and factory expenses.
It is closely related to the profit margin, gross as well as net.
Formula: Expenses X 100
sales
FOR EXPENSES RATIO

Particula 2009 2008 2007 2006 2005 2004 2003


rs
Total 18738. 15934. 12462. 10625. 9671 8177.1 6704.8
Expendit 7 2 8 3
ure
Net 20530. 17891. 14696. 12015. 10923.8 9104.4 7180.1
Sales 1 6 3 9
Net 91.274 89.059 84.802 88.427 88.5314 89.8148 93.380
Profit 275 670 297 000 634 148 315
Ratio

INTERPRETATION:
This ratio shows relationship between expanses to sales.
Above table shows that for the year 2004 05 it was 88.64 % the
increase in 2005 06 up to 89.23% that indicates there is increase in
operating expenses for the year 2006 07 it is 92.03% and it is higher
than previous year which shows increase in operating expenses.
This operating expense may be due to growth in the organization or it
may reflect inefficacy of administrative control on expenses.
Here negative sign shows decrease in operating expenses.

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FINANCIAL ANALYSIS OF MASTEK LIMITED

[1.4] OPERATING RATIO:


Meaning:
Operating Ratio is computed by dividing expenses by sales.
The term operating ratio includes (1) COGS (2) administrative
expenses (3) selling expenses and (4) financial expenses but excludes
taxes, dividends and extraordinary losses due to theft of goods, good
destroyed by fire and so on.
Implementation:
Some accountants calculate expenses ratio in respected of raw
material consumed, direct wages and factory expenses.
It is closely related to the profit margin, gross as well as net.
Formula: C O G S + Operating expenses X 100
Net sales

OPRATION RATIO
Particulars 2009 2008 2007 2006 2005 2004 2003
Operating 2114.8 1510.4 1244.21 900.15 801.54 786.54 840.88
Expenses
COGS 3498.6 3744.5 3197.01 2506.35 2160.04 1673.64 1168.58
Net Sales 20530.1 17891.6 14696.3 12015.9 10923.8 9104.4 7180.1
Operating 27.3423 29.3708 30.22 28.3499 27.1113 27.0219 27.9865
Ratio

INTERPRETATION:
This ratio shows relationship between COGS + operating expanses to
sales.
Above table shows that for the year 2004 05 it was 87.33 % the
increase in 2005 06 up to 86.90 % that indicates there is increase in
operating expenses for the year 2006 07 it is 83.89 % and it is lower
than previous year which shows increase in operating expenses.
In the year 2008-09 there is 28% increase in the operating expenses.
This is may be due to inefficient operation management and also there
may be some other expenses for sales or promotion may incur during
this year.

[1.5] Return on investment / Capital employed:


Meaning:
The profitability ratio can be computed by relating the profits of a firm to its
investment.
Implementation:
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Return on investment indicates the profitability of business and is very


much in use among financial analysis.
The ratio is an indicator of the measure of the success of a business
from the owners point of view. The ultimate interest of any business is
the rate of return on invested capital. It may be measured by the ratio
of income to equality capital.
It determines whether a certain goal has been achieved or whether an
alternative use of capital is justified.
It is an index of profitability of business and is obtained by comparing
net profit with capital employed. Capital includes share capital,
reserves and long term loans such as debentures.

Formula: EBIT X 100


Capital Employed

RETURN ON INVESTMENT / CAPITAL EMPLOYED


Particular 2009 2008 2007 2006 2005 2004 2003
s
Gross 2382.3 3071.2 2551.2 2035.4 1761.7 1264.7 604.2
Profit(EBI
T)
Capital 9344.9 8415.4 6853.9 5452.6 4378.8 3591.2 3098
Employed
Return on 25.4930 36.4949 37.2226 37.3289 40.2324 35.2166 19.5029
Investme 497 973 032 807 838 407 051
nt

INTERPRETATION:
This ratio shows relationship between E B I T to CAPITAL EMPLOYED.
Higher the ratio, it is better for the company.
In the year 2008- 09 there is decrease of 43.15 percent in the gross
profit of the company. This show slow- down in companys sale. It is
due to recession during that period where an overall sale was affected.

[1.6] Return on shareholders fund:


Meaning:
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FINANCIAL ANALYSIS OF MASTEK LIMITED

It is carries the relationship of return to the sources of funds yet


another step further.
In order to judge the efficiency with which the proprietors funds are
employed in business, this ratio is ascertained. Proprietors equity or
Proprietors funds include share capital and reserves.
It is of great practical importance to the perspective of investors, as it
enables the profitability of a company to be compared with that of
other.
It also indicates whether the return on proprietors fund is enough in
relation to the risk that they undertake.
This ratio shows what amount of dividend is likely to be received on
shares.
Implementation:
It expresses the profitability of a firm in relation to the funds supplied by the
creditors and owners taken to gather, the return on shareholders equity
measures exclusively the return on the owners funds.
Formula: Net profit X 100
Share holders fund

FOR RETURN ON SHAREHOLDERS FUND


Particulars 2009 2008 2007 2006 2005 2004 2003
Net Profit 1072.63 1669.71 1535.29 1197.07 860.1 621.82 129.72
Capital 9344.9 8415.4 6853.9 5452.6 4378.8 3591.2 3098
Employed
Return on 11.4782 19.8411 22.4002 21.95411 19.6423 17.3151 4.18721
Investmen 395 246 393 136 678 036 756
t
INTERPRETATION:
The ratio indicates relationship between Net profits to share holders
fund therefore higher the returns to shareholders.
For the year 2004 05 it is 21.90 % that increase in the year 2005 06
up to 23.70.
This ratio shows downward trend in the ratio in return on shareholders
fund for this company.
During the year 2008-09 there is 72.97% decrease in the ROI. This
ratio shows upward trend for that financial year for the company.

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[1.7] Return on Equity share capital:


Meaning:
It is obtained by dividing net profit after tax deduction of performance
dividing by his amount of ordinary share capital plus free reserve
Implementation:
This is probably the single most important ratio to judge whether the
firm has earned a satisfactory return for its equity holders or not.
Its adequacy can be judge by: (1) comparing it with the past record of
the same form, (2) comparisons with the overall industry average.
Formula: Net profit after tax -Preference dividend X 100
Equity capital

FOR RETURN ON EQUITY SHARE CAPITAL


Particulars 2009 2008 2007 2006 2005 2004 2003
Net Profit 1072.63 1669.71 1535.2 1197.07 860.1 621.82 129.72
9
Preference 0 0 0 0 0 0 0
Dividend
Share 144.5 144.5 144.5 144.5 144.5 144.5 144.5
Capital
Return on 55.73 8.13 22.03 28.14 27.73 79.12 11.46
Equity
Share

INTERPRETATION:
The ratio indicates relationship between Net profits to share holders
fund therefore higher the returns to shareholders.
For the year 2004 05 it is 19.49 % that increase in the year 2005 06
up to 21.81 %.
This ratio shows downward trend in the ratio in return on shareholders
fund for this company.
For the financial year 2008-09 there is 85% increase in the ratio in
return on shareholders fund. Here, year 2008-09 shows marked
improvement that is why it is taken into consideration.

[1.8] Return on Equity shareholders fund:


Meaning:

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FINANCIAL ANALYSIS OF MASTEK LIMITED

It is obtained by dividing net profit after tax deduction of performance


dividing by his amount of ordinary share capital plus free reserve.
Implementation:
This is probably the single most important ratio to judge whether the
firm has earned a satisfactory return for its equity holders or not.
Its adequacy can be judge by: (1) comparing it with the past record of
the same form, (2) comparisons with the overall industry average.

Formula: Net profit after tax-Preference dividend X 100


Equity share holders funds

FOR RETURN ON EQUITY HOLDERS FUND


Particulars 2009 2008 2007 2006 2005 2004 2003
Net Profit 1072.63 1669.71 1535.2 1197.07 860.1 621.82 129.72
9
Capital 9344.9 8415.4 6853.9 5452.6 4378.8 3591.2 3098
Employed
Preference 0 0 0 0 0 0 0
Dividend
Return on 11.4782 19.8411 22.400 21.95411 19.6423 17.3151 4.1872
Investment 395 246 2393 36 678 036 1756

INTERPRETATION:
For the year 2004 05 it is 19.64 % that increase in the year 2005 06
up to 21.95%.
These ratios shows downward trend in the ratio in return on
shareholders fund for this company.
Here in the year 2008-09 there is decrease of 69% compared to
previous year in the ROI which shows upward trend in the company.
[1.9] Earning per share:
Meaning:
EPS measures the profit available to the equity shareholders on a per
share basis, that is, the amount that they can get on every share head.
This ratio shows the profitability of the firm from the owners point of
view. By comparing EPS of the current year with past years the path of
the trend of profitability can be ascertained.
It is essential that EPS of the company should be compared with the
other companies and also average of the company before giving final
opinion.

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FINANCIAL ANALYSIS OF MASTEK LIMITED

The limitation of EPS is that it does not show how much dividend is
actually paid to shareholders and how much profit is retained in
business.
Implementation:
Earning per share is a widely used ratio. EPS s a measure of profitability

Formula: Profit after tax preference dividend X 100


No. of equity shareholders fund
FOR RETURN ON EARNING PER SHARE
Particulars 2009 2008 2007 2006 2005 2004 2003
Net Profit 1072.63 1669.71 1535.29 1197.07 860.1 621.82 129.72
No. of 288910 288910 288910 2889100 288910 288910 288910
Equity 060 060 060 60 060 060 060
Shares
Preference 0 0 0 0 0 0 0
Dividend
Return on 37.1267 57.7934 53.1407 41.4340 29.7705 21.5229 44.8997
Investment 792 185 594 02 106 612 865

INTERPRETATION:
This ratio indicates the earning per share for shareholders of company. In the
year 2004 05 ratio is 29.77 % and 2005 06 it is 41.43 % and its increase
on 2006-07 is 53.14%.therefore it is good for company as well as
shareholders.

[1.10] Dividend per share:


Meaning:
DPS is the dividend paid to shareholders on a per share basis.
In the other words, DPS is the Net distributed profit belonging to the
shareholders divided by the No. of ordinary shares outstanding.
Implementation:
The DPS would be a better indicator than EPS as the former shows
what exactly is received by the owners.
Like the EPS, the DPS is also should not be taken at its face value as
the increase DPS may not be a reliable measure of profitability as the
equality base may have increase due to increase relation without any
change in the number of outstanding shares.

Formula: Total dividend declared


No. of equity shares
Page 24
FINANCIAL ANALYSIS OF MASTEK LIMITED

FOR DIVIDEND PER SHARE


Particulars 2009 2008 2007 2006 2005 2004 2003
No. of 288910 288910 288910 2889100 288910 288910 288910
Equity 060 060 060 60 060 060 060
Shares
Total 101.1 144.5 130 101.1 57.8 43.3 42.7
Dividend
Dividend 3.49935 5.00155 4.49967 3.49935 2.00062 1.49873 1.47796
per Share 894 654 024 894 262 632 861

INTERPRETATION:
This ratio indicates the total dividend declared to no. of shares. For the
year 2004 05 it is 2 % and 2005 06 is3.50 % and increase on 4.50
% in the year 2006 07.
For the year 2007-08 is 96% increased compared to previous year
while for the year 2008-09 it is decreased to 26.84%. Thus for the
current year it is decreased. It indicates slow-down in the financial
position of the company.

[1.11] Price earning ratio:


Meaning:
It is closely related to the earning yield leanings price ratio. It is actually the
reciprocal of the latter. Thus ratio is computed by dividing the market price of
the shares by the EPS.
Implementation:
The price earning ratio reflects the price currently being paid by the market
for each Rupee of currently reported EPS. In other words, the PIE ratio
measures investors expectations and the market appraisal of the earnings.
Therefore, only normally sustainable earning associated with the assets are
taken into account.

Formula: Market value per share


Earning per share

FOR PRICE EARNING RATIO

Page 25
FINANCIAL ANALYSIS OF MASTEK LIMITED

Particulars 2009 2008 2007 2006 2005 2004 2003


Market 1559.65 520.1 990.05 927.35 636.5 461.25 376.3
Value of
Share
Earning Per 41.57 59.03 53.29 40.65 29.25 18.56 4.88
share
Price 37.5186 8.81077 18.5785 22.8130 21.7606 24.8518 77.1106
Earning 433 418 326 381 838 319 557
Ratio
INTERPRETATION:
This ratio indicates the earning per share for shareholders of company.
In the year 2004 05 ratio is 17.58% and 2005 06 it is 21.95% and its
increase on 29.55%.
Therefore it is good for company as well as shareholders.

[1.12] Dividend yield ratio:


Meaning:
Dividend yield ratio is closely related to the EPS and DPS.
While the EPS and DPS are based on the book value per share, the
yield is expressed in terms of the market value per share.
The earnings yield may be defined as the ratio of earnings per share to
the market value per ordinary share.
Implementation:
The dividend yield ratio is calculated by dividing the cash dividends per
share by the market value per share.
Formula: Dividend per share
Market value share
FOR DIVIDEND YIELD RATIO
Particulars 2009 2008 2007 2006 2005 2004 2003
Market 1559.65 520.1 990.05 927.35 636.5 461.25 376.3
Value of
Share
Dividend 3.49935 5.00155 4.49967 3.49935 2.00062 1.49873 1.47796
Per share 894 565 024 894 262 632 861
Dividend 0.00224 0.00961 0.00454 0.00377 0.00314 0.00324 0.00392
Yield Ratio 368 653 489 35 316 929 763
INTERPRETATION:
This ratio indicates the earning per share for shareholders of company.
In the year 2004 05 ratio is 17.58% and 2005 06 it is 21.95%.

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FINANCIAL ANALYSIS OF MASTEK LIMITED

For the year 2007-08 the ratio is decreased by 109.9% and for 2008-09
it is increased by 76.51%. So for current situation is good for company
as well as shareholders.

[1.13] Interest coverage ratio:


Meaning:
It is also known as time interest earned ratio.
This ratio measures the debt servicing capacity of a firm insofar as
fixed interest on long term loan is concerned. It is determined by
dividing the operating profit or earning before interest and taxes (EBIT)
by the fixed interest changes on loans.
Implementation:
This ratio uses the concept of net profits before taxes because tax is
calculated after paying interest on long term loan.
This ratio as the name suggests, show how many times the interest
changes are covered by EBIT out of which they will be paid.
Formula: EBITD
Interest

FOR INTEREST COVERING RATIO


Particulars 2009 2008 2007 2006 2005 2004 2003
Operating 2433.3 130.8 2588.8 2055.8 1797.7 1308.1 656.9
Profit
(EBDIT)
Interest 51 59.6 37.6 20.4 36 43.4 52.7
Interest 47.7117 52.5302 68.8510 100.774 49.9361 30.1405 12.4648
covering 647 013 638 551 111 53 956
ratio

INTERPRETATION:
This ratio indicates the EBDIT to interest. In the year 2004 05 ratio is
49.93 and 2005 06 it is 100.8 and its decrease on 68.85.therefore it is
good for company as well as shareholders.
For the year 2008-09 the interest covering ratio is 47.71 while for the
year 2007-08 it is 52.53.It is decreasing for the last 2 financial years
due to the fluctuation in for-ex.

2.Activity / Turn over Ratio:

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FINANCIAL ANALYSIS OF MASTEK LIMITED

[2.1] Overall turnover ratio:


Meaning:
The amount invested in business is invested in all capital employed and sales
are affected through them to earn profits so in order to find relation between
net sales to capital employed.
Implementation:
The usefulness of the Du Pont analysis lies in the fact that it presents the
overall picture of the performance of a firm as also enables the management
to identify the factors which have a bearing on profitability.
Formula: Net sales
Capital employed

FOR OVERALL TURNOVER RATIO


Particulars 2009 2008 2007 2006 2005 2004 2003
Net Sales 20530.1 17891.6 14696.3 12015.9 10923.8 9104.4 7180.1
Capital 9344.9 8415.4 6853.9 5452.6 4378.8 3591.2 3098
Employed
Overall 2.19693 2.12605 2.14422 2.20370 2.49470 2.53519 2.31765
Turnover 0946 4614 4456 0987 174 7149 6553
Ratio
INTERPRETATION:
This ratio indicates net sales to capital employed. In the year 2004 05
ratio is 2.49 and 2005 06 it is 2.20 and its decrease on 2.14 in the
year 2006 07. Therefore it is bad for company.
In the year 2008-09 the ratio is 2.19 while in the year 2007-08 the ratio
is decreased to 2.12 which shows slow down in the company.

[2.2] fixed assets turnover ratio:


Meaning:
It is based on the relationship between the sales and assets of the firm.
A reference to this was made while working out the overall profitability
of a form as reflected in its earning power.
Implementation:
To ascertain efficiency and profitability of the business. The higher the
turnover ratio, the more efficiency is the management and utilization of the
assets while low turnover ratios are indicative of underutilization of available
resources.
Formula: Sales
Fixed assets

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FINANCIAL ANALYSIS OF MASTEK LIMITED

FOR FIXED ASSETS TURNOVER RATIO


Particulars 2009 2008 2007 2006 2005 2004 2003
Net Sales 20530.1 17891.6 14696.3 12015.9 10923.8 9104.4 7180.1
Total Fixed 7079.34 5716.16 4740.74 4073.18 3943.61 3746.66 3554.50
Asset 4828 6134 1935 6441 011 667 495
Fixed Asset 2.9 3.13 3.1 2.95 2.77 2.42999 2.02
Turnover 9998
INTERPRETATION:
Fixed turnover ratio indicates the turnover of the company in one year.
In the year 2004 05 ratio is 2.77 and 2005 06 it is 2.95 and it
increase on 3.1 in the year 2006 - 07. Therefore, it is good for
company.
In the year 2008-09 there is decrease of 7% in the fixed turnover ratio
compare to last year while during year 2007-08 there is very minor
change in the ratio. Year 2007-08 and 2006-07 shows almost similar
financial position of the company while year 2008-09 shows slight slow
down in the financial position of the company

[2.3] Debtor turnover ratio:


Meaning:
It is allied and closely related to this is the average collection period. It is the
test of the liquidity of the debtors of a firm.

Implementation:
This figure should be measured, as in the case of average inventory, on the
basis of the monthly average. It suggests that number of times the amount
of credit sale is collected during the year.
Formula: Credit sales
Avg. Debtors

FOR DEBTOR TURN OVER RATIO


Particulars 2009 2008 2007 2006 2005 2004 2003
Net Sales 20530.1 17891.6 14696.3 12015.9 10923.8 9104.4 7180.1
Sundry 697.117 596.983 595.232 507.214 527.974 560.615 603.877
Debtors 1477 6503 8878 0144 867 7635 2077
Debtor 29.45 29.97 24.69 23.69 20.69 16.24 11.89
turnover
Ratio
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FINANCIAL ANALYSIS OF MASTEK LIMITED

INTERPRETATION:
Debtor turnover ratio indicates credit sales to avg. debtors.
In the year 2004 05 ratio is 20.69 and 2005 06 it is 23.69 and its
increase on 24.69 in the year 2006 07. Therefore, it is good position
for company.
In the year 2008-09 there is 1% decrease in the Debtors turnover ratio
compare to previous year and 2007-08 there is 17.91% increase in the
debtors turnover ratio.
How efficiently the amount is collected from the customers from the
credit sales.
As compare to previous year the no. of days collection period increase
which indicate inefficiency of collection department.
Lower the collection period and higher debtor turnover ratio is
advisable.

[2.4] Creditor ratio:


Meaning:
It is the no. of days within which we make payment to our creditors for
credit purchases it obtained from creditor ratio.
Implementation:
The generally the longer credit period achieved means the operation of the
payment being financial interest feels by supper funds.
Formula: Creditor + B / P X 365
Credit Purchases
FOR CREDIT RATIO
Particulars 2008 2007 2006 2005
Creditors 854.9 909.6 555.1 463.7
Bills 0 0 0 0
Payable
Credit 13938.8 10836.4 9392.8 8621.3
Purchase
Creditor 22.3863 30.63785 21.57093 19.6316
ratio 245 021 731 681

INTERPRETATION:
Creditor ratio indicates creditor to credit purchase. In the year 2004 05
ratio is 19.63 and 2005 06 it is 21.57 and its increase on 30.63 in the year
2006 07.In the year 2007-08 there is decrease on 22.38 times i.e. decrease

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FINANCIAL ANALYSIS OF MASTEK LIMITED

of 36.36% in the creditor ratio compare to previous year. Thus it indicates


slight slow down in the financial condition of the company.
[2.5] creditor turns over ratio:
Meaning:
It is the no. of days within which we make payment to our creditors for
credit purchases it obtained from creditor ratio.
Implementation:
The generally the longer credit period achieved means the operation of the
payment being financial interest feels by supper funds.
Formula: No. of days in a year
Creditors ratio

FOR CREDITOR TURNOVER RATIO

Particulars 2008 2007 2006 2005


NO. Of Days 365 365 365 365
in Year
Creditors 22.38632 30.637850 21.570937 19.6316681
Ratio 45 21 31
Creditors 16.30459 11.913368 16.920915 18.5924089
Turnover Ratio 703 51 15

INTERPRETATION:
Creditor ratio indicates creditor to credit purchase. In the year 2004
05 ratio is 18.59 and 2005 06 it is 16.92 and its increase on 11.91 in
the year 2006 07. Therefore, it is good position for company.
During the year 2007-08 ratio is 16.30. It increases in compare to
previous financial year thus it indicates good position of the company.

[2.6] Stock Turnover Ratio:


Meaning:
It is the no. of times the average stock is turned over during the year is
known as stock turnover ratio. It measures the relationship between
COGS and inventory level.
Higher the turnover ratio, the more profitable business would be. Such
firms will be able to trade on a smaller margin of a gross profit.

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FINANCIAL ANALYSIS OF MASTEK LIMITED

Lower stock turnover ratio indicates accumulation of slow moving,


obsolete and low quality goods, which is a danger signal for
management.
Implementation:
This approach has the advantage of being free from bias as it
smoothens out the fluctuations in the inventory level at different
period.
It is measures how quickly inventory is sold. It is a test of efficient
inventory management.
To judge whether the ratio of a firm is satisfactory or not.
Formula: Cost of good sold
Average stock

FOR STOCK TURN OVER RATIO


Particulars 2009 2008 2007 2006 2005 2004 2003
Sales 23182.2 21025.2 17205.9 14753.1 13335.7 13335.7 8981.5
Turnover
Gross Profit 2382.3 3071.2 2551.2 2035.4 1761.7 1264.7 604.2
(EBDT)
Cost Of 20799.9 17954 14654.7 12717.7 11574 9782.7 8377.3
Good Sold
Inventories 902.3 1038 701.4 881.2 666.6 439.8 487
Stock 23.0520 17.2967 20.8934 14.4322 17.3627 22.2435 17.2018
Turnover 8911 2447 9872 5148 363 1978 4805
Ratio

INTERPRETATION:
Stock turnover ratio indicates cost of goods sold to average stock.
In the year 2004 05 ratio is 17.36 times and 2005 06 it is 14.43
times and its increase on 20.80 times in the year 2006 07.
For the year 2008-09 and 2007-08 the ratio are 23.05 times and 17.3
times respectively. It is more in 2008-09 compare to 2007-08. It
indicates better position of the company.
Therefore, it is good for company. How efficiently stock rate in the year
Higher the ratio, better position of the company as well as efficiency.

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FINANCIAL ANALYSIS OF MASTEK LIMITED

3. Liquidity Ratio:
[3.1] Current Ratio:
Meaning:
The current ratio is the ratio of total current assets to total current
liability. It is calculated by dividing current assets by current liability.
It is also known as a working capital ratio, as it is measure of working
capital available at a particular time. It is a measure of short term
financial strength of the business and shows whether the business will
be able to meet its current liabilities, as and when they mature.
Implementation:
The current ratio of a firm measures its short term solvency. That is a
measure of margin of safety to the creditors. The fact that a firm can rarely
count on such an even flow requires that the size of the C.A. should be
sufficiently larger than C.L. so that the firm would be assured of being able to
pay its current maturing debts as and when it becomes due.
Formula: Current Assets
Current liability

FOR CURRENT RATIO


Particulars 2009 2008 2007 2006 2005 2004 2003
Total 5491.1 3097.9 4405 3740.9 2972 2018.9 2782.8
Current
Assets
Total 3397.6 2825.7 3072.4 1977.1 1608 1531.8 1478.6
Current
Liabilities
Current 1.6162 1.09633 1.43373 1.89211 1.84825 1.31799 1.88205
Ratio 0 2 4 8 0

INTERPRETATION:
Current ratio indicates current assets to current liability. In the year
2004 05 ratio is 1.84: 1 and 2005 06 it is 1.89: 1 and its decrease
on 1.43: 1 in the year 2006 07. Therefore, it is good for company.
For the year 2008-09 the ratio is 1.61:1 and for the year 2007-08 it is
1.61:1. So for the year 2008-09 it is good as ideal is 2:1 and 1.61:1
closer to ideal one.
Mainly 2:1 is good. It indicates, repaying condition of the company to
the current liabilities. The standard current ratio must be 2:1.
[3.2] Liquid Ratio:

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FINANCIAL ANALYSIS OF MASTEK LIMITED

Meaning:
It is obtained by dividing the liquid assets by liquid liabilities.
It liquid ratio is designed to show the amount of cash available to meet
immediate payments.
If the liquid assets are equal to or more than liquid liabilities, the
condition may be considered as satisfactory.
Implementation:
The importance of adequate liquidity in the sense of the ability of a
firm to meet short term obligations when they become due for
payment can hardly be overstressed.
In fact liquidity is a prerequisite for the very survival of a firm. It
measures ability of a firm to meet its short term obligations and reflect
the short term finance strength of a firm.
Formula: Liquid assets
Liquid liability

FOR LIQUIDITY RATIO


Particulars 2009 2008 2007 2006 2005 2004 2003
Total 5491.1 3097.9 4405 3740.9 2972 2018.9 2782.8
Current
Assets
Inventories 902.3 1038 701.4 881.2 666.6 439.8 487
Prepaid 0 0 0 0 0 0 0
Expenses
Quick Asset 4588.8 2059.9 3703.6 2859.7 2305.4 1579.1 2295.8
Total 3397.6 2825.7 3072.4 1977.1 1608 1531.8 1478.6
Current
Liabilities
Bank Over 0 0 0 0 0 0 0
Draff
Liquidity 1.35060 0.72898 1.20544 1.44641 1.43370 1.03087 1.55268
Ratio 042 751 2 141 647 87 497

INTERPRETATION:

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FINANCIAL ANALYSIS OF MASTEK LIMITED

Liquid ratio indicates liquid assets to liquid liability. In the year 2004 05
ratio is 1.43: 1 and 2005 06 it is1.44: 1 and its decrease on 1.21: 1 in the
year 2006 07. Therefore, it is good for company. How effectively the liability
paid off. For the year 2008-09 the ratio is 1.35:1 which shows slight better
condition compare to FY 2004-05.The standard liquidation must be 1:1.

[3.3] Quick / acid test ratio:


Meaning:
The measure of absolute liquidity may be obtain by comparing only
cash and bank balance as well as readily marketable securities with
liquid liabilities.
This is exacting standard of liquidity and it is satisfactory if the ratio is
0.5:1.
Quick assets here do not include both stock and debtors, because
payment from debtors would not generally be received immediately
when liquid liabilities are to be paid.
Implementation:
This ratio is the most rigorous and conservative test of a firms liquidity
position. Further, it is suggested that it would be useful for the management.
Formula: Quick assets
Liquid liability

FOR LIQUIDITY RATIO


Particulars 2009 2008 2007 2006 2005 2004 2003
Quick 5491.1 3097.9 4405 3740.9 2972 2018.9 2782.8
Assets
Current 3397.6 2825.7 3072.4 1977.1 1608 1531.8 1478.6
Liabilities
Quick Acid 1.61617 1.09633 1.43373 1.89211 1.84825 1.31799 1.88205
Test Ratio 024 011 259 471 871 19 059

INTERPRETATION:
Quick acid test ratio is indicates quick assets and liquid liability. In the year
2004 05 ratio is 1.84: 1 and 2005 06 it is 1.89: 1 and its decrease on 1.4:
1 in the year 2006 07. Therefore, it is good for company.

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FINANCIAL ANALYSIS OF MASTEK LIMITED

INTRODUCTION OF LEVERAGE

Leverage, as a business term, refers to debt or to the borrowing of funds to


finance the purchase of a company's assets. Business owners can use either
debt or equity to finance or buy the company's assets. Using debt, or
leverage, increases the company's risk of bankruptcy. It also increases the
company's returns; specifically its return on equity. This is true because, if
debt financing is used rather than equity financing, then the owner's equity
is not diluted by issuing more shares of stock.

Investors in a business like for the business to use debt financing but only up
to a point. Beyond a certain point, investors get nervous about too much
debt financing as it drives up the company's default risk.

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FINANCIAL ANALYSIS OF MASTEK LIMITED

DEFINITION OF 'LEVERAGE'

1. The use of various financial instruments or borrowed capital, such as


margin, to increase the potential return of an investment.

2. The amount of debt used to finance a firm's assets. A firm with


significantly more debt than equity is considered to be highly leveraged.

Leverage is most commonly used in real estate transactions through the use
of mortgages to purchase a home.

TYPES OF LEVERAGE

On the basis of nature of risk associated with the investing and financing
activities of a firm, leverage can be divided or classified as follow:

1. OPERATING LEVERAGE

Operating leverage may be defined as the firm's ability to use fixed


operating costs to magnify the effect of changes in sales on its earning
before interest and tax. The relationship between contribution margin and
earning before interest and tax (EBIT) is called degree of operating leverage.
It may be defined as the rate of changes in EBIT due to the change in the
rate of sales. The firm operating with high fixed operating cost has higher
degree of operating leverage. Higher levels of risk are attached to higher

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FINANCIAL ANALYSIS OF MASTEK LIMITED

degree of leverage. High operating leverage is good when sales are


increasing and bad when they are falling.

Operating leverage is used to measure the business risk. Business risk is the
risk of the firm not being able to cover its fixed operating costs.

2. FINANCIAL LEVERAGE

Financial leverage is related with the financing activities of a firm. The fixed
return sources of capital influence the earning of variable return sources. The
effect is known as financial leverage.

The use of fixed charge capital is known as financial leverage. If there is no


fixed charge capital, there is no financial leverage. The proper utilization of
fixed charged capital like debentures, bonds, bank loan and preference share
capital is measured by financial leverage. The firm having more debt capital
and preference share capital in its capital structure has higher degree of
financial leverage and greater amount of risk.

Financial leverage is used to measure the financial risk. Financial risk refers
to the risk of the firm not being able to cover its fixed financial costs.

3. COMBINED LEVERAGE

The combination of operating leverage and financial leverage is called total


leverage or combined leverage. Operating leverage measures operating risk
whereas financial leverage measures financial risks. Total leverage or
combined leverage measures total risk of the business.

Operating leverage is measured by the percentage change in earning before


interest and tax due to percentage change in sales where as financial

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FINANCIAL ANALYSIS OF MASTEK LIMITED

leverage is measured by percentage change in earning per share due to


percentage change in earning before interest and tax.

1. Proprietary ratio:
Meaning:
The ratio shows the proportion of proprietors funds to the total assets
employed in known in the proprietary ratio.
Implementation:
Proprietary ratio helps to known how many proprietary funds to total
assets.
The higher the ratio, the stronger the financial position of the
enterprise, as it signifies that the proprietors have provided larger
funds to purchase assets. This ratio cannot exceed 100%; it means that
the business does not use any outside funds. There are no outside
liabilities. Purchases are made for cash only and firm carries business
entirely from own funs only. A very high ratio therefore is not desired
as it shows insufficient use of outside fund is made.
Generally it is said that proprietors fund should be enough to cover
fixed assets. And also reasonable proportion must be maintained
between owned funds and borrowed funds, so the benefit of trading on
equity is obtained. Which in turn increase the rate of equity dividend.
Formula: Proprietary fund
Net asset
FOR PROPEIETARY RATIO
Particulars 2009 2008 2007 2006 2005 2004 2003
Total 9344.9 8415.4 6853.9 5452.6 4378.8 3591.2 3098
Proprietary
Funds
Total Assets 10043.8 9315.6 7484.7 5524.3 4686.4 3903.1 3554
Proprietary 93.0414 90.3366 91.5721 98.7020 93.4363 92.0089 87.1693
Ratio 7832 3962 405 98 2639 1599 8661

INTERPRETATION:
This ratio indicates the proprietary funds to total assets. For the year 2006
07 it is 91.57 % and 2007 08 is90.33 % and increase in 2008 09 it is 93.04
%. This is a good for company.
2. Debt equity ratio:
Meaning:
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FINANCIAL ANALYSIS OF MASTEK LIMITED

The relationship between borrowed funds and owners capital is a


popular measure of the long term financial solvency of a firm. This
relationship is shown by the debt equity ratio.
Debt-equity ratio is calculated to ascertain the soundness of the
company's long-term financial position. Debt-equity ratio indicates the
extend to which it depends upon borrowed funds for its existence. It
portrays the proportion of its total funds acquired by way of external
financing.

Implementation:

This ratio reflects the relative claims of creditors and shareholders


against the assets of the firm. Alternatively this ratio indicates the
relative proportions of debts and equity in financing the assets of a
firm.
The D/E ratio is an important tool of financial analysis to appraise the
financial structure of a firm. It has important implication from view
point of the creditors, owners and the firm itself.
A higher ratio means that outside creditors have a larger claim than
the owners of business. The pressure from creditors would increase
and their interference will also increase. The company with high debt
position will have to accept strict conditions from the lenders, while
borrowing money.
A lower ratio is not profitable from the view point of equity share
holders, as benefit of trading on equity is not availed of and the rate of
equity dividend will be comparatively lower.

FOR DEBT EQUITY RATIO


Particulars 2009 2008 2007 2006 2005 2004 2003
Long term 841.041 841.54 411.234 218.104 350.304 395.032 588.62
Liabilities
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FINANCIAL ANALYSIS OF MASTEK LIMITED

Total 9344.9 8415.4 6853.9 5452.6 4378.8 3591.2 3098


Shareholder
s Fund
Debt-Equity 9% 10% 6% 4% 8% 11% 19%
Ratio

INTERPRETATION:
This ratio indicates the debt to equity ratio. For the year 2004 05
it is 8 %and 2005 06 is 4 % and increase in 2006 07 it is 6%.
This is a bad for company as compare to 2005-06 year is more
debt ratio which indicate the more realize on debt fund rather
owned fund. The good impact is interest burden will be more
indirectly.
For the year 2008-09 and 2007-08 the debt equity ratio is 9% and
10% respectively.

INTRODUCTION OF WORKING CAPITAL

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FINANCIAL ANALYSIS OF MASTEK LIMITED

Working capital (abbreviated WC) is a financial metric which


represents operating liquidity available to a business, organization or other
entity, including governmental entity. Along with fixed assets such as plant
and equipment, working capital is considered a part of operating capital.
Gross working capital equals to current assets. Net working capital (NWC) is
calculated as current assets minus current liabilities. If current assets are less
than current liabilities, an entity has a working capital deficiency, also called
a working capital deficit.

A company can be endowed with assets and profitability but short


of liquidity if its assets cannot readily be converted into cash. Positive
working capital is required to ensure that a firm is able to continue its
operations and that it has sufficient funds to satisfy both maturing short-term
debt and upcoming operational expenses. The management of working
capital involves managing inventories, accounts receivable and payable, and
cash.

DEFINITION OF 'WORKING CAPITAL'

A measure of both a company's efficiency and its short-term financial


health. The working capital is calculated as:

The working capital ratio (Current Assets/Current Liabilities) indicates


whether a company has enough short term assets to cover its short term
debt. Anything below 1 indicates negative W/C (working capital). While
anything over 2 means that the company is not investing excess assets.
Most believe that a ratio between 1.2 and 2.0 is sufficient. Also known as
"net working capital".

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Working Capital Ratio Example

A potential acquirer is interested in the current financial health of the


Beemer Designs retail chain, which sells add-on products for BMW
automobiles. She obtains the following information about the company for
the past three years:

Year 1 Year 2 Year 3

Current Assets 4,000,000 8,200,000 11,700,000


Current 2,000,000 4,825,000 9,000,000
Liabilities
Working Capital 2:1 1.7:1 1.3:1
Ratio

he rapid increase in the amount of current assets indicates that the retail
chain has probably gone through a rapid expansion over the past few years
and added both receivables and inventory. The sudden jump in current
liabilities in the last year is particularly disturbing, and is indicative of the
company suddenly being unable to pay its accounts payable, which have
correspondingly ballooned. The acquirer elects to greatly reduce her offer
for the company, in light of the likely prospect of an additional cash infusion
in order to bring its operations onto an even keel.

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INTRODUCTION TO INVESTMENT ANALYSIS

Investment analysis means the process of judging an investment for income,


risk, and resale value. It is important to anyone who is considering an
investment, regardless of type. Investment analysis methods generally
evaluate 3 factors: risk, cash flows, and resale value.

The first factor evaluated in any investment analysis is risk. The reason for
this is simple: if the risk of the investment is too great then loss is quite
likely. In this case, cash flows and resale value generally do not matter
because the investment is worth nothing. To evaluate risk, one simply uses a
variation of this formula:

Rate of occurrence x the impact of the event = Risk

Despite this, risk is not a definite factor. One must evaluate all the factors
related to the investment: market, industry, governmental, company, and
more. In this way evaluating risk is as much of an art as a science.

The second factor of investment analysis is cash flows. Cash flows occur in
many ways: dividends from a publicly traded stock, interest payments on a
bond, or even free cash flow which can be distributed to the investors in a
small business (again, in the form of dividends). Cash flows are one of the
methods of repayment on an investment. Thus, an investor will want to
evaluate cash flows to see if they repay the investment while also repaying
the assumed value of the risk on the investment. Many methods of

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evaluating cash flows exist:future value of cash flows, Discounted Cash Flow
Analysis, and others provide each investor with a method of analysis based
in the type of investment being considered. Regardless, ignoring the analysis
of cash flows is a quick path to loss of investment capital.

The third factor of investment analysis is resale value. Profit from resale is
made through a gain in the market value of the asset. When the asset is sold
to another investor for a value higher than the original purchase price, profit
from resale value has occurred. In the process of investment analysis, an
investor will want to measure the expected rate of growth on the asset to
make sure that the value of this and any associated cash flows are larger
than the loss of investment and the estimated value of the risk of the
investment.

All of these methods of investment analysis are applicable to any


investment: stocks on the stock market, treasury bills, the purchase and
growth of a business, or even currency trading. Though each has a purpose-
built method for investment analysis, each requires this if the investor is to
be sure that the risk is worth the reward. Though investment for real estate
decisions will be different than for a stock, the basic concept is the same.

DEFINITION OF 'INVESTMENT ANALYSIS'

The study of how an investment is likely to perform and how suitable it is for
a given investor. Investment analysis is key to any sound portfolio-
management strategy. Investors not comfortable doing their own investment
analysis can seek professional advice from a financial advisor.

An analysis of past investment decisions. An investment analysis is a look


back at previous investment decisions and the thought process of making

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the investment decision. Key factors should include entry price, expected
time horizon, and reasons for making the decision at the time.

REFERENCE

WEBLIOGRAPHY

WWW.GOOGLE.COM
WWW.SLIDSHARE.COM
WWW.INVESTOPIDIA .COM

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