Financial Statement Analysis

Financial Accounting
Ratio Analysis
Session 16,17 & 18
DETAILS
SKF INDIA
FAG BEARINGS
Profits
Rs.203 Crores
Rs.153 Crores
Sales
Rs.2415 Crores
Rs.1632 Crores
Capital Invested by
Owners
Profit/Sales
Rs.1443 Crores
Rs.1140 Crores
8.4%
9.3%
Profit/ Capital
14.06%
13.42%
A Summary Balance Sheet

Details
Amount
(Rs. Mn.)
Share Holders Funds
20,456
Non-Current Liabilities
10,123
Current Liabilities
7,144
Total
Non-Current Assets
37,723
32,455
Current Assets
5,268
Total
37,723
Financial Pillars
Liquidity
Investment
Appropriatenes
s
Profitability
Solvency
Operating
Efficiency
LIQUIDITY RATIOS
Will you be able to repay your
short term obligations?
Working Capital
Current Assets require investment
Current Liabilities provide some funding
Working Capital = Current Assets Current Liabilities
If Current Assets > Current Liabilities: Difference
funded by long term funds (capital or non-current
liabilities) also known as positive working capital
If Current Assets < Current Liabilities: Difference
invested in non-current asset. Also known as negative
working capital.
Liquidity Ratios Current Ratio

Broad Interpretation:
Ideal Ratio 2:1
Banks consider 1.33:1 to be appropriate
Low ratio indicates problems in meeting short term liabilities
Extremely high ratio indicates over investment in current assets which
are essentially non productive assets
Also depends on industry to industry. Some industries have inherently
low liquidity ratios.
Current Ratio for Amara Raja & Exide Industries
Details
Amara Raja
Exide
12986
2247
Current Liabilities
6337
1094
Current Ratio
2.05
2.05
Current Assets
Battery Industry
1.85
Current Ratio
1.15
Fertilizer
1.08
Power
0.76
Sugar
1.09
Refinery
Telcos
0.55
2.3
IT
1.74
Real Estate
1.12
Cement
1.34
Passenger Car
Airlines
0.39
1.26
Air Conditioners
0
0.5
1.5
2.5
Liquidity Ratios Quick

Ratio

Liquid Assets= Current Assets Inventory

Pre-Paid Expenses
Ideal Ratio 1:1
Tests firms ability to repay its current liabilities in short period
of time say 2-3 months
Inventory is an asset which might be difficult to be monetized
in 2-3 months
Extremely high ratio implies over investment in liquid assets
Liquid Ratio for Amara Raja & Exide Industries
Details
Current Assets
(-) Inventories
LIQUID ASSETS
Current
Liabilities
Current Ratio
Battery Industry
Amara Raja
12986
- 3350
9636
6337
Exide
2247
- 1186
1061
1094
1.52
0.97
0.98
Quick Ratio
0.93
Fertilizer
0.99
Power
0.21
Sugar
0.64
Refinery
Telcos
0.54
2.28
IT
0.98
Real Estate
0.8
Cement
1.16
Passenger Car
Airlines
0.34
0.86
Air Conditioners
0
0.5
1.5
2.5
SOLVENCY RATIOS
Will you be able to pay your
non-current liabilities?
The Debt vs Equity

Debate
Parameter
Debt Funding
Equity Funding
Control of
Existing
Owners
Maintains Control Dilutes Control

of Existing
of Existing
Owners
Owners
Cost
Cheaper Source
of Funding
Costlier Source
of Funding
Risk
Risky
Not Risky
Solvency Ratios Debt Equity

Ratio
Higher the ratio, more riskier it gets for the business
Higher reliance of non-current liabilities increases the interest burden
which puts pressure on profitability
Higher debt adversely impacts the cash position as the debt requires to
be serviced
Higher debt accentuates the problem during the periods of falling profits
as interest is a fixed expense.
Higher debt increases risk for the lenders as their stake in business
increases in comparison to the capital providers
However, as debt funds are cheaper source funds, low debt during good
business conditions indicates extreme risk averseness by the company.
Low cost debt funds can be used to generate higher returns for investors
Debt-Equity Ratio for Amara

Raja & Exide Industries
Debt Equity Ratio =
Details
Amara Raja
Exide
Non-Current Liability
1430
131
Shareholders Funds
13627
3731
0.10
0.04
Debt-Equity Ratio
Battery Industry
0.04
Debt Equity Ratio
1.09
Fertilizer
1.03
Power
2.77
Sugar
0.87
Refinery
Telcos
0.71
IT
0.13
Real Estate
Cement
0.57
0.84
Passenger Car
0.16
Airlines
0
Air Conditioners
0
0.58
0.5
1.5
2.5
Trading on Equity in Action

Return on
Investment
Higher than
Interest Cost
Surplus over
Interest Cost
available to
Shareholders
Return on
Investment
Lower than
Interest Cost
Deficit
reducing the
available
profits to the
Shareholders
Include Debt
Funds in
Capital
Structure
Trading on
Equity
Trading on Equity: Double Edged

Sword
Details
Debt Equity
Return on Investment
Return for
Shareholders
Ashoka
Leyland
0.94
-1.96 %
-15.10 %
BPCL
0.48
17.69 %
22.50 %
Solvency Ratio Interest Coverage

Ratio
^PBIT = Profit Before Exceptional Items & Taxes + Finance

Costs
Identifies firms strength to meet out the interest charges out of its
earnings
Higher the ratio, more safe the firm is for the lenders
Interest Coverage Ratio for Amara

ICR =
^PBIT = Profit Before Exceptional Items & Taxes + Finance

Costs
Details
PBEI&T
Finance Costs
PBIT^
Interest Coverage Ratio
Battery Industry
Amara Raja
Exide
5406
723
5413
724
773 times
724 times
152 times

Fertilizer 2.3
Power
2.7
Sugar
0.0
4.1
Refinery
Telcos
3.7
27.3
IT
Real Estate
1.7
Cement 2.3
17.3
Passenger Car
Airlines
-2.2
Air Conditioners
-5.0
0.0
3.4
5.0
10.0
15.0
20.0
25.0
30.0

Bajaj Hindusthan Sugar Ltd
Shree Renuka Sugars Ltd
Jet Airways (India) Ltd
Tata Motors Ltd
Future Consumer Enterprise Ltd
Financial Technologies (India) Ltd
United Spirits Ltd

-8
-7
-6
-5
-4
-3
-2
-1
Solvency Ratios Proprietary

Ratio/ Financial Leverage Ratio
Explains the proportion of assets funded by owners equity
Higher ratio makes the form safer from debt stress and indicates better
safety for lenders
However, as debt funds are cheaper source funds, low debt during good
business period indicates extreme risk averseness by the company. Low cost
debt funds can be used to generate higher returns for investors.
Proprietary Ratio for Amara Raja &

Exide Industries
PR =
Details
Amara Raja
Exide
Shareholders Funds
13627
3731
Total Assets
21394
4957
64 %
75.26 %
Proprietary Ratio
Battery Industry
73.94 %
Top 10 Proprietary Ratio

ITC Ltd.
69.54
Coal India Ltd.
71.20
NMDC Ltd.
72.27
Tata Consultancy Services Ltd.
72.36
Ambuja Cements Ltd.
72.68
Grasim Industries Ltd.
78.02
Infosys Ltd.
78.31
Lupin Ltd.
82.01
Zee Entertainment Enterprises Ltd.
82.34
Cairn India Ltd.

0.00
87.38
20.00
40.00
60.00
80.00
100.00
Lowest 10 Proprietary Ratio

Hindustan Unilever Ltd.
27.72
Tata Motors Ltd.
29.76
Bharat Petroleum Corporation Ltd.
32.22
Idea Cellular Ltd.
35.01
NTPC Ltd.
40.04
Larsen & Toubro Ltd.
41.14
Bharat Heavy Electricals Ltd.
41.92
Vedanta Ltd.
43.37
Hindalco Industries Ltd.
49.02
Tata Power Company Ltd.

0.00
51.33
10.00
20.00
30.00
40.00
50.00
60.00
OPERATING EFFICIENCY
RATIOS
How well you are using your
resources to generate sales?
Operating Efficiency Ratios

Inventory Turnover Ratio
Indicates how much inventory is needed by the firm to attain current level of
operations
Higher ratio indicates lesser inventory used to achieve higher sales which is
a signal of efficient utilization of inventory
Inventory Turnover Ratio for Amara

ITOR
Details
Amara Raja
Exide
Inventory
3350
1186
Sales
34036
5964
10.16 times
5.03 times

Battery Industry
6.88 times

Fertilizer8.3
Power 17.1
Sugar
2.4
Refinery
10.0
Telcos
162.9
IT
153.4
Real Estate
0.7
Cement7.7
Passenger Car
Airlines
21.0
35.5
Air Conditioners
5.1
0.0
20.0
40.0
60.0
80.0
100.0 120.0 140.0 160.0 180.0

Inventory Holding Period
A derivative of inventory turnover ratio which indicates the number of days
for which the firm keeps its inventory
Higher ratio indicates lesser holding duration for inventory which in turn
results in lesser investment in inventory and hence efficient utilization of
resources.
Inventory Holding Period (Days)

Fertilizer
44.16
Power
21.34
Sugar
154.09
Refinery
36.44
Telcos
2.24
IT
2.38
547.43
Real Estate
Cement
47.62
Passenger
Car
17.37
Airlines
10.28
Air Conditioners72.13
0
100
200
300
400
500
600

Average Collection Period
Indicates the average number of days in which our customers clear their dues.
Lesser period indicates quick and efficient collection which results in lesser
investment in working capital and hence better funds management
Extremely less period in comparison to competitors can drive away the
customers and result in decline in sales
Average Collection Period for Amara

ACP =
Details
Amara Raja
Exide
Trade Receivables
4528
517
Sales
34036
5964
48.55 Days
31.64 Days
Average Collection Period

Battery Industry
32.70 Days
Average Collection Period (Days)

109.84
Fertilizer
51.78
Power
Sugar 18.58
Refinery9.8
Telcos
26.27
81.54
IT
116.86
Real Estate
Cement
25.87
Passenger Car
15.06
Airlines
15.11
77.5
Air Conditioners
0
20
40
60
80
100
120
140

Asset Turnover Ratio
Indicates how the assets are being utilized to achieve the present levels of
revenue from operations.
Higher ratio indicates better utilization of assets as lesser assets are
generating higher level of sales
Asset Turnover Ratio for Amara Raja

& Exide Industries
Asset Turnover Ratio =
Details
Amara Raja
Exide
Net Operating Revenues
34367
5964
Total Assets
21394
4957
1.60
1.20

Battery Industry
1.43

0.95
Fertilizer
Power
0.27
0.72
Sugar
1.98
Refinery
Telcos
0.38
0.86
IT
Real Estate
0.18
Cement
0.67
1.41
Passenger Car
1.14
Airlines
1.22
Air Conditioners
0
0.5
1.5
2.5

Capital Turnover Ratio
Like Asset Turnover Ratio, this ratio indicates utilization of long term funds
employed in the business to generate the revenues
Higher ratio indicates better utilization of funds in the business
Capital Turnover Ratio for Amara

Details
Amara Raja
Exide
34367
5964
Shareholders Funds
13627
3731
Non-Current Liabilities
1430
131
Total Long Term Funds
15057
3862
Capital Turnover Ratio
2.28
1.54
Battery Industry
1.82

Working Capital Turnover Ratio
Working Capital =
This ratio indicates the effectiveness of usage of working capital by an
entity.
Higher ratio indicates achieving better revenues with lesser working capital
Working Capital Turnover Ratio

for Amara Raja & Exide Industries
Working Capital =
Details
Amara Raja
Exide
34367
5964
Current Assets
12986
1983
Current Liabilities
6337
999
Working Capital
6649
984
W. Capital Turnover Ratio
5.17
6.06
Battery Industry
6.55
PROFITABILITY RATIOS
How well your Sales is
converting into bottom line?
Profitability Ratios Net Profit

Margin
The over all profitability criteria. Higher the ratio, better it is.
The quality of the result depends upon the extraordinary gains/ losses
impacting the PAT
Should be used along with Operating Profit Margin (discussed later)
Net Profit Margin for Amara Raja

& Exide Industries
Details
Amara Raja
Exide
34367
5964
Profits after Taxes
3674
487
Net Profit Margin
10.69 %
8.17 %
Battery Industry
8.38 %
Leaders and Laggards (NPM)

Top 05 Companies:
NMDC Ltd. (53%)
HCL Technologies (36.3%)
ITC Ltd. (26.3%)
TCS (26.2%)
Infosys (25.7%)
Bottom 05 Companies:
Sun Pharma (-100%)
Tata Motors (-13.1%)
BPCL (2.1%)
Hindalco (2.7%)
GAIL(5.4%)
Profitability Ratios Operating

Profit Margin
Indicator of efficiency in day to day and core operations of an entity.
Higher the ratio better it is
Must be evaluated along with Cash Realization ratio (discussed later) as it is
possible that company is producing high operating margin but cash from
operations is low (due to higher credit sales/ high inventory buildup)
Operating Profit Margin for

Amara Raja & Exide Industries
OPM =
Details
Amara Raja
Exide
34367
5964
Total Expenditure
29416
5274
4958
691
14.43 %
11.58 %
Finance Cost
Operating Profit
Operating Profit Margin
Battery Industry
10.44 %
Leaders and Laggards (OPM)

Top 05 Companies:
NMDC Ltd. (64.4%)
Cairn India (53.1%)
ITC (36.8%)
Bharti Airtel (35%)
Tata Motors (-3.4%)
Sun Pharma (-1.8%)
BPCL (3.5%)
GAIL (8.3%)
BHEL(8.3%)
Profitability Ratios Cash Profit

Margin
Indicator of efficiency in day to day and core operations of an entity.
Higher the ratio better it is
Removes impact of higher sales earned due to increased receivables and
inventory levels. Usually it should be higher than OPM. In case it is lower, it
is a cause for concern.
Cash Profit Margin for Amara

CPM =
Details
Cash From Operations
Cash Profit Margin
Battery Industry
Amara Raja
Exide
34367
5964
2788
647
8.11 %
10.85 %
9.65 %
Leaders and Laggards (CPM)

Top 05 Companies:
NMDC Ltd. (54.4%)
Bharti Airtel (37.41%)
ONGC (35.13%)
Cairn India (34.04%)
Sun Pharma (-93.11%)
Tata Motors (-5.4%)
BPCL (3.0%)
Hindalco(4.8%)
GAIL (6.98%)
Profitability Ratios Return on

Capital Employed
Capital Employed = Shareholders Fund + NonCurrent Liabilities

Indicator of level of profits earned vis--vis the long term funds employed in
the business
Higher ratio indicates better utilization of funds invested in business
A business must return adequately in context of sales (Net Profit Margin) as
well as funds deployed in business (Return on Capital Employed)
Return on Capital Employed for

Amara Raja & Exide Industries
ROCE =
Capital Employed (Long Term Funds)= Shareholders Fund + NonCurrent Liabilities
Details
PBIT^
Long Term Funds
ROCE
Battery Industry
Amara Raja
Exide
5413
724
15057
3862
35.95%
18.74%
24.85 %
Return on Capital Employed

Fertilizer
9.37
Power
9.59
Sugar
0.23
Refinery
Telcos
11.43
12.74
32.6
IT
Real Estate
Cement
7.36
10.72
20.96
Passenger Car
-28.06
Airlines
Air Conditioners
-40
-30
-20
-10
14.27
10
20
30
40

Assets
Indicator of appropriateness of profits with respect to assets employed in
business
A lower ratio indicates improper utilization of assets to generate profits
Return on Assets for Amara Raja

& Exide Industries
ROA =
Details
PAT
Total Assets
ROA
Battery Industry
Amara Raja
Exide
3674
487
21394
4957
17.17 %
9.82 %
14.97 %
Return on Assets
Fertilizer2.79
Power
3.78
Sugar -5.56
Refinery
4.23
5.96
Telcos
17.98
IT
Real Estate
1.57
Cement
3.7
9.96
Passenger Car
-13.94
Airlines
Air Conditioners
-20
-15
-10
-5
4.07
5
10
15
20

Equity
Indicates how the company has returned on the funds provided by the
shareholders.
This is a major variable which is considered by a an investor to find out
what his investment will earn or likely to earn in a business
It is same as asking for what rate of interest is bank offering on a FD when
one goes to make a FD in a bank
Return on Equity for Amara Raja

& Exide Industries
ROE =
Details
PAT
Shareholders Funds
ROE
Battery Industry
Amara Raja
Exide
3674
487
13627
3731
26.96 %
13.05 %
14.97 %
Return on Equity
Fertilizer7.94
Power
-26.46
9.17
Sugar
11.95
Refinery
14.11
Telcos
26.93
IT
Real Estate
3.35
Cement
8.82
Passenger Car
-50.55
Airlines
Air Conditioners
-60
-50
-40
18.5
-30
-20
-10
12.48
10
20
30
40
Profitability Ratios Earnings

Per Share
Indicator of what the company has earned on each of its share.
Higher the EPS, better it is.
Out of its EPS, company may declare some dividend to the shareholders,
which is known as Dividend Per Share.
Earnings Per Share for Amara

EPS =
Details
PAT
No. of Equity Shares
EPS
Battery Industry
Amara Raja
Exide
3674
487
170.81
85
21.51
5.73
NA
Top EPS Generating Companies

EPS
Equity
face
value
95.85
9585
120.58
6029
84.81
4240.5
339.27
10
3392.7
56.92
2846
52.9
2645
100.93
2018.6
Dr. Reddy'S Laboratories Ltd.
99.27
1985.4
17.79
1779
Maruti Suzuki India Ltd.
88.73
1774.6
Company Name
Tata Consultancy Services Ltd.
Hero Motocorp Ltd.
H C L Technologies Ltd.
Bosch Ltd.
Larsen & Toubro Ltd.
Lupin Ltd.
Infosys Ltd.
EPS % of FV
INVESTMENT ANALYSIS
RATIOS
Is your business worth to
invest in?
Investment Analysis Ratio

Price Earnings Ratio
Most important ratio for investment analysis
As market price of share of a company is reflection of present as well as future
earnings potential of the company, the ratio indicates the number of times the current
years earnings which the investors are willing to pay for share of a company
Higher ratio implies higher valuation vis--vis earnings of a company. It can be a
positive as well as negative signal. On the positive side, higher PE Ratio indicates
more optimism about the growth potential of the company. On the negative side, a
higher PE Ratio simply indicates costly share vis--vis a similar company having
low PE Ratio.
Price Earnings Ratio for Amara

Details
Amara Raja
Exide
Price Earning Ratio (March 15)
35.64 times
29.47 times
Battery Industry
33.65 times
Top 10 Price-Earnings
Ratio
Company Name
P/E
Bosch Ltd.
72.19
Zee Entertainment Enterprises Ltd.
66.91
Grasim Industries Ltd.
61.18
Asian Paints Ltd.
59.31
Cipla Ltd.
50.52
48.41
Bharat Heavy Electricals Ltd.
48.29
Dr. Reddy'S Laboratories Ltd.
46.42
Ultratech Cement Ltd.
43.92
Lupin Ltd.
39.15

Book Value Per Share
Indicates the value each share will receive if the company is liquidated at the
balance sheet value i.e. when all assets are sold at present book value,
outside liabilities are paid off at balance sheet value and the balance is
distributed to the shareholders
A high book value indicates intrinsic strength of the share
Book Value for Amara Raja &

Exide Industries
Book Value =
Details
Amara Raja
Exide
Shareholders Funds
13627
3731
Number of Shares
170.81
85
79.77
43.89
Book Value Per Share

Price to Book Value Ratio
Indicate the number of times the market price of share is in comparison to
the book value.
Higher figure indicates that market is giving more weight to intangibles of
the business which are not appearing in the books thus making the share
more risky
Value investors look for companies which have low price to book ratio
indicating that price is more close to the intrinsic value of share
Price to Book Value for Amara

Details
PBV (March 15)
Battery Industry
Amara Raja
Exide
8.36 times
3.75 times
8.2 times

Dividend Yield Ratio
As dividend is declared on face value of share, which is usually less than the
market price of the share, an investor may get misled by the % of dividend
declared. For e.g. if face value of share of a company is Rs.10 and it
declares dividend of 200%, it will be paying a dividend of Rs.20 per share.
If the share is trading in the market at Rs.500, the effective rate of return on
investment will only be 2%.
A higher dividend yield is generally viewed favorably by investors
Dividend Yield for Amara Raja &

Exide Industries
Details
Amara Raja
Exide
Dividend %
361 %
220 %
Dividend Yield %
0.43 %
1.24 %
Stock Performance - Amara Raja and Exide

1200
250
1000
200
800
150
600
100
400
50
200
30-Jul-14
18-Sep-14
7-Nov-14
27-Dec-14
Amara Raja
Exide
15-Feb-15
6-Apr-15
26-May-15
Linear (Amara Raja)

Linear (Exide)
15-Jul-15
3-Sep-15
Du-Pont Analysis
Du-Pont Analysis is a technique

which helps in identifying the
impact
of
profitability,
operational
efficiency
and
solvency on the Return on
Equity generated by the
company. Thus, by doing DuPont analysis, impact of these
important aspects on the returns
available to shareholders can be
analyzed in a very concise way.
It also shows the dominant
return driver for the company.
Net Profit
Margin
Profitability
Asset Turnover
Ratio
Financial
Leverage
Operational
Efficiency
Solvency
Note: Sales here means Revenues from Operations

Financial Statement Analysis

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Financial Statement Analysis

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Financial Accounting

A Summary Balance Sheet

Share Holders Funds

Liquidity Ratios Current Ratio

Current Ratio for Amara Raja & Exide Industries

Liquidity Ratios Quick

Liquid Assets= Current Assets Inventory

Liquid Ratio for Amara Raja & Exide Industries

The Debt vs Equity

Maintains Control Dilutes Control

Solvency Ratios Debt Equity

Debt-Equity Ratio for Amara

Debt Equity Ratio

Trading on Equity in Action

Trading on Equity: Double Edged

Solvency Ratio Interest Coverage

^PBIT = Profit Before Exceptional Items & Taxes + Finance

Interest Coverage Ratio for Amara

^PBIT = Profit Before Exceptional Items & Taxes + Finance

Interest Coverage Ratio

Interest Coverage Ratio

Shree Renuka Sugars Ltd

Jet Airways (India) Ltd

Tata Motors Ltd

Future Consumer Enterprise Ltd

Financial Technologies (India) Ltd

United Spirits Ltd

Solvency Ratios Proprietary

Proprietary Ratio for Amara Raja &

Top 10 Proprietary Ratio

Coal India Ltd.

Tata Consultancy Services Ltd.

Ambuja Cements Ltd.

Grasim Industries Ltd.

Zee Entertainment Enterprises Ltd.

Cairn India Ltd.

Lowest 10 Proprietary Ratio

Tata Motors Ltd.

Bharat Petroleum Corporation Ltd.

Idea Cellular Ltd.

Larsen & Toubro Ltd.

Bharat Heavy Electricals Ltd.

Hindalco Industries Ltd.

Tata Power Company Ltd.

Operating Efficiency Ratios

Inventory Turnover Ratio for Amara

Inventory Turnover Ratio

Inventory Turnover Ratio

100.0 120.0 140.0 160.0 180.0

Operating Efficiency Ratios

Inventory Holding Period (Days)

Operating Efficiency Ratios

Average Collection Period for Amara

Average Collection Period

Average Collection Period (Days)

Operating Efficiency Ratios

Asset Turnover Ratio for Amara Raja

Asset Turnover Ratio =

Net Operating Revenues

Asset Turnover Ratio

Asset Turnover Ratio

Operating Efficiency Ratios

Capital Turnover Ratio for Amara

Net Operating Revenues