A Project Report
On Financial Analysis Of
Presented to
Prof. Nikunj Patel Faculty Member S.V. Institute of Management.Kadi North Gujarat University Patan On December 23rd , 2008 In the partial fulfillment of the requirements for Managerial Accounting-I Course in the Master of Business Administration Programme By: Ashwin Chaudhary (Roll No.12) Priyanka Maheta (Roll No.17) MBA-1 (A)
Preface As a part of our syllabus of MBA programme in Semester-I, we are assigned some practical and theoretical project work. In partial fulfillment of the Managerial Accounting-I, course we have prepared a comprehensive project report in Financial Analysis of the company. Study of management will be immaterial if it is not coupled with study of financial aspect of the business. It gives the student an opportunity to learn the connection between comparison & execution to test & verify application of theories & help in the comparison of management theories and practice. The study gives a chance to know about the profitability and financial position of the firm. We have chosen Wipro Limited which is a $3.5 Billion Global company in Information Technology Services ,R&D Services, Business Process Outsourcing. This report contains the analysis of the 5 years data of the company. The Financial statements of the report are analyzed in three different ways such as
Trend Analysis
Horizontal Analysis
Ratio Analysis
Cashflow Analysis
The ratio analysis of the company has been derived for 23 ratios which help to determine the company’s performance. In the Scenario Analysis of the company we have included the company’s industrial GDP, its Market Share, Market Capitalization, Market Growth etc. Date: 20th December ,2008 Place: Kadi
Ashwin Chaudhary (Roll No.5) Priyanka Mehata (Roll No.)
Acknowledgement With a sense of gratitude and respect, we would like to extend our heartiest thanks to all of those who provided help and guidance to make this project a big success. No Project is ever the outcome of single individual’s talent or effort. This work is no exception. This project would not have been possible without the whole hearted encouragement, support and co-operation of our guide, friends and well-wishers. Although it is not possible for us to name and thank them all individually, we must make special mention of some of the personalities and acknowledge our sincere indebtness to them. The successful completion of this project rests on the shoulder of many persons who have helped us directly or indirectly. We wish to take this opportunity to express to all those, without whose help, completion of this project would have been difficult. We are indebted and thankful to all the individuals who have guided, advised, inspired and supported us in making this project a success. Our gratitude to our honorable guide Prof. Nikunj Patel for giving us the opportunity for developing the project and his able guidance, inestimable motivation and constant encouragement throughout our project. Without his help this project would never have been realized in its entirety. We are especially thankful to our Head Of Department Prof. Bhavin Pandya for his valuable support in providing us the facilities and his valuable guidance for the development of this project. Date: 20th December ,2008 Place: Kadi
Ashwin Chaudhary (Roll No.5) Priyanka Mehata (Roll No.)
Executive Summary It is Summarize tin of all report in one or two pages so as to provide an overview of the company. it is also called synopsis or Abstract. As a partials fulfillment of the requirement for the Managerial Accounting Cource.We have completed a project report on financial Analysis of Wipro Ltd.
Sales Figure is increasing at a handsome rate. it is at Rs. 58400.23 Million. in 2003-04 and it is increased to Rs. 141395.8 Million. So Sales is increased 75.05% because of aggressive Selling Policy.
Profit after Tax is also increasing as compare to 2003-04 it is increasing 22514 Million at Rs 3408, 8747, 4388.6, 5970.4, respectivaly last four year. This is because company has increased it sales and doing good cost management
Net worth of the company is increased in this year because of increase in Reserve & Surplus
Current Ratio of Wipro limited is showing good position. It is 1.26 Times in 2003-04 then it is increased to 2.13 Times in 2007-08 this shows Company has achieved standard Ratio.
The returns on the investment is some what decline in current year.
The EPS of Share is increased Rs. 7.43 to Rs 20.62 in 2007-08 So Share holder are benefited.
Company’s Total Assets are increased and it trying to expand its business on the other hand debt are also increased it shows that company trying to Trading on Equity.
After analyzing all aspect Company’s performance is good.
CONTENT Preface Acknowledgement Executive Summary 1. INTRODUCTION 1.1 Introduction to company 1.2 Group of companies 1.3 History 1.4 Company Profile 1.5 Registered office address 1.6 Board of director 1.7 Auditor
2. ANALYSIS OF BALANCE SHEET 2.1 Trend analysis of Balance sheet 2.1.1 Trend analysis of fixed assets 2.1.2 Trend analysis of total current assets 2.1.3 Trend analysis of share holders equity 2.1.4 Trend analysis of total current assets 2.1.5 Share holder’s fund 2.1.6 Sources of fund 2.1.7 Investment 2.1.8 Application of funds 2.2 Horizontal analysis of Balance sheet 2.2.1 Sources of fund 2008 2.2.2 Application of fund 2008 2.2.3 Sources of fund for five years 2.2.4 Application of fund for five years 3. ANALYSIS OF P & L ACCOUNT 3.1 Trend analysis of P & L 3.1.1 Trend analysis of total income 3.1.2 Profit after tax 3.1.3 Transfer to general reserve 3.1.4 Net sales and services 3.2 Horizontal analysis of P & L 3.2.1 Comparison of PBT and Income with expenditure
4. CASH FLOW ANALYSIS 4.1 Introduction 4.2 Cash flow statement 4.3 Interpretation of Cash flow statement
5. RATIO ANALYSIS 5.1 Introduction of the ratio analysis 5.2 Liquidity ratio 5.2.1 Current ratio 5.2.2 Quick ratio 5.2.3 Net working capital 5.3 Profitability ratio 5.3.1 Gross profit 5.3.2 Operating ratio 5.3.3 Net profit ratio 5.3.4 Return on investment 5.3.5 Return on equity 5.4 Assets turnover ratio 5.4.1 total asset turn over ratio 5.4.2 net fixed asset turn over 5.4.3 inventory turn over ratio 5.4.4 average age of inventories 5.4.5 debtor turn over ratio 5.5 Finance structure ratio 5.5.1 debt ratio 5.5.2 debt equity 5.5.3 interest coverage ratio 5.6 Valuation ratio 5.6.1 earning per share 5.6.2 divident pay out ratio 5.6.3 P/E ratio 5.6.4 Profit margin ratio 5.7 Du-Pont chart
6. SCENARIO ANALYSIS 6.1 business unit performance 6.2 company analysis 6.2.1 Share holding pattern 6.2.2 Market capitalization 7 ANNEXURES 8 BIBLIOGRAPHY
Chapter 1. Introduction
♦ Introduction to company ♦ Group Companies ♦ History ♦
Company Profile
♦ Registered Office Address ♦ Board of Directors ♦ Auditors
1. INTRODUCTION 1.1. Introduction of company Wipro Limited (Wipro), together with its subsidiaries and associates (collectively, the company or the group) is a leading India based provider of IT Services and Products, including Business Process Outsourcing (BPO) Services, globally. Further,Wipro has other business such as India and AsiaPac IT Services and products and Consumer Care and Lighting. Wipro is headquartered in Bangalore, India.Wipro Technologies is a global services provider delivering technology-driven business solutions that meet the strategic objectives clients. Wipro has 40+ ‘Centers of Excellence’ that create solutions around specific needs of industries. Wipro delivers unmatched business value to customers through a combination of process excellence, quality frameworks and service delivery innovation. Wipro is the World's first CMMi Level 5 certified software services company and the first outside USA to receive the IEEE Software Process Award. Wipro is a $3.5 billion Global company in Information Technology Services, R&D Services, Business process outsourcing. Team wipro is 75,000 Strong from 40 nationalities and growing. Wipro is present across 29 counries,36 Development canters, Investors across 24 countries. Largest third party R&D Service provider in the world. Largest Indian Technology Infrastructure management service provider. A vendor of choice in the middle east Among the top 3 Indian BPO Service provider by Revenue (* Nasscom) Among the top 2 Domestic IT Services companies in India (*IDC India)
1.2. Group Companies Wipro Infrastructure Engineering Ltd.
Wipro Inc. cMango Pte Ltd. Wipro Japan KK Wipro Shanghai Ltd. Wipro Trademarks Holding Ltd. Wipro Travel Services Ltd. Wipro Cyprus Private Ltd. Wipro Consumer Care Ltd. Wipro Health Care Ltd. Wipro Chandrika Ltd.(a) Wipro Holdings (Mauritius) Ltd. Wipro Australia pty Ltd. WMNETSERV Ltd.(a) Quantech Global Service Ltd. 3D Network Pte Ltd. Planet PSG Pte Ltd. Spectramind Inc.
1.3. History
Wipro started in 1945 with the setting up of an oil factory in Amalner a small town in Maharashtra in Jalgaon District. The product Sunflower Vanaspati and 787 laundry soap (largely made from a bi-product of Vanaspati operations) was sold primarily in Maharashtra and MP. The company was aptly named Western India Products Limited. The Birth of the name Wipro - As the organization grew and diversified into operations of Hydraulic Cylinders and Infotech, the name of the organization did not adequately reflect its operations. Azim Premji himself in 1979 selected the name "Wipro" largely an acronym of Western India Products. Thus was born the Brand Wipro. The name Wipro was unique and gave the feel of an 'International" company. So much so that some dealers even sent their cheques favouring Wipro (India) Limited. Fortunately, the banks accepted them!!By the early 90s, Wipro had grown into various products and services. The Wipro product basket had soaps called Wipro Shikakai, Baby products under Wipro Baby Soft, Hydraulic Cylinders branded Wipro, PCs under the brand name Wipro, a joint venture company with GE named Wipro GE and software services branded Wipro. The Wipro logo was a 'W", but it was not consistently used in the products.It was clearly felt that the organization was not leveraging its brand name across the various businesses. The main issue remained whether a diverse organization such as Wipro could be branded under a uniform look and feel and could there be consistent communication about Wipro as an organization.
1.4.Company Profile Business-Description
Wipro Limited is the first PCMM Level 5 and SEI CMM Level 5 certified IT Services Company globally. Wipro provides comprehensive IT solutions and services, including systems integration, Information Systems outsourcing, package implementation, software application development and maintenance, and research and development services to corporations globally. The Group's principal activity is to offer information technology services. The services include integrated business, technology and process solutions including systems integration, package implementation, software application development and maintenance and transaction processing. These services also comprise of information technology consulting, personal computing and enterprise products, information technology infrastructure management and systems integration services. The Group also offers products related to personal care, baby care and wellness products. The operations of the Group are conducted in India, the United States of America and Other countries. During fiscal 2007, the Group acquired Wipro Cyprus Pvt Ltd, Retailbox Bv, Enabler Informatica SA, Enabler France SAS, Enabler Uk Ltd, Enabler Brazil Ltd, Enabler and Retail Consult GmbH, Cmango Inc, Cmango (India) Pvt Ltd, Saraware Oy, Quantech Global Services and Hydroauto Group AB Global IT Services and Products The Company's Global IT Services and Products segment provides IT services to customers in the Americas, Europe and Japan. The range of its services includes IT consulting, custom application design, development, re-engineering and maintenance, systems integration, package implementation, technology infrastructure outsourcing, BPO services and research and development services in the areas of hardware and software design. Its service offerings in BPO services include customer interaction services, finance and accounting services and process improvement services for repetitive processes.
The Global IT Services and Products segment accounted for 74% of the Company's revenues and 89% of its operating income for the year ended March 31, 2007 (fiscal
2007). Of these percentages, the IT Services and Products segment accounted for 68% of its revenue, and the BPO Services segment accounted for 6% of its revenue during fiscal 2007. Customized IT solutions Wipro provides its clients customized IT solutions in the areas of enterprise IT services, technology infrastructure support services, and research and development services. The Company provides a range of enterprise solutions primarily to Fortune 1000 and Global 500 companies. Its services extend from enterprise application services to e-Business solutions. Its enterprise solutions have served clients from a range of industries, including energy and utilities, finance, telecom, and media and entertainment. The enterprise solutions division accounted for 63% of its IT Services and Products revenues for the fiscal 2007. Technology Infrastructure Service Wipro offers technology infrastructure support services, such as help desk management, systems management and migration, network management and messaging services. The Company provides its IT Services and Products clients with around-the-clock support services. The technology infrastructure support services division accounted for 11% of Wipro's IT Services and Products revenues in fiscal 2007. Research and Development Services Wipro's research and development services are organized into three areas of focus: telecommunications and inter-networking, embedded systems and Internet access devices, and telecommunications and service providers.The Company provides software and hardware design, development and implementation services in areas, such as fiber optics communication networks, wireless networks, data networks, voice switching networks and networking protocols. Wipro's software solution for embedded systems and Internet access devices is programmed into the hardware integrated circuit (IC) or application-specific integrated circuit (ASIC) to eliminate the need for running the software through an external source. The technology is particularly important to portable computers, hand-held devices, consumer electronics, computer peripherals, automotive electronics and mobile phones, as well
as other machines, such as process-controlled equipment. The Company provides software application integration, network integration and maintenance services to telecommunications service providers, Internet service providers, application service providers and Internet data centers. Business Process Outsourcing Service Wipro BPO's service offerings include customer interaction services, such as ITenabled customer services, marketing services, technical support services and IT helpdesks; finance and accounting services, such as accounts payable and accounts receivable processing, and process improvement services for repetitive processes, such as claims processing, mortgage processing and document management. For BPO projects, the Company has a defined framework to manage the complete BPO process migration and transition. The Company competes with Accenture, EDS, IBM Global Services, Cognizant, Infosys, Satyam and Tata Consultancy Services.India and AsiaPac IT Services and Products The Company's India and AsiaPac IT Services and Products business segment, which is referred to as Wipro Infotech, is focused on the Indian, Asia-Pacific and MiddleEast markets, and provides enterprise clients with IT solutions. The India and AsiaPac IT Services and Products segment accounted for 16% of Wipro's revenue in fiscal 2007. The Company's suite of services and products consists of technology products; technology integration, IT management and infrastructure outsourcing services; custom application development, application integration, package implementation and maintenance, and consulting
Wipro's system integration services Include integration of computing platforms, networks, storage, data center and enterprise management software. These services are typically bundled with sales of the Company's technology products. Wipro's infrastructure management and total outsourcing services include management and operations of customer's IT infrastructure on a day-to-day basis. The Company's technology support services include upgrades, system migrations, messaging, network audits and new system
implementation. Wipro designs, develops and implements enterprise applications for corporate customers. The Company's solutions include custom application development, package implementation, sustenance of enterprise applications, including industry-specific applications, and enterprise application integration. Wipro also provides consulting services in the areas of business continuity and risk management, technology, process and strategy. Consumer Care and Lighting Wipro's Consumer Care and Lighting business segment accounted for 5% of its revenue in fiscal 2007. The Company's product lines include hydrogenated cooking oil, soaps and toiletries, wellness products, light bulbs and fluorescent tubes, and lighting accessories. Its product lines include soaps and toiletries, as well as baby products, using ethnic ingredients. Brands include Santoor, Chandrika and Wipro Active. The Wipro Baby Soft line of infant and child care products includes soap, talcum powder, oil, diapers and feeding bottles and Wipro Sanjeevani line of wellness products. The Company's product line includes incandescent light bulbs, compact fluorescent lamps and luminaries. It operates both in commercial and retail markets. The Company has also developed commercial lighting solutions for pharmaceutical production centers, retail stores, software development centers and other industries. Its product line consists of hydrogenated cooking oils, a cooking medium used in homes, and bulk consumption points like bakeries and restaurants. It sells this product under the brand name Wipro Sunflower.
1.5. Registered Office Address WIPRO LIMITED Doddakannelli, Sarjapur Road, Bangalore – 560 035, India. Tel : +91-80-28440011 Fax : +91-80-2844054
1.6. Board of Directors •
Azim H . Premji
Chairman
•
Dr Ashok S Ganguly
•
B .C. Prabhakar
Practitioner of Law
•
Dr. Jagdish N. Sheth
Professor Of Marketing-Emory Uni.Usa.
•
N.Vagual
Chairman-ICICI Bank Ltd
•
Bill Owens
Former Chief Ex.Officer Nortel
Former Chief Ex.Officer,Nortel •
P. M. Sinba Former Chairman Pepsico India Holdings
Azim Premji Chairmen & Managing Director
1.7. Auditors •
KPMG
•
BSR & Co.
Audit committee N Vaghul
-
Chairman
P M Sinha
-
Member
B C Prabhakar
-
Member
Board Governance and Compensation Committee Ashok S Ganguly - Chairman N Vaghul
- Member
P M Sinha
- Member
Shareholders’ Grievance and Administrative Committee B C Prabhakar
- Chairman
Azim H Premji
- Member
Chapter 2. Analysis of Balance Sheet ♦ Trend Analysis of Balance Sheet ♦ Horizontal Analysis of Balance Sheet
2. ANALYSIS OF BALANCE SHEET 2.1.Trend Analysis of Balance Sheet Trend Analysis of Balance Sheet involves calculation of percentage changes in the Balance Sheet items for a no. of successive years. This is carried out by taking the items of the past financial year used as base year and items of other years are expressed as percentage of the base year. Here 2003-04 is taken as base year Perticular SOURCES OF FUNDS Share Holder's Funds
2003 -04
Share Capital Share application money pending allotment
100
Reserves & Surplus
100
Share holder's Equity Loan Funds
100 100
Secured
100
Unsecured
100
Total Loan Funds
100
Minority Interest
100
Total Sources of Funds APPLICATION OF FUNDS Fixed assets
100
Goodwill
100
Gross Block Less: Accumulated Depreciation
200405
302.2 7
100 138.6 2 140.6 8
200506
202.6 8 622.4 1 122.9 4 125.1 8
22.78 6 208.9 382.5 75.79 4 6 58.94 122.0 7 8 161.9 4 138.5 124.5 5 3
200607
200708
207.37 100.171 290.45 6 114.286 180.99 122.516 181.71 8 121.833
689.7 139.154 577.24 1 1829.68 616.34 3 1171.94 10.929 400 149.28 3 162.162
100
107.8 2 133.9 1
62.29 7 118.7 4
268.62 2 445.384 142.19 5 159.492
100
130.9 5
129.7 4
147.10 7 147.775
Net Block
100
Capital work in progress and advances
100
Total Fixed Assets
100
Investments
100
Deferred Tax Assets(Net) Current Assets, Loans & Advances
100
Inventories
100
Sundry Debtors
100
Cash & Bank Balances
100
Loan & Advances
100
Total Current Assets Less: Current Liabilities & Provisions
100
Current Liabilities
100
Provisions
100
Total Liabilities
100
Net Current Assets
100
Total Application of Funds
100
Table 2.1.1 Trend Analysis of Balance Sheet
136.7 2 182.4 3 130.8 3 123.3 3 101.7 9
108.7 5 240.0 3 112.8 4 131.0 9
135.2 3 130.7 8
118.1 9 137.0 8 155.0 3 230.4 2 157.7 1
176.2 97.87 2 129.2 4
143.2 6 61.25 7 102.8 2 231.5 2 138.5 5
120
145.4 239.3 172.9 9 131.4 4 124.5 3
153.66 7 154.22 163.05 6 131.194 175.07 7 220.726 107.90 9 48.1879 99.326 6 89.661 200.96 9 138.16 8 223.77 5 127.84 4 154.95 5
160.578 137.637 198.113 180.692 166.304
181.71 9 118.484 63.311 8 180.879 133.59 130.504 203.29 219.526 149.28 3 162.162
2.1.1 Trend Analysis of Fixed assets Year Total Fixed Assets
2003-04
2004-05
2005-06
2006-07
2007-08
100
130.827
112.844
175.077
220.726
Table 2.1.2 Trend Analysis of Fixed assets
Figure 2.1.1 Trend Analysis of total fixed assets
Interpretation The fixed assets are increase in current year is good for the company. Hear fixed assets are increasing as a increasing rate it means the company has expand it’s business.
Fixed Assets are continuously increasing year by year.
It seems that the company has good future plans and they want to expand their business so they have invested more and more funds in fixed assets. Fixed assets are efficiently utilized by the company due to which the profit of
the company is increasing every year. In 2006-07and 2007-08 Company has huge increase its land, patents, trade
marks and rights.
2.1.2 Trend Analysis of total current assets Table 2.1.3 Trend Analysis of total current assets
Year Total Current Assets
2003-04 2004-05 2005-06 2006-07 2007-08 100 129.242 157.708 154.955 166.304
Figure 2.1.2 Trend Analysis of total current assets
Interpretation The current assets is shows the cash liquidity of the company. Hear it is increase it year by year it means the company has sufficient liquidity for generating the business.
2.1.2 Trend Analysis of total current assets Table 2.1.4 Trend Analysis of total Liabilities
Year Total Liabilities
2003-04 2004-05 2005-06 2006-07 2007-08 100 102.817 172.991 133.59 130.504
Figure 2.1.3 Trend Analysis of total Liabilities
Interpretation The total liabilities is highest in 2005-06. Liabilities is incressing rate it mean company has to developed business. And purchase raw material on credit basis.
2.1.3 Trend Analysis of share holder’s equity.
Table 2.1.5 Trend Analysis of share holder’s equity.
Year Share holder's Equity
2003-04 2004-05 2005-06 2006-07 2007-08 100 140.684 125.181 181.718 121.833
Figure 2. 4 Trend Analysis of share holder’s equity. Interpretation Share holder equity is increase high in 2006-07 because the company has allocated new share. Share holder equity is showing high fluctuation.
2.1.4 Trend Analysis of total loan fund. Table 2.1.6 Trend Analysis of total loan fund.
Year Total Loan Funds
2003-04 2004-05 2005-06 2006-07 2007-08 100 58.9472 122.076 616.343 1171.94
Figure 2.1.5 Trend Analysis of total loan funds
Interpretation The total trend line is slowly increase up to 2005-06. And after that it is increase at a high rate. From 2006-07 onward the loan fund is increase because the company has expanse its business.
The company has been able to raise its secured loan without shortage of funds.
Increase in secured loan shows that company has very good prestige in Financial market. Company increasing loan funds because company want to increase its trading
on equity. 2.1.5
Share Holder’s Funds
Year share capital Share application money pending allotment Reserves and Surplus Total
2003-04 100 100 100 100
Share Holder's Funds 2004-05 2005-06 2006-07 302.273 202.68 207.37
2007-08 100.171
622.406 122.944 125.181
114.286 122.516 121.833
138.625 140.684
Table 2.1.7 Trend Analysis of Share Holder's Funds
290.456 180.99 181.718
Figure 2.1.6 Trend Analysis of Share Holder's Funds Interpretation There is increase in share capital more than two times in 2005-06 and 2006-07 and it increase three time in 2004-05 compare to base year 2003-04.In 2007-08 there is not big increase in share capital compare to 2005-06. There is highest share capital in 2004-05. The company has issued new shares in the 2005-06. As a result no. of shares is increased and these funds are implemented for future plans of the company.
Reserves & surplus shows a remarkable increase in 2004-05, 2005-06 and 2006-07 and it slowly decrease in 2008. respectively with respect to the base year, this shows the company has future vision and it would like to expand its business. Increase in Reserve & surplus shows because of increase in profit every year. Has a hole we can say that the company is target oriented and its sticking to its policies as a result share holder’s funds is increasing year by year.
2.1.6 Source of Funds
Year
2003-04
Share holder's Equity
100
Minority Interest
100
Total Loan Funds
100
Total Sources of Funds
100
Source Of Funds 2004-05 2005-06 2006-07 2007-08 140.684 5 125.181 181.718 121.833 161.944 6 10.929 400 58.9471 7 122.076 616.343 1171.94 138.553 4 124.52769 149.283 162.162
Table 2.1.8 Trend Analysis of Source Of Funds
Figure 2.1.7 Trend Analysis of Sources of Funds Interpretation
The loan fund is increases six and twelve time in year 2007, 2008 respectively compare to 2003-04.
The company has observed an increase in loan funds as compared to the base year which indicates its growing reputation in the financial market.
Hence the overall sources of funds have shown big increase with respect to the base year
2.1.7 Investment
Year Investments
Investment 2003-04 2004-05 100 123.3283
Table 2.1.9 Trend Analysis of Investment
2005-06 131.087
2006-07 107.909
2007-08 48.1879
Figure 2.1.8 Trend Analysis of Investment Interpretation
Investment figure shows healthy progress of the company.
Investment has increased in 2005, 2006 and after that it has strated decrease in 2007, 2008 which shows not good growth compared to base year. As they have invested most of their funds in Indian money market mutual
funds. Shows that the company has not take risk but the company has invested
money for developed it’s own business.
2.1.8
Application Of Funds
Year Total Fixed Assets Investments
Application of funds 2003-04 2004-05 2005-06 130.826 100 7 112.844 123.328 100 3 131.087
2006-07
2007-08
175.077
220.726
107.909
48.1879
Deferred Tax Assets(Net)
100
Net Current Assets
100
101.789 231.519 7
120
99.3266
89.661
131.437
203.29
219.526
Table 2. 10 Trend Analysis of Application Of Funds
Figure 2.1.9 Trend Analysis of Application Of Funds Interpretation Graph shows that in 2007-08 Company invested more fund in fixed Assets. Company has enough cash in hand so that in any condition company can take Any Financial decision easily.
2.2 Horizontal Analysis of Balance Sheet Financial Statement present information for the last five year. Horizontal analysis of Balance Sheet deals with the amount changes and the percentage changes of the items of the Balance Sheet.
Financial Statement present comparative information for the current year and the previous year. Horizontal analysis of Balance Sheet deals with the amount changes and the percentage changes of the items of the Balance Sheet. YEAR
2007-08
SOURCES OF FUNDS Share Capital Share application money pending allotment Reserves & Surplus Secured Unsecured Minority Interest Current Liabilities Provisions TOTAL APPLICATION OF FUNDS Total Fixed Assets Investments Deferred Tax Assets(Net) Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Loan & Advances TOTAL
2005--06
2004-05
2003-04
1.35
2.06
2.91
1.96
0.83
0.02 52.69 0.96 19.77 0.05 18.44 6.72
0.02 65.73 1.05 1.65 0.02 23.78 5.67
0.08 64.42 0.46 0.31
0.00
18.89 12.93
0.02 71.64 0.30 0.56 0.37 17.76 7.39
100
100.00
100.00
100.00
100.00
38.73 7.41 0.24 0.00 3.08 18.70 18.15 13.69
26.82 23.49 0.42 0.00 2.93 20.76 14.00 11.58
22.10 31.41 0.61 0.00 2.10 21.68 9.03 13.07
26.78 32.76 0.69 0.00 2.43 21.63 7.96 7.75
26.08
100
100
100
100
100
Table 2.2.1 Horizontal Analysis of Balance Sheet
2.2.1 analysis of sources of funds 2008 Share Capital Share application money pending allotment Reserves & Surplus Secured
2006-07
1.35 0.02 52.69 0.96
65.85 1.68 0.19 0.29 15.79 15.37
33.84 0.86 0.00 2.29 21.07 5.76 10.09
Unsecured Minority Interest Current Liabilities Provisions
19.77 0.05 18.44 6.72
Table 2.2.2 Horizontal Analysis of sources of funds
Figure: 2.2.1 Horizontal analysis Sources of funds Interpretation Graph shows that in 2007-08 unseured loan is 19.77% it means that company has more taken short term borrowings for expantion of business. In this graph revenue is more then 50% compare to other source so it is good for company. 2.2.2 analysis of application of funds 2008
Total Fixed Assets Investments Deferred Tax Assets(Net)
38.73 7.41 0.24
Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Loan & Advances
0.00 3.08 18.70 18.15 13.69
Table 2.2.3 Analysis of application of funds in 2008
Figure: 2.2.2 analysis of application of funds Interpretation Graph shows that in 2007-08 the current assets loan is increase Sondory debtors is 13.69 so company has to recover it.
2.2.3 Sources of Funds Year Share holder's Equity Total Loan Funds Total Sources of Funds
Sources of Funds 2003-04 2004-05 2005--06 2006-07 2007-08 97% 98% 99% 96% 72% 3% 1% 1% 4% 28% 100% 100% 100% 100% 100%
Table 2.2.4 Horizontal Analysis of Sources of Funds
Figure 2.2.3 Horizontal Analyses of Sources of Funds Interpretation
Company has raised Share Capital during 2003-04 to 2006-07 and after that it was reduced at 24% this step has been taken in order to promote expansion of their business.
Company strive enhancement of share holder’s value through sound business decision, prudent financial management and high standard of ethics through the organizations. Reserves and surplus has been retained for future expansion of the business.
In the base year 2003-04 total loan funds is normally up to 2006 and after that it was increase up to 25%, so it means that company has expand the business.
2.2.4
Application of funds
Year Total Fixed Assets Investments Deferred Tax Assets(Net) Net Current Assets Total Application of Funds
Application of Funds 2003200420052006200704 05 06 07 08 38% 36% 32% 38% 52% 49% 44% 46% 33% 10% 1% 1% 1% 1% 0% 12% 20% 21% 28% 38% 100% 100% 100% 100% 100%
Table 2.2.5 Horizontal Analysis of Application of Funds
Figure 2.2.4 Horizontal Analysis of Application of Funds Interpretation
The total fixed assets are 38% in 2004 and after that it was decrease up to 4% in 2006 and after that it was increase 10% so it means the company has bought the assets for expansion of business.
The investment is decline slowly and gradually.
The net current assets are increase at increasing rate so that company has a good liquidity.
The company’s future plans for expansion seem clear due to increased investment in Fixed Assets .Efficient use of these Assets has enabled the company to observe an increased profit.
Chapter 3. Analysis of Profit & Loss Account ♦ Trend Analysis of Profit & Loss Account ♦ Horizontal Analysis of Profit & Loss Account
3. ANALYSIS OF PROFIT & LOSS ACCOUNT 3.1.Trend Analysis of Profit & Loss Account Trend Analysis of Profit & Loss Account involves calculation of percentage changes in the P & L Account items for a no. of successive years. This is carried out by taking the items of the past financial year used as base year and items of other years are expressed as percentage of the base year. Here 2004-05 is taken as base year 2003 -04
200405
200506
Gross Sales and Services
100
139.1 6
Less: Excise Duty
100
Net Sales and Services
100
Other Income
100
129.7 3 106.9 4 129.9 3 162.5 8
Total Income Expenditure
100
Cost of Sales and Services
100
Selling and marketing expenses General and administrative expenses
100 100
Interest
100
Total Expenditure
100
PROFIT BEFORE TAXATION
100
Provision for taxation including FBT PROFIT BEFORE MINORITY INTEREST /SHARE IN EARNING OF ASSOCIATES Minority interest
100
Share in earning of Associates
100
PROFIT FOR THE PERIOD
100
2006 -07
200708
Income
100 100
95.25 139.7 4 71.79 138.2 4
130.3
138.1 4 104.3 8 1.812 109.1 2 133.3 8 157.4 8 163.6 1
132.1 8 124.2 1 62.37 137.5 8 131.7 4
156.4 9 -148.9 764.9 7 157.8 8
125.8 7 -1.13 164.2 6 126.9 5
125.5 123.3 3
142 133.12 174 122.77 141 133.21 193 140.87 142 133.36
143 136.91 136 148.91 354 8669.4 149
21.48
143 139.13 139 112.37 114 117.63 143 111.68 -600 -400 102 112.88 142 111.58
Appropriations Interim dividend
100
Proposed dividend
100
Tax on dividend TRANSFERTO GENERAL RESERVE
100 100
40.33
373.6 5 57.05 456.0 2
204.9 2 202.6 8 101.8 8
20 400.69 127 117.43 155 116.03
EARNINGS PER SHARE-EPS Equity shares of par value Rs.2/- each
Basic (in Rs.)
100
78.68
Diluted (in Rs.)
100 100
78.11
125.6 4 124.8 3
200.5 5 202.1 9
101.0 7 101.6 8
Number of Shares for calculating EPS
Basic (in Rs.)
100
Diluted (in Rs.)
100
140 109.70 141 110.29
101 101.69 101 101.69
Table 3.1.1 Trend Analysis of Profit & Loss Account 3.1.1 Trend Analysis of Total Income and Total Expenditure Table 3.1.2 Trend Analysis of Total Income and Total Expenditure Trend analysis of total income & expenditure 2003-04 2004-05 2005-06 2006-07 Total Income 100 138.238 130.304 142 Total Expenditure 100 133.382 131.735 143
2007-08 133.36 139.13
160 140 120 100 Total Income
80 60
Total Expenditure
40 20 0 2003- 2004- 2005- 2006- 200704 05 06 07 08
Figure 3.1.1 Trend Analysis of Total Income and Total Expenditure Interpretation
Though the sales has been continuously increased from past 3 years but the proportionate expenditure is also rising so overall not making any huge effect on net profit of this company.
In 2006-07 Income from mutual fund dividend increased by 93.57 % and Interest on debt instrument 567 % increased in 2005-06 compare to previous year.
Percentage Expenditures increasing year by year little more than Income increased, so that Profit margin Decrease year by year. 3.1.2
Profit After Tax
Year Profit after tax
Profit after tax 2003-04 100
2004-05 157.481
Table 3.1.3Trend Analysis of Profit After Tax
2005-06 125.497
2006-07 139
2007-08 112.37
Figure 3.1.2 Trend Analysis of Profit After Tax
` Interpretation PAT has been rising over the years when we compare with the expenditure
which has been incurred to earn this profit is also rising
PAT has been increased all the years because of increasing in sales.
3.1.3 Trend Analysis of Profit trancfer to genral resrve
Year TRANSFERTO GENERAL RESERVE
2003-04
2004-05
2005-06
100
456.022
101.883
Table 3.1.4 Trend Analysis of Profit trancfer to genral resrve
2006-07 2007-08 155
116.03
Figure 3.1.3 Trend Analysis of Profit trancfer to genral resrve Interpretation The graph is showing that in year 2004-05 the company has transferred big
portion of net profit to genral reserve. Hear the in 2005 company has reinvest profit for business expansion it is good
shine for the company.
3.1.4 Trend Analysis of net sales and services
Year Net Sales and Services
2003-04
2004-05
2005-06
100
139.735
129.93
Table 3.1.5 Trend Analysis of net sales and services
2006-07 2007-08 141
133.21
Figure 3.1.4 Trend Analysis of net sales and services
Interpretation
Net sales and services are incresing from 2004 to 2005.
From 2005 onward the net sales incresing at a stret line so hear company should tray to increse net sales.
3.2.Horizontal Analysis of Profit & Loss Account Financial Statement present comparison or every year what portion the rest of particular is having compare to the total income. Hear we assume that the total income is 100 then what is the of particular compare to total income. Horizontal analysis of Profit & Loss Account deals with the amount changes and the percentage changes of the items of the Profit & Loss Account in every year individually. Year Income Gross Sales and Services
2003-04
2004-05
2005-06
2006-07
2007-08
99.07%
99.73%
99.29%
98.94%
98.77%
Less: Excise Duty Net Sales and Services Other Income Total Income Expenditure Cost of Sales and Services Selling and marketing expenses General and administrative expenses Interest Total Expenditure PROFIT BEFORE TAXATION
Provision for taxation including FBT PROFIT BEFORE MINORITY INTEREST /SHARE IN EARNING OF ASSOCIATES
100.00%
0.88% 98.86% 1.14% 100.00%
0.72% 98.57% 1.43% 100.00%
0.88% 98.06% 1.94% 100.00%
100.00%
65.56%
65.51%
85.32%
66.97%
68.75%
9.05%
6.83%
6.51%
6.24%
6.97%
5.19%
0.03% 4.89% 77.89% 22.11%
0.08% 5.14% 78.43% 21.57%
5.27%
20.15%
0.07% 4.64% 77.05% 22.95%
2.81%
3.33%
3.15%
2.53%
2.23%
17.33%
19.62% 0.11% 0.21%
18.95% 0.00% 0.27%
19.04% 0.00% 0.19%
15.94%
19.22%
19.24%
16.10% 1.43%
6.63% 0.93%
4.73% 0.95% 0.83%
11.66%
12.72%
11.07%
1.27% 97.80% 2.20%
0.06% 79.85%
Minority interest -0.10% Share in earning of Associates 0.04% PROFIT FOR THE PERIOD 19.73% 17.27% Appropriations Interim dividend 9.74% Proposed dividend 4.21% 1.56% Tax on dividend 0.60% 1.45% TRANSFERTO GENERAL RESERVE 14.92% 4.52% Table 3.2.1 Horizontal Analysis of Profit & Loss Account
0.81% 97.95% 2.05%
0.83% 81.83% 18.17%
-0.01% 0.16%
2.87% 0.73%
3.2.1 Comparition of PBT and Expenduture with total income
Year Total Income Total Expenditure PROFIT BEFORE TAXATION
2003-04
2005-06 100.00% 77.89%
2006-07 100.00% 78.43%
100.00%
79.85%
2004-05 100.00% 77.05%
20.15%
22.95%
22.11%
21.57%
18.17%
100.00%
Table 3.2.2 Comparition of PBT and Expenduture with total income
2007-08 81.83%
Figure 3.1.1 Comparition of PBT and Expenduture with total income
Interpretation
The total expenditure is near by 80% of total income in every year.
Every year PBT is near by 20% of total income.
Chapter 4.
Analysis of Cash Flow Statement ♦ Introduction ♦ Cash Flow statement ♦ Interpretation of Cash Flow Statement
4. ANALYSIS OF CASHFLOW STATEMENT 4.1.Introduction • Cash flow statement [CFS] provides information about the historical changes in cash by classifying cash flows during the period from operating activities, financial
activities and investing activities of a concern. It shows the summary of cash flow on account of these activities. • Operating activities as the principal revenue-production activities of the enterprise These activities determines the net profit or loss of a concern. Operating Activities refer to the operations of a business of purchasing, sales etc. Sales generate cash; purchase and expense use up the cash. Net profit leads to net increase in cash.Net increase in cash from operating activities is the main source of cash inflow. • Investing activities as the acquisition and disposal of long tern assets and investments. Acquiring and selling of a subsidiary or other concerns should be shown as Investing Activity. Investing Activities of acquisition of fixed assets, long term investing reduces the cash and indicate cash outflow. Investing activities of disposal of fixed assets etc increase the cash inflow. • Financial activities as the activities resulting in the changes in the size and composition of the owner’s capital and borrowing of the enterprise. Owner’s capital includes preference capital in case of a company. Financial Activities such as issue of shares, taking a loan from Bank, sale of fixed assets etc. increase the amount of cash available and form the source of cash inflow. Financial activities such as repayment of preference capital or repayment of loan reduce the amount of cash and indicates cash outflow.
4.2 Cash Flow Statement Year ended March 31, (Ra. In Million)
Table 4. 1 Cash Flow Statement
A. Cash Flow from Operating Activities Adjustments for : Depreciation and amortizations Amortizations of stock compensation Unrealized foreign exchange Net Interest on borrowings Dividend/interest – Net (Profit)/Loss on sale of investments Gain on sale of fixed assets Working Capital Changes : Trade and other receivable Loans and advances Inventories Trade and other payables
2008
2007
2006
2005
2004
5359 1166 -595 1690 -2802 -771 -174
3,978 1,078 457 125 -2,118 -588 -10
3,096 688 65 35 -1,069 -238 -8
2,456.24 342.62 92.45 56.12 715.15 35.59 109.8
1971.85
-11885 -5157 -1565 6182
-7,633 -299 -1,120 5,445
-6,991 -1,033 -317 6,150
4,433.69 311.74 455.23 4,180.42 20,456.0 0 2,354.70 18,101.3 0
-3670.41 -359.89 -281.5 2748.13
6,465.43 168.98
-4100.97 121.86
Net cash generated from operations Direct taxes paid
28518 -5459
32,303 24,102 -4,252 -4,543
Net cash generated by operating activities B. Cash flows from investing activities: Acquisition of property, fixed assets Plant and equipment(Inc. advances) Proceeds from sale of fixed assets
23059
28,051 19,559
-14226 479 231684
-13,005 -7927 149 113 123,57 9 59,047
250013 150 -32790 2490 -25568
122042 52,043 -650 -6608 -2,777 2,118 923 -19533 -16672
Purchase of investments Proceeds on sale/from maturities on Investments Inter-corporate depo sit Net payment for acquisition of Business Dividend/interest income received Net cash generated by/(used in) Investing C. Cash flows from financing activities: Proceeds from exercise of Employee Stock Option Share application money pending allotment Interest paid on borrowings Dividends paid (including distribution tax Proceeds/(repayment) of long term Proceeds/(repayment) of short term Proceeds from issuance of shares by Subsidery Net cash generated by financing Activities Net increase in cash and cash equivalents During the period Cash and cash equivalents at the Beginning of the period Effect of translation of cash balance Cash and cash equivalents at the end of Period *
70,145.1 1 66,383.5 4 617.99 254.15 144035.2
4,704 2,576.58 63 12.05 -35 56.12 -3,998 7,575.76 -268 -200 432.43 266.19 266 -5209
-132.77 -762.41 -107
-594 -1568.36 -2162.36
-10706.5 48.06 285.3 -465.27 777.85 -14039.7
541 40 -1690 -12632 -74970 110641 55 21985
9,458 35 -125 -8,875 142 1825 35 2495
238.6
19476
11013
3154
2469.95
-958.77
19822 -28 39270
8858 -49 19822
5714 -10 8858
3242.7 0.92 5713.57
4210.08 -8.61 3242.7
-262.36 463.02 147.53 -12954.5
*includes Rs. 7,278 Million in a restricted designated bank account for payment of interim dividend
4.2.Interpretation of Cash Flow Statement Overall Cash flow Statement shows that cash has been generated through Operating activity is Rs 23059 , 28051 , 19559, 18101, -2162.36 and in the years 2007-08, 200607, 2005-06, 2004-05 and 2003-04 respectively. So major part of cash inflowing is Operating department. Investment Activity Shows Cash Outflow and borrowing activities takes a little part in increasing cash. Operating Activities : Profit before tax is increased by Rs. 25038.17 Million and Net Cash generated by Operating activity is increased by Rs. 25221.36 Million because,
Depreciation and amortizations are increased by Rs. 3387.15 Million in between four year.
Trade and other receivable are also increased by Rs. 8214.59 Million in between four year.
Investing Activities : Net Cash outflow from investing activities is Rs. 11528 Million because,
Company has increased its plan and equipment worth Rs.10625 Million in between four year.
Investment is also increase worth Rs. 220977 Million in between four year.
From this inference that these investments has been met out of the cash from Operations or borrowings.
Investments in Fixed Assets could be part of Company’s plan of expansion or modernization.
Financial Activities : From the section on cash flow from Financial Activities company think to proceeds in both short term and long term borrowings with proceeds from exercise of employee stock option.
Chapter 5. Ratio Analysis
♦ Introduction To The Ratio Analysis ♦ Liquidity Ratios ♦ Profitability Ratios ♦ Finance Structure Ratios ♦ Valuation Ratios ♦ The Du-Pont Chart
5.
RATIO ANALYSIS
5.1. Introduction Of The Ratio Analysis Ratio analysis involves establishing a comparative relationship between the components of financial statements. It presents the financial statements into various functional areas, which highlight various aspects of the business like liquidity, profitability and assets turnover, financial structure. It is a powerful tool of financial
analysis, which recognizes a company’s strengths as well as its potential trouble spots. It can be further classified as in different categories of Ratio. • Liquidity Ratios • Profitability Ratios • Asset Turnover Ratios • Finance Structure Ratios • Valuation Ratios
5.2. Liquidity Ratio Liquidity refers to the existence of the assets in the cash or near cash form. This ratio indicates the ability of the company to discharge the liabilities as and when they mature. The financial resources contributed by owners or supplemented by outside debt primarily come in the cash form as under in the balance sheet form. The following Liquidity Ratios are calculated for the company. • Current Ratio • Quick Ratio • Net Working Capital
5.2.1. Current Ratio This ratio shows the proportion of Current Assets to Current Liabilities. It is also known as “Working Capital Ratio” as it is a measure of working capital available at a particular time. It’s a measure of short term financial strength of the business. The ideal current ratio is 2:1 i.e. Current Assets should be equal to Current Liabilities. Current Ratio
=
Current Assets Current Liabilities
Year Ratios
Current Ratio 2003-04 2004-05 2005--06 1.26 1.58 1.44
2006-07 1.67
2007-08 2.13
Table 5. 1 Current Ratio Analysis
Figure 5. 1 Current Ratio Analysis Interpretation Current ratio is always 2:1 it means the current assets two time of current liability. After observing the figure the current ratio is fluctuating. In the year 2008 ratio is showing good shine. Hear ratio is increase as a increasing rate from 2004 to 2008.
Company is no where near the ideal ratio in every year but every company can not achieve this ratio. Current ratio is increased in 2007-08 as compared to 2003-04 because of increase in Inventories 100.96% and 123.77 % increased in Cash and Bank balance. Current ratio is decreased in 2005-06 as compared to the last year because of increase in liabilities by 45.39% and 93.19% in increasing in Provision.
5.2.2 Quick Ratio This ratio is designed to show the amount of cash available to meet immediate payments. It is obtained by dividing the quick assets by quick liabilities. Quick Assets are obtained by deducting stocks from current assets. Quick liabilities are obtained by deducting bank over draft from current liabilities. Quick Ratio
=
Quick Assets Current Liabilities
Year Ratios
Quick Ratio 2003-04 2004-05 2005--06 1.2
1.5
1.4
2006-07
2007-08
1.6
2.0
Table 5. 2 Quick Ratio Analysis
Figure 5. 2 Quick Ratio Analysis Interpretation Standard Ratio is 1:1 Company’s Quick Assets is more than Quick Liabilities for all these 5 years. In 2007-08 the ratio is increasing because of increase in bank and cash balance. So all the years has quick ratio exceeding 1, the firm is in position to meet its immediate obligation in all the years.
In 2005-06 quick ratio is decreased because the increase in quick assets is less proportionate to the increased quick liabilities. The Quick ratio was at its peak in 2007-08, while was lowest in the 2004-05. 5.2.3 Networking Captial Networking capital = Current Assets – Current Liabilities Net working capital 2003-04 2004-05 2005-06
Year Trend
4534.3
10497.8
13798.0
2006-07
2007-08
28050.0
61577.0
Table 5.3 Networking Capital
Figure 5.3 Networking capital Interpretation
This ratio represents that part of the long term funds represented by the net worth and long term debt, which are permanently blocked in the current assets.
It is Increasing Double than year by year because of assets increasing fast than liabilities.
5.3 Profitability Ratios A company should earn profits to survive and grow over a long period of time. It would be wrong to assume that every action initiated by management of company should be aimed at maximizing profits, irrespective of social as well as economical consequences. It is a fact that sufficient must be earned to sustain the operation of the business to be able to obtain funds from investors for expansion and growth and to contribute towards the responsibility for the welfare of the society in business environment and globalization. The profitability ratios are calculated to measure the operating efficiency of the company. The following Profitability Ratios are calculated for the company. •
Gross Profit Ratio
•
Operating Profit Ratio
•
Net Profit Ratio
•
Rate Of Return On Investment
•
Rate Of Return On Equity
5.3.1 Gross Profit Ratio This is the ratio expressing relationship between gross profit earned to net sales. It is a useful indication of the profitability of business. This ratio is usually expressed as percentage. The ratio shows whether the mark-up obtained on cost of production is sufficient however it must cover its operating expenses. Gross Profit Ratio = Gross Profit
X 100
Sales Year Trend
Gross profit ratio analysis 2003-04 2004-05 2005--06 2006-07 29.8
31.7
32.6
33.7
2007-08 33.0
Table 5.4 Gross Profit Ratio Analysis
Figure 5.4 Gross Profit Ratio Analysis Interpretation GP Ratio shows how much efficient company is in Production. GP is decreasing 2007-08 due to higher production cost. Gross sales and services are increasing year by year so in effect Gross profit ratio is icreasing year by year up to 2007.
5.3.2 Operating Profit Ratio This ratio shows the relation between Cost of Goods Sold + Operating Expenses and Net Sales. It shows the efficiency of the company in managing the operating costs base with respect to Sales. The higher the ratio, the less will be the margin available to proprietors. Operating Profit Ratio =
COGS+Operating expences
X 100
Sales Year Trend
Operating ratio 2003-04 2004-05 2005--06 83.5
80.0
79.0
2006-07
2007-08
77.9
81.7
Table 5.5 Operating Profit Ratio Analysis
Figure 5.5 Operating Profit Ratio Analysis Interpretation Operating ratio is lowest during current 2007. This shows that the expenses incurred to earn profit were less compared to the previous two years. Operating ratio is decreses feom 2004 to anward decreasing rate.
From the graph conclusion is made that company is not on the right track by efficiently cutting down manufacturing, administrative and selling distribution expenses.
5.3.3 Net Profit Ratio = Net profit
x 100
Net sales Year Trend
2003-04
Net profit ratio 2004-05 2005-06
16.3
19.4
19.2
2006-07
2007-08
19.8
17.7
Table 5.6 Net Profit Ratio Analysis
Figure 5.6 Net Profit Ratio Analysis Interpretation After observing the figure the ratio is fluctuating. Company has rise in its net profit in 2006-07 as compared to the previous year because the company has increased its sales 41.45% . Though the company’s sale is continuously rising but the net profit is not so much increased so management should take some steps to decrease its expenses. Sales is decrease in 2008 compare to 2007 The overall ratio is showing good position of the company.
5.3.4 Return On Investment Rate of Return on Investment indicates the profitability of business and is very much in use among financial analysts. ROI=
EBIT
X 100
Total Assets
Year Trend
Return On Investment 2003-04 2004-05 2005--06 32.7
39.7
2006-07
2007-08
30.6
18.6
35.7
Table 5.7 Rate of Return on Investment Ratio Analysis
Figure 5.7 Rate of Return on Investment Ratio Analysis Interpretation From the above observation it can be seen that ratio is fluctuating. In the year 2005-06 Rate of Return on Investment is slightly increase as compared to previous year Ratio is decreasing after 2005 at adecreasing rate because of asseets increase compare to sales.
The company’s Total Assets is increased to 86.51%, so ROI is decreased so conclusion made that company is not utilizing its assets and investment efficiently.
5.3.5 Rate of Return on Equity Rate of Return on Equity shows what percentage of profit is earned on the capital invested by ordinary share holders. Rate of Return on Equity =
Profit for the Equity Net worth
Year Trend %
2003-04 22.2
Rate of return on equoty 2004-05 2005--06 11.5
7.1
2006-07
2007-08
10.0
5.5
Table 5.8 Rate of Return on Equity Ratio Analysis
Figure 5.8 Rate of Return on Equity Analysis Interpretation ROE is remaining almost same Between 2005 to 2007, but it is decrease in2008 because the the company has increase share capital but profit not getting that much increase. Company is getting same return on equity. As a result the share holders are getting higher return every year and investment portfolio scheme selection was a judicious decision taken by the company. This happens because Profit and Share Capital both increasing same way.
5.4 Asset Turnover Ratios Asset Turnover Ratio are basically productivity ratios which measure the output produced from the given input deployed. This relationship is shown as under Productivity =
Output Input
Assets are inputs which are deployed to generate production (or sales). The same set of assets when used intensively produces more output or sales. If the asset turnover is high, it shows efficient or productive use of input. The following Assets Turnover Ratios are calculated for the company. •
Total Assets Turnover
•
Net Fixed Assets Turnover
•
Net Working Capital Turnover
•
Inventory Turnover Ratio
•
Debtor Turnover (in times)
5.4.1 Total Asset Turnover Ratio The amounts invested in business are invested in all assets jointly and sales are affected through them to earn profits. Thus it is the ratio of Sales to Total Assets. .It is the ratio which measures the efficiency with which assets were turned over a period. Total Asset Turnover Ratio =
Sales Total Assets
Year Trend
Total assets turnover ratio 2003-04 2004-05 2005-06 2006-07 1.5
1.5
1.6
1.5
2007-08 1.2
Table 5.9 Total Asset Turnover Ratio Analysis
Figure 5.9 Total Asset Turnover Ratio Analysis Interpretation The total assets turnover ratio is almost same in all years. The Assets turnover Ratio is near by 1.5 in all 5 years which shows effective utilization of assets from the company’s view point. In the year 2005-06 ratio is increased
because of company’s total assets is
increased by 24.52%, but sales is increased by 29.92%.So the ratio is increased but
in current year it is decreased because sale increasing by 41.45% and Assets increasing by 49.28%. 5.4.2 Net Fixed Assets Turnover To ascertain the efficiency & profitability of business the total fixed assets are compared to sales. The more the sales in relation to the amount invested in fixed assets, the more efficient is the use of fixed assets. It indicates higher efficiency. If the sales are less as compared to investment in fixed assets it means that fixed assets are not adequately utilized in business. Of course excessive sale is an indication of over trading and is dangerous. Net Fixed Assets Turnover Ratio =
Sales Net Fixed Assets
Year Time
2003-04 4.0
Total fixed assets turnover ratio 2004-05 2005--06 2006-07 2007-08 4.2
4.9
Table 5.10 Net Fixed Asset Turnover Ratio Analysis
Figure 5.10 Net Fixed Assets Turnover Ratio Analysis
Interpretation
4.0
2.4
Here the ratio of Net Fixed Asset Turnover is continuously increasing up to 2006 and after that it has strated decline.Because sales as wellas assets boths are equally increase. Net Fixed Assets Turnover Ratio is increasing year by year because of Sale is increasing continuously. It indicates that the company maximizes the use of its fixed assets to earn profit in the business so that whatever amount is invested by company in fixed asset, gives maximum productivity which helps to increase sales as well as profit.
5.4.3 Inventory Turnover Ratio Inventory Turnover Ratio: The no. of times the average stock is turned over during the year is known as stock turnover ratio. Inventory Turnover Ratio =
COGS Average stock
Total Inventory turnover ratio 2003-04 2004-05 2005-06 2006-07 2007-08
Year Time
30.3
22.6
24.3
19.8
16.0
Table 5. 11 Inventory Turnover Ratio Analysis
Figure 5. 11 Inventory Turnover Ratio Analysis Interpretation From the above calculation we can say that the ratio is decreasing. It mens inventory is not spdly convert in to sales. So that it is bad for the company. In 2003-04 ratio is increased as compared to after that all year so management should take care about good efficiency of stock management. But in 2006 onward ratio is decreasing because of increase in COGS. So company should devise a systematic operational plan for inventory control.
5.4.4 Average age of Inventories
This ratio indicates the waiting period of the investments in inventories and is measured in days, weeks or months. Inventory turnover and average age of inventories are inversely related. Average age of Inventories Ratio =
360 days Inventory Turnover
Year Days
2003-04 11.9
Average age of Inventories 2004-05 2005--06 2006-07 15.9
14.8
18.2
2007-08 22.4
Table 5. 12 Average age of Inventories Ratio Analysis
Figure 5. 12 Average age of Inventories Ratio Analysis Interpretation This graph shows that inventory convert into cash in short time period. Inventory turnover ratio is low in 2003-04 So In this year inventory is converted in cash 11.9 days. The inventory conversation in to cash time duration is increases from 2004 to every year so the management should tray to efficient inventory conversation,so it will It shows that company effectiveness utilizing its Inventories in quickly. 5.4.5 Debtor Turnover Ratio
Debtor turnover ratio: The debtor turnovers suggest the no. of times the amount of credit sale is collected during the year. Debtor’s Turnover Ratio =
Sales Average Debtors
Year Time
Debtors turn over in (times) 2004-05 2005--06 2006-07
2003-04 4.9
3.8
3.7
2007-08 3.7
1.5
Table 5. 13 Debtor Turnover Ratio Analysis
Figure 5.13 Debtor Turnover Ratio Analysis Interpretation Debtor turnover indicates how quickly the company can collect its credit sales revenue. Here the ratio is continuously decreasing, so that the company’s collection of credit sales is efficient management is improved its collection period every year so it shows that the management have an ability to collect its money from his debtors. So they can invest that money on Assets, HRD and other investments.
5.5 Finance Structure Ratios
Finance Structure Ratios indicate the relative mix or blending of owner’s funds and outsiders’ debt funds in the total capital employed in the business. It should be noted that equity funds are the prime fund which increase progressively through reinvestment of profits, while outside debt funds are supplementary funds and are added at the discretion of the management. The following Finance Ratios are calculated for the company. •
Debt Ratio
•
Debt-Equity Ratio
•
Interest Coverage Ratio
5.5.1 Debt Ratio Debt ratio indicates the long term debt out of the total capital employed. Debt Ratio =
Long Term Debt Total Capital Employed
Table 5. 14 Debt Ratio Analysis
Trend
2003-04 0.028 4
Debt Ratio 2004-05 2005-06 0.0165
2006-07
0.0114
2007-08 0.384
0.0383
Debt Ratio 0.4 0.3 0.2
Trend
0.1 0
2003-04 2004-05 2005-06 2006-07 2007-08
Figure 5. 14 Debt Ratio Analysis Interpretation From the above calculation it seems that the ratio is fluctuating. In 2007-08 the ratio is increased as compared to the previous year because the total loan funds are increased by 661.56%. In 2005-06 Company has issued equity Share and also loan is decreased. Its means that now company trying to increasing Trading on equity.
5.5.2 Debt-Equity Ratio This ratio is only another form proprietary ratio and establishes relation between the outside long term liabilities and owner funds. It shows the proportion of long term external equity & internal Equities. Debt Equity Ratio =
Total Long Term debt Share holder equity
Table 5.15 Debt - Equity Ratio Analysis Debt- Equity Ratio 2003-04 Year 2004-05 2005-06 0.027 Trend 0.012 0.011
2006-07 0.030
2007-08 0.376
Debt equityratio 0.4
0.376
0.3 0.2
Trend
0.1 0
0.027
0.012
0.011
0.03
2003-04 2004-05 2005-06 2006-07 2007-08
Figure 5. 15 Debt-Equity Ratio Analysis Interpretation It shows companies accumulated more equity than required company has to refocus to its strategic policies and plans and try to accumulate more debt funds in future so as to make the balance between debt and equity. There is only current year ratio is some what sufficient.
5.5.3 Interest Coverage Ratio Interest Coverage Ratio: The ratio indicates as to how many times the profit covers the payment of interest on debentures and other long term loans hence it is also known as times interest earned ratio. It measures the debt service capacity of the firm in respect of fixed interest on long term debts. Interest Coverage Ratio =
EBIT Interest
Year Trend
2003-04 3.4
Intrest coverage ratio 2004-05 2005--06 5.0
4.5
2006-07 4.2
2007-08 21.9
Table 5. 16 Interest Coverage Ratio Analysis
Figure 5. 16 Interest Coverage Ratio Analysis Interpretation After observing the figure it shows that the ratio has mix trend up to 2006. In the year 2007-08 company has not much debt compare to EBIT so interest coverage ratio is high but in 2007-08 company increasing its external debt so company have pay more interest among its earnings so interest coverage ratio falling down compare to previous year.
5.6 Valuation Ratios Valuation ratios are the result of the management of above four categories of the functional ratios. Valuation ratios are generally presented on a per share basis and thus are more useful to the equity investors. The following Valuation Ratios are calculated for the company. •
Earnings Per Share
•
Dividend pay-out Ratio
•
P/E Ratio
•
Profit Margin
5.6.1 Earnings Per Share This ratio measures profit available to equity share holders on per share basis. It is not the actual amount paid to the share holders as dividend but is the maximum that can be paid to them. Earnings per Share = Net Profits for Equity Shares No. of Equity Shares Table 5.17 Earnings per Share
Year Trend(Rs.)
2003-04 7.43
Earnings Per Share 2004-05 2005-06 11.70 14.70
2006-07 20.62
2007-08 22.62
Earningper share 25
20.62
20 15
11.7
22.62
14.7 Trend(Rs.)
7.43
10 5 0
2003-04
2004-05
2005-06
2006-07
2007-08
Figure 5.17 Earnings per Share Ratio Analysis Interpretation Earninig per share is increasing as a increasing rate it is good for invester and share holder. In 2007-08 Profit is increasing by 42.30% and No Equity share Holder increased by 2.03%, Due to that EPS Ratio is increasing in Current year.
5.6.2 Dividend Pay-out Ratio This ratio indicate split of EPS between Cash Dividends and reinvestment of Profit. If the Company has Profitable projects than it will prefer to keep dividend pay out ratio lower. Dividend pay-out Ratio =
Dividend per Share in Rs. Earnings per share in Rupees
Table 5. 18 Dividend Pay-out Ratio Analysis Dividend pay-out Ratio 2003-04 Year 2004-05 2005-06 2006-07 1.54 Trend(Rs.) 4.68 2.94 3.77
2007-08 3.43
Dividendpayout ratio 5
4.68 3.77
4 2.94
3 2
3.43
1.54
Trend(Rs.)
1 0
2003-04 2004-05 2005-06 2006-07 2007-08
Figure 5. 18 Dividend Pay-out Ratio Analysis Interpretation In all years there is fluctuation in ratio. If the company wants to prosper in future with flying colors then ideally more amounts should be reinvested in the business rather than distributing as dividend. In 2005-06 company has reinvested in business for expansion.
5.6.3 P/E Ratio P/E Ratio is computed by dividing the current market price of a share by earning per share. This is Popular measure extensively used in Investment analysis. P/E Ratio =
Current Market Price of Share Earnings per Share
Table 5. 19 P/E Ratio Analysis
20003-04 31.36
Year Trend
P/E Ratio 2004-05 19.91
2005-06 15.85
2006-07 11.30
200708 10.30
PEratio 40 30
31.36 19.91
20
15.85
10 0
20003-04
2004-05
2005-06
Trend
11.3
10.3
2006-07
200708
Figure 5. 19 P/E Ratio Analysis Interpretation
In 2004-05 P/E Ratios is high means Share price of company is Stable and Share holder are interested to invest in the company’s share.
But in 2006-07 P/E Ratio is Falling down word So company share price is not as stable as compare to previous year.
5.6.4 Profit margin ratio Profit margin ratio=
Year Net Sales and Services PAT Ratio
PAT/Sales*100
32829
2006-07 149982 29,421
2005-06 106030 20674
2004-05 81605.6 16285.4
2003-04 58400.23 10315
16%
20%
19%
20%
18%
2007-08 199796
Table 5. 20 Profit margin ratio
Figure 5. 20 Profit margin ratio Interpretation
The ratio is shows equal for middle three year it means the company has maintain the equal ratio for year 2005 to 2007.
The ratio shows decline in current year it is bad sign for the company.
5.7 The Du-Pont Chart
ROA (IN %) 2007-08 2006-07 2005-06 2004-05 2003-04
30.88 53 63.08 67.8 75.6
Profit margin (in %)
Assets turn over(in Rs.)
2007-08
0.16
2007-08
1.93
2006-07 2005-06 2004-05 2003-04
0.20 0.19 0.20 0.18
2006-07 2005-06 2004-05 2003-04
2.65 3.32 3.39 4.20
Profit after tax
Sales
Sales
2007-08 32829
2007-08 199575
2007-08 199575
2007-08 103160
2006-07 2005-06 2004-05 2003-04
2006-07 149751 2005-06 106164 2004-05 81596 2003-04 58648
2006-07 2005-06 2004-05 2003-04
2006-07 2005-06 2004-05 2003-04
29421 20674 16285 10315
Table 5.20 Do-Pont chart
Figure 5. 24 The Du-Point Chart
149751 106164 81596 58648
Asset
56535 31951 24049 13969
Interpretation •
DuPont chart shows that how profitability is there in the business. When profit
margin is multiplied by total Assets turnover ratio that gives ROA. Profit Margin is obtained by dividing PAT by Total sales. Total Asset Turnover is obtained by the sales divided total assets. •
It is like a Tree having various braches connected to each other.
•
It show company’s efficiency in making right decision of Investment
•
Total Assets turnover is decreasing in current year because of huge increase in net
fix assets and net current asset which is more than double compare to previous year. •
The Chart shows the total assets turnover that indicate the company’s efficiency
in utilizing its assets. •
So overall it can be interpreted that the company’s ROA is good .
•
Company should try its best to increase sales and profit.
•
The Du point chart Shows the complete picture of company’s performance.
Chapter 6. Scenario Analysis
♦ Company Analysis ♦ Share Holding Pattern
Chapter 6. Scenario Analysis
♦ Company Analysis ♦ Share Holding Pattern
6. SCENARIO ANALYSIS
6.1.Business Unit Performance
6.2.Company Analysis
6.2.1. Share Holding Pattern
INGS
FIND
Though the sales has been continuously increased from past 3 years but the proportionate expenditure is also rising so overall not making any huge effect on net profit of this company.
Hear the in 2005 company has reinvest profit for business expansion it is good shine for the company.
The total expenditure is near by 80% of total income in every year.
Every year PBT is near by 20% of total income.
Fixed assets are efficiently utilized by the company due to which the profit of the company is increasing every year.
Liabilities is incressing rate it mean company has to developed business. And purchase raw material on credit basis. Company has enough cash in hand so that in any condition company can take Any Financial decision easily. All the years has quick ratio exceeding 1, the firm is in position to meet its immediate obligation in all the years. GP Ratio shows how much efficient company is in Production.
SUG GESTION
The company’s future plans for expansion seem clear due to increased investment in Fixed Assets .Efficient use of these Assets has enabled the company to observe an increased profit.
Though the company’s sale is continuously rising but the net profit is not so much increased so management should take some steps to decrease its expenses.
Company should try its best to increase sales and profit.
The profit margin ratio shows decline in current year so that company should tray to increase profit after tax
Current ratio is very good it is 2.13:1 so company has fully utilize cash liquidity for business development.
Annexure
ANNEXURE-1 BALANCE SHEET
Rs (In Million)
2007-08 2006-07 2005--06 2004-05 2003-04 SOURCES OF FUNDS Share Holder's Funds Share Capital 2923 2918 2852 1407.14 465.52 Share application money pending a 40 35 75 12.05 Reserves & Surplus 113991 93042 63202 51407.1 37083.7 Share holder's Equity 116954 95995 66129 52826.3 37549.5 Loan Funds Secured 2072 1489 451 215.89 947.47 Unsecured 42778 2338 307 405.03 105.88 Total Loan Funds 44850 3827 758 620.92 1053.35 Minority Interest 116 29 265.33 163.84 Total Sources of Funds 161920 99851 66887 53712.6 38766.7 APPLICATION OF FUNDS Fixed assets Goodwill 42209 9477 3528 5663.16 5252.36 Gross Block 56280 35287 24816 20899.6 15607.1 Less: Accumulated Depreciation 28067 18993 12911 9951.77 7599.48 Net Block 28213 18294 11905 10947.9 8007.63 Capital work in progress and advances 13370 10191 6250 2603.85 1427.28 Total Fixed Assets 83792 37962 21683 19214.9 14687.3 Investments 16022 33249 30812 23504.9 19058.8 Deferred Tax Assets(Net) 529 590 594 495 486.3 Current Assets, Loans & Advances Inventories 6664 4150 2065 1747.25 1292.02 Sundry Debtors 40453 29391 21272 15518.3 11865.6 Cash & Bank Balances 39270 19822 8858 5713.57 3242.7 Loan & Advances 29610 16387 12818 5562.85 5683.78 Total Current Assets 115997 69750 45013 28542 22084.1 Less: Current Liabilities & Provisions Current Liabilities 39890 33667 18527 12742.1 8894.2 Provisions 14530 8033 12688 5302.14 8655.58
Total Liabilities Net Current Assets Total Application of Funds
54420 61577
41700 28050
31215 13798
18044.2 10497.8
17549.8 4534.28
ANNEXURE-2 PROFIT & LOSS ACCOUNT RS. (In Million)
Income Gross Sales and Services Less: Excise Duty Net Sales and Services Other Income Total Income Expenditure Cost of Sales and Services Selling and marketing expenses General and administrative expenses Interest Total Expenditure PROFIT BEFORE TAXATION Provision for taxation including FBT PROFIT BEFORE MINORITY INTEREST /SHARE IN EARNING OF ASSOCIATES
Minority interest Share in earning of Associates PROFIT FOR THE PERIOD (PAT)
Appropriations Interim dividend Proposed dividend Tax on dividend TRANSFERTO GENERAL RESERVE
2007-08
2006-07
2005-06
2004-05
2003-04
201451
203970
151,330 1348 149982 2963 152945
106805 775 106030 1536 107566
82330.3 724.7 81605.6 944.79 82550.3
59161.07 760.84 58400.23 1315.99 59716.22
140224
102420
71484
54081.4
39150.23
14216
9547
7003
5638.13
5401.64
10750
124 7866 119957 32988 3868
35 5265 83787 23779 3391
56.12 3826.91 63602.6 18947.8 2749.59
3097.15 35.07 47684.39 12031.83 1680.56
333
29120 6 295
20388 -1 288
16198.2 88.12 175.33
10351.27 -59.19 22.92
32829
29,421
20674
16285.4
10315
2919 1489
7238 1459 1268
7129 1000
3478.84 493.38
5818.98 931.04 864.85
22575
19456
12545
12313.2
2700.13
22.62
20.62 20.41
14.7 14.48
11.7 11.6
14.87 14.85
1,426,966,31 8
1,406,505,97 4 1,427,915,72 4
1,391,554,372
693,870,390
1,404,334,25 6
694,545,321
1655 199796 4174
1690 166900 37070 4550 32520 -24
5846
EARNINGS PER SHARE-EPS Equity shares of par value Rs.2/- each
Basic (in Rs.) Diluted (in Rs.)
22.51 Number of Shares for calculating EPS 1,451,127,71 Basic (in Rs.) 9 1,458,239,06 Diluted (in Rs.) 0
1441.469,952
ANNEXURE-3 CASH FLOW STATEMENT FOR THE YEAR ENDED ON MARCH 31 Rs(In Million)
A. Cash Flow from Operating Activities Adjustments for : Depreciation and amortizations Amortizations of stock compensation Unrealized foreign exchange Net Interest on borrowings Dividend/interest – Net (Profit)/Loss on sale of investments Gain on sale of fixed assets Working Capital Changes : Trade and other receivable Loans and advances Inventories Trade and other payables Net cash generated from operations Direct taxes paid Net cash generated by operating activities B. Cash flows from investing activities: Acquisition of property, fixed assets Plant and equipment(Inc. advances) Proceeds from sale of fixed assets Purchase of investments Proceeds on sale/from maturities on Investments Inter-corporate depo sit Net payment for acquisition of Business Dividend/interest income received Net cash generated by/(used in) Investing C. Cash flows from financing activities: Proceeds from exercise of Employee Stock Option
2008
2007
2006
2005
2004
5359 1166 -595 1690 -2802 -771 -174
3,978 1,078 457 125 -2,118 -588 -10
3,096 688 65 35 -1,069 -238 -8
2,456.24 342.62 92.45 56.12 715.15 35.59 109.8
1971.85
-11885 -5157 -1565 6182
-7,633 -299 -1,120 5,445 32,303 -4,252
23059
28,051
4,433.69 311.74 455.23 4,180.42 20,456.0 0 2,354.70 18,101.3 0
-3670.41 -359.89 -281.5 2748.13
28518 -5459
-6,991 -1,033 -317 6,150 24,10 2 -4,543 19,55 9
-14226 479
-13,005 149 123,57 9
-7927 113 59,04 7 52,04 3
6,465.43 168.98
-4100.97 121.86
-231684 250013 150 -32790 2490 -25568
541
122042 -650 -6608 -2,777 2,118 923 -19533 16672
9,458
4,704
-132.77 -762.41 -107
-594 -1568.36 -2162.36
70,145.1 1 10706.51 66,383.5 4 48.06 285.3 617.99 -465.27 254.15 777.85 144035.2 14039.68
2,576.58
238.6
Share application money pending allotment Interest paid on borrowings Dividends paid (including distribution tax Proceeds/(repayment) of long term Proceeds/(repayment) of short term Proceeds from issuance of shares by Subsidery Net cash generated by financing Activities Net increase in cash and cash equivalents During the period Cash and cash equivalents at the Beginning of the period Effect of translation of cash balance Cash and cash equivalents at the end of Period *
40 -1690 -12632 -74970 110641
35 -125 -8,875 142 1825
63 12.05 -35 56.12 -3,998 7,575.76 -268 -200 432.43
55
35
266.19
21985
2495
266
19476
11013
3154
2469.95
-958.77
19822 -28
8858 -49
5714 -10
3242.7 0.92
4210.08 -8.61
39270
19822
8858
5713.57
3242.7
-262.36 463.02
147.53 -5209 12954.48
Bibliography
BIBLIOGRAPHY Books: Annual Report of Wipro Limited for Financial Year 2004-05, 2006-07,2007-08. Narayanaswamy R., (1998): “Financial Accounting”: A Managerial Perspective, Prentice-Hall of India Private Ltd, New Delhi., Third Edition, Reprint 2003 Khan M.Y. and Jain P.K., (1992):”Financial Management”, Tata McGraw-Hill Publishing Co Ltd., New Delhi., Third Edition. .
Websites http://www.wipro.com http://www.bseindia.com//shareholding/shareholding_new.asp http://www.cmie.com//indutries//gdp.asp
http://www.wipro.com/investors/annual_reports.htm http://www.wipro.com/investors/pdf_files/AR07_08_first_book_final.pdf http://www.wipro.com/investors/pdf_files/AR07_08_second_book_final.pdf http://www.wipro.com/investors/pdf_files/Wipro_AR_2006_07_Part_1.pdf http://www.wipro.com/investors/pdf_files/Wipro_AR_2006_07_Part_2.pdf http://www.wipro.com/investors/pdf_files/Wipro_annual%20report_2005-06.pdf http://www.wipro.com/investors/pdf_files/Wipro_Annual_Report_2004_2005.pdf
