COMPARATIVE FINANCIAL RATIO ANALYSIS WITH SPECIAL REFERENCE TO

THOMAS COOK (INDIA) LTD.

Submitted by-

ANIRBAN CHAKRABORTY Master of Business Administration. 4th Semester

Roll: 12211700366 Specialization: FINANCE

Under the guidance of-

Mr. Sudipta De Faculty in Finance & Accounts, BBS

BRAINWARE BUSINESS SCHOOL

Y8, Block - EP, Sector V, Salt Lake, Kolkata- 700091

FACULTY CERTIFICATE

THIS IS TO CERTIFY THAT THE PROJECT REPORT ENTITLED:

“COMPARATIVE FINANCIAL RATIO ANALYSIS WITH SPECIAL REFERENCE TO

THOMAS COOK (INDIA) LTD.”

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION OF

PUNJAB TECHNICAL UNIVERSITY REGISTRATION NUMBER: 12211700366

HAS WORKED UNDER MY SUPERVISION AND GUIDANCE AND THAT NO PART OF THIS REPORT HAS BEEN SUBMITTED FOR THE AWARD OF

ANY OTHER DEGREE, DIPLOMA, FELLOWSHIP, OR ANY OTHER SIMILAR TITLE OF PRIZE AND THAT THE WORK HAS NOT BEEN

PUBLISHED IN ANY JOURNAL OR MAGAZINE.

(Mr. Sudipta De) Faculty in Finance & Accounts, BBS

ACKNOWLEDGEMENT

Any task that is under taken reaches successful completion not only by an Individual effort but

also by the guidance and support of many others. Here I acknowledge my heartiest gratitude to

a few of them who have helped me to carry out this project work successfully.

I express my sincere feelings of my gratitude to Dr. Debashree Mukherjee, Dean of

Brainware Business School, for her motivation, inspiration and encouragement for the

completion of this Project.

I take this grand opportunity to record my everlasting thanks and hearty feelings for gratitude to

my project guide Sir. Sudipta De, Faculty in Finance & Accounts, BBS., for this valuable

suggestion and encouragement and guidance for doing this project. His guidance was

immeasurable to the completion of my project.

I wish to express my grateful thanks to the management of Thomas Cook (India) Ltd. for helping

me to complete this project successfully.

Finally, I express my sincere thanks and deep sense of gratitude to my parents and friends for

giving timely advice in all the ways and in all aspects for doing the project.

ANIRBAN CHAKRABORTY

CONTENT

Page

Synopsis of the report

5 Objective of the study

6

CHAPTER 1: INTRODUCTION:

7

Introduction

8 About the industry

10

About the company

11 - Historical background 11

- Awards and recognition 12 - About Fairfax Financial Holdings Ltd 13 - Prdoucts offered by Thomas Cook (India) Ltd. 13 - Board of directors of Thomas Cook (India) Ltd. 14 - Milestone achieved by the company 14

CHAPTER 2: RESEARCH METHODOLOGY:

15

CHAPTER 3: REVIEW OF LITERATURE:

17

Importance of Financial Ratio analysis

18 Grouping of ratios on the basis of purpose

19

Types of Ratios

20 - Liquidity ratios 20

- Leverage ratios 22 - Coverage ratios 25 - Activity ratios 26 - Profitability ratios 27 - Du-pont analysis 31 - Comparative balance sheet 32

CHAPTER 4: DATA TABULATION AND ANALYSIS:

33

CHAPTER 5: SUMMARY AND CONCLUSION:

52 Summary

53

Limitations of the study

55 Conclusion

56

Bibliography

57

SYNOPSIS OF THE REPORT

The ratio analysis is one of the most useful and common method of analyzing financial

statements. As compared to other tools of financial analysis, the ratio analysis provides very

useful conclusions about various aspects of the working like financial position, solvency,

liquidity and profitability of an enterprise. It is useful for inter-firm comparison so that the

companies can review their performance and also plan forward to make necessary changes in

their working styles.

This study gives in detail the analysis of various financial ratios based upon the past as well as

the present performance of Thomas Cook (India) Ltd. expressed in financial data. Based upon

the results from these financial ratios conclusions are driven out that whether the company has

been earning profits or not and also that how much it has used these results in its growth. So, the

company can also manage each of its current assets namely cash management, accounts

receivable management and also its liabilities like creditors, loans, bills payables etc. so that it

can maintain an identical financial ratio for each of its business aspects like solvency ratios,

turnover ratios, profitability ratios etc.

The research methodology adopted for this study is mainly from secondary sources of data which

includes annual reports of Thomas Cook (India) Ltd., and website of the company. The use of

primary sources is limited to interviews with few employees in the finance department and also

from the working process adopted in the company as interviewed from employees. The study of

financial ratio analysis has shown that Thomas Cook (India) Ltd. has a strong base in meeting

the identical financial ratios as well as has increased its profits from the past years. The company

is enjoying reasonable profits. Thomas Cook (India) Ltd. sales position is also very good. Its

excellent performance is attributed to reduced cost of product and ultimately contributing to a

good financial as well as a profitable position in the market.

OBJECTIVE OF THE STUDY

To know the financial as well as the profitability position of Thomas Cook (India) Ltd..

To know whether the financial ratios of the company are ideal or not, which is the sign of

a healthy business enterprise.

To analyze and compare the performance of the company with the help of these financial

ratios from other companies and competitors in the market.

To analyze the liquidity solvency position of the firm.

To study the working capital management of the company.

To assess the factors influencing the financial performance of the organization.

To understand the overall financial position of the company.

`

CHAPTER 1

IINNTTRROODDUUCCTTIIOONN

INTRODUCTION

When it comes to investing, analyzing financial statement information (also known as

quantitative analysis), is one of, if not the most important element in the fundamental analysis

process. At the same time, the massive amount of numbers in a company's financial statements

can be bewildering and intimidating to many investors. However, through financial ratio

analysis, we will be able to work with these numbers in an organized fashion. The objective of

this analysis is to provide a guide to sources of financial statement data, to highlight and define

the most relevant ratios, to show how to compute them and to explain their meaning as

investment evaluators.

So, in order to give a clear view we can say that ratio analysis is a widely used tool of financial

analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the

strength and weaknesses of a firm as well as its historical performance and current financial

condition can be determined. The term “ratio” refers to the numerical or quantitative relationship

between two variables. The financial ratios are of great importance for an organization, and as an

organization contributes to the economic growth of the country it is necessary that they should

maintain an ideal ratio for the various aspects of the business. Also, these ratios are very helpful

in judging the performance of an enterprise by comparing its performance with the other

industries of same nature present in the market. In a way it can be said that ratios are very useful

to evaluate the performance of the company by using ratios as a yardstick to measure the

efficiency of the company. To understand the liquidity, profitability and efficiency positions of

the company during the study period. To evaluate and analyze various facts of the

financial performance of the company. To make comparisons between the ratios during different

periods. Financial Management is the specific area of finance dealing with the financial decision

corporations make, and the tools and analysis used to make the decisions. The discipline as a

whole may be divided between long-term and short-term decisions and techniques. Both share

the same goal of enhancing firm value by ensuring that return on capital exceeds cost of capital,

without taking excessive financial risks by analyzing them carefully with the help of financial

ratios. Also several debt ratios may be used to analyze the long term solvency of the firm.

It would be of relevance to know the proportion of the interest-bearing debt (also called funded

debt) in the capital structure of the firm. Thus, debt ratio can be computed by dividing total debt

by capital employed or net assets. Total debt includes short and long

termborrowings from financial institutions, debentures/bonds, deferred payment arrangements

for buying capital equipments, bank borrowings, public deposits and any other interest bearing

loan.

ABOUT THE INDUSTRY

Travel and tourism is the largest service industry in India. It provides heritage, cultural, medical,

business and sports tourism. The main objective of this sector is to develop and promote tourism,

maintain competitiveness of India as tourist destination and improve and expand existing tourism

products to ensure employment generation and economic growth. In this section, we provide

information about various tourist destinations, modes of travel, accommodation and approved

travel agents. The tourism industry of India is economically important and is growing rapidly.

The World Travel & Tourism Council calculated that tourism generated INR 6.4 trillion or 6.6%

of the nation's GDP in 2012. It supported 39.5 million jobs, 7.7% of its total employment. The

sector is predicted to grow at an average annual rate of 7.9% from 2013 to 2023. This gives India

the third rank among countries with the fastest growing tourism industries over the next decade.

India has a large medical tourism sector which is expected to grow at an estimated rate of 30%

annually to reach about Rs. 95 billion by 2015.

The Ministry of Tourism designs national policies for the development and promotion of

tourism. In the process, the Ministry consults and collaborates with other stakeholders in the

sector including various Central Ministries/agencies, state governments, Union Territories and

the representatives of the private sector. Concerted efforts are being made to promote new forms

of tourism such as rural, cruise, medical and eco-tourism. The Ministry also maintains the

Incredible India campaign.

ABOUT THE COMPANY

“Thomas Cook (India) Limited”

HISTORICAL BACKGROUND:

On July 5, 1841, young Thomas Cook arranged an 11-mile train journey priced at merely 1

shilling, for a motley group of 570 passengers from Leicester to Loughborough. And this marked

the beginning of a chapter in travel history. He went on to introduce a railway tour of Europe.

But it wasn't until the early 1860s that he began the travel firm, Thomas Cook & Son, which

included tours of the USA. The Company also started operations for military transport and postal

services for England and Egypt during the 1880s.

Thomas Cook has widely been acclaimed as the founder of world tourism, and in addition to the

world’s first package tour in 1841, Thomas Cook introduced a number of customer empowering

innovations that we take for granted today: pre-paid hotel coupons (in 1868), holiday brochures

(in 1858) and travellers cheques (in 1874). The world got around and by the early 1900s, the

who's who of the era - kings, politicians, bishops and professors - patronised Thomas Cook's

travel itinerary.

As the years passed by, the Company introduced the world to a whole new concept of leisure and

business travel. Driving innovation in the business, it connected continents and presented the

people an economic and state mode of travel across them.

In 1881, Thomas Cook started its India operations, with its first office being set up in Mumbai.

As it expanded its horizons across the subcontinent, the Company came to be known as Thomas

Cook Overseas Ltd. And on 21st October 1978, it was christened Thomas Cook (India) Ltd, only

to make its first public issue in February 1983. In the year 2000, the Group commenced its

operations in Mauritius and also acquired the Sri Lanka business from Thomas Cook Overseas

Ltd, UK. In 2006, Thomas Cook (India) Limited acquired LKP Forex Limited and Travel

Corporation (India) Pvt. Ltd. (TCI). In May 2012, Thomas Cook Group plc, UK (the erstwhile

parent) sold its investment in Thomas Cook (India) Limited (TCIL) to Fairbridge Capital

(Mauritius) Limited (Fairbridge). Fairbridge made an open offer to the non-promoters and post

August 14, 2012, TCIL is part of Fairfax Group, Canada.

AWARDS AND RECOGNITIONS:

Thomas Cook (India) Ltd is the leading integrated travel and travel related financial services

company in the country offering a broad spectrum of services that include Foreign Exchange,

Corporate Travel, MICE, Leisure Travel, Insurance, Visa & Passport services and E-Business.

The company set up its first office in India in 1881. TCIL’s footprint currently extends to over

235 locations (including 15 airport counters) in 99 cities across India, Mauritius & Sri Lanka and

is supported by a strong partner network of 114 Gold Circle Partners and 165 Preferred Sales

Agents in over 136 cities across India.

Thomas Cook (India) Ltd has been voted as Best Tour Operator - Outbound for two consecutive

years at the CNBC AWAAZ Travel Awards 2014 & 2013 and Best Company providing Foreign

Exchange at the CNBC AWAAZ Travel Awards 2014; Best Tour Operator at the Lonely Planet

Travel Awards 2013, Favourite Specialist Tour Operator at the Condé Nast Traveller Readers'

Travel Awards 2013, 2012 & 2011 and recognized for two years in succession as a "Consumer

Superbrand" 2013-14 & 2012-2013. In addition, TCIL has been chosen as the Best Corporate

Travel Management Company by World Travel Brands 2012,. At the National Tourism Awards

2012-2013, TCIL was the recipient of 3 prestigious awards. Thomas Cook India’s Centre of

Learning has received IATA accreditation as "Top 10 South Asia IATA Authorized Training

Centers", 2013 & 2012. Thomas Cook (India) Limited is promoted by Fairfax Financial

Holdings Limited through its wholly-owned subsidiary, Fairbridge Capital (Mauritius) Limited.

Fairbridge is responsible for the execution of acquisition and investment opportunities in the

Indian subcontinent on behalf of the Fairfax family of companies.

ABOUT FAIRFAX FINANCIAL HOLDINGS LIMITED:

Fairfax Financial Holdings Limited is a Toronto-based financial services holding company with

a global presence in insurance and reinsurance and a portfolio of assets in excess of $30 billion

invested worldwide. Fairfax has almost 20 general insurance subsidiaries and joint ventures

globally, including ICICI Lombard (India). Fairfax is engaged in long term investments from its

own resources, with a focus to delivering long term capital appreciation through a flexible and

value oriented approach. Fairfax Financial Holdings through Thomas Cook (India) Ltd. owns

74.85% on a fully diluted basis of the IKYA Group, a provider of specialized Human Resource

related Services.

PRODUCTS OFFERED BY THOMAS COOK (INDIA) LTD.

Holidays in India Foreign Exchange Travel Insurance

International Holidays Online Hotel Booking Visa and Passport

Cruise Holidays Online Flight Booking Global Sales Partners

BOARD OF DIRECTORS OF THOMAS COOK (INDIA) LTD.:

Mr. Mahendra Kumar Sharma – Chairman

Mr. Madhavan Menon – Managing Director

Mr. Chandran Ratnaswami – Non-Executive Director

Mr. Harsha Raghavan – Non-Executive Director

Mr. Uday Khanna – Non-Executive Independent Director

Mrs. Kishori Udeshi – Non Executive Independent Director

MILESTONES ACHIVED BY THE COMPANY:

In 1881, Thomas Cook & Son opened its first branch office in Mumbai. Afterwards, the branch

office converted into a private limited company in 1978. In the year 1983, the company got the

listing in the name of ‘Thomas Cook (India) Limited’ on BSE pursuant to an initial public

offering. In 1998 and 2000, it started operation in Mauritius and Srilanka respectively. In 2009,

the company issued 50,650,699 shares through a right issue. Next year, in 2010, it launched nine

foreign exchange and travel counters. The company signed an agreement for marketing and

distribution of borderless prepaid multicurrency foreign exchange card in 2011. In the same year,

it incorporated TC Visa Services (India) Ltd. in Maharashtra, a wholly owned subsidiary of

Travel Corporation (India) Ltd, which is a 100% subsidiary of the company. In 2012, it

incorporated Thomas Cook Lanka (Private) Limited, a 100% subsidiary of the company. In the

year 2013, it acquired 74.85% stake in IKYA Human Capital Solution, a human resource

solution company.

CHAPTER 2

RREESSEEAARRCCHH MMEETTHHOODDOOLLOOGGYY

METHODOLOGY:

The project evaluates the financial performance of the company with the help of the most

appropriate tools of financial analysis like ratio analysis and comparative balance sheet. Hence, it

is essentially a fact finding study.

PROCESS OF THE PROJECT:

1. Defining research project

2. Reviewing concept, theories & previous research findings

3. Collection of data from secondary sources

4. Calculation of ratios

5. Analyze the data to identify the financial position of the company

6. Judge the performance with respect to different management areas by using integrated ratio approach.

7. Interpretation & reporting

8. Recommendations

DATA COLLECTION:

In the present study, annual reports of the company have been used. In addition, a number of

reference books, journals and reports were also used to formulate the theoretical model for the

study. Apart from these, some information were also drawn from the websites.

TOOLS USED IN ANALYSIS: Ratio analysis and comparative balance sheet.

PERIOD OF STUDY:

The study covers the period of 31.12.2009 to 31.12.2013 in Thomas Cook (India) Limited.

CHAPTER 3

RREEVVIIEEWW OOFF LLIITTEERRAATTUURREE

Ratio analysis is a powerful tool of financial analysis. According to Webster’s New Coolegiate

Dictionary, a ratio is defined as, “the indicated quotient of two mathematical expressions” and as

“the relationship between two or more things.” In financial analysis, a ratio is used as a

benchmark for evaluating the financial position and performance of the firm. It is a ratio between

two accounting figures or data expressing the relationship between the two. It is an expression of

the relation between different relevant accounting variables.

The financial statement of a business comprises of (1) The Revenue Statement or the Profit

and Loss Account and (2) The Balance Sheet. These include a mass of figures which make it

difficult to deduce any inference or decision. An accounting ratio is used to gauge the financial

solvency and profitability published by the business and it highlights in arithmetical terms, the

relationships that exist between various items from the financial statement.

IMPORTANCE OF FINANCIAL RATIO ANALYSIS:

Ratio analysis helps decision makers in following way:

1. It helps the management to gauze the efficiency of performance and assesses the financial

health of the business.

2. It is an essential tool for checking the efficiency with which the working capital is being

used and managed.

3. Where ratios are based on analysis and scrutiny of past results, they assist the

management to formulate policy, to arrive at correct decisions, to prepare budgets and

plan for future.

4. Comparative ratio analysis injects trend analysis. The improvement or deterioration of a

business is clearly disclosed by ratio analysis.

5. It helps to make financial forecasts.

6. Moneylenders and creditors can ascertain whether a business will be a desirable debtor or

a potential investment zone.

7. It is an integral part for introduction of standard costing and budgetary control.

8. Its inherent feature ‘easiness’ is its greatest advantage. Ratio analysis can easily made and

easily understood.

GROUPING OF RATIOS ON THE BASIS OF PURPOSE:

Different ratios are computed with different ends in view. It depends upon the person or group of

persons using the particular ratio. Accordingly, a short list is being appended below:

Purpose of using the ratio

Ratio to be computed Person/Persons using the ratio Name of the ratio

Solvency of business

1. Current Ratio 2. Acid-test Ratio 3. Fixed Asset Proprietorship Ratio 4. Debt-equity Ratio

1. Management 2. Bank 3. Money-lenders 4. Creditors 5.Competitive Business

Profitability of Business

1. Gross Profit Ratio 2. Net profit Ratio 3. Different elements of Costs to Cost of sales 4. Operating Ratio 5. Return on capital employed 6. Dividend Ratios, etc. (Return on Net worth, yield, earnings/ Dividend per share, etc)

1. Management 2. Investors 3. Shareholders 4. Prospective buyers of the business 5. Money Lenders 6. Competitive Concerns etc.

Capital Structure

1. Debt-equity Ratio 2. Proprietory ratio (Fixed asset to Net worth and Net worth to Total Asset) 3. Capital Gearing Ratio 4. Total Liability to Net worth etc.

1. Management 2. Shareholders 3. Prospective buyers of the business 4. Lenders, etc.

Managerial Efficiency

1. Return on capital employed 2. Profitability Ratios 3. Stock turnover Ratio 4. Debtors Turnover Ratio 5. Creditors Turnover Ratio 6. Debt-equity Ratio 7. Turnover of Fixed Assets, etc.

1. Shareholders 2. Interested Parties 3. Management itself

Turnover 1. Fixed Assets – Turnover 2. Total Assets – Turnover 3. Stock Turnover 4. Debtors Turnover 5. Creditors Turnover

Same as above

Use of Assets 1. Cash Position Ratios 2. Fixed Assets to Net Worth 3. Debtors Turnover Ratio

Management and Shareholders

Financial ratios are inter-related. Their purposes are also inter-related. There is a nexus between

profitability and turnover, turnover and solvency, and profitability and solvency.

TYPES OF RATIOS:

In view of the requirements of the various users of ratios, we may classify them into following

four categories.

LIQUIDITY RATIOS

Liquidity ratios provide information about a firm's ability to meet its short-term financial

obligations. They are of particular interest to those extending short-term credit to the firm. Two

frequently-used liquidity ratios are the current ratio and the quick ratio.

CURRENT RATIO:

Current ratio is a measure of firm’s short-term solvency. It indicates the availability of current

assets in rupees for every one rupee of current liability. It is also called Banker’s Ratio or

working capital ratio (if expressed as a percentage). Standard ratio is 2:1.

Current Ratio = 퐂퐮퐫퐫퐞퐧퐭퐀퐬퐬퐞퐭퐬

퐂퐮퐫퐫퐞퐧퐭퐋퐢퐚퐛퐢퐥퐢퐭퐢퐞퐬

QUICK RATIO:

The Quick Ratio is an alternative measure of liquidity that does not include inventory in the

current assets. The current assets used in the quick ratio are cash, accounts receivable, and notes

receivable. These assets essentially are current assets less inventory. The quick ratio often is

referred to as the Acid Test Ratio. Minimum desired ratio is 1:1. If bank overdraft is payable on

demand, it should be considered as a quick liability and not deducted here.

Quick ratio= 퐐퐮퐢퐜퐤퐨퐫퐋퐢퐪퐮퐢퐝퐀퐬퐬퐞퐭퐐퐮퐢퐜퐤퐨퐫퐋퐢퐪퐮퐢퐝퐋퐢퐚퐛퐢퐥퐢퐭퐢퐞퐬

= 퐂퐮퐫퐫퐞퐧퐭퐀퐬퐬퐞퐭 퐒퐭퐨퐜퐤퐬퐂퐮퐫퐫퐞퐧퐭퐋퐢퐚퐛퐥퐢퐭퐢퐞퐬 퐁퐚퐧퐤퐎퐯퐞퐫퐝퐫퐚퐟퐭

CASH RATIO:

Since cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent

to current liabilities. Trade investments or marketable securities are equivalent to cash; therefore,

they may be included in the computation of Cash Ratio:

Cash Ratio= 퐂퐚퐬퐡 퐌퐚퐫퐤퐞퐭퐚퐛퐥퐞퐒퐞퐜퐮퐫퐢퐭퐢퐞퐬퐂퐮퐫퐫퐞퐧퐭퐋퐢퐚퐛퐥퐢퐭퐢퐞퐬

INTERVAL MEASURES:

This is a ratio, which assesses a firm’s ability to meet its regular cash expenses, is the Interval

Measure. Interval Measure relates liquid assets to average daily operating cash outflows. The

daily operating expenses will be equal to the cost of goods sold plus selling, administrative and

general expenses less depreciation (and other non-cash expenditure) divided by number of days

in the year (normally 360).

Interval Measure= 퐂퐮퐫퐫퐞퐧퐭퐀퐬퐬퐞퐭퐬 퐒퐭퐨퐜퐤퐬퐀퐯퐞퐫퐚퐠퐞퐃퐚퐢퐥퐲퐎퐩퐞퐫퐚퐭퐢퐧퐠퐄퐱퐩퐞퐧퐬퐞퐬

LEVERAGE RATIOS

To judge the long-term financial position of the firm, financial leverage, or capital structure

ratios are calculated. These ratios indicate mix of funds provided by owners and lenders. As a

general rule, there should be an appropriate mix of debt and owners’ equity in financing the

firm’s assets.

DEBT RATIO:

The firm may be interested in knowing the proportion of the interest bearing debt (also called

funded debt) in the capital structure. It may, therefore, compute debt ratio by dividing total debt

(TD) by capital employed (CE) or net asset (NA). Total debt will include short and long-term

borrowings from financial institutions, debentures and bonds, deferred payment arrangements for

buying capital equipments, bank borrowings, public deposits and any other interest-bearing loan.

Capital employed will include total debt and net worth (NW).

Debt Ratio= 퐓퐨퐭퐚퐥퐃퐞퐛퐭(퐓퐃)

퐓퐨퐭퐚퐥퐃퐞퐛퐭(퐓퐃) 퐍퐞퐭퐖퐨퐫퐭퐡(퐍퐖) = 퐓퐨퐭퐚퐥퐃퐞퐛퐭(퐓퐃)

퐂퐚퐩퐢퐭퐚퐥퐄퐦퐩퐥퐨퐲퐞퐝(퐂퐄)

Note that Capital Employed (CE) equals to Net Asset (NE) that consist of Net Fixed Assets and

Net Current Assets (NCA). Net Current Assets are Current Assets (CA) minus Current Liabilities

(CL) excluding interest-bearing short-term debt for working capital.

These relationships are:

NFA + CA = NW + TD + CL

NFA + CA – CL = NW + TD

NFA + NCA = NW + TD

NA = CE

Because of the equality of Capital Employed and Net Assets, Debt Ratio can also be defined by

Net Assets:

Debt Ratio = 퐓퐨퐭퐚퐥퐃퐞퐛퐭(퐓퐃)퐍퐞퐭퐀퐬퐬퐞퐭퐬(퐍퐀)

DEBT-EQITY RATIO:

Debt-equity is directly computed by dividing Total Debt (TD) by Net Worth (NW).

Debt-Equity Ratio= 퐓퐨퐭퐚퐥퐃퐞퐛퐭(퐓퐃)퐍퐞퐭퐖퐨퐫퐭퐡(퐍퐖)

CAPITAL EMPLOYED TO NET WORTH RATIO:

One may want to know: How much funds are being contributed together by lenders and owners

for each rupee of the owner’s contribution? Calculating the ratio of Capital Employed or Net

Asset to Net Worth can find this out:

CE-to-NW ratio = 퐂퐚퐩퐢퐭퐚퐥퐄퐦퐩퐥퐨퐲퐞퐝(퐂퐄)

퐍퐞퐭퐖퐨퐫퐭퐡(퐍퐖) or, NA-to-NW ratio=

퐍퐞퐭퐀퐬퐬퐞퐭(퐍퐀)퐍퐞퐭퐖퐨퐫퐭퐡(퐍퐖)

Note that CE/NW ratio is simply one plus debt-equity ratio:

퐂퐄퐍퐖

= 퐍퐖 퐓퐃퐍퐖

= ퟏ + 퐓퐃퐍퐖

OTHER DEBT RATIOS:

To assess the proportion of total funds – short and long term – provided by outsiders to finance

total assets, the following ratio may be calculated:

TL-to-LF ratio = 퐓퐨퐭퐚퐥 퐋퐢퐚퐛퐢퐥퐢퐭퐢퐞퐬(퐓퐋)퐓퐨퐭퐚퐥퐀퐬퐬퐞퐭퐬(퐓퐀)

In addition to debt ratios explained so far, a firm may wish to calculate leverage ratios in terms

of the long-term capitalization or funds (LTF) alone. Long-term funds or capitalization will

include long-term debt and net worth. Thus, the firm may calculate the following long-term debt

ratios.

LT-to-LF ratio = 퐋퐨퐧퐠 퐭퐞퐫퐦퐝퐞퐛퐭(퐋퐃)

퐋퐨퐧퐠 퐭퐞퐫퐦퐝퐞퐛퐭(퐋퐃) 퐍퐞퐭퐰퐨퐫퐭퐡(퐍퐖)

LT-NW ratio = 퐋퐨퐧퐠 퐭퐞퐫퐦퐝퐞퐛퐭(퐋퐃)퐍퐞퐭퐖퐨퐫퐭퐡(퐍퐖)

COVERAGE RATIOS

The interest coverage ratio or time-interest-earned is used to test the firm’s debt-servicing

capacity. The interest coverage ratio is computed by dividing earnings before interest and taxes

(EBIT) by interest charges:

Interest coverage = 퐄퐁퐈퐓

퐈퐧퐭퐞퐫퐞퐬퐭

Since taxes are computed after interest, interest coverage is calculated in relation to before-tax

earnings. Depreciation is a non-cash item. Therefore, funds to depreciation are also available to

pay interest charges. We can thus calculate the interest average ratio as earnings before interest

taxes, depreciation and amortization (EBITDA) divided by interest:

Interest coverage = 퐄퐁퐈퐓퐃퐀퐈퐧퐭퐞퐫퐞퐬퐭

The limitation of the interest coverage ratio is that it does not consider repayment of loan.

Therefore, a more inclusive ratio – the fixed-charges coverage – is calculated. Thus ratio is

calculated by dividing EBITDA by interest plus principle repayment.

Fixed charges coverage ratio = 퐄퐁퐈퐓퐃퐀

퐈퐧퐭퐞퐫퐞퐬퐭 퐋퐨퐚퐧퐫퐞퐩퐚퐲퐦퐞퐧퐭ퟏ 퐓퐚퐱퐫퐚퐭퐞

This equation can be extended to include other fixed obligations such as preference dividends

and lease rentals. Thus, the fixed-charges coverage ratio will be:

퐄퐁퐈퐓퐃퐀

퐈퐧퐭퐞퐫퐞퐬퐭 + 퐋퐞퐚퐬퐞퐫퐞퐧퐭퐚퐥퐬 + 퐏퐃퐈퐕 + 퐋퐨퐚퐧퐫퐞퐩퐚퐲퐦퐞퐧퐭ퟏ − 퐭퐚퐱퐫퐚퐭퐞

ACTIVITY RATIO

Activity ratios are employed to evaluate the efficiency with which the firm managers and utilizes

its assets. These ratios are also called turnover ratios because they indicate the speed with which

assets are being converted or turned over into sales. Activity ratios, thus, involve a relationship

between sales and asset.

INVENTORY TURNOVER:

Inventory turnover indicates the efficiency of the firm in producing and selling its product. It is

calculated by dividing the cost of goods sold by the average inventory:

Inventory turnover = 퐂퐨퐬퐭퐨퐟퐠퐨퐨퐝퐬퐬퐨퐥퐝퐀퐯퐞퐫퐚퐠퐞퐢퐧퐯퐞퐧퐭퐨퐫퐲

DEBTORS TURNOVER:

Debtors turnover is found out by dividing credit sales by average debtors:

Debtors turnover = 퐂퐫퐞퐝퐢퐭퐬퐚퐥퐞퐬

퐀퐯퐞퐫퐚퐠퐞퐝퐞퐛퐭퐨퐫퐬

Debtors turnover indicates the number of times debtors turnover each year. Generally, the higher

the value of debtors turnover, the more efficient is the management of credit.

To an outside analyst, information about credit sales and opening and closing balances of debtors

may not be available. Therefore, debtors turnover can be calculated by dividing total sales by the

year-end balance of debtors.

ASSET TURNOVER RATIOS:

Net asset turnover = Sales ÷ Net asset

Total asset turnover = Sales ÷ Total assets

Fixed asset turnover = Sales ÷ Net fixed assets

Current asset turnover = Sales ÷ Current assets

Net current asset turnover = Sales ÷ Net current assets

PROFITABILITY RATIOS

The profitability ratios are calculated to measure the operating efficiency of the company.

Besides management of the company, creditors and owners are also interested in the profitability

of the firm. Creditors want to get interest and repayment of principal regularly. Owners want to

get a required rate of return on their investments. This is possible only when the company earns

enough profits.

GROSS PROFIT MARGIN:

The first profitability ratio in relation to sales is the gross profit margin or gross margin ratio.

Gross profit margin = 퐒퐚퐥퐞퐬 퐂퐨퐬퐭퐨퐟퐠퐨퐨퐝퐬퐬퐨퐥퐝퐒퐚퐥퐞퐬

= 퐆퐫퐨퐬퐬퐩퐫퐨퐟퐢퐭퐒퐚퐥퐞퐬

NET PROFIT MARGIN:

Net profit is obtained when operating expenses, interest an taxes are substracted from the gross

profit.

Net profit margin = 퐏퐫퐨퐟퐢퐭퐚퐟퐭퐞퐫퐭퐚퐱퐒퐚퐥퐞퐬

Net Margin Based on NOPAT:

The profit after tax (PAT) figure excludes interest on borrowing. Interest is tax deductible, and

therefore, a firm that pays more interest pays less tax. Tax saved on account of payment of

interest is called interest tax shield. Thus the conventional measure of net profit margin – PAT to

sales ratio – is affected by the firm’s financial policy. It can mislead if we compare two firms

with different debt ratios. For a true comparison of the operating performance of firms, we must

ignore the effect of financial leverage, viz. the measure of profit should ignore interest and its tax

effect. Thus, net profit margin (for evaluating operating performance) may be computed in the

following way:

Net profit margin = 퐄퐁퐈퐓(ퟏ 퐓)

퐒퐚퐥퐞퐬 = 퐍퐎퐏퐀퐓

퐒퐚퐥퐞퐬

Here, T is the corporate tax rate. EBIT(1-T) is the after-tax operating profit, assuming that the

firm has no debt.

OPERATING EXPENSE RATIO:

The operating expense ratio explains the changes in the profit margin (EBIT to sales) ratio. This

ratio is computed by dividing operating expenses, viz. cost of goods sold plus selling expenses

and general and administrative expenses (excluding interest) by sales:

Operating expenses ratio = 퐎퐩퐞퐫퐚퐭퐢퐧퐠퐞퐱퐩퐞퐧퐬퐞퐬

퐒퐚퐥퐞퐬

RETURN ON INVESTMENT (ROI):

The conventional approach of calculating return on investment (ROI) is to divide PAT by

investment. PAT is affected by capital structure. It is therefore more appropriate to use one of the

following measures of ROI for comparing the operating efficiency of firms:

ROI = Return On Total Assets (ROTA) = 퐄퐁퐈퐓(ퟏ 퐓)

퐓퐨퐭퐚퐥퐚퐬퐬퐞퐭퐬(퐓퐀)

ROI = Return On Net Assets (RONA) = 퐄퐁퐈퐓(ퟏ 퐓)

퐍퐞퐭퐚퐬퐬퐞퐭퐬(퐍퐀)

RETURN ON ASSETS:

Return on assets is a measure of how effectively the firm's assets are being used to generate

profits. It gives an indication of the capital intensity of the company, which will depend on the

industry; companies that require large initial investments will generally have lower return on

assets.

Return on Assets = 퐍퐞퐭퐢퐧퐜퐨퐦퐞퐓퐨퐭퐚퐥퐀퐬퐬퐞퐭

퐱ퟏퟎퟎ

RETURN ON EQUITY:

Return on equity measures the rate of return on the ownership interest (shareholders' equity) of

the common stock owners. It measures a firm's efficiency at generating profits from every unit of

shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a

company uses investment funds to generate earnings growth.

Return on Equity = 퐍퐞퐭퐈퐧퐜퐨퐦퐞

퐒퐡퐚퐫퐞퐡퐨퐥퐝퐞퐫 퐬퐄퐪퐮퐢퐭퐲퐱ퟏퟎퟎ

RETURN ON CAPITAL EMPLOYED:

Return on Capital Employed is sometimes referred to as the "primary ratio". It tells us what

returns management has made on the resources made available to them before making any

distribution of those returns. It judges the overall performance of the concern. In other words, it

evaluates the earning capacity of the net assets of the business. Higher the ratio the more

efficient is the management and utilization of capital employed.

Return on Capital Employed = 퐄퐁퐈퐓

퐂퐚퐩퐢퐭퐚퐥퐄퐦퐩퐥퐨퐲퐞퐝퐱ퟏퟎퟎ

EARNING PER SHARE (EPS):

The earning per share is calculated by dividing profit after tax by total number of outstanding.

EPS simply shows the profitability of the firm on a per share basis, it does not reflect how much

is paid as dividend and how much is retained in business.

Earning per Share = 퐏퐫퐨퐟퐢퐭퐀퐟퐭퐞퐫퐓퐚퐱

퐍퐨.퐨퐟퐒퐡퐚퐫퐞퐬퐎퐮퐭퐬퐭퐚퐧퐝퐢퐧퐠

DIVIDEND PER SHARE (DPS):

Dividend per share is a simple and intuitive number. It is the amount of the dividend that

shareholders have (or will) receive for each share they own. A larger number of present and

potential investors may be interested in DPS rather than EPS. DPS is the earnings distributed to

ordinary shareholders divided by the number of ordinary shares outstanding.

Dividend per Share = 퐄퐚퐫퐧퐢퐧퐠퐬퐩퐚퐢퐝퐭퐨퐒퐡퐚퐫퐞퐡퐨퐥퐝퐞퐫퐬

퐍퐨.퐨퐟퐒퐡퐚퐫퐞퐬퐢퐧퐢퐬퐬퐮퐞

The Dividend Payout Ratio is simply the dividend per share divided by Earnings per Share.

Dividend payout Ratio = 퐃퐢퐯퐢퐝퐞퐧퐝퐏퐞퐫퐒퐡퐚퐫퐞(퐃퐏퐒)퐄퐚퐫퐧퐢퐧퐠퐏퐞퐫퐒퐡퐚퐫퐞(퐄퐏퐒)

DU-PONT ANALYSIS:

It helps to find out why a company’s profitability as measured by ROE is higher or lower than

the industry average ROE or last year’s company ROE. The Du Pont identity breaks down

Return on Equity (that is, the return to equity that investors have contributed to the firm) into

three distinct elements. This analysis enables the analyst to understand the source of superior (or

inferior) return by comparison with companies in similar industries (or between industries). The

return on equity (ROE) ratio is a measure of the rate of return to stockholders. Decomposing the

ROE into various factors influencing company performance is often called the Du Pont system.

퐍퐞퐭퐏퐫퐨퐟퐢퐭퐏퐫퐞퐭퐚퐱퐏퐫퐨퐟퐢퐭

The company's tax burden. This is the proportion of the company's

profits retained after paying income taxes

퐏퐫퐞퐭퐚퐱퐏퐫퐨퐟퐢퐭퐄퐁퐈퐓

The company's interest burden management efficiency. This will be 1.00

for a firm with no debt or financial leverage.

퐄퐁퐈퐓퐒퐚퐥퐞퐬

The company's operating profit margin or return on sales (ROS). This is

the operating profit

퐒퐚퐥퐞퐬퐀퐬퐬퐞퐭

The company's asset turnover (ATO)

퐀퐬퐬퐞퐭퐄퐪퐮퐢퐭퐲

The company's leverage ratio, which is equal to the firm's debt to equity

ratio + 1. This is a measure of financial leverage.

The company's return on assets (ROA) is (Return on sales x Asset turnover).

The company's compound leverage factor is (Interest burden x Leverage).

ROE can also be stated as:

ROE = Tax burden x Interest burden x Margin x Asset Turnover x Leverage

ROE = Tax burden x ROA x Compound leverage factor

Profit margin is (Net profit ÷ Sales), so the ROE equation can be restated as:

ROE = (Profit margin)*(Asset turnover)*(Equity multiplier)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit/Equity)

Thus, through this analysis Operating efficiency is measured by profit margin, Asset use

efficiency is measured by asset turnover and Financial leverage is measured by equity multiplier.

COMPARATIVE BALANCE SHEET:

Comparative balance sheet serves as a financial comparison from year to year. A comparative

balance sheet is designed to show financial differences between several accounting periods. A

balance sheet is a detailed account of everything lost and gained financially during a certain time,

containing both physical and abstract data. The single balance sheet focuses on the financial

status of the concern as on a particular date, the comparative balance sheet focuses on the

changes that have taken place in one accounting period. The changes are the direct outcome of

operational activities, conversion of assets, liability and capital form into others as well as a

various interactions among assets, liability and capital. A comparative balance sheet is useful

because a business can instantly compare profits and losses between different time periods. Most

businesses use comparative balance sheets to help increase profits and functionality of a

company. The main benefit of a comparative balance sheet is that profits and losses can be seen

at a glance. It is also possible to see the increase or decrease of assets that the business has. The

company will be able to tell what the biggest money suckers in the business are, and try to think

of ways to cut down losses in that area.

CHAPTER 4

DDAATTAA TTAABBUULLAATTIIOONN AANNDD

AANNAALLYYSSIISS

FIVE YEAR BALANCE SHEET OF THOMAS COOK (INDIA) LTD. STARTING FORM 31.12.2009 TO 31.12.2013

(amount in crores)

PARAMETERS

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

EQUITY AND LIABILITIES

Share Capital 25.36 21.91 21.79 21.77 21.74 Share Warrants and Outstandings 0.00 0.00 0.00 0.00 0.00 Shareholder's Fund 610.79 398.51 354.64 306.38 272.53 Long-term Borrowings 0.00 0.00 0.00 0.00 0.00 Secured Loans 1.24 2.22 1.61 1.98 0.48 Unsecured Loans 100.00 0.00 0.00 196.75 167.10 Deferred Tax Assets/Liabilities 2.59 4.44 5.04 4.39 3.63 Other Long Term Liabilities 18.07 22.62 12.92 0.00 0.00 Long-term Trade Payables 0.00 0.00 0.00 0.00 0.00 Long-term Provisions 0.88 0.66 1.07 0.00 0.00 Total Non-Current Liabilities 122.78 29.74 20.63 203.12 171.21 Trade Payables 189.96 114.91 124.80 105.75 70.03 Current Liabilities Other Current Liabilities 131.98 122.59 87.31 60.32 107.98 Short-term Borrowings 12.81 182.09 222.87 0.00 0.00 Short-term Provisions 301.78 274.18 13.30 232.69 212.78 Total Current Liabilities 636.52 693.77 448.28 398.76 390.80 Total Liabilities 1370.09 1122.22 823.55 908.27 834.54 Non-Current Assets 0.00 0.00 0.00 0.00 0.00 ASSETS Gross Block 147.42 146.04 141.39 136.40 123.79 Less: Accumulated Depreciation 84.31 77.16 71.41 70.87 63.41 Less: Impairment of Assets 0.00 0.00 0.00 0.00 0.00 Net Block 63.10 68.89 69.97 65.53 60.38 Lease Adjustment Account 0.00 0.00 0.00 0.00 0.00 Capital Work in Progress 0.51 0.22 0.46 5.27 2.27 Intangible Assets under Development 3.62 1.33 1.61 0.00 0.00 Pre-operative Expenses Pending 0.00 0.00 0.00 0.00 0.00 Assets in Transit 0.00 0.00 0.00 0.00 0.00 Non-Current Investments 453.25 194.00 192.41 192.41 192.54

Long-term Loans and Advances 39.66 38.12 29.02 0.00 0.00 Other Non-Current Assets 23.24 31.52 2.23 0.00 0.00 Total Non-Current Assets 583.38 334.07 295.70 263.22 255.19 Total Reserves 583.69 375.46 331.12 283.77 250.05 Current Assets Loans and Advances Current Investments 140.05 80.01 5.00 5.00 0.00 Inventories 0.00 0.00 0.00 0.00 0.00 Cash and Bank 92.79 167.72 245.53 108.38 118.11 Other Current Assets 36.65 38.63 26.49 0.00 0.00 Short-term Loans and Advances 341.07 318.29 57.52 345.35 289.11 Total Current Assets 786.72 788.14 527.84 645.05 579.35 Net Current Assets (including Current Investment)

150.20 94.38 79.56 246.29 188.55

Total Current Assets (excluding Current Investment)

646.67 708.13 522.84 640.05 579.35

Miscellaneous Expenses not written off 0.00 0.00 0.00 0.00 0.00 Total Assets

1370.09 1122.22 823.55 908.27 834.54

Contingent Liabilities 322.30 215.70 136.20 73.29 40.53 Total Debt 114.79 185.23 225.08 198.73 167.58 Book Value (in Rs.) 24.57 0.00 16.62 14.40 12.83 Adjusted Book Value (in Rs.) 24.57 0.00 16.62 14.40 12.83

FIVE YEAR'S PROFIT & LOSS ACCOUNT OF THOMAS COOK INDIA LTD. STARTING FROM 31.12.2009 TO 31.12.2013

(amount in crores)

PARAMETERS 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Gross Sales 378.10 377.13 342.34 267.36 220.71 Less: Inter Divisional Transfer 0.00 0.00 0.00 0.00 0.00 Less: Sales Returns 0.00 0.00 0.00 0.00 0.00 Less: Excise 0.00 0.00 0.00 0.00 0.00 Net Sales 378.10 377.13 342.34 267.36 220.71

EXPENDITURES: Increase/decrease in Stock 0.00 0.00 0.00 0.00 0.00 Raw Material Consumed 0.00 0.00 0.00 0.00 0.00 Power & Fuel Cost 4.93 4.46 3.54 3.80 3.82 Employee Cost 147.90 148.16 123.76 94.21 78.42 Other Manufacturing Expenses 12.13 13.96 10.66 8.95 8.30 General and Administrative Expenses 74.04 68.50 65.04 60.58 53.75 Selling and Distribution Expenses 19.50 25.15 21.14 21.07 12.21 Miscellaneous Expenses 8.87 10.58 8.30 4.74 5.54 Expenses Capitalised 0.00 0.00 0.00 0.00 0.00 Total Expenditure 267.37 270.80 232.43 193.33 162.04 PBIDT (Excl OI) 110.73 106.33 109.90 74.03 58.67 Other Income 5.50 9.23 14.43 11.98 6.25 Operating Profit 116.23 115.56 124.34 86.01 64.92 Interest 34.75 30.05 29.99 21.27 20.96 PBDT 81.48 85.51 94.35 64.74 43.95 Depreciation 11.19 11.72 11.47 11.59 9.85 Profit Before Taxation & Exceptional Items 70.29 73.79 82.88 53.15 34.10 Exceptional Income/Expenses 0.00 0.00 0.00 10.00 0.00 Profit Before Tax 70.29 73.79 82.88 63.15 34.10 Provison for Tax 24.17 24.59 26.96 21.61 11.94 PAT 46.12 49.21 55.91 41.54 22.16 Extraordinary Items 0.00 0.00 0.00 0.00 0.00 Adj to Profit After Tax 0.00 0.00 0.00 0.00 0.00 Profit Balance B/F 179.49 144.53 103.39 73.78 61.70 Appropriation 225.62 193.74 159.30 115.32 83.87 Equity Dividend (%) 37.50 37.50 37.50 37.50 37.50 Earnings Per Share (in Rs.) 1.86 2.31 2.64 1.96 1.04 Book Value (in Rs.) 24.57 18.61 16.62 14.40 12.83

Detailed analysis of financial data of the performance of the company is discussed as following:

ANALYSIS OF THE DATA USING RATIOS

CURRENT RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Current Ratio 1.18 1.86 2.28 2.28 1.94

INTERPRETATION:

As a conventional rule, a current ratio of 2 to 1 or more is considered satisfactory. The Thomas Cook

(India) Ltd. Has a current ratio of 1.18 on 31.12.2013. Whereas, in 31.12.2011 and 31.12.2010 it was

2.28. Current ratio was increased gradually from 2009 to 2011 but then lowered to 1.18 on 2013. This

reveals that the liquidity position of the company became worse from last two years. The current ratio

represents a margin of safety for creditors. The higher the current ratio higher the margin of safety.

Current ratio is a crude-and-quick measure of the company’s liquidity.

1.18

1.86

2.28 2.28

1.94

0

0.5

1

1.5

2

2.5

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Current Ratio

Current Ratio

Linear (Current Ratio)

QUICK RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Quick Ratio 1.18 1.86 2.26 2.27 1.92

INTERPRETATION:

Generally, a quick ratio of 1 to 1 is considered to represent a satisfactory current financial condition. In

case of Thomas Cook (India) Ltd. As the company deals with the service industry it does not require

maintaining inventory. Therefore, here quick ratio of the company is not unsatisfactory. But, like

current ratio, quick ratio of the company also has a downward trend.

CASH RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Cash Ratio 0.23 0.24 0.55 0.27 0.3

1.18

1.86

2.26 2.27

1.92

0

0.5

1

1.5

2

2.5

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Quick Ratio

Quick Ratio

Linear (Quick Ratio)

INTERPRETATION:

Since the cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to

current liabilities. For Thomas Cook (India) Ltd., as it is a service industry, it requires to maintain an

adequate level of cash for its operational activity. In the year 2011, the company reached its highest

level of cash ratio, i.e. 55 % and at the end of last financial year it was stood at 23%.

NET WORKING CAPITAL RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Net Working Capital Ratio 0.22 0.38 0.29 0.54 0.74

INTERPRETATION:

Net working capital ratio is the measure of company’s potential reservoir of funds. It can be related to

net assets. Here, the net working capital ratio is decreasing every year. In 2009, it was 0.74 but in 2013

it has downed to its minimum within this five year 0.22.

The aforementioned ratios indicate that the liquidity of Thomas Cook (India) Ltd. is deteriorating.

LONG-TERM DEBT-EQUITY RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Long Term Debt / Equity 0.16 0.01 0.01 0.01 0

A high debt/equity ratio generally means that a company has been aggressive in financing its growth

with debt. This can result in volatile earnings as a result of the additional interest expense.

INTERPRETATION:

In risk analysis, long-tem debt equity ratio is a way to determine a company's leverage. The ratio is

calculated by taking the company's long-term debt and dividing it by the total value of its preferred

and common stock. Put graphically: Ratio = Long-term debt / (Preferred stock + Common stock). The

greater a company's leverage, the higher the ratio. Generally, companies with higher ratios are thought

to be more risky because they have more liabilities and less equity.

TOTAL DEBT-EQUITY RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Total Debt/Equity 0.18 0.46 0.64 0.65 0.61

The debt/equity ratio also depends on the industry in which the company operates. For example,

capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while

personal computer companies have a debt/equity of under 0.5.

0.16

0.01 0.01 0.010

-0.05

0

0.05

0.1

0.15

0.2

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Long Term Debt / Equity

Long Term Debt / Equity

Linear (Long Term Debt / Equity )

INTERPRETATION:

In 2009, the total debt/equity ratio of the company was 0.61 and at the end of 2013, it stood at 018. It

can be followed that the ratio has a downward slop over the last five years. It is clear that the lender’s

contribution has lowered year-by-year in respect of owner’s contribution.

OWNER’S FUND AS PERCENTAGE OF TOTAL SOURCE:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Owners fund as % of total Source 84.18 68.27 60.75 60.53 61.78

A company with high gearing (high leverage) is more vulnerable to downturns in the business cycle

because the company must continue to service its debt regardless of how bad sales are. A greater

proportion of equity provides a cushion and is seen as a measure of financial strength.

0.18

0.46

0.64 0.650.61

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Total Debt/Equity

Total Debt/Equity

Linear (Total Debt/Equity )

INTERPRETATION:

From the above chart is must be noted that the owner’s fund in the total source has increased to

84.18% on 31.12.2013. Since, it has upward trend, it might be sound good that the company is firmly

backed up by the owner’s capital.

FIXED ASSET TURNOVER RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Fixed Assets Turnover Ratio 0.57 0.64 0.59 2.67 0.54

A financial ratio of net sales to fixed assets. This ratio is often used as a measure in manufacturing

industries, where major purchases are made for PP&E to help increase output. When companies make

these large purchases, prudent investors watch this ratio in following years to see how effective the

investment in the fixed assets was.

84.18

68.2760.75 60.53 61.78

0102030405060

708090

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Owners fund as % of total Source

Owners fund as % of total Source

Linear (Owners fund as % of total Source )

INTERPRETATION:

The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset

investments - specifically property, plant and equipment (PP&E) - net of depreciation. A higher fixed-

asset turnover ratio shows that the company has been more effective in using the investment in fixed

assets to generate revenues.

OPERATING MARGIN RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Operating Margin (%) 29.28 28.19 28.54 27.68 24.01

Operating margin or operating profit margin measures what proportion of a company's revenue is left

over, after deducting direct costs and overhead and before taxes and other indirect costs such as

interest.

0.57 0.64 0.59

2.67

0.54

0

0.5

1

1.5

2

2.5

3

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Fixed Assets Turnover Ratio

Fixed Assets Turnover Ratio

Linear (Fixed Assets Turnover Ratio )

INTERPRETATION:

At 31.12.2013 the company has made 30 paisa (approx) for every rupee of sales (before interest and

taxes). This ratio is comparatively higher than past few years. It reveals that the operating efficiency

was developed throughout the last five years.

GROSS PROFIT MARGIN:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Gross Profit Margin (%) 26.32 25.08 25.01 23.35 19.96

The higher the percentage, the more the business retains of each rupee of sales, which means more

money is left over for other operating expenses and net profit.

A low gross profit margin ratio means that the business generates a low level of revenue to pay for

operating expenses and net profit. It indicates that either the business is unable to control production

and inventory costs or that prices are set too low.

29.28 28.19 28.54 27.6824.01

05

101520253035

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Operating Margin (%)

Operating Margin (%)

Linear (Operating Margin (%) )

INTERPRETATION:

On 31.12.2013 the gross profit margin of the company was 26.32% which is highest in last five years.

It shows a gradually improvement in efficiency of the management. A 33% gross margin means

products are marked up 50% and so on.

NET PROFIT MARGIN RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Net Profit Margin (%) 12.02 12.73 16.78 15.49 9.09

Net profit margin is the percentage of revenue remaining after all operating expenses, interest, taxes

and preferred stock dividends (but not common stock dividends) have been deducted from a

company's total revenue. Shareholders look at net profit margin closely because it shows how good a

company is at converting revenue into profits available for shareholders.

26.32 25.08 25.0123.35

19.96

0

5

10

15

20

25

30

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Gross Profit Margin (%)

Gross Profit Margin (%)

Linear (Gross Profit Margin (%) )

INTERPRETATION:

In 2011, in the last five years, the company has the highest net profit margin, viz. 16.78%. Net profit

margin provides clues to the company's pricing policies, cost structure and production efficiency.

Different strategies and product mix cause the net profit margin to vary among different companies.

Net profit margin is an indicator of how efficient a company is and how well it controls its costs. The

higher the margin is, the more effective the company is in converting revenue into actual profit.

DIVIDEND PAYOUT RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Dividend payout Ratio (Net Profit) 20.13 16.24 14.21 22.29 42.07

A stable dividend payout ratio indicates a solid dividend policy by the company's board of directors.

12.02 12.73

16.7815.49

9.09

02468

1012141618

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Net Profit Margin (%)

Net Profit Margin (%)

Linear (Net Profit Margin (%) )

INTERPRETATION:

When analyzing the last five years, the company has the highest payout ratio in 2009. Shareholders got

the highest amount of profit share in 2009. Based on the data presented in the Thomas Cook (India)

Ltd.’s annual report we can see from the above chart that the dividend payout ratio has immensely

decreased from the year 2009 from 42.07 to 22.29 in year 2010 which clearly shows that the dividend

paying pattern of the company to the shareholders has followed a varying pattern in the past years.

Although it is not clear that how much of the profits are distributed among the shareholders as

dividends and how much is retained in the business. But it is advisable that the company should follow

an ideal pattern so as to maintain confidence among its shareholders.

EARNING RETENTION RATIO:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Earning Retention Ratio 79.87 83.76 80.11 54.29 45.8

20.1316.24

14.21

22.29

42.07

05

1015202530

354045

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Dividend payout Ratio (Net Profit)

Dividend payout Ratio (Net Profit)

Linear (Dividend payout Ratio (Net Profit) )

INTERPRETATION:

The company has an increasing trend to retain the earning from the business over the last five years.

The prime idea behind earnings retention ratio is that the more the company retains the faster it has

chances of growing as a business. This is also known as retention rate or retention ratio.

DIVIDEND PER SHARE (DPS):

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Dividend Per Share 0.37 0.37 0.37 0.37 0.37

79.87 83.76 80.11

54.2945.8

0

20

40

60

80

100

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Earning Retention Ratio

Earning Retention Ratio

Linear (Earning Retention Ratio )

0.37 0.37 0.37 0.37 0.37

0.369852

0.370629

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Dividend Per Share

Dividend Per Share

Linear (Dividend Per Share )

INTERPRETATION:

The the sum of declared dividends for every ordinary share issued. Dividend per share (DPS) is the

total dividends paid out over an entire year (including interim dividends but not including special

dividends) divided by the number of outstanding ordinary shares issued. Thomas Cook (India) Ltd. has

a uniform DPS over the last five years, i.e. 0.37.

EARNINGS PER SHARE:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Earning Per Share (EPS) 1.86 2.31 2.64 1.96 1.04

INTERPRETATION:

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per

share serves as an indicator of a company's profitability. Earnings per share was 1.04 in year 2009 and

1.86

2.312.64

1.96

1.04

0

0.5

1

1.5

2

2.5

3

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Earning Per Share (EPS)

Earning Per Share (EPS)

Linear (Earning Per Share (EPS))

it was increased to 1.96 in year 2010 and after that it was increased to 2.64 in year 2011 and gone

down to 2.31 in 2012. In 2013 it was 1.86. As a result based on the above data up to 2011 the company

has been gaining a greater rate of EPS and its overall profitability was also increasing but in 2012 we

saw a decrease in the EPS which shows that the firm should see upon its operating pattern and try to

enhance its value of shares.

NET SALES:

YEAR 31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009 Net Sales (in crs.) 378.10 377.13 342.34 267.36 220.71

INTERPRETATION:

The company has a increasing trend in net sales. At the end of 2013, it was 378.10 crores, whereas, in

2009 it was 220.71 crores. Increasing net sales figures satisfy its investors and stakeholders.

378.10 377.13342.34

267.36220.71

0.0050.00

100.00150.00200.00250.00300.00350.00

400.00450.00

31.12.2013 31.12.2012 31.12.2011 31.12.2010 31.12.2009

Net Sales (in crores)

Net Sales

Linear (Net Sales)

CHAPTER 5

SSUUMMMMAARRYY

AANNDD CCOONNCCLLUUSSIIOONN

SUMMARY

This study gives in detail the analysis of various financial ratios based upon the past as well as the

present performance of Cook (India) Ltd. expressed in financial data. Based upon the results from

these financial ratios conclusions are driven out that whether the company has been earning profits or

not and also that how much it has used these results in its growth. So, the company can also manage

each of its current assets namely cash management, accounts receivable management and also its

liabilities like creditors, loans, bills payables etc. so that it can maintain an identical financial ratio for

each of its business aspects like solvency ratios, turnover ratios, profitability ratios etc. The research

methodology adopted for this study is mainly from secondary sources of data which includes annual

reports of Thomas Cook (India) Ltd., and website of the company. The use of primary sources is

limited to interviews with few employees in the finance department and also from the working process

adopted in the company as interviewed from employees. The study of financial ratio analysis has

shown that Thomas Cook (India) Ltd. has a strong base in meeting the identical financial ratios as well

as has increased its profits from the past years. The company is enjoying reasonable profits. Thomas

Cook (India) Ltd. employs forex funds instead of domestic loans and WC facilities. Thomas Cook

(India) Ltd. sales position is also very good. Its excellent performance is attributed to reduced cost of

product and ultimately contributing to a good financial as well as a profitable position in the market.

The operational areas of Thomas Cook (India) Ltd. and its performance has been quite satisfactory

only in some of the aspects it failed to achieve the ideal targets, so it needs to look upon these areas

and adopt certain measures which can be cost reduction, efficient asset management, working capital

management, managing workforce, adopting suitable policies and there are other various sources also

which can be taken into consideration in order to enhance productivity as well as to increase the profits

of the firm by applying employee-intensive techniques or capital-intensive techniques which fits the

organization best. Also we know that, a single ratio in itself cannot be said to be good or bad, in order

to comment on the quality of a ratio it has to be compared with some standard or benchmark.

These benchmarks can be:

1. Past Ratio: A ratio could be compared or benchmarked with past year’s ratio. It is popularly

known as time-series analysis.

2. Ratio of similar firms or industry average: A ratio could be compared with the ratios of

similar firms in the same industry or by industry average in the same point of time.

3. Rule of thumb: Certain “rule of thumb” based upon well proven conventions have evolved

over a period of time which can serve this purpose well.

LIMITATIONS OF THE STUDY

Although every effort has been made to study the “Ratio Analysis” in detail in an organization of

Thomas Cook (India) Ltd. size, it is not possible to make an exhaustive study in a limited duration of

eight weeks.

Apart from the above constraint, one serious limitation of the study is that it is not possible to reveal

some of the financial data owing to the policies and procedures laid down by Thomas Cook (India)

Ltd..

However the available data is analyzed with great effort to get an insight into Financial Ratio Analysis

in Thomas Cook (India) Ltd..

CONCLUSION

Let us summarize our discussion on the structure and financing of current assets. The relative liquidity

of the firm's assets structure is measured by current to fixed assets or current asset to total asset ratio.

The greater this ratio, the less risky as well as the less profitable will be the firm and vice versa.

Similarly, the relative liquidity of the firm's financial structure can be measured by short-term

financing to total financing ratio. The lower this ratio the less risky as well as profitable will be the

firm and vice versa. In shaping its working capital policy, the firm should keep in mind these two

dimensions: relative asset liquidity (level of current assets) and relative financing liquidity (level of

short term financing of the working capital management. A firm will be following a very conservative

working capital policy if it combines a high level of current assets with a high level of long term

financing (or low level of short term financing). Such a policy will not be risky at all but would be less

profitable. An aggressive firm on the other hand would combine low level of current assets with a low

level of long term financing (or high level of short term financing).

This firm will have high profitability and high risk. In fact, the firm the firm may follow a

conservative financing policy to counter its relatively liquid asset structure in practice. The conclusion

of all this is that the considerations of assets and financing mix are crucial to the working capital

management which is a major constraint in the working out of the financial ratio analysis.

BIBILIOGRAPHY

BOOKS AND REFERENCES:

1. Financial Management by I. M. Pandey

2. Corporate Accounting by Prof. Amitabha Basu

REPORTS:

1. Annual reports of Thomas Cook (India) Ltd.

2. General reports of Thomas Cook (India) Ltd.

INTERNET REFERENCES:

1. http://www.investopedia.com/

2. http://india.gov.in/topics/travel-tourism

3. http://en.wikipedia.org

4. http://www.thomascook.in

5. http://www.kotaksecurities.com

6. http://financial-dictionary.thefreedictionary.com

7. www.moneycontrol.com/

8. profit.ndtv.com/

9. economictimes.indiatimes.com/

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