final report finance

8/4/2019 Final Report Finance

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ASSIGNMENT

of

FINANCIAL ACCOUNTING

Analyze the Annual Report and Performance of ACC Cement for the year 2008 & 2009

GROUP No. 6 (MBA-I, B-Batch)

Submitted by: Submitted to:

Mrs. Shilpa S. Parkhi

SIOM, Nashik

A balance sheet is a snapshot of a company's financial position at a particular point of time in

contrast to an income statement, which measures income over a period of time.

PRN NAME

10020741068 Pansare Saurabh Shrinivas

10020741074 Radhakrishnan Divya

10020741080 Sadhotra Mohit

10020741086 Shah Chintan Bharat

10020741092 Shinde Vikram Vasant

10020741098 Sundar Ray Siddhartha

10020741104 Uchil Supriya Subhashchandra

10020741110 Wadher Bhushan Dayal

10020741116 Jhunjhunwala Honey

10020741122 Singh Divya


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FINANCIAL RATIOS

The importance of ratio analysis lies in the fact that it presents data on a comparative basis and

enables the drawing of inferences regarding the performance of the firm. Ratio analysis helps in

concluding the following aspects:

Liquidity Position:

Ratio analysis helps in determining the liquidity position of the firm. A firm can be said to have

the ability to meet its current obligations when they become due. It is measured with the help

of liquidity ratios.

Long- Term Solvency:

Ratio analysis helps in assessing the long term financial viability of a firm. Long- term solvency

measured by leverage/capital structure and profitability ratios.

Operating Efficiency:

Ratio analysis determines the degree of efficiency of management and utilization of assets. It is

measured by the activity ratios.

Over-All Profitability:

The management of the firm is concerned about the overall profitability of the firm which

ensures a reasonable return to its owners and optimum utilization of its assets. This is possible

if an integrated view is taken and all the ratios are considered together.

Inter- firm Comparison:

Ratio analysis helps in comparing the various aspects of one firm with the other.

1. Current Ratio : The current ratio is a financial ratio that measures whether or not a firmhas enough resources to pay its debts over the next 12 months. It compares a firm's


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current assets to its current liabilities. The ideal Current Ratio preferred by Banks is

1.33 : 1

Current Ratio = Current Assets/Current Liabilities

FOR ACC

(CONSOLIDATED AC 2009 SHEET REFERRED)

current ratio = current assets / current liabilities

2008 2009 % CHANGE

Current Assets 2727.2 2330.17 -14.56

Current Liabilities 1900.68 2172.38 14.29

current ratio 1.434854894 1.072634622 -25.24

Interpretation:

The current ratio has come down by 25% AS COMPARED TO 2008. This was a result of an

increase in the current liabilities and reduction in current assets. The company has lost on its

capability to pay short term debts.

2. Net Working Capital : This is worked out as surplus of Long Term Sources over LongTern Uses, alternatively it is the difference of Current Assets and Current Liabilities. If

current assets are less than current liabilities, an entity has a working capital deficiency,

also called a working capital deficit.

NWC = Current Assets Current Liabilities

For ACC:

Net working capital= Current Assets Current Liabilities

2008 (Rs. Crore) 2009(Rs. Crore) % CHANGE

Current Assets 2727.2 2330.17 -14.56

Current Liabilities 1900.68 2172.38 14.29

NWC 826.52 157.79 -80.90

Interpretation:

The NWC has reduced by 80.9%. This implies that the companies may not have sufficient funds

to satisfy both maturing short-term debt and upcoming operational expenses in the coming

future.


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3. Acid test or Quick ratio :It is the ratio between Quick Current Assets and Current Liabilities. It should be at least equal to

1. It is an indicator of a company's short-term liquidity. The quick ratio measures a

company's ability to meet its short-term obligations with its most liquid assets. The higher the

quick ratio, the better the position of the company

Quick Current Assets: Cash/Bank Balances + Receivables upto 6 months + Quickly realizable

securities such as Govt. Securities or quickly marketable/quoted shares and Bank Fixed Deposits

Acid Test or Quick Ratio = Quick Current Assets/Current Liabilities

For ACC

Quick Ratio = Quick Current Assets/Current Liabilities

2008 (Rs. Crore) 2009(Rs. Crore) % CHANGE

Quick Current Assets 2170.66 1826.73

Current Liabilities 1900.68 2172.38

Quick Ratio 1.1420439 0.840888795 -26.36

Quick Current Assets'=Current Assets, Loans and Advances - Loans and

Advances

Interpretation:

The company is losing its capability to pay short term debts.

4. Debt Equity Ratio:It comes under Leverage ratios or long term solvency ratios.

A measure of a company's financial leverage calculated by dividing its total

liabilities by stockholders' equity. It indicates what proportion of equity and debt the company

is using to finance its assets.

Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the


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calculation. Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal

financial statements as well as corporate ones.

For ACC

(Balance Sheet-2008, 2009 and Financial Analysis Report 2008, 2009 referred)

Debt-Equity ratio = Total Liabilities / Shareholder Equity

2008 2009 % CHANGE

Total Liabilities 2,741.29 3,152.22 14.99

Share Holder Equity 4,927.73 6,016.22 22.08

current ratio 0.5562 0.5239 -5.81

Interpretation:

Debt to equity ratio indicates the proportionate claims of owners and the outsiders against the

firms assets. The purpose is to get an idea of the cushion available to outsiders on the

liquidation of the firm. However, the interpretation of the ratio depends upon the financial and

business policy of the company.

Liabilities have increased by 14.99% as compared to previous year primarily on account of

higher provision for marketing and sales expenses, which in turn is arising out of higher sales

during the year and increase in provision for expenses in line with the increase in turnover etc.

Debt Equity Ratio being less than unity indicates healthy state of the company, but there is 5.81

% drop in it in 2009 when compared to 2008 because of the increase in the liabilities.

5. Operating Profit Ratio :

OPERATING PROFIT RATIO= (Operating Profit / Net Sales) x 100

2008 (in Cr.) 2009 (in Cr.)

Operating profit 1,512.66 2,259.16

Net Sales 8234.02 8724.00

Operating Profit ratio 18.37 25.90


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Interpretation:

Higher operating profit ratio indicates higher operational efficiency. It shows the profit earned

by company from its business operations & not from other sources. Also it shows whether

business is able to stand in market or not.

It means Operational efficiency of ACC in 2009 is higher as compared to 2008.

6.

Net Profit Ratio :

NET PROFIT RATIO= (Net Profit / Net Sales) x 100

2008 (in Cr.) 2009 (in Cr.)

Net profit 1099.64 1563.91

Net Sales 8234.02 8724.00

Operating Profit ratio 13.35 17.93

Interpretation:

Net Profit ratio measures overall profitability.

Net Profit ratio measures the overall profitability of company. It means overall profitability of

ACC is more in 2009 as compared to 2008.

7. Proprietary RatioProprietary Ratio = (Tangible Net Worth/Total Tangible Assets) x 100

As there is no tangible asset hence tangible net worth will normal my net worth.

2009

Total Tangible Assets= 6793.89


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Tangible Net Worth =5868.97

Proprietary Ratio=(5868.97/6793.89)*100= 86.38%

So,( 100-86.38)=13.62 ,which implies that 13.62% of total assets is debt for the company for

the year 2009.

2008

Total Tangible Assets= 5650.81

Tangible Net Worth =4823.12

Proprietary Ratio=(4823.12/5650.81)*100= 85.35%

Hence,14.65% of total assets is debt for the company for the year 2008.

2008 &2009 Proprietary Ratio comparison

Hence it seen that in 2009 the company repaid debt of around (14.65-13.62)1.03% of total

assets.

8. Gross Profit RatioGross Profit Ratio = (Gross Profit / Net Sales ) x 100

For ,2009

Gross profit=(Sales Cost of goods sold)

Sales=8725.41

Cost of goods sold=6017.28

Gross Profit=(8725.41-6017.28)=2708.13

Gross Profit Ratio=(2708.13/8725.41)*100=31.03%

Hence the gross profit of the company is 31.03%

For,2008

Gross profit=(Sales Cost of goods sold)

Sales=7974.28


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Cost of goods sold=6031.53

Gross profit=(7974.28-6031.53)=1942.75

Gross Profit Ratio=(1942.75/7974.28)*100=24.36%

Hence the gross profit of the company is 24.36%

2008 and 2009 Gross Profit Ratio comparison

Hence on comparing the data between 2008 and 2009 the gross profit of the company

increases from 24.36% to 31.03%.

9. Inventory Turnover RatioA ratio showing how many times a company's inventory is sold and replaced over a period.

Generally calculated as,

For ACC:

(Reference: Balance sheet 2008, 2009 & Financial Analysis Report)

For the year 2008Opening

Stock

(Fig.in

Rs.Cr.)

Closing

Stock

(Fig.in

Rs.Cr.)

Net Annual

Sales

(Fig.in

Rs.Cr.)

Average

Inventory / Stock

(Fig.in Rs.Cr.)

Stock/Inventory

turnover ratio

227.97 228.3 7,282.87 228.135 31.9235102

For the year 2009Opening

Stock

(Fig.in

Rs.Cr.)

Closing

Stock

(Fig.in

Rs.Cr.)

Net Annual

Sales

(Fig.in

Rs.Cr.)

Average

Inventory / Stock

(Fig.in Rs.Cr.)

Stock/Inventory

turnover ratio

228.3 257.04 8,027.20 242.67 33.0786665


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High inventory levels are unhealthy because they represent an investment with a rate of return

of zero. It also opens the company up to trouble should prices begin to fall. A low turnover ratio

implies poor sales and, therefore, excess inventory. A high turnover ratio implies good sales

.therefore, less inventory.

Inference:

If we compare Balance sheet for the year 2008 and 2009 for ACC then Inventory ratio for the

year 2009 is higher than 2008 by 3.62% ( please refer above table) which indicate the net sales

done by ACC is increased and inventory carried is reduced.

10.Price-Earnings Ratio "P/E"A valuation ratio of a company's current share price compared to its per-share earnings. It is a

measure of the price paid for a share relative to the annual net income or profit earned by the

firm per share.

Calculated as:

For example, if a company is currently trading at $43 a share and earnings over the last 12

months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).

EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the

estimates of earnings expected in the next four quarters (projected or forward P/E). A third

variation uses the sum of the last two actual quarters and the estimates of the next two

quarters.

Also sometimes known as "price multiple" or "earnings multiple".


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Interpretation: It is a financial ratio used for valuation: a higher P/E ratio means that investors

are paying more for each unit of net income, so the stock is more expensive compared to one

with lower P/E ratio. The P/E ratio has units ofyears, which can be interpreted as "number of

years of earnings to pay back purchase price", ignoring the time value of money. In other

words, P/E ratio shows current investor demand for a company share. The reciprocal of the PE

ratio is known as the earnings yield. The earnings yield is an estimate of expected return to be

earned from holding the stock if we accept certain restrictive assumptions.

For ACC P/E ratio for ACC in 2009:10.23 from up from 2008 value of 7.39 this shows that

expense incurred due to stock has increased for investors. They have to pay more i n 2009 than

2008 to pay back purchase price and that marginal earnings per share has decreased.

11.Debt service coverage ratio:

What Does Debt-Service Coverage Ratio - DSCR Mean?

The debt service coverage ratio (DSCR), is the ratio of cash available for debt servicing to

interest, principal and lease payments. It is a popular benchmark used in the measurement ofan entity's (person or corporation) ability to produce enough cash to cover its debt (including

lease) payments. The higher this ratio is, the easier it is to obtain a loan. The phrase is also used

in commercial banking and may be expressed as a minimum ratio that is acceptable to a lender;

it may be a loan condition or covenant. Breaching a DSCR covenant can, in some circumstances,

be an act of default.

1. In corporate finance, it is the amount of cash flow available to meet annual interest and

principal payments on debt, including sinking fund payments.

2. In government finance, it is the amount of export earnings needed to meet annual interest

and principal payments on a country's external debts.


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3. In personal finance, it is a ratio used by bank loan officers in determining income property

loans. This ratio should ideally be over 1. That would mean the property is generating enough

income to pay its debt obligations.

In general, it is calculated by:

To calculate an entitys debt coverage ratio, you first need to determine the entitys net

operating income. To do this you must take the entitys total income and deduct any vacancy

amounts and all operating expenses. Then take the net operating income and divide it by the

propertys annual debt service, which is the total amount of all interest and principal paid on all

of the propertys loans throughout the year. If a property has a debt coverage ratio of less than

one, the income that property generates is not enough to cover the mortgage payments and

the propertys operating expenses. A property with a debt coverage ratio of .8 only generates

enough income to pay for 80 percent of the yearly debt payments. However, if a property has a

debt coverage ratio of more than 1, the property does generate enough revenue to cover

annual debt payments. For example, a property with a debt coverage ratio of 1.5 generates

enough income to pay all of the annual debt expenses, all of the operating expenses and

actually generates fifty percent more income than is required to pay these

Typically, most commercial banks require the ratio of 1.15 - 1.35 times (net operating income or

NOI / annual debt service) to ensure cash flow sufficient to cover loan payments is available onan ongoing basis.

Interpretation :Debt Service Coverage Ratio year ended 2009 is 10.37 vs that of ended 2008 Rs

49.62 ( Debt Service Coverage Ratio = Earnings before Interest, Depreciation and Tax / (Interest

on debt + Principal repayment)).Thus DSCR has reduced by about 5 times ,this has reduced
http://en.wikipedia.org/wiki/Net_operating_incomehttp://en.wikipedia.org/wiki/Net_operating_incomehttp://en.wikipedia.org/wiki/Net_operating_incomehttp://en.wikipedia.org/wiki/Operating_expensehttp://en.wikipedia.org/wiki/Operating_expensehttp://en.wikipedia.org/wiki/Net_operating_incomehttp://en.wikipedia.org/wiki/Net_operating_income


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ACCs capability to generate operating income in order to cover interest on debt, repayment,

but since this ratio is more than 1 thus technically ACC still generates10 times the income

required to cover up all debt expenses.

12.Asset turnover ratioTangible Asset for 2008 : 5092.67

Tangible Asset for 2009 : 6324.99

Net sales for 2008 : 8234.02

Net sales for 2009 : 8724

Fixed asset for 2009 : 6314.5

Fixed asset for 2008 : 5072.56

Asset turnover ratio : Net Sales/Tangible Assets

Asset turnover ratio For 2008 : 8234.02/5092.67 = 1.635

Asset turnover ratio For 2009 : 8724/6324.99 = 1.379

Fixed asset turnover ratio : Net sales/Fixed Asset

Fixed asset turnover ratio For 2008 : 8234.02/5072.56 = 1.62

Fixed asset turnover ratio For 2009 : 8724/6314.5 = 1.38

13. Return on Equity Capital (ROEC) Ratio:

In real sense, ordinary shareholders are the real owners of the company. They assume the

highest risk in the company. (Preference share holders have a preference over ordinaryshareholders in the payment of dividend as well as capital.

Preference share holders get a fixed rate of dividend irrespective of the quantum of profits of

the company). The rate of dividends varies with the availability of profits in case of ordinary

shares only. Thus ordinary shareholders are more interested in the profitability of a company

and the performance of a company should be judged on the basis of return on equity capital of


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the company. Return on equity capital which is the relationship between profits of a company

and its equity, can be calculated as follows:

Formula of return on equity capital or common stock:

Formula of return on equity capital ratio is:

Return on Equity Capital = *(Net profit after tax Preference dividend) / Equity share capital+

100

Components:

Equity share capital should be the total called-up value of equity shares. As the profit used for

the calculations are the final profits available to equity shareholders as dividend, therefore the

preference dividend and taxes are deducted in order to arrive at such profits.

Return on equity capital for 2008 :[(1607 -20) /187.88 )] 100 =844.68

Return on equity capital for 2009 :[(1213 -23) /187.94)] 100= 633.18

14. Earnings Per Share (EPS) Ratio:

Definition:

Earnings per share ratio (EPS Ratio) is a small variation ofreturn on equity capital ratio and is

calculated by dividing the net profit after taxes and preference dividend by the total number of

equity shares.

Formula of Earnings Per Share Ratio:

The formula of earnings per share is:

*Earnings per share (EPS) Ratio = (Net profit after tax Preference dividend) / No. of equity

shares (common shares)]
http://www.accountingformanagement.com/return_on_equity_capital.htmhttp://www.accountingformanagement.com/return_on_equity_capital.htm


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Significance:

The earnings per share is a good measure of profitability and when compared with EPS of

similar companies, it gives a view of the comparative earnings or earnings power of the firm.

EPS ratio calculated for a number of years indicates whether or not the earning power of the

company has increased.

Earning Per Ratio for 2008 : 60.53

Earning Per Ratio for 2009 :84.37

15.Return on Assets :

Return on Assets : Net Profit after Taxes / Total Assets

For the year 2008 :

Net Profit after Taxes :121,278.78

Total Assets : 5,745.55

Return on Assets For 2008 : 121,278.78 / 5,745.55 = 21.108

For the year 2009 :

Net Profit after Taxes : 160,673.35

Total Assets : 6,932.39

Return on Assets For 2009 : 160,673.35 / 6,932.39 = 23.177


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16.Return on Capital Employed :

Return on Capital Employed : (Net Profit before Interest & Tax / Average Capital

Employed) x 100

Average Capital Employed is the average of the equity share capitaland long term fundsprovided by the owners and the creditors of the firm at the beginning and end of the

accounting period.

For the year 2009 :

Net Profit before Interest & Tax : 1,727.70 crore

Equity Share Capital : 187.88 crore

Long term funds : 5,745.55 crore

Average Capital Employed = (187.88 + 5745.55)/2 = 2966.715

Return on Capital Employed : (1,727.70 / 2966.715)*100 = 58.23%

For the year 2009 :

Net Profit before Interest & Tax : 2,378.6941 crore

Equity Share Capital : 187.94 crore

Long term funds : 6,932.39 crore

Average Capital Employed = (187.94 + 6932.39)/2 = 3560.165

Return on Capital Employed : (2,378.6941 / 3560.165)*100 = 66.81%

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