ratios finiancial management

8/2/2019 Ratios Finiancial Management

1/32

PRESENTED BY :ABHIGYA (02)

BANDITA (12)IMON (21)

KRISAN JITANI (29)POLLY TAMULY(46)

RUBBY ROY(55)SUMAN GILL(6)

OF


2/32

ITC IS ONE OF INDIAS FOREMOST PRIVATE SECTOR COMPANIES WITH

A MARKET CAPITALISATION OF OVER US$ 33 BILLION AND A TURNOVEROF US$ 7 BILLION .

IT IS RANKED AS WORLDS MOST REPUTABLE COMPANIES BY FORBES

MAGAZINE AND AMONG INDIAS MOST RESPECTED COMPANIES BY

BUSINESS WORLD.

ITS CHAIRMAN IS YC DEVESHWAR.

ITC HAS DIVERSIFIED PRESENCE IN

CIGARETTES,HOTELS,PAPERBORDS AND SPECIALITY

PAPERS,AGRIBUSINESS,PACKAGED FOODS AND

CONFECTIONERY,INFORMATION TECHNOLOGY,BRANDEDAPPAREL,STATIONERY,SAFETY MATCHES AND OTHER FMCG

PRODUCTS ETC.

IT EMPLOYS OVER 24000 PEOPLE AT MORE THAN 60 LOCATIONS

ACCROSS INDIA.


3/32

OBJECTIVES TO COMPARE THE RISK AND RETURN RELATIONSHIPS OF FIRMS.

TO ASCERTAIN FINANCIAL POSITION OF A FIRM BY COMPARING ITS PAST AND

PRESENT PERFORMANCE.

TO ANALYSE WHETHER THE ASSETS ARE BEING UTILISED IN THE BEST

POSSIBLE MANNER TO GET MAXIMUM OUTPUT.

TO PLAN A SOUND CAPITAL STRUCTURE SO THAT BALANCE IS MAINTAINED

BETWEEN DEBT AND EQUITY.

TO MEASURE THE ABILITY OF THE FIRM TO MEET ITS CURRENT SHORT-TERM

LIABILITIES.


4/32

ACCOUNTING RATIOS

ACCOUNTING RATIOS ARE USED TO INTERPRET AND ASSESS THE

PERFORMANCE AND STATUS OF THE FIRM.IT IS A WIDELY USED TOOL

FOR FINANCIAL ANALYSIS.

VARIOUS ACCOUNTING RATIOS ARE:-

LIQUIDITY RATIOS

SOLVENCY RATIOS PROFITABILITY RATIOS

ACTIVITY RATIOS

INTEGRATED RATIOS.

GROWTH RATIOS


5/32

Liquidity Ratios2009 2010

Current Ratio=2.19:1

Liquid Ratio=0.64:1 Inventory Turnover

Ratio=3.34 times

Current Ratio=0.195:1

Liquid Ratio=0.64:1 Inventory Turnover

Ratio=3.95 times


6/32

Analysis

Overall liquid position of ITC is unsatisfactory

Sales of the company has increased

Current assets and absolute cash position of thecompany is in an unfavorable situation


7/32


8/32

FORMULASDebtors turnover ratio=Total

sales/Debtors.

Average collection period=Average trade

debtors/Sales per day.


9/32

DEBTORS TURNOVER RATIO

2008-09 2009-10

34.61:1 30.57:1

Analysis: It has been observed that the Debtors turnover ratioof 2008-09 of ITC has been 34.61:1 and in 2009-10 it was30.57:1.

Interpretation:Normally higher the debtors turnover ratiobetter it is. Higher turnover signifies speedy and effectivecollection. Lower turnover indicates sluggish and

inefficient collection .


10/32

AVERAGE COLLECTION PERIOD

2008-09 2009-10

1.83:1 2.35:1

Analysis: In 2008-09 the Average collection period was1.83:1 and in 2009-10 it was 2.35:1.

Interpretation: The average collection period indicates the

speed with which debtors/accounts are being collected.Here we can see that the average collection period is greaterthan the last year. But the lower collection period is morepreferable for the management process.


11/32

LEVERAGE RATIO


12/32

FORMULAE

Debt-equity Ratio= External Equities/ InternalEquities

Proprietary Ratio= Shareholders Fund/ Total Assets

Fixed Asset to Net Worth Ratio= Fixed Asset/ Total

Long-term Funds Funded Debt to Total Capitalization Ratio= (Funded

Debt/Total Capitalization)*100

Fixed Asset Ratio to Proprietary Fund= Fixed Asset/Shareholders Funds

Current Asset to Proprietary Fund= Current Asset/Shareholders Fund


13/32

Debt-Equity Ratio

2008-09 2009-10

0.012:1 0.062:1

Analysis: It has been seen that the Debt-Equity ratio of2008-09 of ITC has been 0.012:1 and in 2009-10 it was0.062:1

Interpretation: Lower the Debt-Equity ratio, higher thedegree of protection enjoyed by the lenders.


14/32

Proprietary Ratio

2008-09 2009-10

0.844:1 0.611:1

Analysis: It has been seen that the proprietary ratio in2008-09 was 0.844:1 and in 2009-10 it was 0.611:1.

Interpretation: Higher the ratio, greater is thesatisfaction for lenders and creditors. But here, thecase is reverse as the ratio has decreased in thesubsequent financial year.


15/32

Fixed Asset Ratio

2008-09 2009-10

0.61:1 0.65:1

Analysis: In 2008-09 the fixed asset ratio was 0.61:1 andin 2009-10 it was 0.65:1.

Interpretation: It is known that an ideal fixed assetratio is always less than 1 and since in both the abovefinancial years it is less than 1 it is preferable for thecompany.


16/32

Funded Debt to Total Capitalization Ratio

2008-09 2009-10

1.275:1 0.732:1

Analysis: In 2008-09 the funded debt to totalcapitalization ratio was 1.275:1 and in the following

financial year it was 0.732:1. Interpretation: In India, a ratio of 0.67 is considered

satisfactory. A higher proportion is indicator of riskylong-term financial position of the business.


17/32

Fixed Asset to Proprietary fund:

2008-09 2009-10

0.61:1 0.65:1

Analysis: In 2008-09 the Fixed Asset to ProprietaryFund ratio was 0.61:1 and in 2009-10 it was 0.65:1.

Interpretation: If ratio is less than 100% it would meanthat the proprietors funds are more than the fixedassets and a part of WC is provided by the proprietors.It cab be seen that in both the years the ratio is lessthan the ideal which shows a good solvency positionfor the business.


18/32

Current Asset to Proprietary Fund

2008-09 2009-10

47 % 48%

Analysis: In 2008-09 the Current Asset to Proprietaryfund ratio was 47% and in 2009-10, the ratio was 48%

Interpretation: The Current Assets to Proprietors fundratio has increased in the following financial year. Thisshows that because of profitability of the concernsmore and more funds are invested in C.A.


19/32


20/32

FORMULAE

1.GROSS PROFIT MARGIN=GROSS PROFIT/SALES*100

2.EXPENSE RATIO=MANUFACTURING,SELLING ANDDISTRIBUTION EXPENSES/NET SALES *100

3.NET PROFIT RATIO=NET PROFIT/NET SALES *100


21/32

A.GENERAL PROFITABILITY RATIO 1.GROSS PROFIT MARGIN :

2008-2009 2009-2010

102.31:1 102.29:1

ANALYSIS: It has been seen that in the year 2008-2009 gross profitmargin of ITC was 102.31:1 and in the year 2009-2010 it was 102.29:1

INTERPRETATION:A high ratio of gross profit to sales indicates a signof good management as it implies that the cost of production isrelatively low. It also indicates higher sales price without acorresponding increase in the cost of the goods sold.


22/32

2.EXEPENSE RATIO

2008-2009 2009-2010

26.65:1 28.43:1

ANALYSIS: It has been seen that in the year 2008-2009expense ratio was 26.65:1 and in the year 2009-2010 it was28.43:1

INTERPRETATION: This ratio is very important for analyzingthe profitability of a firm. The lower the ratio, the more isthe favorable condition and vice versa.


23/32

3.NET PROFIT RATIO

2008-2009 2009-2010

103.48:1 103.3:1

ANALYSIS: In the year 2008-2009 net profit ratio was 103.48:1and in the year 2009-2010 it was 103.3:1

INTERPRETATION: High net profit ratio would ensureadequate return to the owners as well as enable the firm towithstand adverse economic conditions.


24/32


25/32

FORMULA Return on Shareholders fund= NET profit after

tax/shareholders Fund

Return On Equity= Profit after tax-preferencedividend/equity share capital

Earning Per Share= Net profit after tax-preferencedividend/No of equity share

Capital Turnover Ratio=Cost of goods sale orsales/capital employed

Dividend Pay Out Ratio= Dividend per equityshare/earning per share


26/32


27/32

RETURN ON EQUITY CAPITAL 2008-2009 2009-2010 10.65 10.63

Analysis :It has been seen that in the year 2008-2009 returnon equity capital was 10.65 and in the year 2009-2010 it was10.63.

Interpretation: Higher the return on equity capital themore adequate will be the return to the owners as well asenable the firm to handle the adverse economicconditions.


28/32

2008-2009 2009-2010

8.66 10.64

Analysis :Its seen that the earning per share of ITC in twoconsecutives years is decreasing from 10.64 to 8.66 .

Interpretation: The more is the earning per share the betteris the financial position of the company. But it has beenanalysed that the earning per share is higher in 2009-2010 ascompared to 2008-2009.

EARNING PER SHARE


29/32

2008-2009 2009-2010

61.31 70.35

Analysis: It has been seen that in the year 2008-2009 returnon equity capital was 61.31 and in the year 2009-2010 it was70.35

Interpretation: The reduction in capital turnover ratio

signifies that the company is unable to employ theadditional funds as profitably as the existing funds,but,herethe capital ratio is increasing which shows the company isable to allocate fund properly.

CAPITAL TURN OVER RATIO


30/32

2008-2009 2009-2010

370 358.85

Analysis: It has been seen that in the year 2008-2009 returnon equity capital was 370 and in the year 2009-2010 it was358.85

Interpretation: The DPR measures what a companys paysout to investors in the form of dividends. Therefore thecompany paid less dividend in the year 2008-2009 ascompared to 2009-2010.

DIVIDEND PAY OUT RATIO


31/32


32/32

THANK YOU

ratios finiancial management

Documents