Fma7
21
Financial Analysis Financial Analysis • Process of identifying • Financial strengths and weaknesses • By establishing relationships • By establishing relationships • Between the items of • B/S, P/L and CFS [email protected]
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Transcript of Fma7
Financial AnalysisFinancial Analysis• Process of identifyingy g• Financial strengths and weaknesses• By establishing relationships• By establishing relationships• Between the items of• B/S, P/L and CFS
Users of Financial AnalysisUsers of Financial Analysis
• Trade creditorsTrade creditors• Lenders
I t• Investors• Management
Techniques of Financial St t t A l iStatement Analysis
1. Horizontal Analysisy2. Trend Analysis3 Vertical Analysis3. Vertical Analysis4. Ratio Analysis
Nature of Ratio AnalysisNature of Ratio Analysis• A financial ratio is a relationship betweenp
two accounting numbers.• Ratios help to make a qualitative judgementRatios help to make a qualitative judgement
about the firm’s financial performance.
Standard of ComparisonStandard of Comparison• Time series analysis• Inter-firm analysis• Industry analysisy y• Proforma financial statement analysis
Types of Financial RatiosTypes of Financial Ratios • Liquidity ratios• Solvency ratios• Turnover ratios• Profitability ratios• Leverage ratios• Leverage ratios
Liquidity Ratios• Liquidity ratios measure a firm’s ability toLiquidity ratios measure a firm s ability to
meet its current obligations.Current assetsC t tiCurrent ratio =
Current liabilitiesCurrent assets – InventoriesQuick ratio =
C t li bilitiCurrent liabilitiesCash + Marketable securitiesCash ratio =
Current liabilities
capitalorkingNetexpenses operating daily Average
Inventory-assets CurrentMeasure Interval
assetsNetcapitalworking NetRatio Capital Working Net
Solvency Ratios• Solvency ratios measure the dependence ofSolvency ratios measure the dependence of
a firm on borrowed funds.DebtDebtDebt-equity ratio
Equity (Net Worth)Debtratio DebtDebt
ratioDebt Equity employed
Earnings before interest and tax coverageI t t
DebtCapital
Interest
• Treatment of –• Preference Shares
Interest
• Preference Shares• Leases [email protected]
Turnover Ratios• Turnover or Activity Ratios measure theTurnover or Activity Ratios measure the
firm’s efficiency in utilising its assets.
360)(say,yearin thedaysofNumberh ldiif
inventory closing)(or Averagesalesnet or soldgoodsofCost TurnoverInventory
salesnet or salesCredit Turnover Debtors
turnoverInventory 360)(say,year in thedays ofNumber holdinginventory of
Days
turnoverDebtors360) (say,year in the days ofNumber period
debtors closing)(or Average
Collection
Turnover RatiosNet salesCurrent assets turnover
Current assets
Cu e t assetsNet sales current assets turnover
Net current assetsNet
Net current assetsNet sales assets turnover
Net fixed assetsFixed
Net fixed assetsNet sales assets turnover
N t t it lNet
l dNet assets or capital [email protected]
Profitability Ratios• Profitability Ratios measure a firm’s overallProfitability Ratios measure a firm s overall
efficiency and effectiveness in generating profitprofit.
before interest and tax (PBIT)MarginNet sales
Profit
Net sales after tax (PAT) marginNet sales
PBIT
ProfitNet
PBIT return on investmentNet assets
Profit after taxon equity
Before tax
Return
on equityEquity (net worth)
Return [email protected]
Equity-related Ratios• Equity-related Ratios measure theEquity-related Ratios measure the
shareholders’ return and value.P fit ft tProfit after taxEPS
Number of ordinary sharesDividends
DPSNumber of ordinary shares
DPS
Dividends
Dividends
DPS ratioEPS Pr after tax
DPS
DividendsPayoutofit
DPSyieldMarket value per share
Dividend [email protected]
Equity-related RatiosEPSEarnings yield
value per shareMarket
value per shareP / E ratio = EPS
N t th
Market
Net worth value per shareNumber of ordinary sharesvalue per share
Book
Market
value per shareM B value Book value per share
Mar'
Market
T bi
ket value of assets' Tobin s q Economic value of [email protected]
DuPont Analysis
DuPont Analys is
PBIT Sales PBITRONA=
integrates the important ratios to analyse a firm's profitabilit .y
RONA=Net Assets Net Assets Sales
PAT Sales PBIT PAT Net AssetsROE
ROE
Net Worth Net Assets Sales PBIT Net Worth
ROE Assets turnover × Margin × everageL
g g
ISPAT INDUSTRIES LIMITEDRATIO ANALYSIS
Liquidity ratiosCurrent ratio 1.47 1.24Quick ratio 0.05 0.06
Activity ratiosSales/TA 0 30 0 22Sales/TA 0.30 0.22Sales/FA 0.81 1.25Sales/Debtors 5.75 5.69Sales/Inventory 8.70 5.49
L iLeverage ratiosDebt/Equity 2.85 2.50Debt/TA 0.74 0.71PBIT/Interest 1.90 1.04PBIT/Interest 1.90 1.04
Profitability ratiosPBIT/Sales 29.41% 7.30%Net profit/Sales 13.96% 0.26%PBIT/TA 8 68% 1 59%PBIT/TA 8.68% 1.59%Net profit/NW 15.87% 0.21%[email protected]
INFOSYSBalance Sheeet as at March 31
in Rs.2,001 2,000
SOURCES OF FUNDSSHAREHOLDERS FUNDSShare capital 330,792,085 330,755,000Reserves and surplus 13,565,599,903 8,002,273,248
Capital Employed 13,896,391,988 8,333,028,248APPLICATION OF FUNDSFIXED ASSETSOriginal cost 6,311,444,025 2,840,305,143Less: Depreciation 2,441,315,982 1,336,520,594Net book value 3,870,128,043 1,503,784,549Add: Capital work-in-progress 1,706,504,250 569,603,505
5,576,632,293 2,073,388,054INVESTMENTS 341,154,821 138,348,469CURRENT ASSETS, LOANS AND ADVANCESSundry debtors 3,023,702,417 1,361,781,253C h d b k b l 3 850 610 285 4 317 935 730Cash and bank balances 3,850,610,285 4,317,935,730Loans and advances 4,302,793,623 2,101,277,161
11,177,106,325 7,780,994,144Less: Current liabilities 1,349,181,176 671,506,459
Provisions 1 849 320 275 988 195 960 Provisions 1,849,320,275 988,195,960NET CURRENT ASSETS 7,978,604,874 6,121,291,725
Net Assets 13,896,391,988 8,333,028,[email protected]
INFOSYSProfit and Loss Account for the year ended March 31
in Rs.2001 2000
INCOMESoftware development services and products Overseas 18,740,266,421.00 8,696,980,931.00Domestic 265,392,386.00 126,256,042.00Other income 593,714,915.00 391,411,095.00
19,599,373,722.00 9,214,648,068.00EXPENDITURESoftware development expenses 9,581,766,650.00 4,662,684,578.00Administrative and other expenses 1,775,470,971.00 694,850,282.00Provision for investments 152,898,608.00Provision for contingencies 33,300,000.00Provision for e-inventing the company 35,000,000.00
11 510 136 229 00 5 425 834 860 0011,510,136,229.00 5,425,834,860.00Operating profit (PBIDT) 8,089,237,493.00 3,788,813,208.00InterestDepreciation 1,128,945,152.00 532,327,389.00Profit before tax and extraordinary item 6 960 292 341 00 3 256 485 819 00Profit before tax and extraordinary item 6,960,292,341.00 3,256,485,819.00Provision for tax earlier years 14,000,000.00 2,400,000.00 current year 713,100,000.00 394,600,000.00Profit after tax before extraordinary item 6,233,192,341.00 2,859,485,819.00y , , , , , ,Extraordinary item -- transfer of intellectual property right (net of tax) 54,944,000.00 -- provision no longer required 75,670,846.00Net profit after tax and extraordinary item 6,288,136,341.00 2,935,156,665.00AMOUNT AVAILABLE FOR APPROPRIATION 6,288,136,341.00 2,935,156,665.00
INFOSYSINFOSYSFinancial Ratios
2001 2000Activity Ratios
I /A t 1 41 1 11Income/Assets 1.41 1.11Income/Debtors 6.48 6.77
Current RatiosCA/CL 3.49 4.69CA/Assets 0.80 0.93NCA/Assets 0.57 0.73
Profitability RatiosMargin
PBDIT/Income 41.27% 41.12%PBIT/Income 35.51% 35.34%PAT/Income 31.80% 31.03%
Return on InvestmentPBDIT/Assets 58 21% 45 47%PBDIT/Assets 58.21% 45.47%PBIT/Assets 50.09% 39.08%PAT/NW 44.85% 34.32%[email protected]
SBU PROFIT & LOSS ACCOUNT YTD 2002SBU PROFIT & LOSS ACCOUNT, YTD 2002USD in '000
% ofYTD Rev.
Total Revenue 14850 100.0%Onsite revenue 12600 84.8%Offshore revenue 2250 15.2%Service Credit
- Onsite Revenue % 85%CONTROLLABLE COSTSCGS ASalaries & Related Costs:
O it S l i 6375 42 9%Onsite Salaries 6375 42.9%Offshore Salaries
GRP Allocated 0 0.0%Offshore Salaries 840 5.7%Other Salary Overheads 34 0.2%Subcontractor Costs
Salaries-Onsite 0 0.0%Salaries Onsite 0 0.0%Salaries-Offshore 0 0.0%
Foreign Travel 250 1.7%Incentives
Project Incentives 0 0.0%SBU Special Incentives 0 0.0%
Data Communication Charges 0 0.0%Legal Immigration Fees 333 2.2%Other Professional Fees 0 0.0%Total CGS A Cost 7832 52.7%CGS BData Communication Charges 90 0.6%Medical Insurance 300 2.0%Depreciation: CGS 223 1 5%Depreciation: CGS 223 1.5%Others CGS 0 0.0%Total CGS B Cost 613 4.1%TOTAL CGS A + CGS B Costs 8445 56.9%Gross Margin 6405 43.1%
Utility of Ratio Analysis• Assessment of the firm’s financial• Assessment of the firm s financial
conditions and capabilities.• Diagnosis of the firm’s problems• Diagnosis of the firm s problems,
weaknesses and strengths.• Credit analysis• Credit analysis• Security analysis
C ti l i• Comparative analysis• Time series analysis
Cautions in Using Ratio Analysis
• Standards of comparisons• Company differences• Price level• Different definition• Changing situations• Changing situations• Past data
