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FINANCIAL STATEMENT ANALYSIS
Financial statement analysis is the collective name for the tools and techniques that
are intended to provide relevant information to decision-makers. The primary
objective of financial reporting is to provide information to present and potential
investors, creditors, and others in making rational investment, credit and other
decisions. Effective decision-making requires evaluation of the past performance of
companies and assessment of their future prospects.
Purpose of financial statement analysis:
The purpose of this analysis is to assess a companys financial health andperformance. Financial statement analysis consists of comparisons for the same
company over periods of time and for different companies in the same industry or
different industries.
Financial statement analysis enables investors and creditors to
Evaluate past performance and financial position; and
Predict future performance.
Standards of comparison:
Financial analysts look for pertinent standards of comparisons to determine whether
the results of their financial statement analysis are favourable or unfavourable. For
this purpose, comparisons are made with the following:
General rule-of-thumb indicators
Past performance of the company
Internal standards Industry standards
TECHNIQUES OF FINANCIAL STATEMENT ANALYSIS
The most commonly used analytical techniques are:
1. Horizontal analysis
2. Trend analysis
3. Vertical analysis
4. Ratio analysis
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RATIO ANALYSIS
Ratio analysis involves establishing a relevant financial relationship between
components of financial statements. Two companies may have earned the same
amount of profit in a year, but unless the profit is related to sales or total assets, it is
not possible to conclude which of them is more profitable. Ratio analysis helps in
identifying significant relationship between financial statement items for further
investigation. If used with understanding of industry factors and general economic
conditions, it can be a powerful tool for recognizing a companys strengths as well as
its potential trouble spots. Commonly used financial ratios are as follows:
PROFITABILITY
RATIO
LIABILITY
RATIO
SOLVENCY
RATIO
CAPITAL
RATIO
Profit margin Current ratio Debt on equity Price earnings
Asset turnover Quick ratio Liability to equity Dividend yield
Return on assets Debtors turnover Interest coverage Price to book ratio
Return on equity
Earnings per share
Thus financial ratios are used to evaluate profitability, liquidity, solvency, and capital
market strength.
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PROFITABILITY RATIO
Profitability ratios measure the degree of operating success of a company. Investors
are keen to learn about the ability of the company to earn revenues in excess of its
expenses. They will not be interested in a company that does not earn a sufficient
margin on its sales. Failure to earn an adequate rate of profit over a period will also
drain the companys cash and impair its liquidity. The commonly used rations to
evaluate profitability are:
1. Profit margin
2. Asset turnover
3. Return on assets
4. Return on equity
5. Earnings per share
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1.PROFIT MARGIN
EXPLANATION: This ratio is also known as return on sales (ROS). It measures the
amount of net profit earned by each rupee of revenue.
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-11 2011-2012 2012-2013
HINDUSTAN PETROLEUM 1.24 0.55 0.43
BHARAT PETROLEUM .95 .61 1.10
=
100
1539.01123772.42
100 = 1.24 %
991.43
178139.23 100 = 0.55 %
904.71
206529.34
100 = 0.43 %
Year 2010-2011
Year 2011-2012
Year 2012-2013
1546.68163218.21
100 = .95%
1311.27
5211972.97 100 = .618%
2642.90
240115.75 100 = 1.10%
Year 2010-2011
Year 2011-2012
Year 2012-2013
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INTERPRETATION:
INTERCOMPANY COMPARISON:
Between HP and BP it can be analyzed that there is a very little profit margin difference i.e. its just
0.29% in 2010-11, .06% in 2011-12, 0.67% in 2012-13.
INTRACOMPANY COMPARISON
HP: In case of HP, profit margin ratio is consistent with only very little variation i.e. from 2010-
2011till 2012-2013, it has shown a consistent decrease of 0.69% and 0.12% which is not a good
indicator. It indicates that there is an increase in material cost, salaries and wages and other operating
expenses.
BP: in case of BP, profit margin ratio is not consistent, it shows varied variations i.e. from 2010-11 to
2011-12, it shows a decrease of 0.34% and from 2011-12 to 2012-13, it shows an increase of 0.49%,
which is good indicator.
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2.ASSET TURNOVER
EXPLANATION: This is a measure of a firms efficiency in utilizing its assets. It
indicates how many times the assets were turned over in a period in order to
generate sales. If the asset turnover is high, we can infer that the enterprise is
managing its assets efficiently. A low asset turnover implies the presence of more
assets than a business needs for its operations.
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013HINDUSTAN PETROLEUM 3.28 2.7 2.8
BHARAT PETROLEUM 4.56 3.48 7.17
INTERPRETATION:
INTERCOMPANY COMPARISON: Not much variation can be found in this case between the
asset turnover ratios of both the companies, except for 2010-2011 and 2012-2013 with a difference of
1.28% and 4.34%. A higher asset turnover ratio in case of BP shows that the company is managing its
assets in a very efficient manner as compared to HP.
Asset turnover =
.
123772.42
37715.46= 3.28
178139.23
65934.22= 2.70
206529.34
73677.14= 2.80
Year 2010-2011
Year 2011-2012
Year 2012-2013
163218.21
35089.12= 4.56
211972.97
60741.46= 3.489
240115.75
33493.67= 7.17
Year 2010-2011
Year 2011-2012
Year 2012-2013
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.
INTRACOMPANY COMPARISON:
HP: The Company shows small degree of variation and its asset turnover ratio is gradually
falling. However the magnitude of change is not very high. A falling asset turnover ratio
shows there are more assets present in the business than it needs and are therefore not being
utilized to its optimum use.
BP: The Company shows a higher degree of variation of 3.69% from 2011-12 to 2012-13. In
the year 2012-2013, it is the highest i.e. 7.17%, which indicates company is utilizing assets
efficiently. However a fall in the previous year shows that there is either non availability of
resources or it has not utilised resources to their optimum level.
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3.RETURN ON ASSETS
EXPLANATION: It is also known return on investment. This is a measure of
profitability from a given level of investment. It is an excellent indicator of a
companys overall performance.
Return on assets = Profit after Tax/Average Total Assets *100
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013
HINDUSTAN PETROLEUM 4.08 1.5 1.22
BHARAT PETROLEUM 4.4 2.15 3.98
INTERPRETATION:
INTERCOMPANY COMPARISON: Between the 2 companies HP and BP there is not much
difference in return on assets, except in the year 2012-13 i.e. 2.76% which s a quite good
difference as compared to previous year. BP shows a higher return on asset as compared to HP.
The highest difference being in the case of 2012-2013 i.e. Of 2.76 %, it shows that BP is able to
acquire more profitability from its given level of investments as compared to HP.
INTRACOMPANY COMPARISON:
HP: The Company shows a high degree of variation in the year 2011-2012 i.e. of 2.58%. In 2012-
13 it came down to 1.22% as compared to 1.50% of 2012-13. It indicates that company is not able
1539.0137715.46
100 = 4.08 %
991.43
65934.22 100 = 1.50 %
904.71
73677.14
100 = 1.22%
Year 2010-2011
Year 2011-2012
Year 2012-2013
1546.5835089.12
100 = 4.40%
1311.27
6074.46 100 = 2.15%
2642.90
66297.19
100 = 3.98%
Year 2010-2011
Year 2011-2012
Year 2012-2013
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to acquire a high level of profitability from its investments. It therefore points towards a
decreasing overall profitability of the company.
BP: There is a much variation in case of BP can be seen in all the years i.e. in 2010-11, 2011-12
and 2012-13. In 2011-12, it recorded a fall of 2.25% as compared to the year 2010-11. But in2012-13, it recorded an increase of 1.83%.This shows that there is not much consistency in
acquiring a good level of profitability from its investments. The company is facing a decrease in
the overall profitability on assets.
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4.RETURN ON EQUITY
This is a measure of profitability from shareholders standpoint. It measures the
efficiency in the use of shareholders funds.
Return on equity = Profit after Tax / Average Shareholders Equity*100
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013
HINDUSTAN PETROLEUM 12.77 7.72 6.73
BHARAT PETROLEUM 11.40 16.01 16.57
INTERPRETATION:
INTERCOMPANY COMPARISON: Between the 2 companies, BP shows a higher ROE
as compared to HP except in the year 2010-11. Highest difference is in the year 2012-13 i.e.
of 9.84. It shows that BP has a higher efficiency in the use of shareholders funds as compared
to HP.
INTRACOMPANY COMPARISON:
HP: TheYear 2011-2012 shows the highest fall in the ROE which indicates that the company
is not managing its funds in the most efficient manner.
1539.01
12051.88100 = 12.77 %
991.43
12834.16100 = 7.72%
904.71
13424.46100 = 6.73%
Year 2010-2011
Year 2011-2012
Year 2012-2013
1546.68
13572.16 100 = 11.40%
1311.27
8185.74 100 = 16.01%
2642.90
15773.94 100 = 16.67%
Year 2010-2011
Year 2011-2012
Year 2012-2013
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BP: The Company managed to enjoy an increasing rate on ROE. In the year 2010-11, the
ROE was 11.40%, which climbed to 16.01% in 2011-12, which further laddered to 16.57% in
2012-13. It indicates that the company is managing its funds in the most efficient manner.
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5.EARNING PER SHARE
Financial analysts regard the earning per share (EPS) as an important measure of
profitability. EPS is useful in comparison over time.
Earnings per share =Profit after Tax / No. of shares
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013
HINDUSTAN PETROLEUM 45.44 26.92 26.71
BHARAT PETROLEUM 44.78 36.29 36.55
INTERPRETATION:
INTERCOMPANY COMPARISON: Between the two companies BP shows a higher EPS as
compared to HP except in the year 2010-11. Major differences are in the year 2011-12 and 2012-13. It
shows the earning of each shareholder on each share. Shareholders of BP are more likely to be in a
more profitable position than of HP due to its higher EPS.
1539.01
33.863= 45.44 /
911.43
33.863= 26.92 /
904.71
33.863 = 26.71 /
Year 2010-2011
Year 2011-2012
Year 2012-2013
42.78 /
1311.27
36.15= 36.29 /
2642.90
72.38
= 36.55 /
Year 2010-2011
Year 2011-2012
Year 2012-2013
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INTRACOMPANY COMPARISON:
HP: The EPS is inconsistent, with highest in the year 2010-2011 and lowest in the year 2012-2013. It
shows a consistent decrease in the EPS which is not a good indicatorfor the companys shareholders.
BP: There is not much difference in the EPS in the year 2011-12 and 2012-13. But a difference of
8.49% can be seen between the years 2010-2011 and 2012-13. The EPS in the year 2012-13, indicates
the declining profitability in holding the sharesas compared to the year 2010-11.
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LIQUIDITY RATIOS
Liquidity is the ability of a business to meet its short-term obligations when they fall
due. An enterprise should have enough liquid and other current assets which can beconverted into cash so that it can pay its suppliers and lenders on time. The
commonly used ratios to evaluate liquidity are:
1. Current ratio
2. Quick ratio
3. Debtor turnover
4. Inventory turnover
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1.CURRENT RATIO
This is the ratio of current assets to current liabilities. It is a widely used indicator of a
companys ability to pay its debts in the short-term, and shows the amount of current
assets a company has per rupee of current liabilities. A current ratio of more than
one means that a business has more current assets per rupee of current liabilities,
implying that it may be able to pays its current liabilities using its current5 assets. In
other words, its operations will not be disrupted. Current ratio is expected to be at
least 2:1.
Current ratio = Current Assets / Current Liabilities
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013
HINDUSTAN PETROLEUM 1.36:1 .86:1 .88:1
BHARAT PETROLEUM 1.25:1 .84:1 .90:1
INTERPRETATION:
INTERCOMPANY COMPARISON: Between HP and BP the current ratio is almost equal. It does
not show very high level of variation. The highest difference is in the year 2010-11 i.e. 0.11%. It helps
in measuring the liquidity of the business.
26590.97
19606.60= 1.36: 1
36759.74
42700.36= 0.86: 1
38230.64
43262.65= 0.88: 1
Year 2010-2011
Year 2011-2012
Year 2012-2013
27604.21
21958.43= 1.25: 1
39445.33
4667.55= .84:1
38389.81
42693.40= 0.90: 1
Year 2010-2011
Year 2011-2012
Year 2012-2013
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INTRACOMPANY COMPARISON:
HP: The ideal current ratio is preferred as 2:1 but in case of HP it does not show the ideal condition
in any of the three years. A lower current ratio indicates that there are fewer current assets than current
liabilities. In the year 2011-12, it recorded a current ratio of 0.86:1 which is not a good indicator for
the company, i.e. the company has the assets of only 0.86 times to its current liabilities.
BP: Just like HP, this company also does not show the ideal condition in any of the three years. In the
year 2012-13 it recorded a current ratio of 0.90:1 which is not a good indicator for the company i.e.
the company has the assets of only 0.90 times to its current liabilities.
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2.QUICK RATIO
All current assets are not equally liquid. While cash is readily available to make
payments to suppliers and debtors can be converted into cash with some effort,
inventories are two steps away from cash. Thus a large current ratio by itself is not a
satisfactory measure of liquidity when inventories constitute a major part of the
current assets .Therefore, the quick ratio or acid test ratio is computed as a
supplement to the current ratio. This ratio relates relatively more liquid current assets
less inventories, to current liabilities. Quick ratio is expected to be 1:1
Quick ratio = Quick Assets / Current Liabilities
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013
HINDUSTAN PETROLEUM .51 .40 .50
BHARAT PETROLEUM .55 .5 .5
INTERPRETATION:
INTERCOMPANY COMPARISON: Between HP and BP, there is not a much difference in the
quick ratio. The ideal quick ratio is considered to be 1:1, but none of the two has managed to achieve
it. Both of them are inefficient to convert its liquid assets into cash to pay off its liabilities.
9968.69
19606.60= 0.51: 1
17305.21
42700.36= 0.40: 1
21791.94
43262.65= 0.50: 1
Year 2010-2011
Year 2011-2012
Year 2012-2013
12228.92
21958= 0.55: 1
23497.27
46667.55= .5: 1
21699.44
42693.40= .50:1
Year 2010-2011
Year 2011-2012
Year 2012-2013
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INTRACOMPANY COMPARISON:
HP: A lower quick ratio indicates that the company is inefficient to convert its current assets into cash
in order to pay off its liabilities. The quick ratio is much below to ideal ratio i.e. 1:1 which indicates
the company is inefficient to pay off its current obligations.
BP: The quick ratio is lesser than the ideal ratio in all the years which indicates that the company
does not have many liquid assets to pay off its current obligations. Inventories are not included as it
might not be possible to sell off the inventories immediately.
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3..DEBTOR TURNOVER RATIO
A companys ability to collect from its customers in a prompt manner enhances its
liquidity. The debtor turnover ratio measures the efficacy of a firms credit policy and
collection mechanism and shows the number of times each year the debtor turn in to
cash. It provides some indication of the quality of a firms debtors and collection effort
.High debtor turnover indicates that debtors are being converted rapidly into cash
and the quality of the companys portfolio is good.
Debtors turnover ratio = Sales / Average Debtors
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013HINDUSTAN PETROLEUM 48.61 53.64 48.59
BHARAT PETROLEUM 61.28 47.57 46.48
INTERPRETATION:
INTERCOMPANY COMPARISON: Between HP and BP, HP showed higher turnover ratio except
in the year 2010-11. which proves that HP has good quality debtors i.e. Debtors are rapidly converting
into cash.
123772.42
2545.86= 48.61
178139.23
3321.01= 53.64
206529.34
4250.10= 48.59
Year 2010-2011
Year 2011-2012
Year 2012-2013
163218.21
2363.55= 61.28
211972.97
4455.59= 47.57
241795.98
5201.76= 46.48
Year 2010-2011
Year 2011-2012
Year 2012-2013
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INTRACOMPANY COMPARISON:
HP: A decrease in ratio from the year 2011-12 to 2012-13 indicates that the debtors are increasing
while an increase in the ratio from 2010-11 to 2011-12, indicates that the debtors are decreasing and
they are converting into cash.
BP: This Company do not have good quality of debtors. The ratio has been decreased constantly, it
indicates that debtors are not being converted into cash at a good rate.
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AVERAGE DEBT COLLECTION
It is common to express debtors turnover in AVERAGE DEBT COLLECTION
PERIOD, in order to calculate relative to the companys credit period.
Average debt collection period = 360 / Debtors Turnover
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013
HINDUSTAN PETROLEUM 7.40 6.71 7.40
BHARAT PETROLEUM 5.87 7.56 7.74
INTERPRETATION
INTERCOMPANY COMPARISON: Between HP and BP, HP takes less time in collection of debts
from its customers as compared to BP, except in the year 2010-11.
.
INTRACOMPANY COMPARISON:
HP: The average debt collection period is decreasing from the year 2010-11 to 2011-12, it indicates
that the company takes less time in collection of debts. But it showed an increase in avg. debt
collection period from 2011-12 to 2012-13, i.e. 6.71 days to 7.40 days.
360
48.61 = 7.40
360
53.64= 6.71
360
48.59= 7.40
Year 2010-2011
Year 2011-2012
Year 2012-2013
360
61.27 = 5.87
360
47.57= 7.56
360
46.48= 7.74
Year 2010-2011
Year 2011-2012
Year 2012-2013
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BP: The average debt collection period is increasing constantly, it indicates that the company takes
more time in collection of debts.
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4.INVENTORY TURNOVER RATIO
This ratio shows the number of times a companys inventory is turned to sales.
Investment in inventory represents idle cash .The lesser the inventory, the greater
the cash available for meeting operating needs. High inventory turnover is a sign of
efficient inventory management.
Inventory turnover management = Cost of Goods Sold / Average Inventory
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013
HINDUSTAN PETROLEUM 8.98 9.435 11.06
BHARAT PETROLEUM 11.16 12.73 13.88
INTERPRETATION:
INTERCOMPANY COMPARISON: Between HP and BP, HP has a lower inventory turnover ratio
which indicates that BP has better inventory management than HP. BP has fast moving inventory and
it runs lower risk of obsolescence as compared to HP.
INTRACOMPANY COMPARISON:
131184.13
14600.75= 8.98
170205.64
18038.40= 9.435
198492.04
177946.60= 11.06 :
Year 2010-2011
Year 2011-2012
Year 2012-2013
152933.34
13701.97= 11.16
199381.59
15661.37= 12.73
226532.27
16319.21= 13.88
Year 2010-2011
Year 2011-2012
Year 2012-2013
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HP: An increase in ratio in the years 2010-11, 2011-12 and 2012-2013, indicates that the company is
able to reduce its cost on interest, insurance and storage charges.
.
BP: An increase in ratio in the years 2010-11, 2011-12 and 2012-2013, indicates that the company is
able to reduce its cost on interest, insurance and storage charges.
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SOLVENCY RATIO
Long term solvency of a business is affected by extent of debt used to finance the
assets of the company. The presence of heavy debt in company capital structure isthought to reduce company solvency because debt is more risky than equity. The
debt to equity ratio and the interest coverage ratio are important indicator of
solvency. The commonly used ratio to measure solvency are as follows:
1. Debt on equity ratio
2. Liability to equity ratio
3. Interest coverage ratio
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1.DEBT EQUITY RATIO
A wise mix of debt and equity can increase the returns on equity :
a) Debt is generally cheaper than equityb) Interest payments are tax deductible expenses.
However, excessive use of debt financing is risky. A company has a legal obligationto make interest and principle payments at a due date .if a company takes on somuch debts that it becomes unable to make the required interest and principledisbursements on time, the creditors may force liquidation of the company.
The ratio indicates the extent of use of financial leverage .A high debt equity ratioindicates aggressive use of leverage. A low ratio suggests that the company has asmall degree of leverage is too conservative.
Debt to equity ratio = secured loans +unsecured loans / shareholders equity
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013HINDUSTAN PETROLEUM 1.99 2.09 2.37
BHARAT PETROLEUM 1.34 1.42 1.41
INTERPRETATION:
INTERCOMPANY COMPARISON: In all the years HP has a high debt equity ratio as compared to
BP which indicates that HP is more risky for creditors.
INTRACOMPANY COMPARISON:
25021.19
12545.80= 1.99: 1
27479.259
13122.52= 2.09: 1
32458.27
13726.40= 2.37: 1
Year 2010-2011
Year 2011-2012
Year 2012-2013
18971.87
14057.62= 1.34: 1
21246.44
14913.86= 1.42: 1
23546.21
16634.02= 1.41: 1
Year 2010-2011
Year 2011-2012
Year 2012-2013
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HP:There has been an increase in the ratio in all the years which indicates lower proportion of owner
supplied capital.This indicates that the company is not safe for creditors and the company is not
conservative.
BP: There has been increase in ratio from 2010-11 to 2011-12 indicating that the company has
become risky for creditors and it does aggressive use of leverage
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2. LIABILITY TO EQUITY RATIO
A variant of the debt to equity ratio is the liabilities to equity ratio. It is especially
useful in the case of firms that keep rolling over short term obligations
Liability to equity ratio = all liabilities / shareholders equity
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2012 2011-2012 2012-2013
HINDUSTAN PETROLEUM 3.81 4.41 4.59
BHARAT PETROLEUM 1.42 3.39 3.02
INTERPRETATION:
INTERCOMPANY COMPARISON: Both the companies have high ratio indicating that both the
companies have become risky for creditors.
INTRACOMPANY COMPARISON:
HP: It has a consistent liability to equity ratio.
BP: A much higher increase in ratio in the year 2011-12 indicates company has made aggressive use
of leverage and is not safer for the creditors.
47823.42
12545.80= 3.81: 1
58561.55
12545.8= 4.41: 1
62518.33
13726.40= 4.59: 1
Year 2010-2011
Year 2011-2012
Year 2012-2013
19979.41
14057.62= 1.42: 1
50693.12
14913.86= 3.39: 1
50383.37
16634.02= 3.02: 1
Year 2010-2011
Year 2011-2012
Year 2012-2013
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INTEREST COVERAGE RATIO
This is a measure of the protection available to creditors for payment of interest
charges by the companies. The ratio shows whether the company has sufficient
income to cover its interest requirement by a wide margin. A high ratio implies
adequate safety for payment of interest even if there was to be a drop in the
companys earnings.
Interest coverage ratio = Profit before interest and tax / Interest expenses
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013
HINDUSTAN PETROLEUM 3.65 1.57 1.73
BHARAT PETROLEUM 3.2 2.05 3.21
INTERPRETATION:
INTERCOMPANY COMPARISON: This ratio indicates whether the company has sufficient
income to cover its interest payments.BP has a much higher interest coverage ratio as compared to HP
which indicates BP has an adequate safety for payment of interest even if there is a drop in the
companys earnings.
INTRACOMPANY COMPARISON:
HP: There has been a consistent decrease in ratio indicating that the company doesnt provide
adequate protection to its creditors for payment of interest charges.
3230.14
884= 3.65
3358.97
2139.24= 1.57
3493.89
2019.33= 1.73
Year 2010-2011
Year 2011-2012
Year 2012-2013
3522.74
1100.7= 3.20
3683.76
1799.59= 2.05
5860.93
1825.24= 3.21
Year 2010-2011
Year 2011-2012
Year 2012-2013
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BP: There has been a decrease in ratio from 2010-11 to 2011-12 indicating that the company provides
less protection to creditors for payment of interest charges as compared to previous year.
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CAPITAL MARKET RATIO
It relates the market price of a companys share to the companys earnings and
dividend. The most commonly ratios that aid investors and analysts in understandingthe strength of the company in the capital market are as follows:
1 Price earnings ratio
2 Dividend yield
3 Price to book ratio
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1.PRICE EARNING RATIO
It measures extensively used in investment analysis. It is considered as an indicator
of firms growth prospectus.
Profit earnings ratio = Average Stock Price / Earnings Per Share
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013
HINDUSTAN PETROLEUM 11.86 10.96 10.60
BHARAT PETROLEUM 7.16 9.5 10.33
INTERPRETATION:
INTERCOMPANY COMPARISON: There are some variations in the P.E ratio in all the years. If
overall analysis is done it can be seen that HP has a higher P.E. ratio as compared to BP.
INTRACOMPANY COMPARISON:
HP: Theyear 2010-2011 shows the highest P.E. ratio which indicates stock market is confident in the
company`s future earnings growth but it fell down in next two years but the difference was negligible
as compared to previous year.
356.88
45.448= 11.86
295.27
26.92= 10.96
283.22526.71
= 10.60
Year 2010-2011
Year 2011-2012
Year 2012-2013
306.67
42.78= 7.16
347.24
36.26= 9.5
377.7
36.55 = 10.33
Year 2010-2011
Year 2011-2012
Year 2012-2013
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BP: The Year 2010-11 shows the lowest PROFIT EARNING ratio amongst all these years which
indicates lower faith in in the company`s future earnings growth.
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2. DIVIDEND YIELD RATIO
It represents the current cash return to shareholders. It is the ratio of dividend per
share to current market price. The increase in the dividend yield indicates that the
cash returns on share went up.
Dividend yield ratio = Dividend per Share / Average Stock Price
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013
HINDUSTAN PETROLEUM 3.92 2.87 3
BHARAT PETROLEUM 4.56 3.16 2.91
INTERPRETATION:
INTERCOMPANY COMPARISON: Between the 2 companies HP is the one which is giving a
lesser dividend yield as compared to BP. The major difference being in the year 2010-11 between the
dividend yield of both the companies.
INTRACOMPANY COMPARISON:
HP: The Company is providing a higher current cash return to its shareholders in the year 2010-11 as
compared to following years.
14
356.88100 = 3.92%
8.5
295.27100 = 2.87%
8.5
283.225100 = 3%
Year 2010-2011
Year 2011-2012
Year 2012-2013
14
306.67 100 = 4.56%
11
347.245 100 = 3.16%
11
377.7 100 = 2.91%
Year 2010-2011
Year 2011-2012
Year 2012-2013
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BP: The Company is consistently providing higher dividend yield the highest being in the year 2010-
2011. It shows the total return to shareholders in the form of dividend.
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3. PRICE TO BOOK RATIO
This measure compares a companys stock price with the book value .Book value
per share is the amount of shareholder equity dividend by the number of shares. A
low P/B ratio is often seen as an indication of under-pricing of the stock. A price to
book ratio of more than one means that the market expects the stock to earn at a
rate higher than the required rate.
Price to book ratio = average market price per share / book value per share
Book value per share = shareholders equity / no. of equity shares
HINDUSTAN PETROLEUM BHARAT PETROLEUM
2010-2011 2011-2012 2012-2013HINDUSTAN PETROLEUM 0.96:1 0.76:1 0.69:1
BHARAT PETROLEUM 0.78:1 0.85:1 1.64:1
INTERPRETATION:
INTERCOMPANY COMPARISON: Between the two companies BP shows a higher price to book
ratio in 2011-12 and 2012-13 as compared to HP. However the ratio was less 2010-11. A more than 1
ratio indicates that market expects the stock to earn at a rate higher than the required rate only in theyear2012-13 it achieved the ideal ratio.
356.88
370.49= 0.96: 1
295.27
387.51= 0.76: 1
283.225
405.35= 0.69: 1
Year 2010-2011
Year 2011-2012
Year 2012-2013
306.67
388.86= 0.78:1
347.245
408.5= 0.85: 1
377.7
230.06= 1.64:1
Year 2010-2011
Year 2011-2012
Year 2012-2013
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INTRACOMPANY COMPARISON:
HP: The Company shows a consistent low price to book ratio in all the years the lowest being in the
year 2012-13.
BP: The Company shows an increasing trend in this case.The highest being in the year 2012-13.
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