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Financial Statement Analysis
Financial Statement Analysis
Financial Statement Analysis
SR. no. 1 2 3 4 4 5 Topic Industry Profile Company Profile SWOT Analysis of Marico Limited Financial Statement Analysis and the Tool Kit of the Analysis Ratio Analysis Analysis and interpretation of Marico Industries Limited for the year 20056 06 to 2009-10 Annexure (Freg sheet) PG. no. 2 5 10 11 13 18
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Introduction Fast Moving Consumer Goods (FMCG) goods are popularly named as consumer packaged goods. Items in this category include all consumables (other than groceries/pulses) people buy at regular intervals. The most common in the list are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish, packaged foodstuff, household accessories and extends to certain electronic goods. These items are meant for daily of frequent consumption and have a high return. A major portion of the monthly budget of each household is reserved for FMCG products. The volume of money circulated in the economy against FMCG products is very high, as the Indian FMCG sector The Indian FMCG sector is the fourth largest in the economy and has a market size of US$13.1 billion. Well-established distribution networks, as well as intense competition between the organised and unorganised segments are the characteristics of this sector. FMCG in India has a strong and competitive MNC presence across the entire value chain. It has been predicted that the FMCG market will reach to US$ 33.4 billion in 2015 from US $ billion 11.6 in 2003.
The middle class and the rural segments of the Indian population are the most promising market for FMCG, and give brand makers the opportunity to convert them to branded products. Most of the product categories like jams, toothpaste, skin care, shampoos, etc, in India, have low per capita consumption as well as low penetration level, but the potential for growth is huge.
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The Indian Economy is surging ahead by leaps and bounds, keeping pace with rapid urbanization, increased literacy levels, and rising per capita income.The big firms are growing bigger and small-time companies are catching up as well. According to the study conducted by AC Nielsen, 62 of the top 100 brands are owned by MNCs, and the balance by Indian companies. Fifteen companies own these 62 brands, and 27 of these are owned by Hindustan Lever. Pepsi is at number three followed by Thums Up. Britannia takes the fifth place, followed by Colgate (6), Nirma (7), Coca-Cola (8) and Parle (9). These are figures the soft drink and cigarette companies have always shied away from revealing. Personal care, cigarettes, and soft drinks are the three biggest categories in FMCG. Between them, they account for 35 of the top 100 brands. Market Opportunities Vast Rural Market Rural India accounts for more than 700 Million consumers, or ~70 per cent of the Indian population and accounts for ~50 per cent of the total FMCG market. The working rural population is approximately 400 Millions. And an average citizen in rural India has less then half of the purchasing power as compare to his urban counterpart. Still there is an untapped market and most of the FMCG Companies are taking different steps to capture rural market share. The market for FMCG products in rural India is esti-mated ~ 52 per cent and is projected to touch ~ 60 per cent within a year. Hindustan Unilever Ltd is the largest player in the industry and has the widest market coverage. Export - Leveraging the Cost Advantage Cheap labor and quality product & services have helped India to represent as a cost ad-vantage over other Countries. Even the Government has offered zero import duty on capital goods and raw material for 100% export oriented units. Multi National Companies out-source its product requirements from its Indian company to have a cost advantage. India is the largest producer of livestock, milk, sugarcane, coconut, spices and cashew apart from being the second largest producer of rice,
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wheat, fruits & vegetables. It adds a cost advantage as well as easily available raw materials. Market Leader Of FMCG Sector Hindustan Unilever Limited (abbreviated to HUL) formerly Hindustan Lever Limited is India's largest consumer products company and was formed in 1933 as Lever Brothers India Limited Largest FMCG Co. in India 20 distinct categories
Home and personal care products Food and beverages manufactured by 40 factories across India combined volume of 4 million tones sales of Rs 10,000 crores 51.55% of equity held by parent Co. Unilever rest distributed among 380,000 individual shareholders and financial institutions distribution reaches 6.3mn retail outlets and 250 rural consumers Golden super star trading house
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Introduction
Marico is a leading Indian Group in Consumer Products & Services in the Global Beauty and Wellness space. Marico's Products and Services in Hair care, Skin Care and Healthy Foods generated a Turnover of about Rs. 23.9 billion (about USD 478 Million) during 2008-09. Marico markets well-known brands such as Parachute, Saffola, Sweekar, Hair & Care, Nihar, Shanti, Mediker, Revive, Manjal, Kaya, Aromatic, Fiance, Hair Code, Caivil, Code 10 and Black Chic. Marico's brands and their extensions occupy leadership positions with significant market shares in most categories- Coconut Oil, Hair Oils, Post wash hair care, Anti-lice Treatment, Premium Refined Edible Oils, niche Fabric Care etc. Marico is present in the Skin Care Solutions segment through Kaya Skin Clinics (101 in India, Middle East and Bangladesh) and its soap franchise.
Marico's branded products are present in Bangladesh, other SAARC countries, the Middle East, Egypt, Malaysia and South Africa. The Overseas Sales franchise of Marico's Consumer Products (whether as exports from India or as local operations in a foreign country) is one of the largest amongst Indian Companies and is entirely in branded products and services.
History
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The company was originally a join venture between a Lever group company and Nissin of Japan, and its products were distributed through HLL's channels.In 1988 The Company was incorporated on 13th October, under the name of Marico Foods Ltd. It obtained the Certificate of commencement of business on 22nd November.In 1989 The name of the Company was changed to Marico Industries Limited w.e.f. 31st October.In December, the Company entered into an agreement with M/s. Rasoi Industries Limited for purchase of its unit located at M.I.D.C Industrial Estate, Jalgaon. Saffola won the Most Outstanding `Brand of the Year' Award instituted by the Advertising Club of Mumbai in 1993.In March 1996, the Company made a fresh issue of 10,00,000 equity shares of Rs.10/- each, at a premium of Rs.165/- per share, simultaneously with an offer for sale by the promoters of 26,25,000 equity shares of Rs.10/- each, at a premium of Rs.165/- per share. In 2002 Marico Industries Ltd has informed BSE that the Board approved the Issue of bonus redeemable preference shares of aggregate face value of Rs 290 million. Ratio -- 1:1 on equity enhanced after bonus issue of equity shares made by the Board on April 18, 2002 and approved by shareholders on July 18, 2002. The rate of dividend is 8% p.a.Increase in authorised share capital of the Company from Rs 300 million to Rs 600 million.Marico acquires HLL`s Nihar for Rs 216 cr in 2006 In 2007 Marico Ltd has appointed Mr. Anand Kripalu as an Additional Non-Executive Director on the Board of Directors of the Company
Products
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'COME WIN' ---- Their vision and mission is captured in this acronym, which
when bifurcated means the following: -
translate the consumer's needs and desires into marketable products and an everexpanding base of loyal consumers, with speed and a quality of response that surpasses the competition.
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We commit ourselves to improving the quality of people's lives in several parts of the world, through branded fast moving consumer products and services.
Future plans
Marico's future plans include acquiring brands in the consumer and skincare products. Mr Milind Sarwate, CFO of Marico, says, This is part of the company's target to achieve turnover of US$ 450 million in the next four years, the focus of which will be both on inorganic and organic rowth. Exports that currently constitute 10 per cent of our total revenues are expected to go up to around 25 per cent of revenues. Kaya and Sundari are expected to be the future growth engines for the top line as well as the bottom line. Kaya is expected to grow to US$ 13 million by 2007 and help Marico to move up the value chain in the personal care business through high value add services and products in the skin care space. Focused efforts are on to expand the Sundari net in the global spa channel, especially destination spas, and also develop new products by leveraging Marico's R&D in India. After the acquisition by Marico, Sundari has been able to roll out five new
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Financial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account. Financial Statement analysis seeks to evaluate the performance, financial strength, ability to generate enough cash and the growth outlook of a company. Financial statements are prepared to meet external reporting obligations and also for decision making purposes. They play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements.
Objective of Analysis
The objectives of analysis of financial statements have their genesis in the objectives of financial statement. We have been learning throughout this text that the objective of financial statements is to provide information about the financial position, performance and cash flow of an enterprise. Based on this information, objective of analysis them is to evaluate: The adequacy or otherwise of the profits earned by the company. The adequacy or otherwise of its financial strength. Its ability to generate enough cash and cash equivalents and the timing and certainty of their generation. The future growth outlook of the company.
These are very broad objective s of financial analysis and every stakeholder carries out the analysis keeping these in view.
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Various Stakeholders
The following are some stakeholders of the company and they are willing and interested in financial statement analysis of the company because they are directly or indirectly connected with the company. Here are some stakeholders given below: Promoters Shareholders other than promoters Prospective investors, such as individuals, corporate bodies, foreign institutional investors, mutual funds and strategic capital partners Lenders, such as financial institutions, banks and public Creditors Customers Employees Government and regulatory bodies Public at large Management ad Researchers and analysts
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The above are shown some took kit of the financial statement analysis but here we have done Ratio Analysis to analyze the financial performance of the Marico Industries Limited.
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Ratio Analysis
What is Accounting Ratio?
A relationship between various accounting figures, which are connected with each other, expressed in mathematical terms, is called accounting ratios. According to Kennedy and Macmillan, "The relationship of one item to another expressed in simple mathematical form is known as ratio." Accounting ratios are very useful as they briefly summarise the result of detailed and complicated computations. Absolute figures are useful but they do not convey much meaning. In terms of accounting ratios, comparison of these related figures makes them meaningful. For example, profit shown by two-business concern is Rs. 50,000 and Rs. 1,00,000. It is difficult to say which business concern is more efficient unless figures of capital investment or sales are also available. Analysis and interpretation of various accounting ratio gives a better understanding of the financial condition and performance of a business concern.
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Inter-firm comparison for the same reason. Comparison against industry benchmarks. Analysis of chronological performance over a long period.
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To simplify the accounting information: Accounting ratios are very useful as they briefly summarise the result of detailed and complicated computations. To workout the operating efficiency: Ratio analysis helps to work out the operating efficiency of the company with the help of various turnover ratios. All turnover ratios are worked out to evaluate the performance of the business in utilizing the resources. To workout short-term financial position: Ratio analysis helps to work out the short-term financial position of the company with the help of liquidity ratios. In case short-term financial position is not healthy efforts are made to improve it. Helpful for forecasting purposes: Accounting ratios indicate the trend of the business. The trend is useful for estimating future. With the help of previous years ratios, estimates for future can be made. In this way these ratios provide the basis for preparing budgets and also determine future line of action.
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Effect of Price Level Changes: Price level changes often make the comparison of figures difficult over a period of time. Changes in price affect the cost of production, sales and also the value of assets. Therefore, it is necessary to make proper adjustment for price-level changes before any comparison. Qualitative factors are ignored: Ratio analysis is a technique of quantitative analysis and thus, ignores qualitative factors, which may be important in decision making. For example, average collection period may be equal to standard credit period, but some debtors may be in the list of doubtful debts, which is not disclosed by ratio analysis. Effect of window-dressing: In order to cover up their bad financial position some companies resort to window dressing. They may record the accounting data according to the convenience to show the financial position of the company in a better way. Costly Technique: Ratio analysis is a costly technique and can be used by big business houses. Small business units are not able to afford it. Misleading Results: In the absence of absolute data, the result may be misleading. For example, the gross profit of two firms is 25%. Whereas the profit earned by one is just Rs. 5,000 and sales are Rs. 20,000 and profit earned by the other one is Rs. 10,00,000 and sales are Rs. 40,00,000. Even the profitability of the two firms is same but the magnitude of their business is quite different. Absence of standard university accepted terminology: There are no standard ratios, which are universally accepted for comparison purposes. As such, the significance of ratio analysis technique is reduced.
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Classification of Ratios
Ratios are classified according to their functions and objective. Despite the purpose behind them being normally the same, there is no standard clarification of ratio. Different authors classify them differently. Categories of Ratio are: Return on Investment (ROI) Ratio Return on Net worth -RONW Earnings per Share (EPS) Solvency Ratio Net Asset Value Debt-Equity Liquidity Ratio Current Ratio Quick Ratio Collection Period Allowed to Customers Suppliers Credit Resources Efficiency or Turnover Ratios Fixed Asset Turnover Ratio Net worth Turnover Ratio Profitability Ratio PBT to Sales Ratio PAT to Sales Ratio, i.e. Net Profit Ratio DU PONT Analysis
Within each category, there are a number of ratios. A discussion on them now follows. It needs to be understood that ratios should be computed after weeding out the impact of window dressing, wherever required.
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Ratio Analysis and Interpretation of Marico Industries Limited for the year 2006-07 to 2010-11: RETURN ON INVESTMENT (ROI) RATIOS
Maximization of Return on investment or ROI is the ultimate objective of the company management. For, it is the expectation of a high return that motivate equity shareholders to continue to with the company and new investors to put in their money in companys equity. It is also the ultimate measure of the efficiency of performance of a management. Hence, adequacy or otherwise of ROI because the main determinant of a companys fate. Return On Net Worth (RONW):
The Ratio measures the net profit earned on the shareholders funds. It is the measure overall profitability of a company after discharging cost of borrowed capital and income tax payable to the government. It is also known as return on Equity or ROE ratio. RONW (%) = (PAT Preference Dividend) * 100 Equity Shareholders Fund or Net worth
Year (PAT Preference Dividend) * 100 Equity Shareholders Fund or Net Worth Return On Net Worth (%) % Increase/ Decrease compare to previous year
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Interpretation: Here, by analyzing the RONW of Marico Company, for last five years i.e. 2006 to 2010, we can see that, companys RONW increases in 2010, than in 2006. So, we can say that, it is improved over 2006. It increases in 2010 by 15.15 %. It was highest in 2008 (66.7%) during last five years. So, from 2006-08 it increase by 83.75%, but after that, during 2008-10, it decreases 37.33%. This is because of increase in sales during 2006-08 is of 66.68%, companys net worth were increased by 5.98% during same period of time. Though companys sales and net worth both are continuously increasing from 2006 to 2010, but at the different rate. After 2008, companys sales increased by only 39.54%, while on the other hand its Net Worth was increased tremendously by 118.04% in just two years, i.e. 2008-10 and it lead to RONW of 2010 to 41.8%. But, it is not so bad, because companys sales and net worth are continuously increasing from 2006-2010, so, it is also good in 2010. So, overall RONW improved by 15.15% during last five years and it is good.
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The ratio measures the overall profitability in term of per equity share of capital contributed by the owners. It thus seeks to put RONW in a different perspective. EPS (Rs.) = PAT Preference dividend _
Interpretation: By analyzing above EPS data for last five years, i.e. 2006-2010. It is improved by 153.33%. So, it is increased over a period of time by during last five years. This is why companys PAT is also continuously increasing during last five years. Companys PAT was improved by 166.67% and weighted average number of equity shareholders are increased by 5%. In 2008, EPS was improved by 86.67% during 2006-08, after that EPS was increased by 33.71%. So, the incremental rate in 2010 is less than that of in 2008. So, in 2008, companys RONW and EPS both will very good, but after that EPS was increased by lower rate, i.e. 35.71%. But it is increasing continuous by 153.33% from 2006-10. So, it is excellent. So, overall companys EPS is very good in 2010 and it is highest (3.8) in 2010. This shows companys growth in sales and effective asset utilization. Companys cost of borrowing is low and company have cost economies and hence, companys profit as well as EPS both increases during five years, i.e. 2006-10. It is a good sign for the company.
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Solvency ratio
The capacity of a company to discharge its obligations towards long-term lenders indicates its financial strength and ensures its long-term survival. It is important for an analyst to study the solvency position, or gearing structure, or leveraging capacity of a company. Net Assets Value (NAV):
This ratio measures the net worth or net asset value per equity share. It thus seeks to assess as t what extent the value of equity share of company contributes at par or at a premium has grown or the value/wealth has been created for the shareholders. It is also known as net worth per share or book value per share. NAV (Rs.) =
Year Equity shareholders Funds
Interpretation: The companys NAV is continuously increasing during last five years except 2007 (3.16). It is because of improvement in companys shareholders fund during last five years. The companys shareholders fund is increased by 150% a very large portion, although it was reduced by 26.43% in 2007, but after that it is continuously increasing and it is improved by a very large portion that is 239.95%. It is very good sign for company. No. of shareholders are also improved. Overall, the companys NAV is improved, by 138.67% during last five years, i.e. 2006-10 and it was 10.74 in 2010. It indicates that companys RONW and EPS both are good. The company has capacity to raise further capital and funds. Debt Equity (D/E):
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The ratio measures the proportion of debt and capital both equity and preference, in the capital structure of a company. In other word, it measures the extent of assets financed through long-term borrowings. Debt Equity (Times) = Long-term Debt Total Net worth (Equity Shareholders Funds + Preference Capital)
Year
Long-term Debt
Interpretation: Generally, the debt-equity ratio of 2:1 to 2.3:1 is an ideal. But in above data of debt equity ratio of company for last five years (2006-10), we cant found a standard debt equity ratio of 2:1. It is fluctuating over the time period of 2006-10. It was increased by 44% from 2006 to 2007, after that it was decreased by 15.4% in 2008, it was again decreased by 27.3% in 2009, and by 12.5% in 2010. So, we can analyze that it is continuously decreasing from 2006 to 2010 except 2007(1.3). Obviously the rate of change is different for each year. It was increased by 44% in 2007, and then the rate of change is low in last five years. It shows that the companys long term debt is quite less than its shareholders fund. Both, long term debt and net worth of a company are increasing in last five years (2006-10) but with different rate. This is the main reason of reduction in debt-equity ratio in 2010. So, the company has very less long term debt. The companys debt-equity ratio is too low in comparison to the standard ratio. The company has the capacity to further raise funds with the existing
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resources available of its owners on 31/03/2010. The company has very high possibility for further growth.
LIQUDITY RATIOS
The capacity of company to discharge its suppliers and providers and to meet its day-to-day expenses indicates its liquidity and ensures smooth continuity of operations, which in turn have a strong bearing on the long-term survival of the company. Liquidity of a company is affected by the credit it extends to its customers, credit that it enjoys from its suppliers and its inventory buildup. The liquidity position of a company is determined by analysing the structure of current assets and liabilities, credit period allowed to the customers, credit period allowed from suppliers and inventory holding of the company. Current Ratio: The ratio measures the ability of a company to discharge its day-to-day bills, or current liabilities, as and when they fall due, out of the cash or near cash, or current assets that it possesses. Current Ratio (Times) = Current Assets, Loan & Advances + short-term Investments Current Liabilities + Provisions + Short-term Debt
Year Current Assets, Loan & Advances + short-term Investments Current Liabilities + Provisions + Short-term Debt Current Ratio (Times) % Increase/ Decrease compare to previous year
Interpretation: Current ratio is used to measures firms ability to meet short term obligations. The current ratio of 1.5:1 or 2:1 is ideal. In above data of current ratio for 2006-10, we can see that the current ratio of company decreases by 17.61% from 2006 to 2010. The companys current assets are continuously increasing from 2006 to 2010. But the rate of change is different. So, all above calculated current ratios for last five year, there is no any single ratio, which matches with standard current ratio of 2:1 or 1.5:1. It may be because of credit periods availed from suppliers is less or credit periods allowed to the customers is more or any other. So, companys current assets are less in compared to its current liabilities. So, companys current ratio is not so good, but at the same time it is not so bad, it is workable.
The ratio measures as to how quick is the ability of a company to discharge its current liabilities net of working capital limits, as and when they fall due, out of cash or current assets net or inventories that it possesses. Inventory takes the longest of all the current assets to convert into cash. Working capital limits are sanctioned and renewed on a yearly basis and not settled daily. Hence both are excluded. This is also known as Acid-test ratio. Care should be taken to further exclude prepaid expenses, as they are not returnable in cash, sticky debtors, sticky loans and advances, long term portion of loans and advances and long term suppliers advances. Much, however, depends upon the availability of information.
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Quick Ratio (Times)= Current Assets, Loan & Advances - Inventories + short-term Investments Current Liabilities + Provisions + Short-term liabilities bank overdraft
Current Assets, Loan Year & Advances Inventories + shortterm Investments Current Liabilities + Provisions + Shortterm liability bank overdraft Quick Ratio or Acid-test Ratio (Times) % Increase/ Decrease compare to previous year
Here, in above quick ratios, no one is matching with standard. Companys quick ratios are very less in whole time period of last five years (2006-10). There is overall reduction in the quick ratio in 2010 over 2006. There is 16.67% reduction in the quick ratio in 2010 over last five years. So, companys current assets are already less than current liabilities and companys quick or liquid assets are also very less. So, the companys quick ratio is very low in 2010 and also very low over the time period of 2006-10. Companys quick ratio history in last five years is worriable.
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The ratio measures the credit period allowed to the customers on credit sales or how fast a company realizes its outstanding dues. It is also known as Days Sales in Receivables Ratio. Collection Period allowed to Customers (Days) = Receivables * 365 Credit Sales
Year Receivables * 365 Credit Sales Collection Period allowed to Customers (Days) % Increase/ Decrease compare to previous year
Interpretation: It helps to know the credit period allowed to customers on credit sales how fast a company realizes its outstanding dues and amounts. By analyzing the given data of collection period allowed to customers for the period of last five years (2006-10), we can see that except 2007 it was increased by 25.98%. So, companys collection period allowed to customers is increased and very favourable to the company in view of suppliers credit which is very high. So, company is allowing shorter period of time to its customers that it got from its suppliers. So, it is good sign for a company and very good thing for a company. These ratios are very favourable for a company. This is good sign.
Suppliers Credit:
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The ratio measures the average credit period availed by a company from suppliers on credit purchases or how much leverage it possesses to settle its outstanding payables. Also known as Days Purchases in payables Ratio. Suppliers Credit (Days) = Payables * 365_ Credit Purchases
Credit Year Payables * 365 Purchases Suppliers Credit (Days) % Increase/ Decrease compare to previous year
98 78 66 86
This ratio helps to understand the credit policy and to measure the credit period availed by a company from its suppliers. In above ratios of suppliers credit, company is enjoying a very good credit period from its suppliers. There is increment of 3.61% in ratio in 2010 over past five years. It was highest in 2007 (98) and lowest in 2009 (66) in last five years. But still there is overall improvement in the ratio in 2010 over 2006. The company is enjoying good credit period from its suppliers and company is allowing very less collection period to its customers. So customers are loyal to the company, because company is in a position to increase its sales continuously in last five years from 2006-10. Company is enjoying this very good credit period from suppliers, which means suppliers have high degree of faith in the company. So, from this point of view company is in a very good position and it has possibilities to take full advantage of all these things.
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TURNOVER RATIOS
We have seen above the importance and significance of ROI ratio as the ultimate measures of corporate profitability. It was also observed that among other, efficient asset utilization and optimum capital structure are the key drivers of those ratios. The efficiency with which the assets and resources of a company are utilized in generating operational revenue has a direct bearing on the top line. It is, therefore, important for an analyst to study the turnover ratios. Fixed Assets Turnover Ratio:
The ratio measures the extent of turnover or volume of gross income generated by the fixed assets of a company or in other words the efficiency in their utilization. Fixed Assets Turnover Ratio (Times) = Net Sales Net Block of Fixed Assets
Net Block of Year Net Sales Fixed Assets Fixed Assets Turnover Ratio (Times) % Increase/ Decrease compare to previous year
This ratio measures how well the fixed assets are used in the business and the efficiency their utilization. Higher fixed asset turnover ratio is preferable by the company. Here, by analyzing the fixed asset turnover ratio of last five years, from 2006-10, we can analyze that it was very low in 2006 then, it was increased in 2007
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and at that time in 2007, it was also highest in last five years. After 2007, it is continuously reducing, which is not good, because it shows inefficiency of fixed asset to generate profit, to that extent to which it is reduced. It was increased by 241.64% in 2007, which means companys fixed assets are used very effectively and optimally. After that it was reduced by 17.44% in 2010, means companys fixed assets are not highly utilized effectively, that of in 2007. But in only one year (2007) it was increased by a great rate of 241.64%, so company has utilized its assts very effectively, because of which companys profit and sales are also increased. Now, there is 182.06% increment over 2006. So, it is good matter. Company has utilized its all assets very effectively, so that its profit is increased. So, companys fixed assets turnover ratio is not worriable and it is very favourable, though, there is reduction in ratio by 1.48% in 2010 over 2009, but it is very less, the rate of change is only 1.48%, so there is no any wrong matter. So, companys fixed assets turnover ratio is very good. Net Worth Turnover Ratio:
The ratio measures the extent of turnover or volume of gross income generated by the Net Worth of a company. In other words, the efficiency in then resources utilization from the angle of the residual interest, that is, equity shareholders. Net Worth Turnover Ratio (Times) =
Equity Year Net Sales Shareholders fund or Net worth Net Worth Turnover Ratio (Times)
Net sales
% Increase/ Decrease compare to previous year
It helps in measuring the extent of turnover or gross volume of income or total sales generated by the companys net worth. In our data of last five years of 2006-10, the
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companys net worth ratio was highest in 2008 (7.52) and lowest in 2006 (4.78). It is also reduced by 36.03% in 2010 over 2008. So, there is reduction in companys net worth turnover ratio. So, it was increased in 2008, at same time it was the highest in past five years. But after that it was reduced and in 2010 it was also lower, which is not good. There is only very less improvement in 2010, overall also no more effective except 2008. It is improved by very small proportion in 2010 over the last five years that is 2006-10, but is not bad thing. It is not too low. It is at good position. Companys net worth turnover is not so worriable, it is quite good.
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This ratio measures profit before tax margin. It is helpful in analyzing the companys position and performance in terms of its profit before tax.
Year
PBT*100
Net Sales
The company has highest PBT ratio in present year i.e. in 2010 (11.19) and it is quite good. It indicates that companys profit before tax is high. So, it has lowest in 2006 (8.6) and highest in 2010 (11.9) during last five years, and another good thing is that the companys profit before tax is continuously increasing except 2009, during last five years, so, it is very good for a company and it shows growth, the company is achieving. The companys PBT is increased by 11.63% in 2007 over 2006. In 2009 it was decreased by 10.7%, which is very less proportion than the
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overall increment rates. The companys profit before tax is increased by 30.12% in 2010 over 2006 in last five years. So, the companys PBT ratio is good and favourable.
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Profit after tax to Sales Ratio (%): Profit after Tax *100 Net Sales
% Increase/ Year PAT*100 Net Sales PAT to sales (%) Decrease compare to previous year
The companys Profit after tax is measured by the PAT ratio. Here, the companys PAT is good in 2008 and 2009. It is highest in 2008 (8.9) and lowest in 2007 (7.3), in last five years of 2006-10. The companys PAT is decreased in 2007, by only 4.48%, which is lower rate, than it is increased by 22.21% in 2008 than that of 2007. Thus, here in 2008, the increment rate is quite high than the decrement rate of 2007. After 2007, it was again reduced by 10.84% in 2009 than that of 2008. Then in 2010, finally it is increased by 10.1%. Overall, the PAT ratio of company is increased by 14.61% in 2010 over 2006 during last five years. So, during 2006-10, the company has achieved many targets and it has grown, because of which its PAT ratio is increased. Thus, there is great improvement in the companys PAT ratio during last five years of 2006-10. It means that the companys sales is also grown, effective utilization of resources and especially cost economies are achieved
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by company. Though PAT ratio is not so high, but it is not also too low. It is good. The companys PAT or NP ratio is favourable.
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DU PONT ANALYSIS
RONW, the ultimate overall profitability ratio, is a function of Net Profit Margin and Net worth Turnover as is clear from the discussion we had earlier. Du Pont analysis seeks to measure and establish this relationship. The analysis enables an analyst to understand, say in the case of an improvement in the RONW over the previous year, whether this improvement has been caused by improved net profit margin or improved net worth turnover or an improvement in both or improvement in one and deterioration in another. So as to be able to devise suitable strategies for the weak are of overall performance. Du Pont Analysis =
Year
RONW (PAT-Preference Dividend) 100 Equity Shareholders Funds or Net Worth (Equity Capital + Reserves & Surplus Miscellaneous Expenditure Not Written Off)
= =
Net Worth Turnover Net Sales Equity Shareholders Funds or Net Worth (Equity Capital + Reserves & Surplus Miscellaneous Expenditure Not Written Off)
= = = = =
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Interpretation: Here, companys RONW was highest in 2008 (66.69) during 2006-10 i.e. last five years. After that , it was reduced in 2009 (49.13) because, companys both net worth turnover as well as net profit margin (ratio) were deteriorated in 2009 over 2008, as an outcome, the companys net worth turnover is reduced in 2010 over 2009. Another point is that in 2010, the companys net profit margin was improved by 10.1% over 2009, and its net worth turnover was deteriorated by 22.67% over 2009. So, the rate of increment is lower than the rate of deterioration in 2010 over 2009. The rate of deterioration is nearer to double than the rate of increment. Now, overall there is 15.17% increment in RONW, in 2010 over 2006, during last five years. The overall increment is 14.6% in net profit margin in 2010, over 2006 and by 0.63% in 2010 over 2006. So, finally as an outcome, the companys RONW is increased. We can analyze that both, net profit margin and net worth turnover are improved in 2010 over 2006, but the rate of improvement (14.6%) in net profit margin is too high, it is very high than the rate of improvement in net worth turnover, in 2010, over 2006. So, we can say that in increment of RONW of company in 2010, over 2006, the improvement in net profit margin plays important and key role. Thus, overall companys net profit margin is good but companys net worth turnover is also playing a role in change in RONW and here in increasing the RONW, though, it is lower, but it is also playing a role in increasing the companys final RONW. So, we can show that companys final RONW is increasing. Companys net profit margin and net worth turnover both are also improved in 2010, over 2006, in last five years and it is favourable and very good position.
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2006 36.3 1.5 4.5 0.9 1.42 0.66 16.4 82.9 3.29 4.78 8.6 7.6 36.32
2007 49.7 1.9 3.16 1.3 0.75 0.34 15.04 98 11.24 6.86 9.6 7.3 49.74
2008 66.7 2.8 5.17 1.1 0.81 0.40 16.52 78 9.90 7.52 10.75 8.9 66.69
2009 49.1 3.1 7.45 0.8 1.17 0.57 16.92 66 9.42 6.22 9.6 7.9 49.13
2010 41.8 3.8 10.74 0.7 1.17 0.55 20.66 86 9.28 4.81 11.19 8.7 41.83
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Particular
2005-06 Sales Income from Services Total Sales & Services Less. Materials Cost Manufacturing Expenses & Other Expenses Finance Charges Amortization of Miscellaneous Expenses Profit Before Depreciation ,Interest , Taxes ( PBDIT) (-) Depreciation & Amortization & impairment Profit before Interest & tax (Op/ PBIT) (-)Interest (+) Other Income (Non Operating) (+/-) Exceptional Items Profit Before Taxes ( PBT) Less: Provision Of Tax [A] Current Tax [B] Mat Credit Entitlement [C] Fringe Benefit Tax [D] Deferred Tax Total Tax Profit After Tax 9.76 (6.58) 2.47 2.28 11.12 86.88 1098.77 45.17 1143.94 611.69 387.94 5.05 0.13 139.13 44.67 94.46 3.54 98.00
(Amount in crores)
2006-07 1488.78 68.14 1556.92 818.43 525.77 20.61 0.13 191.98 52.06 139.92 10.16 150.08 2007-08 1815.05 91.64 1906.69 1004.30 656.05 27.64 0.12 218.58 30.75 187.83 0.10 6.68 10.61 205.02 2008-09 2249.27 139.15 2388.42 1310.47 773.96 35.73 268.26 35.79 232.47 0.01 12.20 (15.03) 229.65 2009-10 2500.09 160.67 2660.76 1302.07 983.54 25.69 349.46 60.06 289.40 (1.87) 18.26 (9.79) 296
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From Multi-Step Analysis of Marico Consolidated Ltd. We found that the companys sales have been constantly increasing from year 2005-06 to 2009-10 around 128%. And also the incomes from the services for the companies have been increasing year by year. So it increasing the Profitability of the firm from 2005-06 to 2009-10 has been around 150%. In year 2007-08 companies has sale the business of SASWADs manufacturing unit at Rs.10.61cr. So it increases profitability of the company making profitability around 40%. In year companies has purchase part of it subsidiary in year 2008-09 At Rs.15.03Cr.it saws companies profit reinvest in the other subsidiaries at reduce the tax liabilities of the companies. On the financial year 2009-10,Under the heading of the Exceptional items companies has done many transaction like divestment of the Sundari Ltd. And kaya Ltd whole own subsidiaries of the company launched new SBU. So Investment of the Profit of the companies has been reinvest in the Kaya Ltd. So we saws that the companies has PBIT increasing around 128% but the companies profit after tax has been increasing around 151% from year 2005-06 to 2009-10.its saws the companies effective tax planning of the firm. It good for the Equity share holder point of view. it saws the higher chances of the getting good retne because the finally the PAT has been distributed among them.
Particulars
Application of funds
FIXED ASSETS: Gross Block - Deprecation, Amortization & Impairment Net Block Capital Work-In-Progress Assets For Disposal Deferred Tax Assets Goodwill On Consolidation INVESTMENT CURRENT ASSETS, LOANS AND ADVANCES Inventory Sundry Debtors Cash & Bank Balances Loans & Advances Less: CURRENT LIABLITIES AND PROVISIONS (a) Current Liabilities (b) Provision NET CURRENT ASSETS TOTAL ASSETS Less: LOAN FUNDS and Others Secured Loans Unsecured Loans Deferred Tax Liabilities NET ASSETS Represented by: EQUITY SHAREHOLDERS FUNDS Share Capital Reserve and Surplus Less: Miscellaneous Expenditure Not W/O EQUITY OWNERS FUNDS 58.00 203.48 (0.25) 261.23 476.14 (128.93) 347.21
Amount
(Rs.in crore)
132.29 51.46 41.46 53.12 278.33 (150.79) (19.64) (170.45) 203.25 36.55 239.80
107.90 509.31
261.23
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Particulars
Application of funds
FIXED ASSETS: Gross Block - Deprecation, Amortization & Impairment Net Block Capital Work-In-Progress Assets For Disposal Deferred Tax Assets Goodwill On Consolidation INVESTMENT CURRENT ASSETS, LOANS AND ADVANCES Inventory Sundry Debtors Cash & Bank Balances Loans & Advances Less: CURRENT LIABLITIES AND PROVISIONS (a) Current Liabilities (b) Provision NET CURRENT ASSETS TOTAL ASSETS Less: LOAN FUNDS and Others Secured Loans Unsecured Loans Deferred Tax Liabilities NET ASSETS Represented by: EQUITY SHAREHOLDERS FUNDS Share Capital Reserve and Surplus Minority Interest Less: Miscellaneous Expenditure Not W/O EQUITY OWNERS FUNDS 60.90 131.47 0.01 (0.12) 192.26 277.91 (139.42) 138.49
Amount
(Rs.in crore)
221.47 64.26 42.73 71.66 400.12 (267.72) (14.72) (282.44) 51.65 199.32 250.97
117.68 443.23
(250.97) 192.26
192.26
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Particulars
Application of funds
FIXED ASSETS: Gross Block - Deprecation, Amortization & Impairment Net Block Capital Work-In-Progress Assets For Disposal Deferred Tax Assets Goodwill On Consolidation INVESTMENT CURRENT ASSETS, LOANS AND ADVANCES Inventory Sundry Debtors Cash & Bank Balances Loans & Advances Less: CURRENT LIABLITIES AND PROVISIONS (a) Current Liabilities (b) Provision NET CURRENT ASSETS TOTAL ASSETS Less: LOAN FUNDS and Others Secured Loans Unsecured Loans Deferred Tax Liabilities NET ASSETS Represented by: EQUITY SHAREHOLDERS FUNDS Share Capital Reserve and Surplus Minority Interest Less: Miscellaneous Expenditure Not W/O EQUITY OWNERS FUNDS 60.90 253.72 0.12 314.74 356.07 (163.49) 192.58
Amount
(Rs.in crore)
260.46 86.27 75.28 106.09 528.1 (255.96) (39.19) (295.15) 134.54 223.40 357.94
232.95 672.60
(357.94) 314.74
314.74
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Particulars
Application of funds
FIXED ASSETS: Gross Block - Deprecation, Amortization & Impairment Net Block Capital Work-In-Progress Assets For Disposal Deferred Tax Assets Goodwill On Consolidation INVESTMENT CURRENT ASSETS, LOANS AND ADVANCES Inventory Sundry Debtors Cash & Bank Balances Loans & Advances Less: CURRENT LIABLITIES AND PROVISIONS (a) Current Liabilities (b) Provision NET CURRENT ASSETS TOTAL ASSETS Less: LOAN FUNDS and Others Secured Loans Unsecured Loans Deferred Tax Liabilities NET ASSETS Represented by: EQUITY SHAREHOLDERS FUNDS Share Capital Reserve and Surplus Minority Interest Less: Miscellaneous Expenditure Not W/O EQUITY OWNERS FUNDS 60.90 392.59 453.49 456.88 (203.46) 253.42
Amount
(Rs.in crore)
339.04 110.80 92.19 129.85 671.88 (280.27) (35.51) (315.78) 107.51 263.46 374.97
356.1 828.46
(374.97) 453.49
453.49
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Particulars
Application of funds
FIXED ASSETS: Gross Block - Deprecation, Amortization & Impairment Net Block Capital Work-In-Progress Assets For Disposal Deferred Tax Assets Goodwill On Consolidation INVESTMENT CURRENT ASSETS, LOANS AND ADVANCES Inventory Sundry Debtors Cash & Bank Balances Loans & Advances Less: CURRENT LIABLITIES AND PROVISIONS (a) Current Liabilities (b) Provision NET CURRENT ASSETS TOTAL ASSETS Less: LOAN FUNDS and Others Secured Loans Unsecured Loans Deferred Tax Liabilities NET ASSETS Represented by: EQUITY SHAREHOLDERS FUNDS Share Capital Reserve and Surplus Minority Interest Less: Miscellaneous Expenditure Not W/O EQUITY OWNERS FUNDS 60.93 593.03 12.53 666.49 529.18 (242.41) 286.77
Amount
(Rs.in crore)
444.81 150.69 111.46 189.99 896.95 336.87 76.76 (413.63) 114.20 331.68 (445.88)
483.32 1112.37
(445.88) 666.49
666.49
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Analysis of Analytical Balance sheet of the MARICO Consolidate Ltd. Net block of fixed assets has been higest in the year 2005-06, around Rs.347.21cr.which has decreasing around 61% infinacial year 2006-07 which saws the companies has selling Fixed asset. Than net block of the companies fixed assets has been constantly increasing from year2007-08 to year 2009-10 around 107% . So the companies 38% of the total assets has been cover by the fixed assets net block. Capital work in progress of the companies has been reduce in 2006-07,around 45%.after words the companies companies capital work in progress has been constantly increasing its around 388%.its shows the financial transaction of the companies has been more come into picture. Company making operations of the buying and selling of the subsidiarys ownerships. Now net current assets of the companies has been increasing around 351%.Because of the sales of the companies has been constantly increasing so the current assets has been constantly.net assets of the company has been decrease in year 2006-07 as compare to year 2005-06.afterwords the companies net assets has been increasing around 245%.in financial year 2009-10 as compare to 200607. so its shows the companies worth has been constanly increasing. so its shows companies management has been constantly investing in the Fixed asset and expanding the business around globe and making firm more towards international trade. Equity share holders worth has been increasing year by year for marico consolidate ltd. Cash Flow Analysis From the above cash flow of Marico Consolidated ltd, we can conclude that the net cash inflow from operating activities is constantly increasing during the year 20062010 except 2008. As there was a little increase in inventories, debtors and loans. In 2007, the net increase in cash & cash equivalents is very less, as there was a high cash outflow in investing activities. The company is generating highest cash from operating activities in 2010 and incurring highest increase in cash & cash equivalents in 2008. The company is generating good cash from operating activities and company should concentrate on its investing activities as it is taking high outflow.
S.R. Luthra Institute of Management Page 48
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Annexure
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