A NOTE ON FINANCIAL RATIO

ANALYSIS
Case code - MISC010
Published - 2004
ABSTRACT
This technical note explains in detail the analysis of financial statements of a company. It
provides insights into two widely used financial tools, ratio analysis and common size statements
analysis. The objective of this note is to help the reader understand how these tools should be
used to analyze the financial position of a firm. To demonstrate the process of financial analysis,
Hindustan Lever Limiteds !HLLs" balance sheet and income statements are analyzed in this
note.
INTRODUCTION
The major financial statements of a company
are the balance sheet, income statement and
cash flow statement !statement of sources and
applications of funds". These statements present
an overview of the financial position of a firm to
both the sta#eholders and the management of
the firm. $ut unless the information provided by
these statements is analyzed and interpreted
systematically, the true financial position of the
firm cannot be understood. The analysis of
financial statements plays an important role in
determining the financial strengths and
wea#nesses of a company relative to that of
other companies in the same industry. The
analysis also reveals whether the companys
financial position has been improving or
deteriorating over time.
FINANCIAL RATIO ANALYSIS
%inancial ratio analysis involves the calculation and comparison of ratios which are derived from
the information given in the companys financial statements. The historical trends of these ratios
can be used to ma#e inferences about a companys financial condition, its operations and its
investment attractiveness.
%inancial ratio analysis groups the ratios into categories that tell us about the different facets of a
companys financial state of affairs. &ome of the categories of ratios are described below'
Liquidity Ratios give a picture of a companys short term financial situation or solvency.
Operational/Turnoer Ratios show how efficient a companys operations and how well
it is using its assets.
Leera!e/Capital Stru"ture Ratios show the (uantum of debt in a companys capital
structure.
#ro$ita%ility Ratios use margin analysis and show the return on sales and capital
employed.
&aluation Ratios show the performance of a company in the capital mar#et.
LI'UIDITY RATIOS
A NOTE ON FINANCIAL RATIO
ANALYSIS
((#reious
LI'UIDITY RATIOS
Li(uidity refers to the ability of a firm to meet its short)term !usually up to * year" obligations.
The ratios which indicate the li(uidity of a company are +urrent ratio, ,uic#-.cid)Test ratio,
and +ash ratio. These ratios are discussed below.
CURRENT RATIO
+urrent ratio !+/" is the ratio of total current
assets !+." to total current liabilities !+L".
+urrent assets include cash and ban# balances0
inventory of raw materials, semi)finished and
finished goods0 mar#etable securities0 debtors
!net of provision for bad and doubtful debts"0
bills receivable0 and prepaid expenses. +urrent
liabilities consist of trade creditors, bills
payable, ban# credit, provision for taxation,
dividends payable and outstanding expenses.
This ratio measures the li(uidity of the current
assets and the ability of a company to meet its
short)term debt obligation.
+urrent /atio 1 +urrent .ssets - +urrent Liabilities
+/ measures the ability of the company to meet its +L, i.e., +. gets converted into cash in the
operating cycle of the firm and provides the funds needed to pay for +L. The higher the current
ratio, the greater the short)term solvency. 2hile interpreting the current ratio, the composition of
current assets must not be overloo#ed. . firm with a high proportion of current assets in the form
of cash and debtors is more li(uid than one with a high proportion of current assets in the form of
inventories, even though both the firms have the same current ratio. Internationally, a current
ratio of 3'* is considered satisfactory.
'UIC) OR ACID*TEST RATIO
,uic# /atio !,/" is the ratio between (uic# current assets !,." and +L. ,. refers to those
current assets that can be converted into cash immediately without any value dilution. ,.
includes cash and ban# balances, short)term mar#etable securities, and sundry debtors. Inventory
and prepaid expenses are excluded since these cannot be turned into cash as and when re(uired.
,uic# /atio 1 ,uic# .ssets - +urrent Liabilities
,/ indicates the extent to which a company can pay its current liabilities without relying on the
sale of inventory. This is a fairly stringent measure of li(uidity because it is based on those
current assets which are highly li(uid. Inventories are excluded from the numerator of this ratio
because they are deemed the least li(uid component of current assets. 4enerally, a (uic# ratio of
*'* is considered good. 5ne drawbac# of the (uic# ratio is that it ignores the timing of receipts
and payments.
CAS+ RATIO
&ince cash and ban# balances and short term mar#etable securities are the most li(uid assets of a
firm, financial analysts loo# at the cash ratio. The cash ratio is computed as follows'
+ash /atio 1 !+ash and $an# $alances 6 +urrent Investments" - +urrent Liabilities
The cash ratio is the most stringent ratio for measuring li(uidity.
O#ERATIONAL/TURNO&ER RATIOS
A NOTE ON FINANCIAL RATIO
ANALYSIS
((#reious
O#ERATIONAL/TURNO&ER RATIOS
These ratios determine how (uic#ly certain current assets can be converted into cash. They are
also called efficiency ratios or asset utilization ratios as they measure the efficiency of a firm in
managing assets. These ratios are based on the relationship between the level of activity
represented by sales or cost of goods sold and levels of investment in various assets. The
important turnover ratios are debtors turnover ratio, average collection period, inventory-stoc#
turnover ratio, fixed assets turnover ratio, and total assets turnover ratio. These are described
below'

DEBTORS TURNO&ER
RATIO ,DTO-
7T5 is calculated by dividing the net credit
sales by average debtors outstanding during the
year. It measures the li(uidity of a firms debts.
8et credit sales are the gross credit sales minus
returns, if any, from customers. .verage debtors
is the average of debtors at the beginning and at
the end of the year. This ratio shows how
rapidly debts are collected. The higher the 7T5,
the better it is for the organization.
7ebtors Turnover /atio 1 8et +redit &ales -
.verage 7ebtors
A&ERA.E COLLECTION #ERIOD ,AC#-
.+9 is calculated by dividing the days in a year by the debtors turnover. The average collection
period represents the number of days worth of credit sales that is bloc#ed with the debtors
!accounts receivable". It is computed as follows'
.verage +ollection /atio 1 :onths !days" in a ;ear - 7ebtors Turnover
The .+9 and the accounts receivables turnover are related as'
.+9 1 <=> - .ccounts /eceivable Turnover
The .+9 can be compared with the firms credit terms to judge the efficiency of credit
management. %or example, if the credit terms are 3-*?, net @>, an .+9 of A> days means that the
collection is slow and an .+9 of @? days means that the collection is prompt.
IN&ENTORY OR STOC) TURNO&ER RATIO ,ITR-
IT/ refers to the number of times the inventory is sold and replaced during the accounting
period. It is calculated as follows'
Inventory Turnover /atio 1 +ost of 4oods &old - .verage Inventory
IT/ reflects the efficiency of inventory management. The higher the ratio, the more efficient is
the management of inventories, and vice versa. However, a high inventory turnover may also
result from a low level of inventory which may lead to fre(uent stoc# outs and loss of sales and
customer goodwill. %or calculating IT/, the average of inventories at the beginning and the end
of the year is ta#en. In general, averages may be used when a flow figure !in this case, cost of
goods sold" is related to a stoc# figure !inventories".
FI/ED ASSETS TURNO&ER ,FAT-
The %.T ratio measures the net sales per rupee of investment in fixed assets. It can be computed
as follows'
%.T 1 8et sales - .verage net fixed assets
This ratio measures the efficiency with which fixed assets are employed. . high ratio indicates a
high degree of efficiency in asset utilization while a low ratio reflects an inefficient use of assets.
However, this ratio should be used with caution because when the fixed assets of a firm are old
and substantially depreciated, the fixed assets turnover ratio tends to be high !because the
denominator of the ratio is very low".
TOTAL ASSETS TURNO&ER ,TAT-
T.T is the ratio between the net sales and the average total assets. It can be computed as
follows'
T.T 1 8et sales - .verage total assets
This ratio measures how efficiently an organization is utilizing its assets.
LE&ERA.E/CA#ITAL STRUCTURE RATIO
A NOTE ON FINANCIAL RATIO
ANALYSIS
((#reious
LE&ERA.E/CA#ITAL STRUCTURE RATIO
These ratios measure the long)term solvency of a firm. %inancial leverage refers to the use of
debt finance. 2hile debt capital is a cheaper source of finance, it is also a ris#y source.
Leverage ratios help us assess the ris# arising from the use of debt capital. Two types of
ratios are commonly used to analyze financial leverage ) structural ratios and coverage ratios.
&tructural ratios are based on the proportions of debt and e(uity in the financial structure of a
firm. +overage ratios show the relationship between the debt commitments and the sources
for meeting them.
The long)term creditors of a firm evaluate its
financial strength on the basis of its ability to
pay the interest on the loan regularly during
the period of the loan and its ability to pay the
principal on maturity.
RATIOS CO0#UTED
FRO0 BALANCE S+EET
De%t*Equity1 This ratio shows the relative
proportions of debt and e(uity in financing the
assets of a firm. The debt includes short)term
and long)term borrowings. The e(uity
includes the networth !paid)up e(uity capital
and reserves and surplus" and preference
capital. It can be calculated as'
7ebt - B(uity
De%t*Asset Ratio1 The debt)asset ratio
measures the extent to which the borrowed
funds support the firms assets. It can be
calculated as'
7ebt - .ssets
A NOTE ON FINANCIAL RATIO
ANALYSIS
CC9revious
'ui"2 Ratio
Calculation of quick ratio for HLL
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,uic# assets DE3.>< **3=.AD *<EE.*< *=<3.D *A<>.3<
+urrent
liabilities
3?E<.?* 3>?<.E3 3E==.A> <3>3.D* <>>E.>3
,uic# ratio ?.<A ?.@> ?.@D ?.> ?.>3
. (uic# ratio of *'* is usually considered satisfactory. In the case of HLL, a low (uic# ratio
as well as a low current ratio may indicate poor wor#ing capital management.
De%tors Turnoer Ratio
+alculation of debtors turnover ratio for HLL
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8et credit sales A<=<.< *?3=*.>D *?EDA.<* **@>A.< **A=*.DD
.verage debtors *@@.@E *=E.*E 3*<.<@ 3@E.*< <@@.=>
7ebtorsturnover ratio >D.AA =?.=> >*.@> @>.EE <@.@*
The debtors turnover ratio of HLL shows a downward trend. In this case, the average
collection period of HLL must also be calculated and analyzed.
Aera!e Colle"tion #eriod
+alculation of average collection period'
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7ays in a year <=> <=> <=> <=> <=>
7ebtorsturnover >D.AA =?.=> >*.@= @>.EE <@.@*
.+9 =.< = D D.E *?.=
Here, the average collection period is gradually increasing, indicating that an extended line of
credit has been allowed. There was a sharp decline in the debtors turnover ratio in *EEE, and
the decline continued till 3??*. The fall in debtors turnover ratio can be attributed to any of
the following reasons'
There might be an increase in the volume of sales relative to the increase in debtors.
The firm might have extended the credit period for debtors.
The firms debt collection team is not performing well, as a result rate of which the
realization has come down.
Inentory or Sto"2 Turnoer Ratio
+alculation of &toc# Turnover for HLL'
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&ales A<=<.< *?3=*.>D *?EDA.<* **@>A.< **A=*.DD
+losing
inventory
*?@@.= **@>.=A *<?E.A **A*.A *3@?.?>
&toc# turnover A A.E A.@ E.D E.>
The stoc# turnover ratio of HLL shows a mixed trend. 4enerally, a high stoc# turnover ratio
is considered better than a low turnover ratio. However, as mentioned earlier, a high ratio
may indicate low investment in inventories.
Interest Coera!e Ratio
+alculation of interest coverage ratio for HLL'
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9$IT-interest AD?.E-<<.A **3A.@-3E.3 *@*@.@-33.< *=E>.E-*<.* 3?>?.@D-D.D@
Interest
coverage
3>.D= <A.=@ =<.@< *3E.@= 3=@.E3
This ratio shows the number of times the interest charges on long)term liabilities have been
collected before the deduction of interest and tax. . high interest coverage ratio implies that
the company can easily meet its interest burden even if profit before interest and taxes suffers
a sharp decline. The interest coverage ratio for HLL is going up every year, implying that it
can meet its interest obligations even if there is a decline in profits. %rom the creditors point
of view, the larger the coverage0 the greater the firms capacity to handle fixed)charge
liabilities and the more assured the payment of interest to the creditors. . low ratio is a
warning signal which indicates that the firm is using excessive debt and does not have the
ability to pay interest to creditors. However, a very high ratio implies an unused debt
capacity.
+alculation of 4ross :argin for HLL'
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4ross
profit-8et
&ales F *??
E3A.A -
DD<=.D>
*33E.@-
E@3=.*<
*>@<.*-
*?**=.@>
*A3=.A-
*?>AA.*A
3*E>.*<-
*?E@*.**
4ross margin *3 *<.?@ *>.3> *D.3> 3?.?=
The gross margin has been increasing steadily since *EED. The reasons for this increase can be'
Higher sales prices but cost of goods sold remaining constant.
Lower cost of goods sold, sales prices remaining constant.
. combination of changes in sales prices and costs, widening the margin between them.
The high gross margin reported by HLL reflects the companys ability to maintain a low cost of
production.
Net #ro$it 0ar!in
+alculation of net profit margin for HLL'
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8et 9rofit-8et
&ales G *??
>=D.* -
DD<=.D>
A?=.3 -
E@3=.*<
*?D@.*-
*?**=.@>
*<3D.A-
*?>AA.*A
*=@?.<*-
*?E@*.**
8et :argin D.<3 A.>> *?.=* *3.>@ *@.EE
The net profit margin of HLL has increased significantly. The high net profit margin implies
higher returns to shareholders in the form of dividends and stoc# price appreciation.
Inest9ent Turnoer Ratio
+alculation of investment turnover for HLL'
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Halue of production-
.verage total assets
DDA<.*>-
<3?A.E
E@*A.3<-
<E=>.A>
*?3@@.ED-
@D=<A3
*?>?@.3<-
>@=>.E
*?E<=.@A-
=3A?.DA
Investment Turnover 3.@3> 3.<D> 3.*> *.E3* *.D@*
The investment turnover ratio measures the relationship between the value of production and
average total assets. This ratio measures the asset utilization efficiency of a firm. In the case of
HLL, the investment turnover shows a downward trend. This trend can be attributed to the
increasing underutilization of the firms available production capacity.
De%t*Equity Ratio
Calculation of debt-equity ratio for HLL:
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7ebt-8etworth *A=.@-*3=*.3 3=@.<*-*D*<.?< *DD.3-3*?3.> ***.>-3@AA A<.D<-<?@<.=E
7ebt)e(uity
/atio
?.*@A ?.*>@ ?.?A@ ?.?@> ?.?3A
The debt)e(uity ratio of HLL shows a downward trend. This implies that the company is relying
more on its owners e(uity to finance its assets rather than on borrowed funds. Though the firm is
using relatively less proportion of debt, the returns on e(uity investments have been profitable.
This can be explained by calculating the average rate of return earned on the capital employed in
assets and comparing that rate with the average interest rate paid for borrowed funds.
+alculation of rate of return on capital employed'

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$orrowed funds *A=.@ 3=@.<* *DD.3 ***.> A<.D<
5wners e(uity *3=*.3 *D*<.?< 3*?3.> 3@AA <?@<.=E
Total !a" *@@D.= *EDD.<@ 33DE.D 3>EE.<> <*3D.@3
9$7IT !b" E3A.A *33E.@ *>@<.* *A3=.A 3*E>.*<
/ate of return !b-a" =@I =3.3?I =D.=?I D?.3?I D?.*?I
Interest charges <?.>>I **.?DI *3.=?I **.D<I E.3@I
%or each rupee of capital invested in assets, HLL realized an average return of ==.A3I, whereas
it paid only *>.?@I on an average as interests.

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A NOTE ON FINANCIAL RATIO
ANALYSIS
((#reious
Return on Assets ,ROA-
+alculation of /5. for HLL'
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9.T-.verage
total assets F
*??
>=D.*-<3?A.E A?=.3-<E=>.A> *?D@.*-@D=<.A *<3D.A->@=>.E
*=@?.<*-
=3A?.DA
/5. *D.=D 3?.<3 33.>> 3@.3E 3=.*3
The above calculations show an upward trend in the return on total assets. However, these
calculations do not include the interest payable to the creditors of the firm in the net profits.
To calculate the actual returns on total assets, interest should be included in net profits,
because assets are financed by owners as well as creditors. The following formula is used to
find out the real return on total assets.
*EED *EEA *EEE 3??? 3??*
9.T 6
Interest-.verage
total assets F
*??
=??.E-
<3?A.E
A<>.@-<E=>.A> *?E=.@-@D=<.A *<@?.@<->@=>.E *=@A.?>-=3A?.DA
/5. *A.D< 3*.?= 3<.?* 3@.>3 3=.3@
Return on Capital E9ployed ,ROCE-
*EED *EEA *EEE 3??? 3??*
9$IT-.verage
total capital
employed F *??
AD?.E-
*@@D.=
**3A.@-
*EDD.<@
*@*@.@-33DE.D *=E>.E-3>EE.@ 3?>?.@D-<3<?.>>
/5+B =?.*= >D.?D =3.?@ =>.33 =<.@D
This ratio measures how well the long)term funds of owners and creditors are used. The
higher the ratio, the more efficient the utilization of capital employed.
Return on Total S:are:older;s Equity
+alculation of return on total shareholders e(uity'
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8et profit after taxes >=D.* A?=.3 *?D@.* *<3D.A *=@?.<*
.verage total shareholderse(uity *D3.@> 3?E.<< 3*E.> 3*E.D> 33?.?=
/eturn on total shareholderse(uity <.3E <.A> @.AE =.?@ D.@>
The return on total shareholders e(uity has been increasing since *EED. This increase is due
to the three)fold increase in net profits available to e(uity shareholders.
Diidend per S:are
+alculation of dividend per share for HLL'
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7ividend to ordinary shareholders <<A.> @=<.@ =<A.* DD?.3 **??.=3
8umber of shares outstanding *.EE 3.*E 3.*E 3.3 3.3
7ividend per share *D?.*@ 3**.=3 3E*.<D <>?.* >??.3A
The dividend pay)out to ordinary shareholders has been increasing year after year, resulting
in an increase in 79&. Higher dividends may have been declared because of stagnation in the
business, as a result of which earnings were not retained. However, the increase in dividends
also indicates that the company is generating profits consistently.
0ore<< 9ageD
Earnin!s per S:are1
+alculation of earnings per share'
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8et profits available
to e(uity holders
>=D.* A?=.3 *?D@.* *<3D.A *=@?.<*
8umber of ordinary
shares outstanding
*.EE 3.*E 3.*E 3.3 3.3
Barnings per share 3A@.ED <=A.*< @E?.@= =?<.>@ D@>.=
B9& as a measure of the profitability of a company from the owners point of view should be
used cautiously as it does not recognize the effect of an increase in the networth of the company
!caused by retention of earnings".
Diidend #ay*out Ratio
The 7ividend pay)out ratio can be calculated by dividing the earnings per share by the mar#et
value per share. This ratio is also #nown as the earnings price ratio. The calculation of the
dividend pay)out ratio is as follows'
Non*operatin! In"o9e Ratio
This ratio indicates the extent to which a firm is dependent on its non)operating income to pay
dividends. . rising trend in this ratio suggests that the company is relying more on its non)
operating income than its operating income to pay dividends.
+alculation of non)operating income ratio'
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8on)operating
income
*=>.3 *A<.E 3=E.< <?>.E 3A<.*@
9rofit before tax A<D.* *?EE.3 *<E3.* *=A3.A 3?@3.D<
8on)operating
income ratio
?.*ED ?.*=D ?.*E< ?.*A* ?.*<A
Interest In"iden"e Ratio
This ratio shows how much of the operating profit is used to meet interest obligations'
+alculation of interest incidence'
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Interest <<.A 3E.3 33.< *<.* D.D@
5perating profit E3A.A *33E.@ *>@<.* *A3=.A 3*E>.*<
Interest incidence
ratio
?.?<= ?.?3@ ?.?*@ ?.??D ?.??<
The interest incidence ratio shows a downward trend indicating that the interest obligations are
met not depending on the operating profit solely. The low interest incidence ratio may be due to
a low proportion of debt in the firms capital structure.
Credit Stren!t: Ratio
The unsecured lenders of a firm !such as suppliers" examine the networth of the company to
assess the ris# of default. Hence, a firm must ta#e the re(uired action if current liabilities
increase beyond a certain multiple of networth. . high credit strength ratio indicates a firms
increasing dependence on current liabilities, which may prove fatal if the firm does not have
enough current assets to finance current liabilities. . credit strength ratio of 3'* is considered
satisfactory.
+alculation of credit strength ratio'
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5perating
current
liabilities
3?E<.?* 3>?<.E3 3E==.A> <3>3.D* <>>E.>3
8etworth *3=*.> *D*<.?< 3*?<.3> 3@AA.3@ <?@<.=E
+redit strength
ratio
*.=>E *.@= *.@* *.< *.*=E
In the case of HLL, the credit strength ratio shows a downward trend.

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A NOTE ON FINANCIAL RATIO
ANALYSIS
CC9revious
Dire"t 0ar2etin! E=penses Ratio ,D0ER-
The direct mar#eting expenses include salaries and allowances for mar#eting and sales
people, forwarding expenses, sales commission, traveling and expenditure on
advertisements. The 7:B/ indicates whether the manufacturing and mar#eting functions of
a company are moving hand in hand. The mar#eting department of a firm must always be in
a position to convert production into sales as soon as possible, whenever there is a capacity
addition in the manufacturing department. If it cannot do so, the firm may have to incur
additional overheads.
+alculation of direct mar#eting expenses ratio for HLL
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7irect mar#eting expenses @E?.= =D=.A D@=.> D?E.3 A<>.D>
8et sales DD<=.D> E@3=.*< *?**=.@> *?>AA.*A *?E@*.**
7irect mar#eting expenses ratio ?.?=< ?.?D* ?.?D< ?.?== ?.?D=
The mixed trend in the ratio implies that HLL may have gone for a major capacity expansion
in *EEA)3??*.
Sales Assets Turnoer Ratio
Trade debtors and finished goods are important assets of mar#eting department in any
organization. These two assets are together called sales assets. . mar#eting department is
regarded as an efficient department when its sales assets turnover is high. +alculation of sales
assets turnover ratio'

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4ross sales A<=<.< *?3=*.> *?EDA.< **@>A.< **A=*.DD
Trade debtors 6 finished goods
inventory
===.= D@*.>D E?D.> A>@.3 *?*3.DA
&ales assets turnover ratio *3.>@ *<.A< *3.?E *<.@* **.D*
The downward trend in this ratio may have been caused by an extended product line and
liberal credit terms for debtors.
&alue Coera!e Ratio
This ratio measures the value of the outut in relation to the relative value of inut materials!
"t also sho#s the e$tent to #hich a comany is technology driven! % technology intensive
firm has greater economies of scale! % do#n#ard trend in this ratio indicates an increase in
the economies of scale! &hile an u#ard trend imlies the #astage of materials and the use
of obsolete technology' #ith a lo# level of skills!
Calculation of value coverage ratio:
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+onsumption of materials D3>A.AE A>>3.D@ E3D=.D@ E*@3.@< E?<<.>A
Halue added >3@.3= A=>.@E E=A.3< *<=*.E *E?3.E
Halue coverage ratio *<.A> E.AA E.>A =.D* @.D>
. downward trend in the ratio indicates that the firm has been investing highly in introducing
the latest technology available.
Oer Tradin! Ratio
% comany intending to increase its sales should ensure that it has sufficient net #orking
caital to fall back on in the event of creditors becoming due for ayment or else the
comany may have to face a severe liquidity crisis! %n increase in the net #orking caital
along #ith an increase in sales #ill hel the comany avoid a liquidity crisis!
Calculation of over trading ratio:
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8et wor#ing capital *@D.EA 3@E.@* <3A.3< =A.=@ *>3.>@
+redit sales A<=<.< *?3=*.>D *?EDA.<* **@>A.< **A=*.DD
5ver trading ratio ?.?*D ?.?3@ ?.?3E ?.??= ?.?*<
The over trading ratio for HLL shows an upward trend till *EEE, which indicates an increase
in the net wor#ing capital, along with an increase in sales. $ut in 3??? and 3??*, the
companys net wor#ing capital did not increase in proportion to the increase in sales.
0ore<< 9ageE
A NOTE ON FINANCIAL RATIO
ANALYSIS
((#reious
>or2in! Capital #er$or9an"e Ratio
This ratio refers to the sources through which the debtors of a firm are financed. . company
can finance its debtors through its trade creditors or its advance payments from customers.
+alculation of wor#ing capital performance ratio'
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Trade
debtors
>A3.** A?<.*= A=?.@ *?>@.A *3=A.D
Trade
creditors
*>E=.?3 *DAD.<= 3?A*.@ 3*=@.< 3<@D.*E
2or#ing
capital
performance
ratio
?.<=@ ?.@@E ?.@*< ?.@AD ?.>@
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/etained
earnings
*E@.3D 3D@.E <=<.* <A>.> @A3
Long term
debt
*A<.3 *D<.D@ ==.< >= >E.?<
7ebt
replacement
*.?=3 *.>A3 >.@D= =.AA< A.*=
ratio
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+ost of
production
>E3=.DA D?3E.** D>*=.3> D@*=.>E D@=D.@@
7epreciated
plant and
machinery
>DA.>E D<< D>D.3> A=@.@= *??>.ED
9lant
turnover
ratio
*?.3@ E.>A E.E3 A.>D D.@3
7888 7883
8et sales *?>AA.*A *?E@*.**
8et profits *<3D.<< *=@?.<
Total assets >DED.?< =D=>.<D
9rofit margin
ratio
*3.> *@.EE
Investment
turnover
*.A3= *.=*D3
/5I ratio 33.A3> 3@.3@
A NOTE ON FINANCIAL RATIO
ANALYSIS

((#reious
CO00ON SI?E INCO0E STATE0ENT OF +LL
3445 3446 3444 7888 7883
/aw materials J &tores etc. =3.*E =?.?* >E.=@ >>.D> ><.DE
2ages J &alaries >.<= >.*@ >.<3 >.<= @.EA
Bnergy !9ower J %uel" *.<3 *.*> *.*3 *.33 *.3E
Indirect Taxes !Bxcise etc." D.@E A.*@ D.A> D.>E D.D=
.dvertising J :ar#eting Bxpenses >.A= =.>E =.DE =.*A D.?@
7istribution Bxpenses <.@> <.<= <.<@ <.AE <.E3
5thers >.=D >.< >.@< =.33 =.@3
Tax 9rovision <.3< 3.A= 3.AE <.?EA <.<E
9.T =.DD D.A> E.DA **.>A *<.A3
4ross &ales *?? *?? *?? *?? *??
CO00ON SI?E BALANCE S+EET OF +LL
3445 3446 3444 7888 7883
Lia%ilities
B(uity &hare +apital >.=3 > @.3D <.DE <.3>
/eserves J &urplus <? <@ <=.== <E.*< @*.D<
$orrowings >.3= =.?3 <.@> *.E3 *.3<
+urrent liabilities J 9rovisions >E >> >>.=* >> >3.3@
Total Lia%ilities 388 388 388 388 388
Assets
%ixed .ssets 33.@< 3*.E= *E.=* *E.ED *E.3>
Investments *>.<A *=.= 3?.A <*.?= 3@.=D
Inventories 3E.>* 3=.?E 3>.> 3?.@ *A.<<
/eceivables *=.@> *A.<* *=.D= *A.3* *A.D>
+ash J $an# $alances *=.3< *>.?3 *>.DA E *<.>*
Total assets *?? *?? *?? *?? *??
#ROFITABILITY RATIOS
&ALUATION RATIOS
CALCULATIN. FINANCIAL RATIOS OF +LL
CO00ON SI?E INCO0E STATE0ENT OF +LL
LE&ERA.E/CA#ITAL STRUCTURE RATIO
#ROFITABILITY RATIOS
&ALUATION RATIOS
CALCULATIN. FINANCIAL RATIOS OF +LL
CO00ON SI?E INCO0E STATE0ENT OF +LL
O#ERATIONAL/TURNO&ER RATIOS
LE&ERA.E/CA#ITAL STRUCTURE RATIO
#ROFITABILITY RATIOS
&ALUATION RATIOS
CALCULATIN. FINANCIAL RATIOS OF +LL
CO00ON SI?E INCO0E STATE0ENT OF +LL