case study-Ratio Anaylsis

The Hindustan Manufacturing Company is a leading

producer and exporter of engineering items such as steel
pipes. ingots, billets, etc. It has also recently added a
chemical plant and a paper plant as part of its
diversification strategy. The company started with a share
capital of Rs 25 lakh in the early sixties, which has now
increased to Rs 225 lakh. The number of shares outstanding
is 22.50 lakh. The average market price (AMP) of the
company's share during 2011-2013 has been: Rs 26.38 in
2011, Rs 34.50 in 2012 and Rs 29.25 in 2013. l
2011 2012 2013
O/S Shares 22.5 22.5 22.5
Market Price 26.38 34.5 29.25
Table 25.1: Hindustan Manufacturing Company

Profit and Loss Account

for the year ending on 31 March (Rs
Iakh )
2011 2012 2013
A.Net sales* 2,338.90 2,825.69 3,717.23
B.Cost of goods 1,929.04 2,322.80 3,053.66
sold**
C.Gross profit (A - B) 409.86 502.89 663.57

D.Less: Selling and 239.72 262.10 357.87

adm. expenses
E.Operating income 170.14 240.79 305.70
(C - D)
F.Add: Other income 15.24 25.38 36.91
G.Earning before int. 185.38 266.17 342.61
and tax (EBIT) (E +
F)
H.Less: Interest 59.84 124.98 143.46
I.Profit before tax , 125.54 141.19 199.15
(PBT) (G H)
J.Provision for tax 41.79 30.00 64.29
K.Profit after tax 83.75 111.19 134.86
(PAT) (I - J)
L.Effective tax 33% 21% 32%
rate***
M.Dividend 33.75 39.38 45.00
distributed
N.Retained earnings 50.00 71.81 89.86

***Net of excise duty.

***Depreciation included.
***Provision for tax divided by profit before tax.
Table.25.2: Hindustan Manufacturing Company

Statement of Cost of Goods Sold for the (Rs lakh)

year
__- ending on March 312011 2012 2013
Raw material 1587.34 2019.54 2751.52
Direct labour 138.13 170.86 228.94
Depreciation 23.07 38.64 41.59
Other mfg. expenses 205.34 255.72 329.44
1953.88 2484.76 3354.49
Add: Opening stock 57.09 85.74 150.55
in process
2010.97 2570.50 3502.04
Less: Closing stock in 85.74 150..55 230.83
process
Cost of Production 1.925.23 2419.95 3271.21
Add: Opening 150.93 147.12 244.26
finished stock
2076.16 2567.07 3515.47
Less: Closing 147.12 244.26 461.81
finished stock
Cost of Goods Sold 1929.04 2322.81 3053.66
 BALANCE SHEET as on 31 March
2011 2012 2013
A. Net Worth
Share capital 225.00 225.00 225.00
Reserve 286.13 357.95 447.81
Net worth 511.13 582.95 672.81

B. Borrowings
Long-term: Debentures - 75.75 76.46
Others 199.87 285.90 312.73
Long-term debt 199.87 361.65 389.19
Short-term: Bank borrowings 442.92 641.39 839.87
Borrowings 642.79 1003.04 1229.06

C. Capital Employed
(A + B) 1153.92 1585.99 1901.87
D. Fixed Assets
Gross block 653.49 841.64 921.55
Less: Depreciation 159.55 194.46 235.44
Net block 493.94 647.18 686.11
Other non-current assets 52.76 16.44 60.72
Net Fixed Assets 546.70 663.62 746.83

E. Current Assets
Inventories:
Raw material 243.42 384.06 457.74
Stock in process 85.74 150.55 230.84
Finished goods 147.12 244.28 461.81
Inventories 476.28 778.89 1150.39
Debtors 253.16 340.61 483.18
Cash and bank balance 8.37 98.84 26.08
Others 128.27 186.21 211.27
Current assets 866.08 1404.55 1870.92
F. Less: Current Liabilities*
Trade creditors 35.99 211.21 339.35
Provision and others 222.87 270.97 376.53
Current liabilities 258.86 482.18 715.88

G. Net Current Assets (E - F) 607.22 922.37 1155.04

H. Net Assets (D + G) 1153.92 1585.99 1901.87

* If bank borrowings are considered. then the current liabilities

for 2011 through 2013 will be: Rs 701.78 lakh: Rs 1123.57 lakh,
and Rs 1555.75 lakh.
 LIQUIDITY RATIOS
Current Ratio
Quick Ratio
Cash Ratio
Net Working Capital Ratio
LEVERAGE RATIOS
Debt Ratio
Debt-Equity Ratio
Capital gearing Ratio
Interest Coverage Ratio
ACTIVITY RATIOS
Stock Turnover Ratio
Debtor Turnover Ratio
Creditor Turnover Ratio
Total Assets Turnover Ratio
Current Assets Turnover Ratio
Working capital turnover ratio
PROFITABILITY RATIOS
Gross Profit Ratio
Net Profit Ratio
Operating Profit Ratio
VALUATION RATIOS
Return on capital employed
Return on equity
Dividend per share(DPS)
Earning Per Share(EPS)
Price Earning Ratio
Dividend payout ratio
Formula 2011 2012
Current Assets/Current Liabilities 3.35 2.91
Quick Assets/Current Liabilities 1.51 1.30
Cash+Marketable Securities/Current Liabilities 0.03 0.20
Net Working Capital/Capital Employed 0.53 0.58
Total Debt/Capital Employed 0.56 0.63
Debt/Equity 1.26 1.72
Interest+Dividend/Shareholder's Fund
EBIDTA/Interest
Net Sales/Average Stock
Net Credit Sales/Receivables
Net credit Purchases/Payables
Sales/Total Assets
Sales/Current Assets
COGS/Working Capital
Gross Profit/Net Sales (%)
Net Profit/Net sales (%)
Operating Profit/Net Sales (%)
EBIT/Capital Employed (%)
PAT/Networth (%)
Total Dividend paid/No. of outstanding shares (%)
PAT/No. of outstanding shares (%)
Market price of share/EPS (%)
DPS/EPS (%)
2013 Interpretation

2.61
1.01
0.04
0.61

0.65
1.83