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Titan Ratio Analysis I
Titan Ratio Analysis I
TITAN
INDUSTRIE FINANCIAL STATEMENT ANALYSIS
S
EXECUTIVE SUMMARY
During 2009, global production of watches was estimated at 865 million timepieces, a decline
of 20% compared to the previous year. This decline was led by sharply lower demand in
several recession-hit markets, including USA, Japan, several countries in Europe and the
Americas. China and India were the only large nations to display growth in consumer
demand. The premium and luxury end of the global watches market witnessed a steep decline
during 2009, the export sales of the Swiss watch industry, which is central to this segment,
declined by 22% during the year after achieving a record high during 2008. The Japanese
watches industry, also amongst the largest in the world, declined by more than 15%.
However, the first few months of 2010 appear to be more upbeat, and the global watches
industry is therefore forecasting a far better outlook for the year 2010.
Looking at the Indian scenario during 2009, the watches market grew by an estimated 6% to a
total size of 46 million watches. This is similar to the growth achieved during 2008, but lower
than the historical five-year average growth rate of 8%. India was one of the few countries to
display growth of the watches market during this challenging year, led both by the resilient
Indian economy and consistent marketing investments by key players.
During 2009 Titan watches division increased its market share in multi-brand watch outlets
by 1.5% in terms of value. The strong nationwide reach, retail presence, distribution and
service network, manufacturing and design capability of the company is unmatched in the
country, adding further to its appeal and strength. The watches business of the Company has
achieved a record profit before taxes of Rs. 139 crores and a robust ROCE of 49 % during
2009-10, notwithstanding challenging market and economic conditions. The company
achieved a growth of 22% in sales turnover and profit before taxes went up by 39% over the
previous year. Net profit of the company grew by 57% over the previous year
• If the current liabilities are rising faster than the current assets, the current ratio
will fall and thus it will spell trouble for the company.
• It provides the single best indicator of the extent to which the claims of the
short term lenders will be covered by the most cash-near assets.
• Both Titan and Timex have similar trends pertaining to Current ratio and
the values are in the range of 1.4 – 1.6 and very close to the industry
average.
• This ratio indicates how many times the inventory is sold and a higher value
indicates a well-managed and lean inventory.
• A lower value indicates that the company may be holding obsolete goods.
• This may be a policy decision of the management and may not be directly
related to the performance of the company.
• Timex has an unusually high DSO and this may be a policy of the
management to provide better services to its customers by offering them a
larger credit period.
• This ratio measures how effectively the company utilises its plant assets and
also gives us an idea of the operating efficiency of the firm.
• For times gross block is reduction in gross & net block from is visible in this
ratio as in FY08 measure part of older machinery is sold or scrapped.
• For titan net block is constant and increase in ratio is fuelled by rise in sales
employing a better use of fixed resources.
• A Debt ratio of greater than 1 indicates that a company has more debt than
assets; meanwhile, a Debt ratio of less than 1 indicates that a company has
more assets than debt.
• Used in conjunction with other measures of financial health, the debt ratio can
help investors determine a company's level of risk
• A low debt ratio may show that company is cash rich, don’t have new project
to invest or diversify, or nobody is willing to invest in company.
• So here is case of Titan it is .09 and 0.15 for year 2010 and 2009
respectively which indicates company has strong fundamentals and is safe
to invest in.
• It indicates how many times a company can cover its interest charges on a pre-
tax basis. Failing to meet these obligations could force a company into
5 Group 7|Section B|PGP 1
FINANCIAL STATEMENT ANALYSIS October 16, 2010
• A high ratio of 13.64 and 8.83 in 2010 and 2009 respectively indicate that
Titan has an undesirable lack of debt or is paying down too much debt
with earnings that could be used for other projects. Titan is repaying long
term debt very rapidly indeed
• The rationale is that a company would yield greater returns by investing its
earnings into other projects and borrowing at a lower cost of capital than what
it is currently paying to meet its debt obligations
• While this ratio is a very easy way to assess whether a company can cover
its interest-related expenses, the applications of this ratio are also limited by
the relevance of using EBITDA as a proxy for various financial figures
• A ratio greater than 1 indicates that the company has more than enough
interest coverage to pay off its interest expenses.
o Bankruptcy
• Titan industries EBITDA is less as compared to EBIT which confirm the point
that firm is paying its loan quickly.
• Profit margin on sales for Titan Industry is close to industry average. This is
because Titan has major part in industry composition.
• There is huge difference in profit margin for Titan Industry year on year basis
because of decrease in excise since a new plant is opened in excise free
zone.
• Profit margin of Titan is more than Timex but turnover of Titan is very high so
it is difficult to compare operating efficiency of two companies.
10. Basic Earning Power = Earnings before interest & taxes /Total Assets
• This ratio shows the raw earning power of firms assets before the influence of
taxes
• Titan industry is having high BEP ratio this shows that it has high financial
leverage.
• The reason for this is one high profit margin on sales and second is high return
on its assets. For e.g. in the year 2010 fixed assets turnover for Titan 17% and
that of Timex is 10%.
11. Return on Total Assets = Net income available to common stockholder/ Total
Assets
• The difference in Titan and Timex is mainly because of Basic Earning Power.
• Debt to equity ratio in both companies is very less so this cannot be the reason
for Return on Total Assets.
• Increase in sales in year 2010 is proportionally more than that in case of total
assets. This is the reason for difference of Return on Total Assets in two years.
• This ratio shows how much investors are willing to pay per $ of reported
profit.
• Titan has high PE ratio because it shows high growth prospect than Timex and
also investor believes that Titan as low riskier than Timex.
• Share price is increase by twice where as cash flow increase by nearly about
70 times for Titan from year 2008 to 2010.
• In case of Timex there are that much changes in share price as well as cash
flow.
15. Market/Book Value = Market Price per share / Book Value per share
• Difference in this ratio has the same reason that in above two cases. Investors
regard Titan with respect to return on their investment.