Ratio Analysis Presented by Swapnil Chavan P 04 Sanchi Gaikwad P 07 Avinash Karde P 14 Saidas Naik P 23 Ambrish Shah P 32 Manoj Vishwakarma P 37 Rupesh Zambad P 39 Sneha Sharma P 41 Kavita Singh P 44

BASF INDIA LTD. BASF India Ltd is the flagship company of BASF group in India. Company is listed on the NSE and BSE Headquarters in Mumbai, with manufacturing facilities in Thane, Manglore and dadra It manufactures and markets expandable polystyrene, tanning agents, leather chemicals and auxilieries. BASF is also involved in trading of chemicals.

Types of ratios TRADITIONAL MODERN B/S RATIOP/L RATIO COMPOSITE SOLVENCY RATIO PROFITABILITY RATIO ACTIVITY RATIOVALUATION RATIO

Net Profit Ratio This ratio indicates relations between net profit with net sales. It shows profitability or operational efficiency of entire business. Increase in ratio is favorable Net profit ratio = Net profit before tax x 100 Net Sales

Calculation of Net Profit Ratio For 2007 NPR= x = 6.51 % For 2008 NPR= x = 6.54 %

Liquidity ratios Current ratio Quick ratio

Current Ratio An indication of a company's ability to meet short-term debt obligations, the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liabilities exceed current assets, then the company may have problems meeting its short-term obligations. current ratio= current assets/ current liabilities Standard ratio=2:1

Quick Ratio A measure of a company's liquidity and ability to meet its obligations. Quick ratio, often referred to as acid-test ratio, is obtained by subtracting inventories from current assets and then dividing by current liabilities. Quick ratio is viewed as a sign of company's financial strength or weakness (higher number means stronger, lower number means weaker). Quick ratio= quick assets/quick liabilities i.e CA-stock-prepaid/CL-bank OD Standard ratio: 1:1

CURRENT ASSETS, LOANS AND ADVANCES SCHEDUL E MARCH 31, 2008 Rs. In millions MARCH 31,2007 Rs. In millions inventories Sundry debtors Cash and bank balance Loans and advances Less: current liabilities and provisions current liabilities provision Net current assets TOTAL

Calculation of Ratio Current ratio3894.8/ / =2.11=2.19 Quick ratio / / =2645.6/1849.2=2257.8/ =1.43=1.45

Debt Equity Ratio This ratio indicates the relative proportion of debt and equity in financing the assets of the firm. It is calculated by dividing long-term debt by shareholder’s funds. Debt equity ratio = long-term debts Shareholders funds Acceptable Ratio is 2:1

Continue… Calculations: (Not taken long term loans in last 4 years) 5 years back it was 0.28 : 1 Significance : i) Company is not exercising borrowing power properly

Proprietary Ratio This ratio indicates the general financial strength of the firm and the long- term solvency of the business. This ratio is calculated by dividing proprietor’s funds by total funds. Proprietary ratio = Proprietor’s funds x 100 Total funds/assets As a rough guide a 65% to 75% proprietary ratio is advisable

Shareholders Fund : For = For =

Total Assets : For = For =

Proprietary ratio = Proprietor’s funds x 100 Total funds/assets For year 2008 = x = % For Year 2007 = x = 66.03% Significance : i) Higher the ratio, greater the satisfaction for creditors of all types. So Creditors of the company are happy.

Inventory Turnover Ratio or Stock Turnover Ratio (ITR): This Ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory It also indicates whether investment in stock is within proper limit or not.

Formula of Stock Turnover/Inventory Turnover Ratio: Inventory turnover ratio = C.O.G.S Avg Inventory = Net Sales Avg inventory at cost = Net Sales Avg inventory at selling price = Net Sales Inventory

Inventory Turnover Ratio For the Year 2008 Sales = Inventory = Sales = Inventory = 7.29 times For the year 2007 Sales = Inventory = Sales = Inventory = 6.69 times

Significance of ITR: Inventory turnover ratio measures the velocity of conversion of stock into sales The inventory turnover ratio is also an index of profitability, where a high ratio signifies more profit, a low ratio signifies low profit

Capital Gearing Ratio: This Ratio indicates the relation between funds bearing fixed rate of interest & dividend and funds not bearing fixed rate of interest & dividend. Capital gearing ratio is mainly used to analyze the capital structure of a company.

Capital Gearing Ratio = Borrowed Funds + Pref Share Capital Equity Shareholders Fund (Equity Share Capital + Reserves – Misc Exp) If the ratio is: Above 1 Company highly geared At 1 Company evenly geared Below 1 Company lowly geared

Debtors & creditors Turnover Ratio:

Definition: Debtors turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. Formula of Debtors Turnover Ratio: Debtors Turnover Ratio = Net Credit Sales Average Debtors + Average Bills Receivable Debtors Turnover Ratio:

CALCULATION AVG DEBTORS = = / 2 = DEBTORS TURNOVER RATIO = 9072_______ NIL = 5.97 times

AVERAGE COLLECTION PERIOD = = 61 days

Significance of the Ratio: This ratio indicates the number of times the debtors are turned over a year. The higher the value of debtors turnover the more efficient is the management of debtors or more liquid the debtors are and vice-versa. It is the reliable measure of the time of cash flow from credit sales.

Creditors Turnover Ratio: Definition and Explanation: This Ratio is similar to the debtors turnover ratio. It compares creditors with the total credit purchases. It signifies the credit period enjoyed by the firm in paying creditors. Formula: Creditors Turnover Ratio = Credit Purchase Average Creditors + Average Bills Payable

CALCULATION AVG CREDITORS = = CREDITORS TURNOVER RATIO = _____ NIL = 7.60 times

AVERAGE PAYMENT PERIOD = = 140 days

Significance of the Ratio: The average payment period ratio represents the number of days by the firm to pay its creditors. A high creditors turnover ratio or a lower credit period ratio signifies that the creditors are being paid promptly. This situation enhances the credit worthiness of the company.

Stock Working Capital Ratio This ratio indicates extent of closing stock in the working capital of the company. Stock being a non- quick asset should be below 100%. Stock Working Capital Ratio = Stock Working Capital Standard Ratio = 1:1

For year 2008 = = 0.61 For year 2007 = =0.62

Return on Equity Capital This ratio indicates return available on equity share capital.It is the max. Rate of dividend what a shareholder's can expect out of current year profit. Return on Equity Capital = (Net profit after tax − Preference dividend) × 100 Equity share capital + Reserve & Surplus

For year 2008 = x = % For year 2007 = x = %

Return on Capital Employed A ratio that indicates the efficiency and profitability of a company's capital investments. Return on capital employed = EBIT x 100 CE Where, EBIT = Earnings before Interest & Tax CE = Capital Employed

Calculation of Capital Employed For 2008 ROCE = x = % For 2007 ROCE = x = %

Significance of Capital Employed To prove the value the business gains from its assets and liabilities Best measure of profitability Trend Analysis

Earnings per share (EPS) This ratio measures the profit available to the equity shareholders on a per share basis. This ratio is calculated by dividing net profit available to equity shareholders by the number of equity shares. Earnings per share = Net profit after tax – Preference Dividend Number of equity shares

Calculation of EPS For 2008 EPS = 59,37,00,000 2,81,90,148 = Rs For 2007 EPS = 50,09,00,000 2,81,90,148 = Rs

Significance of EPS Valuation basis on per share Comparison of two companies

Dividend Payout Ratio The Dividend Payout Ratio measures the percentage of Dividends per share to the Earnings Per Share, showing how the company is paying for its dividend. The dividends paid should be coming from the earnings the company generates. Dividend payout ratio = Dividend Per Share X 100 Earning Per Share

Calculation of Dividend Payout Ratio For 2007 DPR = 7 x = 39 % For 2008 DPR = 7 x = %

Importance of Dividend Payout Ratio Conservative Moderate Liberal

Dividend yield Ratio This ratio indicates the relationship between dividend and market price. It shows the returns available on investment. It should be higher than dividend declared by similar other company. Dividend yield ratio = Dividend Per Share X 100 Market Price Per Share

Calculation of Dividend Yield Ratio For 2007 DYR = 7 x = 2.96 % For 2008 DYR = 7 x = 3.85 %

Significance of Dividend Yield Ratio Not all companies pay out dividends, but this ratio can be used for those that do. The Dividend Yield will change more often due to fluctuations in stock price more so than the Dividends Per Share figure, but both values should be watched.

Interest Coverage Ratio This ratio measures the debt servicing capacity of a firm in so far as the fixed interest on long-term loan is concerned. It shows how many times the interest charges are covered by EBIT out of which they will be paid. Interest coverage ratio = EBIT Interest

Calculation of Interest Coverage Ratio For 2008 ICR = = For 2007 ICR = = 52.72

Significance of Interest Coverage Ratio Assessment for borrowers Bond Rating

Price Earning Ratio (P/E) It measures the expectations of the investors and market appraisal of the performance of the firm. Price earning ratio = Market price per share Earnings per share

Calculation of P/E Ratio For 2008 P/E = = 8.64 For 2007 P/E = = 13.83

Significance of P/E Ratio Stock Analysis “ Multiple ”

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