ANNUAL REPORT ANALYSIS

Analysis is the process of critically examining in detail accounting information given in

the financial statements. Analyzing financials of firms position statements is a process of
evaluating relationship between component parts of Financial statements to obtain a better
understanding of firms position and performance. As per the Mayer, Financial statements
analysis is largely a study of relationship among financial factors in a business as disclosed
by a single set of statements and a study of the trend of these factors as shown in a series of
statements.

Analysis and Interpretation are closely related. Interpretation is not possible without
analysis and without interpretation analysis has no value.

In the words of Kenndy and Memullar, The analysis and interpretation of finical
statements are an attempt to determining the significance and meaning of the
financial statements data so that a forecast may be made of the prospects for future
earnings, ability to pay interest and debt maturities and probability of a sound
dividend policy.

Objectives of the Ratio analysis: The Ratio analysis is used to know the following factors

The present and future earning capacity or profitability of the concerns.

The operational efficiency of the concern as a whole and of its various parts or
departments.

The financial stability of business concern.

The real meaning and significance of financial data, and

The long-term liquidity of its funds.

The comparative study in regard to one firm with another firm or department with
another department.

Methods of Annual analysis and interpretation:

1. Comparative financial analysis
2. Common measurement analysis

3. Trends percentages analysis

4. Funds flow analysis
5. Networking capital analysis.
6. Cash flow statement analysis
7. Ratio analysis.

Six things in an annual report necessary for fundamental analysis:

Compare this year annual report with the last year annual report
See how the cash flow compares with the net incomes.
Consider operating margin and gross margin
Look for deterioration.
Take a look of CEOs pay cheque.
Sleuth for potential conflix of interest

Advantages:
The advantages to using annual reports are:

It can contain detailed information such as figures.

Visual information can be used e.g., tables, charts etc.

A written record of the business is kept at a particular moment in time.

Shows the public that the organization does keep in touch with what they want.

Limitations:
Despite usefulness, financial ratio analysis has some disadvantages. Some key demerits of
financial ratio analysis are:
1. Different companies operate in different industries each having different environmental
conditions such as regulation, market structure, etc. Such factors are so significant that a
comparison of two companies from different industries might be misleading.
2. Financial accounting information is affected by estimates and assumptions. Accounting
standards allow different accounting policies, which impairs comparability and hence ratio
analysis is less useful in such situations.

3. Ratio analysis explains relationships between past information while users are more
concerned about current and future information.

Factors to select Ratio analysis for annual report:

The Ratio analysis is useful in simplifying the accounting figures to make them
understandable to a layman, because it is easier to understand ratios then plain figures.
It is also useful in forecasting and planning for the future, also it helps in control by
comparing the actual performance with that of forecasted performance and looking for
reason for it.
It is also used for analysis of financial statements by various interested parties like
bankers, creditors, supplier etc. for taking future decision about the company.

Ratio Analysis:
The study of the significance of financialratios for a company. Ratio analysis is very imp
ortant infundamentalanalysis, whichinvestigates the financial health of companies. An example o
f ratio analysis is the comparison of priceearningsratios of differentcompanies. This helps analyst
s determine which companies' share prices properly reflect their performances and therefore what
investments are most likely to be the most profitable.

Types of ratios
A. Liquidity Ratio
B. Turnover Ratio
C. Solvency or Leverage ratios
D. Profitability ratios
E. Stability Ratio Growth and performance.

1. Current Ratio:

This ratio is obtained by dividing the Total Current Assets of a

company by its Total Current Liabilities. The ratio is regarded as a test of liquidity for a
company. It expresses the working capital relationship of current assets available to meet the
companys current obligations.

Formula
Current ratio = Total current assets/ Total current Liabilities
Year

2008

2009

2010

2011

2012

Current Assests

4,16,54,241

4,00,18,498

3,60,63,112

3,83,95,190

3,99,43,933

Current Liabilities

4,08,47,539

4,08,42,288

3,95,55,375

4,15,98,478

3,98,19,313

Current Ratio

1.02

0.98

0.91

0.93

1.00

Current Ratio
1.05
1
Current Ratio

0.95
0.9
0.85
2008

2009

2010

2011

2012

Interpretation:
The current ratio helps us in analyzing the companys ability in meeting its immediate
obligations. The acceptable ratio is 2:1. However calculations and graph we find that the
company is able to meet below its standards. As it is a cause of concern the company has to
focus on development current assets.

2. Liquid/Quick Ratio:
It is also known as acid test ratio, it is more vigorous of liquidity than the current ratio.
The term liquidity refers to the ability of affirm to pay its short term obligation as and when they
become due.

Formula:
Liquid ratio = Quick assets / current liabilities
Year

2008

2009

2010

2011

2012

Quick Assests

4,08,47,539

3,91,94,708

3,25,70,849

3,51,91,902

3,98,19,313

Current Liabilities

4,08,47,539

4,08,42,288

3,95,55,375

4,15,98,478

3,98,19,313

Liquid Ratio

1.00

0.96

0.82

0.85

1.00

Quick Ratio
1
0.8
0.6

Quick Ratio

0.4
0.2
0
2008

2009

2010

2011

2012

Interpretation:
The quick ratio is a most conservative measure which helps us to analysis wheather a
company is in a position to meet current liabilities with its most liquid assets. 1:1 ratio is
considered ideal ratio for a concern because it is wise to keep the liquid assets at least equal to
the liquid liabilities at all times. from the above graph we observe that the company is satisfying
this measure .so we can analyse that the company is stable & healthy financially.

3. Gross profit Ratio : This Ratio is used to compare departmental profitability. It costs
are classified suitably into fixed and variable elements.

Formula:
Gross profit ratio = Gross Profit / Sales * 100

Year

2008

2009

2010

2011

2012

Gross Profit

28,11,798

47,15,138

76,54,667

92,18,048

1,53,69,596

Sales

1,23,53,450

2,05,82,346

3,32,62,721

7,52,63,228

8,88,80,317

Gross profit Ratio

22.76

22.9

23.01

12.24

17.29

Gross Profit Ratio

25
20
15

Gross Profit Ratio

10
5
0
2008

2009

2010

2011

2012

Interpretation:
The gross profit ratios show the companys ability to cover its operating expenses and
thus provide an adequate return to proprietors. Te higher GP ratio it is more satisfy able .but
the above graph shows that the company gross GP ratio has come down in 11 and again
increase in 12 but not to a satisfactory level.

4. Net Profit Ratio (NP ratio):

NP is a popular profitability ratio that shows

relationship between net profit after tax and net sales. It is computed by dividing the net profit
(after tax) by net sales. It measures overall profitability of the business.

Formula:
Net profit ratio = Net Profit / Sales * 100
Year

2008

2009

2010

2011

2012

Net Profit

2,28,50,956

86,40,907

98,97,959

1,40,00,3864

14,10,18,342

Sales

1,23,53,450

2,05,82,346

3,32,62,721

7,52,63,228

8,88,80,317

Net profit Ratio

84.97

41.98

29.76

86.01

58.66

Net Profit Ratio

100
80
60

Net Profit Ratio

40
20
0
2008

2009

2010

2011

2012

Interpretation:
The ratio explains per rupee profit generating capacity of sales. If the cost of sales is
lower, then the net profit will be higher and then we divide it with the net sales, the result is
the sales efficiency. Higher the ratios the better it is because it gives idea of improved
efficiency of the concern. The graph shows high net profit ratio 86.01 in the year 2011 and
very less in the year 2010.

5. Debt Ratio:

A financial ratio that measures the extent of a companys or consumers

leverage. The debt ratio is defined as the ratio of total debt to total assets, expressed in
percentage, and can be interpreted as the proportion of a companys assets that are financed by
debt.

Formula:
Debt ratio = Total Debt / Capital Employed
Year

2008

2009

2010

2011

2012

Total Debt

141966474

141143646

140220278

139947094

135921477

Capital Employed

168581842

177222748

187120708

56886979

56886979

Debt Ratio

0.84

0.79

0.75

2.46

2.39

Debt Ratio
3
2

Debt Ratio

1
0
2008

2009

2010

2011

2012

Interpretation
Debt ratio is used to analyze the long term solvency of a concern. In the above
calculations and graph we observe that, though the companys Debt ratio is low it has improved
from raising funds by issuing debentures and bonds and investing wisely to improve this position
financially. The above graph shows the slight decrease and immediate increase from 0.84 to 2.39
in the years 2008 and 2012 respectively.

6. Equity Ratio:

Equity Ratio is a good indicator of the level of leverage used by a

company. The Equity ratio measures the proportion of the total assets that are financed by
stockholders and not creditors.

Formula:
Equity ratio = Shareholders equity /Total Capital Employed
Year

2008

2009

2010

2011

2012

Equity

55351000

55351000

5535100

5535100

5535100

Capital Employed

168581842

177222748

187120708

56886979

56886979

Debt Ratio

0.33

0.31

0.30

0.97

0.97

Equity Ratio
1
Equity Ratio

0.5
0
2008

2009

2010

2011

2012

Interpretation:
The ratio indicates proportion of owners fund to total fund invested in the business .it is
believed that higher the proportion of owners fund lower is the degree of risk. The above figures
shows that the ratio is same in the 2012&2013.

7. Debt to Equity Ratio: The debt-to-equity ratio (D/E) is a financial ratio indicating
the relative proportion of shareholders' equity and debt used to finance a company's assets.
Closely related to leveraging, the ratio is also known as Risk, Gearing or Leverage.

Formula:
Equity ratio = Total Liabilities / Shareholders equity
Year

2008

2009

Total Liablities

124934171

ShareHolders Equity
Debt Ratio

2010

2011

2012

115465185 103356945

238432551

232627769

55351000

55351000

5535100

5535100

5535100

22.57

2.09

1.87

4.31

4.20

Debt to Equity Ratio

40
20

Debt to Equity Ratio

0
2008

2009

2010

2011

2012

Interpretation:
The ratio indicates the proportion of debt fund in relation to equity. A high ratio Here
means less protection for creditors. a low ratio, on the other hand ,indicates a wider safety
cushion. The graph shows immediate decrease 22.57 to 4.20 in the years 2008 and 2012. This
gives the moderated difference in the High ratio.

8. Interest Coverage Ratio: A ratio used to determine how easily a company can pay
interest on outstanding debt. The interest coverage ratio is calculated by dividing a company's
earnings before interest and taxes (EBIT) of one period by the company's interest expenses of the
same period.

Formula:
Interest Coverage ratio = EBIT / Interest
Year

2008

2009

2010

2011

2012

EBIT

22802728

7884355

8956412

5784218

804778

Interest

12838748

104918

267580

152862

18423

Interest

22.57

2.09

1.87

4.31

4.20

Coverage Ratio

Interest Coverage Ratio

80
60
40

Interest Coverage Ratio

20
0
2008

2009

2010

2011

2012

Interpretation:
This ratio indicates extents to which earnings may fall without causing any
embarrassment to the firm regarding the payment of interest charges. A high coverage ratio
means that an enterprise can easily meet its interest obligations even if earnings before interest
and taxes suffer considerable decline. The graph shows the immediate increase and slow
decrease from 2008 to 2012.

9. Total Assets Turnover Ratio:

To show what extranet the total assets are being utilized in the business. The ratio is
obtained by dividing the sales or cost of goods sold of a company by its Total assets.

Formula:
Total Assets Turnover Ratio = sales or cogs / Total asset
Year

2008

2009

2010

2011

Sales

23,53,450

2,05,82,346

3,32,62721

7,52,63,228 8,88,80,317

Total Assets

9,55,01,097

8,60,32,111

7,39,23,871

6,89,95,613 6,21,76,353

0.13

0.24

0.45

1.09

Ratio

2012

1.43

Total Assets turnover Ratio

1.5
1
Total Assets turnover Ratio
0.5
0
2008

2009

2010

2011

2012

Interpretation:
This ratio is calculated by dividing the net sales by the value of total assets. A high ratio is
an indicator of overtrading of total assets while a low reveals idle capacity .The traditional

standard for the ratio is two times. A companys position has improved year by year it has
fulfilled the obligations. Hence it is stable. The graph shows the increment from 2008 to 2012 as
0.13 to 1.43, which gives the improvements in the Capital fund.

10. Inventory/Stock turnover Ratio:

A ratio showing how many times a

company's inventory is sold and replaced over a period. The days in the period can then be
divided by the inventory turnover formula to calculate the days it takes to sell the inventory on
hand or "inventory turnover days."

Formula:
Inventory/ Stock Turnover Ratio = sales or cogs / Avg Stock
Year

2008

2009

2010

2011

Sales

23,53,450

2,05,82,346

3,32,62721

7,52,63,228 8,88,80,317

AVG Stock

47,70,826

79,33,604

1,28,04,027

3,30,22,591 3,67,55,536

2.59

2.60

2.60

2.28

Ratio

2012

2.41

Inventory / Stockturnover Ratio

2.6
2.4
Inventory / Stockturnover Ratio
2.2
2
2008

2009

2010

2011

2012

Interpretation: Inventory Turnover Ratio measures company's efficiency in turning its

inventory into sales. Its purpose is to measure the liquidity of the inventory. Inventory Turnover
Ratio is figured as "turnover times". Average inventory should be used for inventory level to
minimize the effect of seasonality. In the above graph the inventory ratio is equal in the years
2009 ,2010 and reduced because of the capital employed and production methods on the other
respective years.

11. Working Capital Turnover Ratio: A measurement comparing the depletion of

working capital to the generation of sales over a given period. This provides some useful
information as to how effectively a company is using its working capital to generate sales.

Formula:
Working Capital Turnover Ratio = sales or cogs / Avg Stock
Year

2008

2009

2010

2011

2012

Sales

23,53,450

2,05,82,346

3,32,62721

7,52,63,228

8,88,80,317

Working

806702

-823790

-3492263

-3203288

3246288

15.31

24.98

9.52

23.49

27.38

Capital
Ratio

Working Capital turnover Ratio

30
20
Working Capital turnover Ratio
10
0
2008

2009

2010

2011

2012

Interpretation: The higher is the ratio, the lower is the investment in working capital and the
greater or the profits. However, a very high turn of over of working capital is a sign of over
trading and may put the concern into financial difficulties. On the other hand, a low working
capital turnover ratio indicates that working capital in not efficiently utilize. The above graph
shows the clear variance based on the working capital employed from 2009 to 2012.

12. Solvency Ratio:

The Solvency Ratio is a measure of the risk an insurer faces of

claims that it cannot absorb. The amount of premium written is a better measure than the total
amount insured because the level of premiums is linked to the likelihood of claims.
The solvency or leverage ratios throws light on the long term solvency of a firm reflecting its
ability to assure the long term creditors with regard to periodic payment of interest during the
period and loan repayment of principal on maturity or in predetermined installments at due dates.
There are thus two aspects of the long-term solvency of a firm.
a. Ability to repay the principal amount when due
b. Regular payment of the interest.

Formula:
Solvency Ratio = Total Debts / Total Assets
Year

2008

2009

2010

2011

2012

Total Debt

141966474

141143646

140220278

139947094

135921477

Total Assets

9,55,01,097

8,60,32,111

7,39,23,871

6,89,95,613

6,21,76,353

1.49

1.64

1.90

2.03

2.19

Ratio

Solvency Ratio
3
2
Solvency Ratio
1
0
2008

2009

2010

2011

2012

Interpretation: The ratio is based on the relationship between borrowed funds and owners
capital it is computed from the balance sheet, the Regular payment of the interest type are

calculated from the profit and loss a/c. The above graph shows the clear increment from 2008 to
2012 with respect to the total Assets and debts employed.

13. Fixed Assets To Long Term Funds:

Fixed assets to long term funds ratio

establishes the relationship between fixed assets and long-term funds and is calculated by
dividing fixed assets by long term funds.

Formula:
Fixed Assets to Long terms Funds= Fixed Assets*100 / Long term funds
Year

2008

2009

2010

2011

2012

Fixed assets

9,55,01,097

8,60,32,111

7,39,23,871

6,89,95,613

6,21,76,353

Long term Debts

141966474

141143646

140220278

139947094

135921477

67

61

52

49

48

Ratio

Fixed assets to long term funds Ratio

80
60
Fixed assets to long term funds
Ratio

40
20
0
2008

2009

2010

2011

2012

Interpretation: This ratio is often used as a measure in manufacturing industries, where major
purchases are made for PP&E to help increase output. When companies make these large
purchases, prudent investors watch this ratio in following years to see how effective the
investment in the fixed assets was. The above graph shows the slight decrement from 2008 to
2012 with respect to the value of the detrimental fixed assets.

14. Proprietory ratio: Proprietary Ratio is also known as Capital Ratio or Net Worth to
Total Asset Ratio. This is one of the variant of Debt-Equity Ratio. The term proprietary fund is
called Net Worth.

Formula:
Proprietary Ratio = share holders fund / Total assets current liabilities
Year

2008

2009

2010

2011

2012

share holders fund 168581842

177222748

187120708

56886979

56886979

Fixed assets

9,55,01,097

8,60,32,111

7,39,23,871

6,89,95,613

6,21,76,353

1.76

2.06

2.53

0.82

0.92

Ratio

Proprietary Ratio
3
2
Proprietary Ratio
1
0
2008

2009

2010

2011

2012

Interpretation: The proprietary ratio is not a clear indicator of whether or not a business is
properly capitalized. For example, an excessively high ratio can mean that management has not
taken advantage of any debt financing, so the company is using nothing but expensive equity to
fund its operations. Instead, there is a balance between too high and too low a ratio, which is not
easy to discern. Also, the ratio is not necessarily a good indicator of long-term solvency, since it
does not make use of any information on the income statement, which would indicate
profitability or cash flows. The above graph shows the slow increment and gradual decrement
from 2008 to 2010 and 2011 to beyond, because of the shareholders value on the market.

A high ratio In the above table and diagram seen that the proprietary ratio in the year of
2011 was 0.92 it decreases to 2.6 in the year 2012.

15. Return on investment (ROI):

It measures the gain or loss generated on

an investment relative to the amount of money invested. ROI is usually expressed as a

percentage and is typically used for personal financial decisions, to compare a company's
profitability or to compare the efficiency of different investments.
A performance measure used to evaluate the efficiency of an investment or to compare the
efficiency of a number of different investments. To calculate ROI, the benefit (return) of an
investment is divided by the cost of the investment; the result is expressed as a percentage or a
ratio.

Formula:
Return on investment= Net profit/ Operating profit/ Capital employed *100

Year

2008

2009

2010

2011

2012

Net Profit

2,28,50,956

86,40,907

98,97,959

1,40,00,3864

14,10,18,342

Capital employed

168581842

177222748

187120708

56886979

56886979

13.55

4.87

5.23

24.64

24.89

Ratio

Return on Investment Ratio

30
20
Return on Investment Ratio
10
0
2008

2009

2010

2011

2012

Interpretation: ROI is one of the most used profitability ratios because of its flexibility. That
being said, one of the downsides of the ROI calculation is that it can be manipulated, so results
may vary between users. When using ROI to compare investments, it's important to use the same
inputs to get an accurate comparison. The above graph clearly showing that the gradual
decrement from 2008 to 2009 and immediate increment from 2010 to 2012 with respect to the
net profit and capital employed.