FINANCIAL AND COST ACCOUNTING (RATIO ANALYSIS OF BHEL)

15/12/09

Name: Digesh C. Shah (Roll No. 29)

 PROFITABILITY RATIOS:
o Gross profit ratio: Gross profit/ net sales
(1) Gross Profit Ratio

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=28033.19/26212.33 =21401.01/19304.64 1.08 1.08
=1.069 =1.10
Profitability compared to previous year deteriorates.
(2) Net Profit ratio= net profit/net sales
Where net profit=profit after tax

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=3138.21/26212.33 =2859.34/19304.64 0.14 0.12
=0.119 =0.148
Lower the ratio shows profitably deteriorated, so bad overall performance of
business.
o Operating profit ratio: net profit +taxes + interest / net sales
(1) Gross Profit Ratio

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=(3138.21+2250.17+30.71) =(2859.34+1934.95+3 0.22 0.196
/26212.33 5.42) /19304.64
=0.20 =0.25
Lower ratio indicate bad operating performance of business
(2) Operating ratio= operating cost/ net sales
Where Operating cost = COGS + admin exp. + Selling
&distribution exp. + depreciation /sales

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=(17620.05+1280.97)/ =(11820.87+778.25)/ 0.6 0.63
26212.33 19304.64
=0.72 =0.65
Higher ratio indicates better operating performance of business.

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(3) Material Consumed Ratio= Consumption of Material, Erection and
Engineering Expenses / Net Sales.

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=17620.05/26212.33 % 61.23% 59.06% 60.91%
=67.22%

(4) Salary ratio = Employees’ remuneration & benefits/Net Sales.

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=2983.68/26212.33 % 13.5 13.74% 14.04%
= 11.38%

(5) Tax to Sales ratio = Current Tax/ Net Sales

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

= 2250.17/26212.33 % 10.02% 7.66 % 6.61%
=8.58%

(6) Return On Capital Employed/Return On Investment=Sales/Capital Employed

Where Capital Employed=Share Capital + Reserves & Surplus + Sundry Debt

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=[26212.33/ =[19304.64/ 93.25% 92.43%
(489.52+12449.29+15975.5)]*1 (489.52+10284.69+11974.87)]*1
00 00
=90.65% =84.85%
It gives overall profitability of the business on total funds employed.

If ROI > interest on debt and if Debt to equity ratio is high then it means that debt part
utilized in profitable project of the business which makes earning an add value for equity
share holders.

 Computing Liquidity Ratio:

(1) Current ratio= (Current asset)/(Current liabilities)

Where current asset= (Total current asset)-(Loans) = 36901.07-2423.67= 34477.4

Current liabilities = 23357.32

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 FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06
= (34477.4)/ ( 23357.32) = 26518.38/16576.45 1.77 1.85
= 1.476 = 1.6
This ratio shows that in current year liquidity position of the firm is less compared to
last year.
(2) Quick ratio= (CA-Inventory)/CL.

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

= (34477.4-7837.02)/ ( = (26518.38- 1.41 1.43
23357.32) 5736.4)/16576.45
= 1.14 = 1.25
Inventory is least liquid item among the current assets items so we can not able to give
true picture of liquidity position on basis of this ratio as certain assets are less liquid so
to identify liquidity position of business other ratio would be also used.
 Computing Long Term Solvency Ratios
(1) Total Debt Ratio= (TA-TE)/TA;
Where Total Asset= (Net Current Assets-Liabilities & Provisions) + (Total Fixed
Assets – Capital Work in progress) and
Total Equity= Share Capital + Reserves & Surplus

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

= [(36901.07+1470.4)- = [(27906.18+981.26)- 0.601 0.58
(489.52+12449.29)]/38371.47 (10774.21)]/28887.44
=(38371.47-12938.81)/38371.47 =0.627
=0.6628
(2) Debt per Equity= TD/TE where TD=(TA-TE)

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

= (38371.47-12938.81)/ = (28887.44-10774.21)/ 1.51 1.37
12938.81 10774.21
=1.965 =1.681

(3) Equity Multiplier= TA/TE= 1+(TD/TE)

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

2.965 2.681 2.51 2.37
 Computing Coverage Ratio
(1) Interest Coverage ratio = Profit before interest & tax (PBIT)/amount of interest

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 FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06
=(4848.85-30.71)/30.71 124.08 85.22 42.64
=156.89

 Computing Inventory Ratios

(1) Stock / Inventory Turnover = Sales/Average Inventory

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/7837.02 3.36 4.08 3.57
=3.34

(2) Inventory holding period = 365/Inventory Turnover

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

109.28 days 108.63 days 89.46 days 102.24 days

(3) Debtors Turnover = Sales/ Debt

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/15975.5 1.61 1.78 1.86
=1.64
(4) Debtors Collection Period= 365/Debtors turnover

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

222.45 days 226.7 days 205.05 days 196.23 days

 Computing Total Assets Turnover

(1) Fixed Assets Turnover=Sales/Net fixed assets(Net fixed assets a.k.a. Net Block)

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/1470.40 19.67 17.43 13.61
=17.82

(2) Cash Turnover = Sales/Cash

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/10314.67 2.3 2.97 3.23
=2.54

(3) Working Capital Turnover = Sales / Average Working Capital

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 FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06
=26212.33/8568.17 2.45 2.59 2.22
=3.06

(4) Working Capital Period = 365/Working Capital Turnover

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

119.28 days 149 days 140.92 days 164.41 days
(5) Total Asset Turnover (a.k.a. asset utilization ratio)= Sales/Total Asset

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/38371.47 0.67 0.78 0.77
=0.68
It is not unusual for TAT<1; especially if a firm has a large amount of fixed assets.

(6) Dividend per Share: dividend declared/ paid up capital;

where paid up capital = no. of shares.

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=832.18/48.952 746.52/48.952 599.66/24.476 354.90/24.476
=17 =15.25 =24.5 =14.5
Increased DPS ratio shows that more dividends declared and more profit relinquished among
its holders, Means Company is following liberal dividend policy.

(7) Earning per Share: Profit After Tax/ no. of shares.

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=3138.21/48.952 2859.34/48.952 2414.7/24.476 1679.16/24.476
=64.11 =58.41 =98.66 =68.6

Increased EPS provides a measure of the higher rate of yield

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