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Analysis & Its Need
Analysis is the process of breaking a complex topic or substance into smaller parts to gain a
better understanding of it. The technique has been applied in the study of mathematics and logic.
There are mainly two types of analysis that are technical analysis & fundamental analysis.
Technical analysis is related to companys past data, trend, industrys trend, sectors and activities
that effect company, where fundamental analysis is related to financials of a company. I will do
fundamental analysis.
Ratio Analysis
Ratio is a relationship between two figures expressed mathematically. Financial ratios provide
numerical relationship between two relevant financial data. Financial ratios are calculated from
the balance sheet and profit and loss account. The relationship can be either expressed as a
percent or as a quotient. Ratios summarize the data for easy understanding, comparison and
interpretations. So, I will do ratio analysis of Muthoot Finance on the basis of its past years
ratio, ratios ofGruhFinance and ratios of this industry. The importance of making analysis of
Financial Statement may be better understood from this fact that Financial Statement, though
itself reflects the net results for a particular period and state of affairs of the company till now by
using current scenario statements. So, ratio analysis is arithmetic relationship of various items.
Company Overview of Muthoot Finance & Gruh Finance
Muthoot Finance Ltd is the largest gold company in India. The company provides personal and
business loans secured by gold jewellery, or Gold Loans, primarily to individuals who possess
gold jewellery but could not access formal credit within a reasonable time, or to whom credit
may not be available at all, to meet unanticipated or other short-term liquidity requirements. As
of March 31, 2012, the Company had 3,678 branches across 21 states.
Gruh Finance Ltd (formerly known as Gujarat Rural Housing Finance Corporation) was
incorporated in 1986 to provide financial services mainly for rural housing, construction/up
gradation of dwelling units, and to developers. The company received a rating of "MA+" (1999-
2000) for its fixed deposit programme from Investment Information & Credit Rating Agency of
India.
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Financial Ratio Analysis
Firstly, I will calculate some ratios ofMuthoot Finance Ltd, Gruh Finance Ltd and industry
ratios. For industry analysis I have chosen Money Matters financial services, Microsec
Financial Services, JM Financial companies. These companies are chosen because these aretop competitor companies of IIFL and are listed in both NSE & BSE. I will analysis by
calculating following ratios:
Current Ratio Gross profit Ratio Net Profit Ratio Return on Asset Return on Investment
Earnings per share Dividend Per Share Dividend payout ratio Price Earnings Ratio Debt to Equity ratio
1. Current Ratio: -It is 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 thecurrent 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
Current Ratio
YEARS Mar'09 Mar'10 Mar'11 Mar'12
Muthoot Finance 1.54 1.41 1.08 1.02
GRUH Finance 35.06 32.34 12.59 34.91
Industry 8.31 7 14.25 12.17
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INTERPRETATION :- In current ratio we can see that muthoot Finance current ratio is
decreased consistently from 2009-12. It means that companys liquidity is very less. To compete
it has to increase its liquidity. On the other hand GRUH Finance has very good liquidity position
in CR as compare to industry also,but in 2011 GRUHs CR gone down to 12.59 & it recovered
from the crisis & maintain the level as the previous years. Muthoots CR is very much less than
GRUH as well as industries . So in matter of liquidity company really has to work upon it for
better performance in future although it has not a bad period in this matter.
2. Gross Profit Ratio: - Gross profit ratio is what remains from sales aftera company pays out the cost of goods sold. To obtain gross profit margin, divide gross
profit by sales. Gross profit margin is expressed as a percentage.
Gross profit ratio= Gross profit/Net sales*100
Gross profit Ratio
YEARS Mar'09 Mar'10 Mar'11 Mar'12
Muthoot Finance 74.52 75.50 77.61 81.30
GRUH Finance 91.67 88.79 90.63 93.14
Industry 63.75 74.08 64.32 46.17
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Industry
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INTERPRETATION :- From the above graph we can see that Muthoot Finance g.p ratio
contineously increased from 2009-12 i.e 74.52 to 81.30.On the other hand GRUH has maintain
its level in g.p ratio from 2009-2012. GRUH is very much up in this context. It has more gross
profit ratio even from industry.but if we look the industries g.p ratio its increased from 63.75 to
74.08 in the year 2009-10 but from the year 2010 it decreased contineously till 2012 i.e 74.08 to
46.17.
3. Net Profit Ratio: -Net profit ratio is calculated by subtracting a companys total indirect
expenses from total indirect income that shows what the company has earned or lost in a given
period of time. It is called net income or net earnings.
Net profit ratio= Net profit/Net sales*100
Net Profit Ratio
YEARS Mar'09 Mar'10 Mar'11 Mar'12
Muthoot Finance 15.75 20.89 21.33 19.60
GRUH Finance 17.08 22.37 25.49 23.68
Industry 33.31 48.79 36.1 81.56
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INTERPRETATION :- As Muthoot is performing good in gross profit, so it is also performing
good in net profit also. Muthoot & GRUHs net profit has contineously increased from 2009 -11
but in 2012 their net profit slightly decreased to 19.60 & 23.68 respectively.
4. Return on Asset:- ROA is computed as the product of the net profit margin and the total
asset turnover ratios. This ratio indicates the firm's strategic success. With a successful product
differentiation strategy, ROA will rise because of a rising profit margin.
ROA = (Net Profit/Total Assets)
Return on Asset
YEARS Mar'09 Mar'10 Mar'11 Mar'12
Muthoot Finance 73.96 19.41 41.67 78.71
GRUH Finance 63.74 76.21 90.43 109.22
Industry 42.94 48.37 88.10 101.87
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INTERPRETATION :- In return on asset Muthoot has 73.96 in the year 2009 then in the year
2010 it suddenly fall to 19.41 & its took 3 years i.e 2012 to maintain same level i.e to reach78.71.but in case of GRUH Finance it contineously increased from 63.74 to 109.22 over the year
from 2009-12 and the industries ROA growth rate also increased contineously from 2009-12.
From 2011 its growth rate suddenly increased from 48.37 to 88.10 & it continue till 2012 i.e
101.87.
5. Return on Investment:- ROI is the return on capital invested in business, i.e., if an
investment Rs 1 crore in men, machines, land and material is made to generate Rs. 25 lakhs of
net profit, then the ROI is 25%. The computation of return on investment is as follows:
Return on Investment (ROI) = (Net profit/Equity investments) x 100
Return on Investment
YEARS Mar'09 Mar'10 Mar'11 Mar'12
Muthoot Finance 1297.74 3034.26 6589.06 914.89
GRUH Finance 393.42 210.75 264.02 492.79
Industry 410.30 722.45 1396.34 301.31
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INTERPRETATION :- According the graph Muthoot ROI is very much higher than both
GRUH & industries i.e from1297.74 to 6589.06 but in 2012 suddenly its ROI fall to 914.89.As
the investors would like to invest only where the return is higher so Muthoot Finance would be
attractive for investment.
6. Earnings per share:- This ratio determines what the company is earning for every share.
For many investors, earnings are the most important tool. EPS is calculated by dividing the
earnings (net profit) by the total number of equity shares. The computation of EPS is as follows:
Earnings per share = Net profit/Number of shares outstanding
Earnings per share
YEARS Mar'09 Mar'10 Mar'11 Mar'12
Muthoot Finance 19.94 7.56 15.43 24.00
GRUH Finance 14.51 19.86 26.03 34.09
Industry 14.97 14.94 9.45 14.72
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INTERPRETATION :- In Earning per share Muthoot has 19.94 in the year 2009 then in the
year 2010 it suddenly fall to 7.56 & its took 3 years i.e 2012 to cross the level i.e to reach24.but in case of GRUH Finance it contineously increased from 14.51 to 34.09 over the year
from 2009-12 But in case of industries EPS growth rate its very much consistent in last 4 years
near 14 i.e 2009-12 except in the year 2011 its EPS decreased to 9.45.
7. Dividend per Share:- The extent of payment of dividend to the shareholders is measured
in the form of dividend per share. The dividend per share gives the amount of cash flow from the
company to the owners and is calculated as follows:
Dividend per share = Total dividend payment / Number of shares outstanding
Dividend per Share
YEARS Mar'09 Mar'10 Mar'11 Mar'12
Muthoot Finance 0 0 0 4.00
Gruh Finance
4.80 6.50 11.00 11.50
Industry 1 1.8 2.77 3.62
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INTERPRETATION :- According to the graph Muthoot Finance has zero dividend per share
from 2009-11 & suddenly it rose to 4, but in case of GRUH finance it is very much up in this
context. It has more dividend per share even from industry. The industries DPS also contineouslyincreased from the year 2009-12 i.e from 1 to 3.62.
8. Dividend payout ratio:- From the profits of each company a cash flow called dividend is
distributed among its shareholders. This is the continuous stream of cash flow to the owners of
shares, apart from the price differentials (capital gains) in the market. The return to the
shareholders, in the form of dividend, out of the company's profit is measured through the payout
ratio. The payout ratio is computed as follows
Payout Ratio = (Dividend per share / Earnings per share) * 100
Dividend payout ratio
YEARS Mar'09 Mar'10 Mar'11 Mar'12
Muthoot Finance 0 0 0 16.66
GRUH Finance 33.08 32.72 42.25 33.73
Industry 42.98 23.39 105.33 39.08
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INTERPRETATION:-Dividend payout ratio is the percentage of earnings paid to shareholders
in dividends. As Muthoot finance has zero Dividend per share, so its Dividend payout ratio isalso zero from 2009-11 & as same in 2012 it rose to 16.66. In case of GRUH & Industries both
are fluctuated very much from 2009-12, except in the year 2011, when the industries Dividend
payout ratio suddenly increased to 105.33.
9. Price Earnings Ratio:- The P/E multiplier or the price earnings ratio relates the current
market price of the share to the earnings per share. This ratio is calculated to make an estimate of
appreciation in the value of a share of a company and is widely used by investors to decide
whether or not to buy shares in a particular company. This is computed as follows:
Price Earnings ratio = Current market price / Earnings per share
Price Earnings Ratio
YEARS Mar'09 Mar'10 Mar'11 Mar'12
Muthoot Finance 0 0 11.42 5.26
GRUH Finance 1.27 2.19 2.78 3.72
Industry 36.91 14.53 41.87 10.12
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INTERPRETATION:- According to the graph Muthoot Finance has zero price earning ratio in
the year 2009-10.& in the year 2011 its price earning ratio rose to 11.42, but in the next year its
again fall into 5.26. The PE ratio of GRUH has very less,but it contineously increased over the
year from 2009-12 i.e from 1.27 to 3.72. In case of industries the PE ratio of industry has very
much fluctuate.
10. Debt to Equity ratio:- Debt-Equity ratio is used to measure the claims of outsiders and
the owners against the firms assets. The debt-equity ratio is calculated to measure the extent to
which debt financing has been used in a business. It indicates the proportionate claims of ownersand the outsiders against the firms assets. This is computed as follows:
Debt-to-equity ratio = Outsiders Funds (total debt) / Shareholders Funds (total equity)
Debt to Equity ratio
YEARS Mar'09 Mar'10 Mar'11 Mar'12
Muthoot Finance 8.53 9.03 8.95 5.29
Gruh Finance 10.17 8.78 9.33 9.93
Industry 3.77 3.56 3.66 3.04
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INTERPRETATION:-According to the graph Muthoot Finance is not doing good in this ratio.
because its debt is very much than its equity. In 2012 it equity little increased then debt to 5.29.In
case of GRUH,it has also very poor position as compare to Muthoot Finance.But in case of
industries the debt equity ratio is good as compare to both Muthoot & GRUH.because i ts equity
is greater than its debt.
Conclusion:-
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