Ratio-Analysis of Asian Paints

RATIO ANALYSIS OF ‘ASIAN PAINTS’By-Avneesh Pandey(PRN-12030141071)Amit Mekane(PRN-12030141093)Savita Marwal(PRN-12030141094)MBA-IT(2012-2014)

LIQUIDITY RATIOS

Current Ratio Quick Ratio/Acid Test Ratio Super Quick/Cash Ratio

Current Ratio

F.Y 2013(in Crores) F.Y 2012(in crores)

=Current Assets =4006.5 =3506.67

Current Liabilities 2931.4 2587.03

Current Ratio= 1.366753087 1.355480996

Mostly Current Ratio of 2 or 1.3 is considered acceptable.Indicates a firms commitment to meet financial obligations.A heavy ratio is not desirable as it indicates less efficient use of funds.

Quick Ratio/Acid Test Ratio

=Cash+Marketable securities+Recievable Fy2013 Fy2012

Current Liabilities

OR =Current Ratio-Stock =4006.5-1830.29 =3506.67-1598.89


Quick Ratio= 0.74 0.73

A Quick Ratio of 1 or greater is acceptable.This ratio indicates short term solvency of a firm.A ratio of 1:1 means that a social enterprise can pay its bills without having to sell inventory.

Super Quick/Cash Ratio

=Cash+Marketable securities

Current Liabilities

OR =Current Ratio-Recievables-Inventories =4006.50 – 1830.29 – 980.83 =3506.67 – 1598.89 – 788.25


Super Quick/Cash Ratio 0.40 0.43

Ideal Ratio is 1 or higher.

SOLVENCY RATIOS

Debt-Equity Ratio Proprietor's Ratio/Equity Ratio

Debt-Equity Ratio

= short term+Long term Debt = 2931.41+ 47.8 =2587.03+55.32

Shareholder's fund 3384.29 2748.5

Debt-Equity Ratio= 0.8803 0.9613

Debt-Equity Ratio:- Long term Debt =47.8 =55.32

Shareholder's fund 3384.29 2748.5

Debt-Equity Ratio= 0.0141 0.0201

Ideal Ratio-1:2or lessIndicates long term solvencyHigher ratio is riskier for the creditors

Proprietor's Ratio/Equity Ratio

=Equity =3384.29 =2748.5

Total Tangible assets 2455.95 1876.11

Proprietor's Ratio/Equity Ratio= 1.3780 1.4650

Higher ratio indicates little danger to creditors and vice-versa.

ACTIVITY RATIOS/TURNOVER RATIOS

Inventory Turnover Ratio Debtor's Turnover ratio Creditor's TurnOver Ratio Fixed Asset TurnOver Ratio Total Assets TurnOver Ratio

Inventory Turnover Ratio

A)Inventory Turnover Ratio:- =Cost of goods sold =6254.94 =5720.53

Average inventory during the year 1714.59 1452.16

Inventory Turnover Ratio= 3.6481 3.9393

where,

Average inventory during the year= =Opening stock+Closing stock

=1598.89+1830.29

=1305.43+1598.89

2 2 2

Hence,Avg Inventory= 1714.59 1452.16

Higher ratio is desirable which means more cycles in a year.Indicates whether investment in stock is efficiently used or not.

Inventory Holding Period(One Cycle time)

i)Inventory Holding Period(One Cycle time):- =365 =365 =365

Inventory Turnover ratio 3.6481 3.9393

Inventory Holding Period(One Cycle time)= 100 days 93 days

Less cycle time is acceptable.

Debtor's Turnover ratio

B)Debtor's Turnover ratio:- =Credit Sales =10901.01 =9598.33

Average Recievables 881.065 677.175

Debtor's Turnover ratio= 12.3725 14.1741

where,

Average Receivables during the year=

=Opening Receivables+Closing Receivables =781.25+980.88 =573.10+781.25

2 2 2

Hence,Avg Receivables= 881.065 677.175

Higher ratio is better.

Average Debtor's Period

i)Average Debtor's Period:- =365 =365 =365

Debtor's Turnover ratio 12.3725 14.1741

Average Debtor's Period= 30 days 26 days

Lower period is better.i.e Cash should be received faster.

Creditor's TurnOver Ratio

C)Creditor's TurnOver Ratio:- =Credit Purchase =6631.74 =6049.61

Average Payables 1352.01 1174.94

Creditor's TurnOver

Ratio= 4.91 5.15

where,

Average Payables during the year=

=Opening Payables+Closing Payables =1262.45+1441.57 =1087.44+1262.45

2 2 2

Hence,Avg Payables= 1352.01 1174.94

Lower ratio is better.

Average Creditor's Period

i)Average Creditor's Period:- =365 =365 =365

creditor's Turnover ratio 4.91 5.15

Average Creditor's Period= 75days 71 days

Higher cycle time is better.Indicates the speed with which the payments of creditors are made

Total Cycle time

TOTAL CYCLE TIME=

Inventory Cycle Time+Recievables Cycle Time

-Creditor's Cycle Time 55 days 47 days

This cycle time(Days in cash operating cycle) should be high.

Fixed Asset TurnOver Ratio

D)Fixed Asset TurnOver Ratio:- =Net Sales =10906.01 =9598.33

Average Fixed Assets 2166.03 1596.05

Fixed Asset TurnOver Ratio= 5.04 6.01

where,

Average Fixed Assets during the year=

=Opening Fixed Assets+Closing Fixed Assets

=1876.11+2455.95 =1316+1876.11

2 2 2

Hence,Avg Fixed Assets= 2166.03 1596.05

Higher ratio is better.An increasing ratio indicates you are using your assets more productively

Total Assets TurnOver Ratio

E)Total Assets TurnOver Ratio:- =Net Sales =10906.01 =9598.33

Average Total Assets 6788.96 5713.93

Total Assets TurnOver Ratio= 1.61 1.68

Higher ratio is better.

COVERAGE RATIOS

Interest Coverage Ratio Debt Service Coverage Ratio

Interest Coverage Ratio

A)Interest Coverage Ratio:- =Cash flow from operations p.a =1186.79 =699.63

Interest payable to bank p.a 10.52 9.11

Interest Coverage Ratio= 112.81 76.80

Measures your ability to meet interest payment obligations with business income. Ratios close to 1 indicates company having difficulty generating enough cash flow to pay interest on its debt. Ideally, a ratio should be over 2.

Debt Service Coverage Ratio

B)Debt Service Coverage Ratio:- =Net Operating Income =1846.46 =1616.18

Debt Service 312.49 241.7

Debt Service Coverage Ratio:- 5.91 6.69

2 and higher is better.Indicates ability of a company to repay principal.

RATIOS IMPORTANT FOR SHAREHOLDERS AND POTENTIAL INVESTORS

Book Value per share Earnings per Share(EPS) Dividend per share(DPS) Earnings Yield/Capitalization Rate(%) Dividend Yield(%) Dividend Cover Dividend Payout Ratio(%) Price to Earnings Ratio

Book Value per share

A)Book Value per share:- =Equity =3384.29 =2748.5

No. Of shares(Outstanding) 9.59 9.59

Book Value per share= 352.90 286.60

Earnings per Share(EPS)

B)Earnings per Share:- =Net Profit-Preference dividend-tax dividend =1113.88 =988.73

Outstanding shares 9.59 9.59

Earnings per Share(EPS):- 116.15 103.10

Higher ratio is better.Helps in estimating company’s ability to pay dividend to shareholders.

Dividend per share(DPS)

C)Dividend per share(DPS):- =Dividend paid =462.05 =383.07

No. of shares 9.59 9.59

Dividend per share(DPS):- 48.18 39.94

Earnings Yield/Capitalization Rate(%)

D)Earnings Yield/Capitalization Rate(%):- =EPS =116.15 =103.10

Market Price per share 406.5 370.1

Earnings Yield ORCapitalization Rate(%):- 28.57% 27.86%

Dividend Yield(%)

E)Dividend Yield(%):- =DPS =48.18 =39.94

Market Price per share 406.5 370.1

Dividend Yield(%):- 12% 11%

Dividend Cover

F)Dividend Cover:- =EPS =116.15 =103.10

DPS 48.18 39.94

Dividend Cover:- 2.41 2.58

Dividend Payout Ratio(%)

G)Dividend Payout Ratio(%):- =DPS =48.18 =39.94

EPS 116.15 103.10

Dividend Payout Ratio(%):- 41.48% 38.74%

Price to Earnings Ratio

H)Price to Earnings Ratio:- =Market Price per share =406.5 =370.1

EPS 116.15 103.10

Price to Earnings Ratio:- 3.50 3.59

Higher ratio is better.Helps the investor in deciding whether to buy or not to buy the shares.

EXPENSE RATIOS

A)Operating Expense Ratio(%):- =(Cost of goods sold+Operating Expenses) =9238.8 =8123.47

Net sales 10906.01 9598.33

Operating Expense Ratio(%):- 84.71% 84.63%

A decreasing ratio is considered desirable since it generally indicates increased efficiency

PROFITABILITY RATIOS

Return On Investment(%) Return on Equity(%) Return on Capital Employed(%) Return on Assets(%) Return on Total Capital(%)

Return on Equity(%)

B)Return on Equity(%):- =EAT(Net income after tax) =1113.88 =988.73

Equity 3384.29 2748.5

Return on Equity(%):- 32.91% 35.97%

Rate of return on investment by shareholders It measures how profitable a company is for the owner of the investment, and how profitably a company employs its equity

Return On Investment(%)

A)Return On Investment(%):- =Net Profit After Interest and Tax/EAT =1159.52 =1020.58

Total Assets 6788.96 5713.92

Return On Investment(%):- 17.08% 17.86%

•ROI measures how effectively the firm uses its capital to generate profit•The income that an investment provides in a year.•The higher the ROI, the better.

Return on Capital Employed(%)

C)Return on Capital Employed(%):- =EBIT =1846.46 =1616.18

Total Assets-Current Liabilities 6788.96-2931.41 5713.92-2587.03

Return on Capital Employed(%):- =1846.46 =1616.18

3857.55 3126.89

Return on Capital Employed(%):- 47.87% 51.69%

•A higher ROCE indicates more efficient use of capital. •ROCE should be higher than the company’s capital cost; otherwise it indicates that the company is not employing its capital effectively and is not generating shareholder value.•A good ROCE is one that is greater than the rate at which the company borrows.

Return on Assets(%)

D)Return on Assets(%):- =EBIT =1846.46 =1616.18

Average total assets 6251.44 5253.39

Return on Assets(%):- 29.54% 30.76%

where,

Average Total Assets during the year=

=Opening Total Assets +Closing Total Assets =6788.96+5713.92 =4610.50+5896.21

2 2 2

Hence,Avg Total Assets= 6251.44 5253.39

Measures your ability to turn assets into profit. This is a very useful measure of comparison within an industry. A low ratio compared to industry may mean that your competitors have found a way to operate more efficiently.

Return on Total Capital(%)

E)Return on Total Capital(%):- =(Net Income+Interest Expense) =(1159.52+10.52) =(1020.58+9.11)

Average Total Capital 3343.49 2705.11

Return on Total Capital(%):- =1170.04 =1029.69

3343.49 2705.11

ROTC(%)= 34.99% 38.06%

where,

Average Total Capital during the year=

Opening Total Capital+Closing Total Capital

(3384.29+312.49)+(2748.50+241.70)

(2748.50+241.70)+(2187.42+232.61)

2 2 2

Hence,Avg Total Capital= 3343.49 2705.11

Z-score

8)Z-SCORE

Z- Score = A*3.3+B*.99+C*0.6+D*1.2+E*1.4 A = EBIT/Total Assets=

A=1809.81/6788.96= 0.27

A=1575.21/5713.92=0.28

B= Net Sales/ Total AssetsB=10906.01/6788.96=1.61

B=9598.33/5713.92= 1.69

C= MV of Equity/ Total Liabilities=

C=424.55*9.59Cr/6788.96Cr=0.60

C=362.50*9.59Cr/5713.92Cr=0.62

D= Working Capital/ Total Assets=

D=(4006.50-2931.41)/6788.96 =0.16

D= (3506.67-2587.03)/5713.92=0.16

E= Retained Earnings/ Total Assets=

E=(3288.37/6788.96)=0.4844

E=(2652.58/5713.92)=0.5

Thus,Z=Z=0.27*3.3+1.61*.99+0.60*.6+0.16*1.2+0.4844*1.4

Z=0.28*3.3+1.69*.99+0.62*0.6+0.16*1.2+0.5*1.4

Z= 3.7089 3.86Note:-Since,Z>3- Company is solvent based on Financial

Figures

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Ratio-Analysis of Asian Paints