BIRLA INSTITUTE OF

TECHNOLOGY

AN ASSIGNMENT
ON
FINANCIAL MANAGEMEN

TOPIC:
COMPARATIVE RATIO ANALYSIS OF TWO COMPANIES:

PANASONIC AND VOLTAS

Submitted To:
Prof.SHELLY SRIVASTAVA

Submitted By:
Sweta (MBA/10084/16)

Raghav Kumar
(MBA/10089/16)

Anish Bangia (MBA/10099/16)

WHAT IS RATIO ?
Ratio can be define as between relationship between two figures
expressed in arithmetical terms called ratio.

ACCORDING TO R.N ANTHONY:

A Ratio is simply one number expressed in terms of another .It is

found by dividing one number into another.

ADVANTAGES OF RATIO
Helpful in analysis of financial statements.
Simplification of accounting data.
Helpful in comparative study.
Helpful in forecasting.
Effective control
Study of financial soundness

LIMITATIONS OF RATIO
False accounting data gives false ratio.
Comparison not possible if different firms adopt different
accounting policies.
Limited use of single ratio.
Lack of proper standards.
Ratio alone are not adequate for proper conclusions.

The following income statement and balance sheets relate to

PANASONIC and VOLTAS.
Income statement

SALES

40,00,000

48,00,000

Less: Cost of Sales

32,00,000

37,44,000

GROSS PROFIT

8,00,000

10,56,000

Less: Operating exp.(administrative and selling

exp.)

2,50,000

3,00,000

OPERATING INCOME (A)

5,50,000

7,56,000

Less: other exp.:

depreciation on plant and machinery
interest on debentures
preliminary Exp. Written off

2,20,000
75,600
4,000

2,76,000
90,000
4,000

TOTAL OTHER EXP. (B)

2,99,600

3,70,000

Net income before tax (A-B)

2,50,400

3,86,000

Less: provision for tax

36,000

56,000

NET INCOME AFTER TAX

2,14,400

3,30,000

Liabilities

Panasonic

Voltas

Equity share
capital
shares of
rs.10 each

15,00,000

19,20,000

Reserves &
surplus

8,00,000

10,00,000

Secured
loans:
9%
debentures

8,40,000

10,00,000

Unsecured
loans

Current
liabilities &
provisions:
(a)Current
liabilities
creditors
(b)provisions
Income tax
provision

9,64,000
36,000

10,64,000
56,000

41,40,000
BALANCE SHEET

51,70,000

ASSTES

Panasonic Voltas

Fixed assets:
land
Plant &
machinery

5,00,000 6,00,00
19,16,000 18,50,0

investments

1,00,000

3,00,00

Current
assets, loans
& advances:
(A)Current
assets
Stock
Debentures
Cash and
bank
(B) Loans &
advances

7,20,000
8,00,000
80,000
-

11,00,0
12,00,0
1,00,00
-

Miscell.
expenditure
Preliminary
exp.

24,000

20,000

41,40,000 51,70,0

Question :

You are required to prepare a project report commenting upon the

performance and financial position of the firm on the basis of
ration analysis.
Liquidity ratios
Current ratio : current ratio / current liabilities
Panasonic: 16,00,000/ 10,00,000 = 1.6 : 1
Voltas: 24,00,000/ 11,20,000 = 2.14 : 1
Quick ratio: liquid assets / current liabilities
Panasonic: 8,80,000/ 10,00,000 = 0.88 : 1
Voltas: 13,00,000/ 11,20,000= 1.16 : 1

COMMENT:
short term financial position of the company is quite satisfactory
because the current ratio of the company is 2.14 : 1, which is more
then the ideal ratio of 2: 1. the fact is also supported by quick ratio,
which more then the ideal ratio of 1: 1.

Solvency ratios:

 Debt equity ratio : long term debts/ shareholder's fund

Panasonic: 8,40,000/ 15,00,000 + 8,00,000 24,000 = 0.37 : 1
Voltas : 10,00,000 / 19,20,000 + 11,30,000 20,000 = 0.33 : 1
Total assets to debt ratio : total assets/ long term debts
Panasonic : 41,40,000 24,000 / 8,40,000 = 4.9 times
Voltas : 51,70,000 20,000 = 5.15 times

COMMENT:
debt equity ratio indicates that proportion of funds provided by
long term lenders in comparison to the owners is only .37 in
the Panasonic company . This proportion has further come
down to .33 in Voltas company. It shows that the long term
solvency position of the companies is very sound.
The fact is also supported by total assets to debt ratio. It
indicates that long term debts are covered 4.9 times by assets
in the Panasonic and this margin of safety has increased to
5.15 times in the Voltas.

Activity ratio
Fixed assets turnover ratio : net sales / fixed assets
Panasonic :40,00,000 / 24,16,000 = 1.66 times
Voltas : 48,00,00 / 224,50,000 = 1.96 times

COMMENTS:
fixed assets turnover ratio has improved. It indicates better
utilization of fixed assets generating sales

Profitability ratios
Gross profit ratio : gross profit / sales * 100
Panasonic : 8,00,000/ 40,00,000 * 100 = 20 %
Voltas : 10,56,000 / 48,00,000 * 100 = 22%
Operating ratio: cost of sales + operating exp. / sales * 100
Panasonic = 32,00,000 + 2,50,000 / 40,00,000 * 100= 86.25 %
Voltas = 37,44,000 + 3,00,000 / 48,00,000 * 100 = 84.25 %
Net profit ratio : net profit / sales * 100
Panasonic : 2,14,400 / 40,00,000 * 1oo = 5.36 %
Voltas : 3,30,000 / 48,00,000 * 100 = 6.88 %

Return on equity : net profit after tax / shareholder s funds

Shareholders funds = equity share capital + reserves & surplus
preliminary expenses
Panasonic : 15,00,000 + 8,00, 000 24,0000 = 22,76,000

Voltas : 19,20,000 + 11,30,000 20,000 = 30,30,000

R.O.E. for Panasonic = 2,14,4000/ 22,76,000 * 100 = 9.42 %
R.O.E. for Voltas = 3,30,000 / 30,30,000 * 100 = 10.89 %
Earning per share (E.P.S.): net profit after tax / no. of equity
shares
Panasonic : 2,14,400 / 1,50,000 = 1.43 per shares
Voltas : 3,30,000 / 1,92,000 = 1.72 per shares

COMMENT: Gross profit ratio has improved by 2 % which

reflects an increase in the sales price of goods sold without
corresponding increase in the cost of sales.

Operating ratio has also come down by 2 %. Lowering of

operating ratio has resulted in higher margin of profit on sales.
Net profit ratio has gone up from 5.36 % to 6.88 % which is
an indication of improvement in the overall efficiency and
profitability of the firm.
Return on equity has also gone up from 9.42 % to 10.89 %
which indicates that shareholders funds are being utilized
more efficiently. There are better prospects of declaration and
creation of reserves.
Earning per share has also gone up from 1.43 to 1.72 which
indicates that overall profitability of the company is

improving . This ratio also indicates that market price of these

companies share is likely to go up.

Conclusion
overall profitability and financial position of Voltas has
improved in comparison