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Ratio Analysis Memo and Presentation

ACCA 500

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MEMORANDUM
TO: Professor, Rod Monger.

FROM: Awrangzeb Awrang

DATE: 06/26/2017

SUBJECT: Ratio Calculations and Analysis

Companies Data Analyzed: Ultratech Cements and Shree Cements

The scope of the current document called ratio analysis is to practically work on subject stated.
Practical work and real world ration calculation, analysis would give in depth involvement, understanding and clear
picture of how these information are used by decision makers and how important they are.

To make the presentation realistic, practical and real-world, companies from same industry and same region
were selected and requested for approval. When approved, input data was collected from companies official websites.
The concerned companies were:

1. Ultratech Cements

2. Shree Cements

Both companies are publicly traded, registered in India & producing cements. Ratio calculations and analysis is
for 3 years, covering financial years 2012, 2013 and 2014 for both companies. Both companies financial reports for
the mentioned years are available at their official website:

1. Ultratech cements: https://www.ultratechcement.com/ultratech-financial-reports

2. Shree Cements: http://shreecement.in/pages/investor_center.php

Very few Information not available at the official websites of the companies were derived from other sources
such as http://economictimes.indiatimes.com/shree-cements-ltd/profitandlose/companyid-13129.cms ,
moneycontrol.com and some other sources.

One of the important factor to consider when analyzing these ratios, is that Indian economy was not doing
well post 2011. Therefore these companies economic performance was also negatively affected.

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To make the presentation understandable and summarized, in first step input data needed for ratio calculations
was collected and summarized in a table as follow:

# Components/Ratios
Shree Cements UltraTech Cements

2012 2013 2014 2012 2013 2014


1 Total Equity 3,843.65 4,710.81 5,276.40 15234.82 17097.51 18857.68
2 Average Total 3,288.79 4,277.23 4,993.61 14,047.32 16,166.17 17,977.60
Stockholder Equity
3 Total Assets 6,160.10 7,328.71 7,997.85 29,589.82 29,754.00 35,214.95
4 Average Total Assets 6,022.02 6,744.41 7,663.28 27,246.78 29,671.91 32,484.48
Weighted Average #
5 of Common stock 3.48 3.48 3.48 27.41 27.42 27.44
outstanding
Cash flow from
6 1,259.73 1,400.68 1,245.27
Operating Activities 3,617.58 3,241.99 4,082.93
7 Net Sales Revenue 5,590.25 5,887.31 6,453.57 20,018.00 20,078.00 22,658.00
8 Net Fixed Assets 2,253.00 3,295.00 3,835.00 17,415.00 18,650.00 23,632.00
Average Net Fixed
9 2,022.50 3,900.50 3,565.00 16,106.50 18,032.50 21,141.00
Asset
10 Average Receivable 247.87 305.63 386.49 891.60 1,149.13 1,645.44
11 Inventories 530.48 809.78 918.86 2,540.00 2,580.35 2,751.41
12 Average Inventory 516.90 670.13 864.32 2,369.32 2,560.18 2,665.88
13 Total Current Assets 2,271.73 2,331.89 2,333.13 8,282.78 9,490.00 8,797.46
Total Current
14 1,417.00 1,499.27 1,448.61 7,067.10 6,532.56 11,020.28
Liabilities
Cash & Cash
Equivalent + Net
15 Accounts Receivable 1,741.25 1,522.11 1,414.27 5,742.78 6,909.65 6,046.05
+ Marketable
Securities
Cash and Cash
16 369.37 159.27 307.50 142.66 348.49 392.58
Equivalents
17 Net Income 1,003.97 787.24 426.33 2,655.43 2,144.47 2,014.73
18 EBIT 1,313.62 1,024.85 556.92 4,035.00 3,095.00 3,434.00
19 Interest Expenses 193.00 129.00 120.63 210.00 319.00 547.00
20 Interest Paid 223.63 146.52 124.64 326.83 405.00 549.48
21 Total Liabilities 2,316.00 2,617.00 2,720.00 14,282.00 14,993.00 19,003.00
Market Price per
22 4,667.90 7,246.56 11,324.45 1,868.00 2,188.90 2,875.00
Share
23 Earnings/Share 288.19 225.98 122.38 96.87 78.21 73.44
24 Dividends per Share 20.00 22.00 24.00 9.00 9.00 9.00

Note: Figure provided are in Indian rupees and in crores (1croe =10 million or 100 lakhs, except items 22-24)

In 2nd step following ratios are calculated using the input data:

1. Profitability ratios

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2. Asset turnover ratios

3. Liquidity ratios

4. Solvency ratios

5. Market ratio

Analysis Method:

Since industry average for Indian cement industry was limited and very few average ratios were
available, methods of comparing companies financial data across the time means fiscal years 2012-2014 (Horizontal
Analysis) & comparison among the two companies selected for the purpose were used.

To make the presentation easily understandable, visual and illustrative graphs are used to present the
information on yearly basis for each company side by side. The graphs are organized a way that can show how
companys been doing for a specific ratio during the 3 years period, on the hand how one companys performance
been vs another during a specific financial/fiscal year.

Vertical analysis of the data was not considered for all ratios due to limited scope, time and contents.
In case if vertical analysis had been done, there was need to compare or analyze the following information:

Percentage of cash vs total assets, percentage of net profit vs total sales,

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Profitability Ratios

1. Return on Equity: Formula: ROE = Net income / average Stock holders equity

2. Return on Assets, Formula: Return on Assets = Net income / Average Total Assets

3. Financial Leverage Percentage: Formula: RoE-RoA

4. Net Profit Margin: Formula: Net Income / Net Sales Revenue

5. Earnings Per Share (EPS):Formula: Net Income/Weighted average # of outstanding shares

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6. Earnings Quality: Formula: Cash Flows from Operating Activities / Net Income

Asset Turnover Ratios

7. Total Assets Turnover: Formula: Net Sales Revenue / Average Total Assets

8. Fixed Asset Turnover: Formula: Net Sales Revenue / Average Net Fixed Assets

9. Receivable Turnover Ratio: Formula: Net Credit Sales/Average Net Receivables

10. Inventory Turnover Ratio: Formula: Cost of Goods Sold/Average Inventory

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Liquidity Ratios

11. Current Ratio: Formula: Current Assets / Current Liabilities

12. Quick ratio: Formula: Cash & Cash Equivalents + Net AR + Marketable Securities/Current Liabilities

13. Cash ratio: Formula Cash & Cash Equivalents / Current Liabilities

Solvency Ratios

14. Times interest earned ratio: Formula: EBIT/interest expense

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15. Cash coverage ratio: Formula Cash Flows from Operating Activities / Interest Paid

16. Debt-to-equity ratio: Formula: Total Liabilities / Total Stockholders Equity

Market Ratios

17. Price/Earnings (P/E) ratio: Formula: Market Price per Share/Earnings per Share

18. Dividends yield ratio: Formula: Dividends per Share / Market Price per Share

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