CHAPTER-4 DATA ANALYSIS

Introduction

The term Analysis and Interpretation refers to the process the process of determining financial
strengths and weaknesses of the firm by establishing a strategic relationship between the
components of financial statements and other operating data.
The purpose of analysis is to diagnose the information contained in financial statements so as to
judge the profitability and soundness of a firm. Analysis means simplifications of financial data
by methodical classification of data given in the financial statements. Interpretation means
explaining the meaning of and significance of data so simplified.
The analysis and interpretation of profitability, Efficiency and risk is used to determine the
financial position and results of operations as well.

Following are the common devices used to analyze the data :-

Balance Sheet as at December 31st , 2016 & 2015

Balance Sheet as at December 31st , 2014 & 2013
Statement of Profit and Loss for the year ended December 31, 2016 & 2015
Statement of Profit and Loss for the year ended December 31, 2014 & 2013
Cash Flow Statement for the year ended December 31, 2016 & 2015
Ratio Analysis

‘’Ratio Analysis is a study of relationship among various financial factors in a business.’’

. –Myers
Ratio analysis is a process of determining and interpreting relationships between the items of
financial statements to provide a meaningful understanding of the performance and financial
position of an enterprise.

1. Current Ratio = Current Assests / Current Liabilities

YEAR CURRENT ASSETS CURRENT RATIO

(in million Rs.) LIABILITIES
(in million Rs.)
2013 23,017.2 13,471.8 1.71
2014 19,636.7 13,554.5 1.45
2015 24,854.8 14,816.0 1.68
2016 32,789.9 16,327.0 2.01

INTERPRETATION :-
Current ratio indicates the liquidity of current assets or the ability of the business to meet its
maturing current liabilities.. An increase in the current ratio as we see from 2014 to 2016 reflects
improvement in the liquidity position of the business while the decrease signals that there has been
a deterioration in the liquidity position of the business. As a convention 2 :1 is regarded as
satisfactory level. And as we can seen here in 2016 the current assets was more than double as
compared to current liabilities which was very good sign for Nestle India.
 2.5
2
1.5
1 CURRENT RATIO
0.5
0
2013 2014 2015 2016

2. Liquid /Quick Ratio = Liquid Assets or Quick Assets / Current Liabilities

YEAR QUICK ASSETS CURRENT RATIO

(in million Rs.) LIABILITIES
(in million Rs.)
2013 15,657.9 13,471.8 1.16
2014 11,195.7 13,554.5 0.82
2015 16,646.7 14,816.0 0.12
2016 23,358.1 16,327.0 1.43

INTERPRETATION :-
Quick ratio is also known as liquid ratio or acid test ratio. Current ratio provides a rough idea of
the liquidity of a firm so subsequently a second testing device was developed named as acid test
ratio or quick ratio. It establishes relationship between liquid assets and current liabilities. In many
businesses a significant proportion of current assets may comprise of inventory. Inventory, by
nature, cannot be converted into ready cash abruptly. The term liquid assets does not include
inventory. As quick ratio eliminates inventory and prepaid expenses for matching against current
liabilities therefore it is a more rigorous test of liquidity as compared to Current ratio. Rule of
thumb for acid test ratio is 1 : 1 i.e., if business liquid assets are 100 percent of its current liabilities
it is considered to be having fairly good current financial position. As we can see that quick ratio
is fluctuating from one year to another year and was good in 2013 and 2016 whereas at the lower
levels in 2015.
 1.6
1.4
1.2
1
0.8
LIQUID RATIO
0.6
0.4
0.2
0
2013 2014 2015 2016

3. Debt to Equity Ratio = Debt / Equity(Shareholders’ Funds)

YEAR DEBT EQUITY RATIO

(in million Rs.) (in million Rs.)
2013 25,983.4 23,687.5 1.10:1
2014 16,268.4 28,372.1 0.57:1
2015 17,868.9 28,178.4 0.63:1
2016 21,595.7 30,137 0.72:1

INTERPRETATION :-
Debt to Equity Ratio is computed to assess long- term financial soundness of the enterprise. From
the above table it can be observed that the Debt to Equity Ratio of the company was at the lower
levels in 2013 & 2014 and at the increasing levels i.e; from 2015 to 2016. It shows that the
company was more dependent on Equity for their funds as compared to Debt.
 1.8
1.6
1.4
1.2
1
DEBT TO EQUITY RATIO
0.8
0.6
0.4
0.2
0
2013 2014 2015 2016

4. Total Assets to Debt Ratio = Total Assets / Debt

YEAR TOTAL ASSETS DEBT RATIO

(in million Rs.) (in million Rs.)
2013 63,142.7 25,983.4 2.43:1
2014 58,195.0 16,268.4 3.58:1
2015 60,863.3 17,868.9 3.41:1
2016 68,059.7 21,595.7 3.15:1

INTERPRETATION:-
Total Assets to Debt Ratio establishes relationship between total assets and long-term debts of the
enterprise.
It measures the margin available to the lenders of long-term debts. In other words , it measures the
extent to which debt is covered by the assets. . From the above table it can be observed that the
Total Assets are far more than the debts which means higher safety for lenders to the business. But
as we can see from 2014 to 2016 it was declining which shows that debts are increasing at the
rapid rate as compared to total assets.

4
3.5
3
2.5
TOTAL ASSETS TO DEBT
2
RATIO
1.5
1
0.5
0
2013 2014 2015 2016

5. Proprietory Ratio = Proprietors’ Funds or Shareholders’ Funds / Total Assets

YEAR EQUITY TOTAL ASSETS RATIO

(in million Rs.) (in million Rs.)
2013 23,687.5 63,142.7 0.37:1
2014 28,372.1 58,195.0 0.49:1
2015 28,178.4 60,863.3 0.46:1
2016 30,137 68,059.7 0.44:1

INTERPRETATION
Proprietory Ratio eatablishes the relationship between proprietors’ funds and total assets.
The ratio is important for creditors as they can ascertain the portion of shareholders’ funds in the
total assets employed in the firm. From the above table it can be observed that the Proprietory
Ratio was near the satisfactory levels i.e; 0.5:1 from 2014 to 2016 for adequate safety to creditors.
 0.5

0.4

0.3
PROPRIETORY RATIO
0.2

0.1

0
2013 2014 2015 2016

6. FIXED ASSETS RATIO = Fixed Assets / Debt

YEAR FIXED ASSETS DEBT RATIO

(in million Rs.) (in million Rs.)
2013 36,640.2 25,983.4 1.41:1
2014 34,214.2 16,268.4 2.10:1
2015 31,286.4 17,868.9 1.75:1
2016 29,176.3 21,595.7 1.35:1

INTERPRETATION
Fixed Assets Ratio establishes relationship between fixed assets and long-term debts of the
enterprise.
It measures the margin available to the lenders of long-term debts. In other words , it measures the
extent to which debt is covered by the fixed assets. . From the above table it can be observed that
the Fixed Assets are more as compared to debts which means higher safety for lenders to the
business. But as we can see from 2014 to 2016 it was declining which shows that debts are
increasing at the rapid rate as compared to fixed assets.

2.5

1.5
FIXED ASSETS RATIO
1

0.5

0
2013 2014 2015 2016

7. Total Assets Turnover Ratio = Revenue from operations (Net Sales) / Total Assets

YEAR REVENUE FROM TOTAL ASSETS RATIO

OPERATIONS (in million Rs.)
(in million Rs.)
2013 91,010.5 63,142.7 1.44 times
2014 98,548.4 58,195.0 1.69 times
2015 81,753.1 60,863.3 1.34 times
2016 92,238.0 68,059.7 1.35 times

INTERPRETATION
This Ratio establishes a relationship between total assets and cost of revenue from operations.This
ratio enables to know the efficient utilization of total assets of a business. From the above table it
can be observed that the ratio was fluctuating from one year to another year i.e, from 2013 to 2014
it was increasing whereas decreasing from 2014 to 2015 and again slightly increasing from 2015
to 2016. However it is preferable to have 2 times Total Assets Turnover Ratio but as we can see
the ratios are away from 2 times.

1.8
1.6
1.4
1.2
1
TOTAL ASSETS
0.8 TURNOVER RATIO
0.6
0.4
0.2
0
2013 2014 2015 2016

8. Fixed assets turnover ratio = Revenue from operations (Net Sales) / Net Fixed assets

YEAR REVENUE FROM NETFIXED RATIO

OPERATIONS ASSETS
(in million Rs.) (in million Rs.)
2013 91,010.5 36,640.2 2.48 times
2014 98,548.4 34,214.2 2.88 times
2015 81,753.1 31,286.4 2.61 times
2016 92,238.0 29,176.3 3.16 times

INTERPRETATION
The Ratio establishes a relationship between Revenue from Operations and Net fixed Assets. From
the above table it can be observed that the ratio was fluctuating from one year to another year i.e,
from 2013 to 2014 it was increasing whereas decreasing from 2014 to 2015 and again increasing
from 2015 to 2016 with higher margins. However it is preferable to have 5 times Fixed Assets
Turnover Ratio but as we can see the ratios are away from 5 times which indicates under utilization
of fixed assets.

3.5
3
2.5
2
FIXED ASSETS
1.5 TURNOVER RATIO
1
0.5
0
2013 2014 2015 2016

9. Working Capital Turnover Ratio = Revenue from operations (Net Sales) / Working
Capital

YEAR REVENUE FROM WORKING RATIO

OPERATIONS CAPITAL
(in million Rs.) (in million Rs.)
2013 91,010.5 9,545.4 9.53 times
2014 98,548.4 6,082.2 16.20 times
2015 81,753.1 10,038.8 8.14 times
2016 92,238.0 16,462.9 5.60 times

INTERPRETATION
Working Capital Turnover Ratio shows the number of times a unit of Rupee invested in working
capital produces sales.
It shows the efficiency or inefficiency in the use of the entire working capital as it is the whole of
the working capital that leads to sales. From the above table it can be observed that from 2013 to
2014 the working capital turnover ratio increased from 9.53 times to 16.20 times when the revenue
from operations increased and on the other hand decrease in the working capital. From 2014 to
2016 it declines gradually to 5.60 in 2016. Higher ratio indicates efficient utilization of the
working capital whereas a low ratio indicates inefficient utilization. Also, a very high ratio
indicates overtrading i.e; the working capital being inadequate for the scale of operations as seen
in 2014 which was not the satisfactory condition.

20

15
WORKING
10 CAPITAL
TURNOVER
5 RATIO

0
2013 2014 2015 2016

10. Gross Profit Ratio = Gross Profit / Revenue from Operations (Net Sales)*100

YEAR GROSS PROFIT REVENUE FROM RATIO

(in million Rs.) OPERATIONS
(in million Rs.)
2013 20,079.70 91,010.5 22.06 %
2014 21,118.90 98,548.4 21.43 %
2015 11,608.90 81,753.1 14.20 %
2016 17,951.60 92,238.0 19.46 %

INTERPRETATION
Gross profit ratio is the ratio of gross profit to net sales i.e. sales less sales returns.
The main objective of computing Goss Profit Ratio is to determine the efficiency with which
production and production operations and selling operations are carried on. Gross Profit is a
reliable guide for fixing selling prices and efficiency of trading activities.
From the above table it can be observed that from the year 2013 to 2015 it was declining and starts
increasing at the rapid rate in 2016. Higher Gross Profit Ratio is better as it leaves higher margin
to meet operating expenses and creation of reserves.

GROSS PROFIT RATIO

25

20

15

10 GROSS PROFIT RATIO

0
2013 2014 2015 2016

11. Operating Profit Ratio = Operating Profit/ Revenue from Operations *100

YEAR OPERATING REVENUE FROM RATIO

PROFIT OPERATIONS
(in million Rs.) (in million Rs.)
2013 20,306.70 91,010.5 22.31 %
2014 21,276.30 98,548.4 21.59 %
2015 16,856.30 81,753.1 20.62 %
2016 18,294.50 92,238.0 19.83 %

INTERPRETATION
Operating Profit Ratio measures the relationship between Operating Profit and Revenue from
Operations. The objective of computing the ratio is to determine operational efficiency of the
business.
From the above table it can be observed that the operating profit ratio is declining that is from
22.31% in 2013 to 19.83% in 2016 which indicates unsatisfactory condition in the operational
efficiency of the business.

22.5
22
21.5
21
20.5 OPERATING PROFIT
20 RATIO

19.5
19
18.5
2013 2014 2015 2016

12. Net Profit Ratio = Net Profit After Tax / Revenue from operations *100

YEAR NET PROFIT REVENUE FROM RATIO

AFTER TAX OPERATIONS
(in million Rs.) (in million Rs.)
2013 11,171.30 91,010.5 12.27 %
2014 11,846.90 98,548.4 12.02 %
2015 5,632.70 81,753.1 6.89 %
2016 9,265.40 92,238.0 10.04 %

INTERPRETATION
Net profit ratio expresses the relationship between net profit after taxes and Revenue from
operations. This ratio is a measure of the overall profitability. Net profit is arrived after taking into
account both the operating and non-operating items of incomes and expenses. The ratio indicates
what portion of the net sales is left for the owners after all expenses have been met.
From the above table it can be observed that from the year 2013 to 2015 it was declining and starts
increasing at the rapid rate in 2016. Higher the Net Profit Ratio better the business. An increase in
the ratio in 2016 (10.04%) over 2015 (6.89%) shows improvement in the operational efficiency.

NET PROFIT RATIO

15

10

NET PROFIT RATIO

5

0
2013 2014 2015 2016

CASH FLOW STATEMENT ANALYSIS FOR THE YEAR ENDED

DECEMBER 31, 2016 & 2015

INTERPRETATION :-

The cash flow analysis will show the investment, financing and operating activities of the company
and also the increase / decrease in the cash.
From the Cash Flow Statement it can be observed that Net cash from operating activities in 2016
is more as compared to 2015. There is negative balance of investing and financing activities. It can
be observed that Net cash used in investing activities is more in 2016 as compared to 2015. Also,
Net cash used in financing activities is more in 2016 as compared to 2015.
 20000

15000

10000 NET CASH FROM OPERATING

ACTIVITIES
NET CASH USED IN
5000
INVESTING ACTIVITIES
NET CASH USED IN
0 FINANCING ACTIVITIES
2015 2016

-5000

-10000

From the data given in Cash Flow Statement it can be concluded that there is an increase in cash
and cash equivalents in both the years i.e, 2015 and 2016. The opening cash and cash equivalents
in 2016 stands high with Rs. 14,724.1 million as compared to Rs. 9,431.1 million in 2015 and also
the closing cash and cash equivalents in 2016 stands high with Rs. 21,443.6 million as compared
to Rs. 14,724.1 million in 2015. Therefore, it is evident that the Net increase in cash and cash
equivalents in the year 2016 (Rs. 6,719.5 million) is more as compared to 2015 (Rs. 5,293.0
million).
 25000

20000

OPENING CASH & CASH

15000 EQUIVALENTS
CLOSING CASH & CASH
EQUIVALENTS
10000
INCREASE IN CASH &CASH
EQUIVALENTS

5000

0
2015 2016

Balance Sheet as at December 31st , 2016 & 2015

Balance Sheet as at December 31st , 2014 & 2013
STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED
DECEMBER 31, 2014 & 2013
STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED
DECEMBER 31, 2016 & 2015
CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2016
& 2015
Notes: The above Cash Flow Statement has been prepared under the “Indirect Method” as set out
in the Accounting Standard (AS - 3) on ‘Cash Flow Statement’.`