14 TH Annual Report

14 th Annual Report
2004-2005
Meenachil Rubber wood Limited,
Kottayam, Kerla-686582
Financial Statement analysis by

Prit Ranjan Jha
C07DPM029
02/24/08 pritranjanjha@yahoo.co.in 1
Notes
• All amounts worked here are in terms of
Rupees.
Numerator
Denominator
I Liquidity Ratios
Year 2005 2004
1 Current ratio: Current assets / Current Liabilities
11,890,488.27 10,811,111.00
6,708,649.18 5,887,001.00
= 1.772 times = 1.836 times
The ratio is not very The ratio is not very
comfortable as 2:1 is comfortable as 2:1 is
generally considered generally considered
comfortable. (For some comfortable. (For some
sectors even 1.5:1 or sectors even 1.5:1 or
2.75:1 is considered 2.75:1 is considered
comfortable) pritranjanjha@yahoo.co.in
02/24/08 comfortable) 3
I Liquidity Ratios
Year 2005 2004
2 Quick ratio or Acid test ratio: (Current assets-
inventories)/ Current Liabilities
11,890,488.27-8,480,078.71 10,811,111.00-8,392,313.00
6,708,649.18 5,887,001.00
3,410,409.56/ 6,708,649.18 2,418,798.00/ 5,887,001.00
= = 0.508 times = 0.411 times
Not ideal, as ideal ratio Not ideal, as ideal ratio is

is 1:1 1:1
I Liquidity Ratios
Year 2005 2004
3 Cash ratio or Absolute liquidity ratio: (Cash
+Marketable securities)/Current liabilities
3,402,27.73+0 1,458,46.00+0
6,708,649.18 5,887,001.00
= 0.0507 times = 0.0248 times
Not ideal , as Ideal Not ideal , as Ideal ratio
ratio is 0.5:1 is 0.5:1
II Solvency Ratios
Year 2005 2004
1 Debt – equity ratio: Long term debt/ equity (net
worth)
20,997,360.18+12,135, 22,888,154+11,262,052
169.00+1,066,166.00 +1,157,105.00
18,202,910+1,578,039 18,069,910+1,578,039
= 34,198,695.18/ 19,780,949 35,307,311/ 19,647,949
= 1.729 times = 1.797 times
Note ‘Deferred tax liability’ is included in ‘debt’ and
: ‘reserves and surplus’ is included in ‘equity’.
II Solvency Ratios
Year 2005 2004
2 Debt ratio: debt (long term)/ (debt (long term) +
equity) or debt/capital employed
34,198,695.18 35,307,311
34,198,695.18+ 19,780,949 35,307,311+ 19,647,949
=
34,198,695.18/ 53,979,644.18 35,307,311 /54955260
= 0.6335 times = 0.6425 times
II Solvency Ratios
Year 2005 2004
3 Interest Coverage ratio : (earnings before interest
and tax) / Interest :(“profit/loss before finance
charges”/ “finance charges”)
2,263,114.68 Not applicable, since
there is loss (-522,817)
1,998,991.00
= 1.132 times = 0 times
III Turnover Ratios
Year 2005 2004
1 Inventory turnover: Cost of goods sold or net
sales/Average (or closing) inventory.
26,597,615.15 22,300,393.00
(7,487,074.37+7,339,9 (7,339,965+8,807,063+1
65+2,65,251.2+1,22,43 ,22,432+35,764)/ 2
2)/ 2
= 53,195,230.3/ 44,600,786/ 16,305,224
15,214,722.57
= 3.496 times = 2.735 times
III Turnover Ratios
Year 2005 2004
2 Days of Inventory holding: Number of days in the
year (say 360)/ Inventory turnover ratio.
360 360
3.496 2.735
= 102.975 ≈ 103 days = 131.625 ≈ 132 days
III Turnover Ratios
Year 2005 2004
3 Debtors turnover ratio: Credit sales or net sales/
Average (or closing) debtors (or accounts
receivable (total debtors +bills receivable)
26,597,615.15 22,300,393.00
2,139,619.18 1,389,537.00
= 12.43 times = 16.05 times
III Turnover Ratios
Year 2005 2004
4 Collection period: Number of days in the year
(say 360)/ Debtors turnover
360 360
12.43 16.05
= 28.96 ≈ 29 days = 22.43 ≈ 23 days
III Turnover Ratios
Year 2005 2004
5 Current assets turnover: Net sales/ Current
assets
26,597,615.15 22,300,393.00
11,890,488.27 10,811,111.00
= 2.237 times = 2.063 times
III Turnover Ratios
Year 2005 2004
6 Net current assets turnover: Net sales/ Net
current assets
26,597,615.15 22,300,393.00
5,181,839.09 4,924,110.00
= 5.133 times = 4.53 times
III Turnover Ratios
Year 2005 2004
7 Fixed assets turnover: Net sales/ Net fixed assets
26,597,615.15 22,300,393.00
10,761,828.49 11,664,142.00
= 2.4715 times = 1.912 times
III Turnover Ratios
Year 2005 2004
8 Net assets turnover: Net sales/ Net assets or
capital employed : (Net assets = all assets –
accumulated depreciation)
26,597,615.15 22,300,393.00
(10,761,828.49+11,890 (11,664,142.00+10,811,
,488.27) 111.00)
= 26,597,615.15/22,652, 22,300,393.00/22,475,2
316.76 53.00
= 1.174 times = 0.992 times

IV Profitability Ratios
Year 2005 2004
1 Margin: (Profit before interest and tax (PBIT)/ Net
sales)×100
2,263,114.68 ×100 No profit, (PBIT is
-5,22,817)
26,597,615.15
= 0.085 ×100
= 8.5%
Year 2005 2004
2 Net margin: Profit after tax (PAT) ×100 / Net
sales : (Here PAT ≡ “profit/loss after deferred
taxation”)
1,93,915.68 ×100 No net margin as PAT
is negative (Loss)
26,597,615.15
= 0.007291 ×100
= 0.729 %
Year 2005 2004
3 Before tax return on investment: (PBIT/Net
assets) ×100
2,263,114.68 ×100 There is a loss
22,652,316.76
= 9.99 %
Year 2005 2004
4 Return on equity: (PAT/Equity (net worth)) ×100
193,915.68 ×100 There is loss
19,780,949
= 0.980%
V Equity-related Ratios
Year 2005 2004
1 Earning per share (EPS): PAT/Number of
ordinary shares
There is net loss, so There is net loss, so

ignored ignored
Year 2005 2004
2 Dividends per share (DPS): Dividends/ Number
of ordinary shares

ignored ignored
Year 2005 2004
3 Pay out ratios: DPS/EPS or Dividends/PAT

ignored ignored
Year 2005 2004
4 Dividend Yield: DPS/Market value per share

ignored ignored
Year 2005 2004
5 Price/Earning ratio: Market value per share/ EPS

ignored ignored
Year 2005 2004
6 Earning Yield: EPS/ Market value per share

ignored ignored
Year 2005 2004
7 Book value per share: Net worth/ Number of
ordinary shares

ignored ignored
VI Investment-related Ratios
Year 2005 2004
1 Return on assets or earning power (ROA): (PAT/
Average total assets (of the given years, here
2004&05)) ×100 or ((PAT+ Interest)/Average
fixed assets) ×100
1,93,915.68 ×100
(10,761,828.49+11,890
,488.27+11,664,142+1
0,811,111)/2
= (1,93,915.68
/22,563,784.88) ×100
= 0.859% There is net loss, so
ignored
VI Investment-related Ratios
Year 2005 2004
2 Return on capital employed (ROCE):
(EBIT(PBIT)/Capital employed) ×100 :(“profit
before finance charges” ×100 / “sources of
funds”)
2,263,114.68 ×100
53,979,644.18
= 0.0419 ×100
= 4.19% There is net loss, so
ignored
(Capital employed=owners equity+
long tern debt funds or net working
capital+ fixed assets)
VII Return on Equity (ROE)
Year 2005 2004
1 ROTSE (return on total shareholders equity):
(PAT/ Total shareholders equity) ×100

ignored ignored
VII Return on Equity (ROE)
Year 2005 2004
2 ROOSE (return on ordinary shareholders equity)
/ RONW (return on net worth): ((PAT-preferential
dividends)/Net worth) ×100

ignored ignored
Conclusion
• Liquidity ratios of the company is not comfortable, so the
firm has poor ability to meet its short-term (usually up to
1 year) obligations
• Solvency ratios are also not comfortable.
• (Debt equity ratio is positive and greater than 1. (A high
debt/equity ratio generally means that a company has
been aggressive in financing its growth with debt. This
can result in volatile earnings as a result of the additional
interest expense)
• Debt ratio is +ve & <1. Hence the capital employed is
more than the debts. This is somewhat good indication.
• Interest coverage ability has improved in the present
year)
• Turnover ratios of the company is in
relatively better position. In both the years
the company has made good sales and
has good turnovers from the debtors.
• Profitability ratios are not in better
condition and the company has incurred
net loss in both the years. But it is showing
improvements in the present year.
• Depreciation has major chunk in reducing
the profit. In prior years the company has
suffered huge losses.
• Equity related ratios does not comes into
the picture. So in present scenario, Share
holders has no advantage in purchasing
the shares of this company.
• Investment related ratios are also not in
comfortable positions.
• Hence it can be said that the company is
not in a financially sound position but it
has lots of potential to do well and is also
trying its best to improve itself.
• Those who wants to invest in the company
needs to be very careful.
References
• Class notes of Sudha madam, books from
the library of IIPM.
• http://www.investopedia.com/terms/d/debt
http://www.investopedia.com/terms/d/debtequi
• equityratio.asp
http://www.icmrindia.org/casestudies/icmr_cas
•• http://www.icmrindia.org/casestudies/icmr
http://www.econ.uconn.edu/
• _case_studies.htm
http://www.morningstar.com
• http://www.econ.uconn.edu/
• http://www.morningstar.com

14 TH Annual Report

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14 th Annual Report

Financial Statement analysis by

Not ideal, as ideal ratio Not ideal, as ideal ratio is

= 1.174 times = 0.992 times

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