Financial Statement Analysis of Godrej India ltd.

GROSS PROFIT RATIO(gross profit/net sales*100)

This ratio is used to analyses how efficiently the company is using its raw materials, labor and manufacturing-related fixed assets to generate profits. A higher gross profit ratio means a favorable profit indicator. A manufacturing company has a higher gross profit ratio.

Godrej India limited is earning a gross profit ratio of 40, 37, 40, 52, and 34% for the year ending March 2015 to march 2011 respectively. This shows that the company is earning and the production efficiency is the most at 52% in march 2012(year ending) and it was least at 34 for the year march 2011(year ending) whereas in march 2013 it had a GP ratio of 40% which shows that the company has an average GP ratio of 41which shows that it is not too much deviating in other words it is consistent in earning gross profit and the investments decisions are not affected in this case.

gross profit margin 40.3741588 37.95868 40.40468 52.51047

34.1888

NET PROFIT RATIO (net profit/net sales*100)

The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining profit after all costs of production, administration, and financing have been deducted from sales, and income taxes recognized. As such, it is one of the best measures of the overall results of a firm, especially when combined with an evaluation of how well it is using its working capital. The measure is commonly reported on a trend line, to judge performance over time. It is also used to compare the results of a business with its competitors. This ratio also shows that how much

the company has spent on indirect expenses by seeing the difference between gross profit and net profit. The mean net profit ratio is 14% with a highest of 16% in March 2012 and lowest in the preceding year march 2011 with 12% the ratio also shows the company has been spending a considerable amount of indirect expenses but the investment decisions are not affected because the ratio is consistent.

Net Profit Margin (%) 13.1945051 15.43805 13.80519 16.29299

12.0995

Return on capital employed

ROCE = Earnings before Interest and Tax (EBIT) / Capital Employed

ROCE is especially useful when comparing the performance of companies in capital-intensive sectors such as utilities and telecoms. This is because unlike return on equity (ROE), which only analyzes profitability related to a company’s common equity, ROCE considers debt and other liabilities as well. This provides a better indication of financial performance for companies with significant debt.

We can see that the best year to invest in this company is March 11-12 where the ROCE is 43 and in the year march 11 it was the least year of investment the overall its mean ratio is 25 and standard deviation is 10.77 which is very high and investing in this company is very much risky.

Return On Capital Employed (%)

18.49 19.24 17.58 43.11 27.4

Return on net worth

This share reveals that how much profit the company is earning with the money of equity shareholders. This ratio is not as good as roce as it does not considers the other liabilities.

The best point of investment was for the year ending March 2012 where return on net worth was 35.57 and the worst case was March 2015 with 24.02. Over the years from March 2012 the performance has gone down though as we stated earlier the performance is not affected by this as the other liabilities are not considered.

Return On Net Worth (%)

24.02 25.81 29.83 35.57 30.56

CURRENT RATIO (CURRENT ASSET/CURRENT LIABILITY)

Current ratio, also known as liquidity ratio and working capital ratio, shows the proportion of current assets of a business in relation to its current liabilities.

Current ratio must be analyzed over a period of time. Increase in current ratio over a period of time may suggest improved liquidity of the company or a more conservative approach to working capital management. A decreasing trend in the current ratio may suggest a deteriorating liquidity position of the business or a leaner working capital cycle of the company through the adoption of more efficient management practices. Time period analyses of the current ratio must also consider seasonal fluctuations.

The trend shows that for the year ending march15, 14, 13 the current ratio is more than 1 that is it is showing that the current asset is more than current liability and the working capital is positive which means the company can meet its short term liabilities where as for the year ending march12, 11 it is failing to

Current Ratio 1.23050116 1.275671 1.162443 0.853433

0.96473

Meet its short term liabilities as the current ratio is less than 1.

Quick ratio

A stringent indicator that determines whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets.

For all the five years quick ratio is less than 1 which means that the company in the first 3 years is totally depended upon inventory for paying its liability and in all five cases its shows that smooth running of the company is challenged. The ratio from march 2015 to 2011 as follows(respectively)

Quick Ratio 0.74330807 0.748325 0.64997 0.347812

0.399684

Debt-equity ratio(capital gearing ratio)(long term debts/equity)

A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Ratio from March 15 to 11.

Debt Equity Ratio 0.5881577

0.555574 1.162454 0.03862

0.489671

For the first and last two years the ratio is below 1 which means that the company is financed by equity to a greater extent which means that the company is not growing because when a company is running at a lower profit than the company switches over to equity it also creates dilution of ownership whereas it is just the opposite when it comes to march 2013 where it is more than one which means the company is depended on debt as its return is more than interest.

Stock turnover ratio (cogs/avg stock)

The inventory turnover formula or stock turnover ratio is the rate at which inventory is used over a measurement period. Inventory turnover is typically measured on a trend line or in comparison to the industry average to judge how well a company is performing in this area. It is of use to those organizations that

have a large investment in inventory, to judge whether this investment is changing in comparison to sales.

Inventory Turnover Ratio

4.17311851 4.935717 6.689367 5.082122 10.97538

Here the inventory turnover ratio is very high which means the stock is kept very tight and in March 11 it is the highest. The ratio also shows how many times the stock is converted in to cash in a year. In that case the company is performing fine.

Debtor’s turnover ratio (net credit sales/average debtors)

This ratio shows how efficient a company is at collecting its credit sales from customers.

Debtors Turnover Ratio 10.1712825 10.43251 14.38578 24.31552 40.99665

From the ratio we can see that in march 2011 the company is most capable of collecting debts as it has collected its debts around 41 times in a year and it was least efficient in collecting

Debtors in March 2015 which was 10.17 times.

Creditor’s turnover ratio (Net credit purchase/average creditors)

This ratio shows how efficient the company is in paying its creditors.

Creditors Turnover Ratio 0.08991628

0.124074 0.151156 0 0

A short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period.

From the above data we can see that the company is not that efficient in paying its creditors thus the company’s liquidity is challenged.

Interest coverage ratio (ebit/interest)(march15-11)

Interest coverage Ratio

15.223499

16.8223 14.38251

42.06667 13.18347

From the above data we can see that the company can pay its interest on its debt at an average of 20 times in a year. In March 2012 the ratio was highest because the company was successful in paying its debt 42 times. Overall the company is working fine with respect to this ratio.

Asset turnover ratio

The amount of sales or revenues generated per dollar of assets. The Asset Turnover ratio is an indicator of the efficiency with which a company is deploying its assets.

Asset Turnover = Sales or Revenues/Total Assets

Generally speaking, the higher the ratio, the better it is, since it implies the company is generating more revenues per dollar of assets.  But since this ratio varies widely from one industry to the next, comparisons are only meaningful when they are made for different companies in the same sector.

Asset Turnover Ratio 1.17113435 1.089248 0.999408 1.910069 1.635034

The mean asset turnover ratio is 1.36 which means that the company is generating 1.36 rupees per 1 rupee of asset. The company has not been successful in keeping this ratio high as the ideal ratio is 2.

In March 13 the ratio was the least with less than 1.

Dividend payout ratio

The dividend payout ratio measures the percentage of net income that is distributed to shareholders in the form of dividends during the year. In other words, this ratio shows the portion of profits the company decides to keep to fund operations and the portion of profits that is given to its shareholders.

Dividend Payout Ratio Net Profit

24.9 25.04 38.2 43.86 69.54

The mean payout ratio is 40.308 and the highest is 69.54 the company paid a good percentage of its dividend here which is very good for shareholders but it is retaining less so bad for the company’s growth but as the company proceeded year after year its payout ratio decreased and retention ratio increased which shows a growth of the company and in march 15 the ratio was 24.9(the lowest).

Dividend yield ratio

A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows:

dividend yield ratio 5% 4.80% 3.98% 2.92% 5.09%

From the above table we can see that dividend occupies around 5, 4.8, 3.98, 2.92, and 5.09% of market price of share.

The investor who wants cash flows from his money invested in equity would want this ratio to be high from the table we can see that the ideal time for that was in the first and last year.

Price earnings ratio ( Market Value per Share /   Earnings per Share (EPS))

A valuation ratio of a company's current share price compared to its per-share earnings.

pe ratio 22.46 12.54 21.83 21.11 21.42

From the above figures we can say that in march 2015 investors having a mentality of long-term investments who think of future growth would invest in this period as the PE ratio is highest at 22.46.The company has done well since march 14 where it was the lowest.

THE DATAS ARE GIVEN IN ORDER OF MARCH 15,14,13,12,11

CONCLUSION

Thus we infer that the liquidity of the company is not up to the mark as the working capital is negative in some cases. The PE ratio shows that the company is growing and now the company is not paying enough dividend to shareholders rather it is retaining for growth. The turnover ratios shows a good reflection of the company and a considerable amount of share is being done in indirect expenses which is inferred from the difference between gross profit ratio and net profit ratio.