FINANCIAL AND COST ACCOUNTING (RATIO ANALYSIS OF BHEL)

15/12/09

Name: Digesh C. Shah (Roll No. 29)

PROFITABILITY RATIOS:

o Gross profit ratio: Gross profit/ net sales

(1)Gross Profit Ratio

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-

06

=28033.19/26212.3

3

=1.069

=21401.01/19304.64

=1.10

1.08 1.08

Profitability compared to previous year deteriorates.

(2)Net Profit ratio= net profit/net sales

Where net profit=profit after tax

FY 2008-09 FY 2007-08 FY 2006-

07

FY 2005-

06

=3138.21/26212.33

=0.119

=2859.34/19304.64

=0.148

0.14 0.12

Lower the ratio shows profitably deteriorated, so bad overall

performance of business.

o Operating profit ratio: net profit +taxes + interest / net sales

(1)Gross Profit Ratio

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=(3138.21+2250.17+3

0.71) /26212.33

=0.20

=(2859.34+1934.

95+35.42)

/19304.64

=0.25

0.22 0.196

Lower ratio indicate bad operating performance of business

(2)Operating ratio= operating cost/ net sales

Where Operating cost = COGS + admin exp. + Selling

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&distribution exp. +

depreciation /sales

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=(17620.05+1280.

97)/ 26212.33

=0.72

=(11820.87+778.25)/

19304.64

=0.65

0.6 0.63

Higher ratio indicates better operating performance of

business.

(3)Material Consumed Ratio= Consumption of Material, Erection and

Engineering Expenses / Net Sales.

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=17620.05/26212.33

%

=67.22%

61.23% 59.06% 60.91%

(4)Salary ratio = Employees’ remuneration & benefits/Net Sales.

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=2983.68/26212.33 %

= 11.38%

13.5 13.74% 14.04%

(5)Tax to Sales ratio = Current Tax/ Net Sales

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

= 2250.17/26212.33 %

=8.58%

10.02% 7.66 % 6.61%

(6)Return On Capital Employed/Return On Investment=Sales/Capital

Employed

Where Capital Employed=Share Capital + Reserves & Surplus + Sundry

Debt

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FY 2008-09 FY 2007-08 FY 2006-

07

FY 2005-

06

=[26212.33/

(489.52+12449.29+1597

5.5)]*100

=90.65%

=[19304.64/

(489.52+10284.69+11974

.87)]*100

=84.85%

93.25% 92.43%

It gives overall profitability of the business on total funds employed.

If ROI > interest on debt and if Debt to equity ratio is high then it means that debt part utilized in profitable project of the business which makes earning an add value for equity share holders.

Computing Liquidity Ratio:(1)Current ratio= (Current asset)/(Current liabilities)

Where current asset= (Total current asset)-(Loans) = 36901.07-2423.67=

34477.4

Current liabilities = 23357.32

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

= (34477.4)/ (

23357.32)

= 1.476

=

26518.38/16576.4

5

= 1.6

1.77 1.85

This ratio shows that in current year liquidity position of the firm is

less compared to last year.

(2)Quick ratio= (CA-Inventory)/CL.

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

= (34477.4-

7837.02)/ (

23357.32)

= 1.14

= (26518.38-

5736.4)/16576.45

= 1.25

1.41 1.43

Inventory is least liquid item among the current assets items so we

can not able to give true picture of liquidity position on basis of this

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ratio as certain assets are less liquid so to identify liquidity position of

business other ratio would be also used.

Computing Long Term Solvency Ratios

(1)Total Debt Ratio= (TA-TE)/TA;

Where Total Asset= (Net Current Assets-Liabilities & Provisions) +

(Total Fixed Assets – Capital Work in progress) and

Total Equity= Share Capital + Reserves & Surplus

FY 2008-09 FY 2007-08 FY 2006-

07

FY 2005-

06

= [(36901.07+1470.4)-

(489.52+12449.29)]/3837

1.47

=(38371.47-12938.81)/

38371.47

=0.6628

=

[(27906.18+981.26

)-(10774.21)]/2888

7.44

=0.627

0.601 0.58

(2)Debt per Equity= TD/TE where TD=(TA-TE)

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

= (38371.47-

12938.81)/

12938.81

=1.965

= (28887.44-

10774.21)/

10774.21

=1.681

1.51 1.37

(3)Equity Multiplier= TA/TE= 1+(TD/TE)

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

2.965 2.681 2.51 2.37

Computing Coverage Ratio

(1)Interest Coverage ratio = Profit before interest & tax (PBIT)/amount of

interest

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=(4848.85-30.71)/

30.71

124.08 85.22 42.64

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=156.89

Computing Inventory Ratios

(1)Stock / Inventory Turnover = Sales/Average Inventory

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/7837.02

=3.34

3.36 4.08 3.57

(2)Inventory holding period = 365/Inventory Turnover

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

109.28 days 108.63 days 89.46 days 102.24 days

(3)Debtors Turnover = Sales/ Debt

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/15975.5

=1.64

1.61 1.78 1.86

(4)Debtors Collection Period= 365/Debtors turnover

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

222.45 days 226.7 days 205.05 days 196.23 days

Computing Total Assets Turnover

(1)Fixed Assets Turnover=Sales/Net fixed assets(Net fixed assets a.k.a.

Net Block)

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/1470.40

=17.82

19.67 17.43 13.61

(2)Cash Turnover = Sales/Cash

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/10314.6 2.3 2.97 3.23

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=2.54

(3)Working Capital Turnover = Sales / Average Working Capital

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/8568.17

=3.06

2.45 2.59 2.22

(4)Working Capital Period = 365/Working Capital Turnover

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

119.28 days 149 days 140.92 days 164.41 days

(5)Total Asset Turnover (a.k.a. asset utilization ratio)= Sales/Total Asset

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06

=26212.33/38371.4

7

=0.68

0.67 0.78 0.77

It is not unusual for TAT<1; especially if a firm has a large amount of fixed

assets.

(6)Dividend per Share: dividend declared/ paid up capital; where paid up capital = no. of shares.

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06=832.18/48.952=17

746.52/48.952=15.25

599.66/24.476=24.5

354.90/24.476=14.5

Increased DPS ratio shows that more dividends declared and more profit

relinquished among its holders, Means Company is following liberal

dividend policy.

(7)Earning per Share: Profit After Tax/ no. of shares.

FY 2008-09 FY 2007-08 FY 2006-07 FY 2005-06=3138.21/48.952=64.11

2859.34/48.952=58.41

2414.7/24.476=98.66

1679.16/24.476=68.6

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Increased EPS provides a measure of the higher rate of yield

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