STUDY ON FINANCIAL REPORT OF EMAMI AND

CALCULATION OF RATIOS

CONTENTS
Acknowledgement 2

Synopsis 3

CHAPTER 1:

Introduction 4

Organizational Profile 6

CHAPTER 2:

Data analysis 13

P & L Account 14

Balance Sheet 16

CHAPTER 3:

Data Interpretation 18

Ratio 1

Calculation Of Ratios 21

Formulas 23

CHAPTER 4:

SWOT Analysis 29

CHAPTER 7:

Conclusion 30

CHAPTER 8:

Bibliography

ACKNOWLEDGEMENT
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I wish to express my sincere gratitude to Ms. Chandrika, Faculty, Management Department,

International School of Business and Design, Mysore for providing me an opportunity and
support to do my project work titled

“STUDY ON FINANCIAL REPORT OF EMAMI AND CALCULATION OF RATIOS”

My special thanks to Professor B.S Shankar, HOD, Management Department, ISBD,

Mysore for giving his valuable inputs on this project.

Last but not the least my beloved Parents and Family members for their support, strength and
help in completing this project.

SIGNATURE

Ms. Chandrika

Faculty, ISBD

Mysore

SYNOPSIS

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Financial Report analysis is a useful tool to dig out valuable information on an organizations
financial health. Ratios are widely used tools of financial analysis, and are the best indicators to
understand your organization and managerial arsenal.

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Chapter 1
INTRODUCTION

About the Project:

This project deals with collecting the annual report of “EMAMI” and calculating different ratios.

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Organizational Profile:

Emami Group, a conglomerate born out of Bengal has a pan India presence through its battery of
brands and business initiatives that blossomed under the parentage of Mr R S Agarwal and Mr R
S Goenka since 1974. With an aggregate group turnover of about Rs 2200 crore the group has
business interests in FMCG (fast moving consumer goods), paper and news print, writing
instruments, edible oil and cultivation, bio-diesel, hospitals, contemporary art, pharmacy,
cement, real estate and retail. The Group’s fountain of strength are its ingrained value system,
innovativeness and an over 20,000 passionate and dedicated staff, engaged in knowledge
sharing.

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Emami Limited, the flagship company of the Group, is a coveted Rs 755 crore business entity , a
leading player in the personal and healthcare consumer products industry in India engaged in
manufacturing and marketing of health, beauty and personal care products that are based entirely
on ayurvedic formulation.

Emami Limited has over 30 brands under its portfolio. The focus is on providing the consumers
with innovative products which are capable of meeting their multiple needs and add value by
enhancing the quality of day-to-day life. By repeatedly outperforming the industry standard,
Emami Ltd has maintained a CAGR of 25% over the last few years.

Understanding the human needs and fulfilling them by dint of technical research is a positive
feature of Emami. This is being made possible by Himani Ayurveda Science Foundation (HASF)
that generates the very best of ayurvedic formulations. The foundation’s unique range of
healthcare products aptly caters to consumer needs. The world class quality control methods and
processes maintained by HASF ensure optimum utility of each ingredient. The foundation is
completely engaged in constant innovation and pharmaceutical enhancements.

The power brands of the company are Boroplus and Navratna. Boroplus brand is the market
leader in the antiseptic cream segment; the Navratna Oil is also in the pole position in the cool oil
segment. Fair and Handsome is the pioneer in the fairness cream for men segment. Emami’s
products in different categories like cool oil, antiseptic cream and fairness cream for men have
carved a niche for themselves in their respective segments.

Today the Navratna Brand is worth Rs. 300 crore followed by the Boroplus Brand standing at
Rs. 175 crore and Fair and Handsome standing at Rs. 80 crore. Sona Chandi Chyawanprash,
Mentho Plus and Fast Relief are also doing well in their respective categories. Hairlife (crème
herbal hair pack) and Malai Kesar Cold Cream are also major players. Brand extensions have
helped Emami consolidate its position in the market and also cater to varied consumer needs.
Emami has entered the glycerine soap category with Emami Pure Skin, petroleum jelly category
with Vasocare and shampoo category with Emami 5 in 1 shampoo.

Emami has also launched a range of baby products under the brand name Emami Healthy and
Fair baby range which includes a soap, talc and oil.

Emami Limited with an investment of Rs 700 crore has acquired major stake in Zandu
Pharmaceuticals Works Ltd on the basis of huge business synergy between Zandu and Emami.
Post the acquisition of Zandu Pharmaceuticals a century old household name in India, some of its
prominent brands like Zandu Balm, Zandu Chyawanprash, Zandu Kesri Jeevan, Zandu
Pancharishta, Sudarshan and Nityam Churna are also under Emami’s basket of brands. The
FMCG business of Zandu will be demerged into Emami. This will help consolidation of FMCG
business of Emami and Zandu into one entity.

Emami has successfully established its brands through strong celebrity endorsements. It is the
only corporate entity in the country to have both Amitabh Bachchan and Shah Rukh Khan as
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brand endorsers for the same brand, Navratna. The concept of brand endorsement by celebrities
has been successfully experimented in case of most of its brand launches. Besides Amitabh and
Shah Rukh, other celebrity endorsers of Emami’s brand include Madhuri Dixit, Kareena Kapoor,
Govinda, Sourav Ganguly, Chiranjeevi, Surya and Upendra among others.

Emami has also taken up a major revamping project to enhance the sales and distribution, human
resources development and logistics with the globally renowned professional advisory services
firm, Ernst and Young. ‘Project Navodaya’, as it is truly called, will help Emami fast track its top
line and bottom line growth and build a robust platform for growth initiatives.

Emami covers all the states with 29 depots across India. Its supply-chain management assumes
immense significance which was aptly reflected through remarkable expansion in dealer-
distribution network, outlets and manpower. The domestic sales and distribution division directly
covers 4.15 lac outlets all across the country along with an additional 2100 modern retail outlets.
Emami’s products reach out to nearly 30 lac retail outlets across India through 2500 distributors.

Emami’s quality products not only have a pan India presence, but also have a deep imprint in
over 60 countries across the world including GCC, UK, Sri Lanka, Bangladesh, Nepal, African
and the CIS countries. Emami Limited has two subsidiary companies Emami UK Limited in
London and Emami International FZE in UAE.

The company has 6 ultra modern manufacturing facilities at Kolkata (West Bengal), Abhoypur
and Amingaon (Assam), Pondicherry, Uttaranchal and Baddi (Himachal Pradesh). It has adopted
the Total Quality Management system and all its manufacturing facilities have received cGMP
and ISO 9001:2000 certifications.

Emami Ltd has recently been conferred the Most Enterprising Company of the Year by IIPM
(Indian Institute of Planning and Management) and The Sunday Indian publication of the
Planman Media Group. In 2007, the company received the Institute of Cost and Works
Accountants of India (ICWAI) Award for Excellence in Cost Management.

COMPANIES UNDER EMAMI GROUP:

EMAMI PAPER MILLS LIMITED
EMAMI CHISEL ART
CRI LIMITED
SOUTH CITY PROJECTS (KOLKATA) LTD
ADVANCED MEDICARE & RESEARCH INSTITUTE LTD
(AMRI)
FRANK ROSS LIMITED
EMAMI REALTY LIMITED
EMAMI RETAIL PVT LIMITED (STARMARK)

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EMAMI BIOTECH LIMITED

EMAMI CEMENT LTD

MANAGEMENT
MANAGEMENT - EMAMI
NAME DESIGNATION
R S AGARWAL CHAIRMAN
R S GOENKA DIRECTOR
K N MEMANI DIRECTOR
S N JALAN DIRECTOR
VAIDYA S CHATURVEDI DIRECTOR
A V AGARWAL DIRECTOR
SUSHIL KR GOENKA MANAGING DIRECTOR
VIREN J SHAH DIRECTOR
S K TODI DIRECTOR
K K KHEMKA DIRECTOR
MOHAN GOENKA DIRECTOR
H V AGARWAL DIRECTOR

REGISTERED OFFICE:
Emami Tower
687, Anandapur, EM Bypass
Kolkata 700 107, West Bengal
Phone: +91-33-6613 6264
Fax: +91-33-6613 6600
E-mail: contact@emamigroup.com

COMPETITORS
Competitors Last Price Market Cap. Sales Net Profit Total
Assets
(Rs. cr.) Turnover
HUL 237.25 51,754.71 20,601.56 2,496.45 2,483.46

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Dabur India 165.7 14,345.98 2,417.91 373.56 877.17

Colgate 723.45 9,838.40 1,770.82 290.22 220.98
Godrej 238.05 7,336.46 1,088.01 161.55 599.8
Consumer
Marico 102.05 6,217.71 1,921.85 142.12 676.21
P and G 1,761.55 5,718.12 772.81 178.85 440.02
Godrej Ind 150.5 4,780.25 880.97 19.33 1,628.10
Gillette India 1,342.95 4,376.03 661.51 113.13 490.89
Emami 521.6 3,763.09 722.35 87.52 736.1
Jyothy Labs 160.3 1,163.28 350.85 40.88 352.51

BRANDS:

Emami Limited is one of the major health and personal care FMCG companies in India with its
brand presence globally. Leveraged by celebrity endorsements, Emami believes in building
categories by meeting unfulfilled consumer needs. Emami Limited has over 25 brands under its
portfolio. The focus is on providing the consumers with innovative products which are capable
of meeting their multiple needs and add value by enhancing the quality of life. Through
innovative and power brands, Emami touches the lives of all consumers, spanning across various
income groups in both urban and rural India. Emami’s success story is not only weaved around
the holistic healing system of ayurveda, but also in its product innovation, dynamic and focused
leadership, a strong supply-chain management and unwavering commitment to partners and
stakeholders. The popular brands like Boroplus, Navratna, Fast Relief and Fair and Handsome
are an outcome of deeper understanding of Indian consumers. A brand is a commitment to
consumers and in Emami, its brands are a synthesis of innovation, cutting-edge technology;
product efficacy and intelligent pricing that have made them the people’s choice

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BRANDS AMBESSADORS
Boroplus Antiseptic Cream and Talc Kareena Kapoor
Navratna Oil Amitabh Bachchan
Fair and Handsome SRK
Navratna Cool Talc SRK
Sona Chandi Chyawanprash SRK
Zandu Balm Sachin Tendulkar
Himani Fast Relief Amitabh Bachchan
Mentho plus Balm
Emami Healthy & Fair Madhuri Dixit
Emami Malai Kesar Cold Cream
Lalima
Sardi Ja
Zandu Pancharishta
Emami Pure Skin Glycerine Bar
Emami Vasocare Petroleum Jelly
Beauty Secrets by Madhuri Madhuri Dixit

CORPORATE INFORMATION:

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• Turnover increased 29.1% from Rs. 578.9 cr in 2007-08 to Rs. 747.5 cr.
• Exports grew 60% from Rs. 63.5 cr in 2007-08 to Rs. 101.6 cr, the slowdown
notwithstanding.
• EBIDTA grew 36.3% to Rs. 135.2 cr in 2008-09.
• EBIDTA margin strengthened from 17.1% in 2007-08 to 18.1%.
• Profit after tax at Rs. 91.9 cr increased marginally, despite higher incidence of interest on
acquisition.
• Acquired a controlling stake of 68.9% in The Zandu Pharmaceutical Works Limited in
November 2008.
• Consolidated FMCG and realty businesses of Emami and Zandu in separate listed entities
through de-merger under a court sanctioned scheme of arrangement.
• Ranked 179th among BT-500 most valuable companies of India in private sector as per a
survey conducted by Business Today in November 2009
• Raised equity of Rs. 310 cr through QIP in July 09.

OPERATIONS AND MARKETING:

• Navratna Oil, Boroplus Antiseptic Cream, Fair & Handsome fairness cream for men and
Zandu Balm continued to enjoy number one status in their respective categories.
• Boroplus Antiseptic Cream continues to be the largest selling antiseptic cream not only in
India, but also in Ukraine, Russia and Nepal.
• Fair & Handsome became the number one UAE brand in men’s face care.
• Launched new products like Navratna Extra Thanda Oil, Navratna Lite Oil, Boroplus
Summer Lotion, Pureskin Glycerine Soap and Vasocare Petroleum Jelly across multiple
categories.
• Zandu balm and Boroplus ranked 62nd and 77th among India’s most trusted brands
across all categories (Source: Brand Equity Survey of The Economic Times, 2009).
• Himani Fast Relief’s advertisement won the Goafest 2009 awards, the Oscars of Indian
advertising.
• Navratna was awarded the best packaging award by Paper Film & Foil Converters
Association.
• State-of-the-art manufacturing unit enjoying 10 years excise and income tax exemption
started production at Abhoypur in Guwahati.
• Abhoypur unit received ISO 9001:2008, ISO 14001:2004 and ISO 18001:2007
certification.
• Zandu balm production commenced in a new plant in Pantnagar (Uttaranchal) in May
2009 with a 10-year excise and income tax exemption.
• Roped in E&Y and initiated project ‘Navodaya’ for improved sales and distribution and
supply-chain management.
• Initiated steps for cost reduction and margin improvements in Zandu.
• Commenced integrating each facet of Zandu’s business – marketing, R&D, supply chain,
sales and distribution, procurement, operations and HRD with Emami’s

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CHAPTER 2
DATA ANALYSIS

FINANCIAL INFORMATION

P&L Account
PROFIT & LOSS ACCOUNT ------------------- IN R S . C R.
-------------------

MAR '05 MAR MAR MAR MAR

'06 '07 '08 '09
12 MTHS 12 12 12 12
MTHS MTHS MTHS MTHS
INCOME
SALES TURNOVER 225.62 307.3 519.2 585.9 739.6
7 2
EXCISE DUTY 6.77 6.5 3.43 2.19 17.25
NET SALES 218.85 300.8 515.7 583.7 722.3
7 9 1 5
OTHER INCOME 1.68 5.65 13.91 21.62 5.86
STOCK ADJUSTMENTS 3.48 -1.85 -0.65 -0.52 11.58

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TOTAL INCOME 224.01 304.6 529.0 604.8 739.7

7 5 1 9
EXPENDITURE
RAW MATERIALS 129.81 173.8 225.5 248.1 321.1
5 6 4 7
POWER & FUEL COST 1.03 1.21 1.15 1.29 3.42
EMPLOYEE COST 11.89 14.47 21.95 31.18 44.69
OTHER MANUFACTURING 0.64 0.73 0.99 1.26 1.75
EXPENSES
SELLING AND ADMIN EXPENSES 35.56 46.77 178.4 194.2 214.1
9 2 7
MISCELLANEOUS EXPENSES 8.69 9.32 20.7 11.09 13.02
PREOPERATIVE EXP CAPITALISED 0 0 0 0 0
TOTAL EXPENSES 187.62 246.3 448.8 487.1 598.2
5 4 8 2
OPERATING PROFIT 34.71 52.67 66.3 96.01 135.7
1
PBDIT 36.39 58.32 80.21 117.6 141.5
3 7
INTEREST 2 1.41 1.08 5.43 31.57
PBDT 34.39 56.91 79.13 112.2 110
DEPRECIATION 2.97 6.69 4.65 7.28 17.89
OTHER WRITTEN OFF 0 0 0 0 0
PROFIT BEFORE TAX 31.42 50.22 74.48 104.9 92.11
2
EXTRA-ORDINARY ITEMS 0.16 0.07 0.01 0 0.26
PBT (P OST EXTRA -ORD ITEMS) 31.58 50.29 74.49 104.9 92.37
2
TAX 2.09 0.95 8.57 12.18 14.5
REPORTED NET PROFIT 29.44 49.36 65.92 92.75 87.52
TOTAL VALUE ADDITION 57.81 72.49 223.2 239.0 277.0
8 4 5
PREFERENCE DIVIDEND 0 0 0 0 0
EQUITY DIVIDEND 6.12 12.23 24.86 27.97 34.05
C ORPORATE DIVIDEND TAX 0.86 1.72 3.67 4.75 5.79
PER SHARE DATA (ANNUALISED)
SHARES IN ISSUE (LAKHS) 611.5 611.5 611.5 621.4 621.4
5 5
EARNING PER SHARE (RS) 4.81 8.07 10.78 14.92 14.08
EQUITY DIVIDEND (%) 50 100 200 225 225
BOOK VALUE (RS) 12.8 15.8 37.49 46.5 47.52

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_____________________________________________________________________________
_

BALANCE SHEET AS ON 31-03-2009

BALANCE SHEET ------------------- IN RS. CR. -------------------

MAR '05 MAR '06 MAR '07 MAR '08 MAR '09

12 MTHS 12 MTHS 12 MTHS 12 MTHS 12 MTHS

SOURCES OF FUNDS
TOTAL SHARE CAPITAL 12.23 12.23 12.23 12.43 12.43

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EQUITY SHARE CAPITAL 12.23 12.23 12.23 12.43 12.43

SHARE APPLICATION MONEY 0 0 0.2 0 0.7
PREFERENCE SHARE CAPITAL 0 0 0 0 0
RESERVES 66.02 84.4 216.99 276.57 282.9
REVALUATION RESERVES 238.59 238.59 0 0 0
NETWORTH 316.84 335.22 229.42 289 296.03
SECURED LOANS 33.76 31.24 22.81 35.19 373.06
UNSECURED LOANS 0.22 0.22 0.36 0 67.02
TOTAL DEBT 33.98 31.46 23.17 35.19 440.08
TOTAL LIABILITIES 350.82 366.68 252.59 324.19 736.11
APPLICATION OF FUNDS
GROSS BLOCK 320.21 321.96 68.59 105.73 706.44
LESS: ACCUM. DEPRECIATION 105.63 128.79 21.79 27.91 93.87
NET BLOCK 214.58 193.17 46.8 77.82 612.57
CAPITAL WORK IN PROGRESS 4.05 9.28 34.49 13.47 36.7
INVESTMENTS 53.91 87.1 78.18 102.97 39.89
INVENTORIES 36.75 36.62 41.2 40.1 73.2
SUNDRY DEBTORS 35.25 36.68 45.77 34.03 50.75
CASH AND BANK BALANCE 0.31 0.8 3.38 2.77 10.71
TOTAL CURRENT ASSETS 72.31 74.1 90.35 76.9 134.66
LOANS AND ADVANCES 26.76 46.79 56.01 156.01 79.94
FIXED DEPOSITS 0.03 0.02 15.04 0.04 0.06
TOTAL CA, LOANS & 99.1 120.91 161.4 232.95 214.66
ADVANCES
DEFFERED CREDIT 0 0 0 0 0
CURRENT LIABILITIES 13.86 25.18 50.63 56.21 115.7
PROVISIONS 6.97 18.61 17.63 46.8 52.02
TOTAL CL & PROVISIONS 20.83 43.79 68.26 103.01 167.72
NET CURRENT ASSETS 78.27 77.12 93.14 129.94 46.94
MISCELLANEOUS EXPENSES 0 0 0 0 0
TOTAL ASSETS 350.81 366.67 252.61 324.2 736.1
CONTINGENT LIABILITIES 7.73 23.14 29.23 26.45 117.49
BOOK VALUE (RS) 12.8 15.8 37.49 46.5 47.52

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Chapter 3
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DATA INTERPRETATION

Definition of Accounting Ratios:

The term "accounting ratios" is used to describe significantrelationship between figures shown
on a balance sheet, in a profit and loss account, in a budgetary control system or in any other part
of accounting organization. Accounting ratios thus shows the relationship between accounting
data.

Ratios can be found out by dividing one number by another number. Ratios show how one
number is related to another. It may be expressed in the form of co-efficient, percentage,
proportion, or rate. For example the current assets and current liabilities of a business on a
particular date are $200,000 and $100,000 respectively. The ratio of current assets and current
liabilities could be expressed as 2 (i.e. 200,000 / 100,000) or 200 percent or it can be expressed
as 2:1 i.e., the current assets are two times the current liabilities. Ratio sometimes is expressed in
the form of rate. For instance, the ratio between two numerical facts, usually over a period of
time, e.g. stock turnover is three times a year.

Advantages of Ratios Analysis:

Ratio analysis is an important and age-old technique of financial analysis. The following are
some of the advantages / Benefits of ratio analysis:

1. Simplifies financial statements: It simplifies the comprehension of financial statements.

Ratios tell the whole story of changes in the financial condition of the business

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2. Facilitates inter-firm comparison: It provides data for inter-firm comparison. Ratios

highlight the factors associated with with successful and unsuccessful firm. They also
reveal strong firms and weak firms, overvalued and undervalued firms.
3. Helps in planning: It helps in planning and forecasting. Ratios can assist management,
in its basic functions of forecasting. Planning, co-ordination, control and
communications.
4. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison
of the performance of different divisions of the firm. The ratios are helpful in deciding
about their efficiency or otherwise in the past and likely performance in the future.
5. Help in investment decisions: It helps in investment decisions in the case of investors
and lending decisions in the case of bankers etc.

Limitations of Ratios Analysis:

The ratios analysis is one of the most powerful tools of financial management. Though ratios are
simple to calculate and easy to understand, they suffer from serious limitations.

1. Limitations of financial statements: Ratios are based only on the information which has
been recorded in the financial statements. Financial statements themselves are subject to
several limitations. Thus ratios derived, there from, are also subject to those limitations.
For example, non-financial changes though important for the business are not relevant by
the financial statements. Financial statements are affected to a very great extent by
accounting conventions and concepts. Personal judgment plays a great part in
determining the figures for financial statements.
2. Comparative study required: Ratios are useful in judging the efficiency of the
business only when they are compared with past results of the business. However, such a
comparison only provide glimpse of the past performance and forecasts for future may
not prove correct since several other factors like market conditions, management policies,
etc. may affect the future operations.
3. Ratios alone are not adequate: Ratios are only indicators, they cannot be taken as final
regarding good or bad financial position of the business. Other things have also to be
seen.
4. Problems of price level changes: A change in price level can affect the validity of ratios
calculated for different time periods. In such a case the ratio analysis may not clearly
indicate the trend in solvency and profitability of the company. The financial statements,
therefore, be adjusted keeping in view the price level changes if a meaningful comparison
is to be made through accounting ratios.
5. Lack of adequate standard: No fixed standard can be laid down for ideal ratios. There are
no well accepted standards or rule of thumb for all ratios which can be accepted as norm.
It renders interpretation of the ratios difficult.
6. Limited use of single ratios: A single ratio, usually, does not convey much of a sense.
To make a better interpretation, a number of ratios have to be calculated which is likely
to confuse the analyst than help him in making any good decision.

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7. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios
have to interpreted and different people may interpret the same ratio in different way.
8. Incomparable: Not only industries differ in their nature, but also the firms of the similar
business widely differ in their size and accounting procedures etc. It makes comparison
of ratios difficult and misleading.

CALCULATION OF RATIOS

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FACE VALUE
DIVIDEND PER SHARE
CALCULATION OF 24.5
RATIOS
OPERATING PROFIT PER SHARE (RS) 21.84
NET OPERATING PROFIT PER SHARE (RS) 116.24
FREE RESERVES PER SHARE (RS) 45.39
BONUS IN EQUITY CAPITAL 45.17
PROFITABILITY RATIOS
OPERATING PROFIT MARGIN(%) 18.78
PROFIT BEFORE INTEREST AND TAX MARGIN(%) 15.95

GROSS PROFIT MARGIN(%) 16.31

CASH PROFIT MARGIN(%) 14.32
ADJUSTED CASH MARGIN(%) 14.32
NET PROFIT MARGIN(%) 11.85
ADJUSTED NET PROFIT MARGIN(%) 11.85
RETURN ON CAPITAL EMPLOYED(%) 18.2
RETURN ON NET WORTH(%) 29.63
ADJUSTED RETURN ON NET WORTH(%) 29.76
RETURN ON ASSETS EXCLUDING REVALUATIONS --

RETURN ON ASSETS INCLUDING REVALUATIONS --

RETURN ON LONG TERM FUNDS(%) 20.05

LIQUIDITY AND SOLVENCY RATIOS
CURRENT RATIO 0.72
QUICK RATIO 0.83
DEBT EQUITY RATIO 1.49
LONG TERM DEBT EQUITY RATIO 1.26
DEBT COVERAGE RATIOS
INTEREST COVER 4.24
TOTAL DEBT TO OWNERS FUND 1.49
FINANCIAL CHARGES COVERAGE RATIO 4.81
FINANCIAL CHARGES COVERAGE RATIO POST TAX 4.34

MANAGEMENT EFFICIENCY RATIOS

INVENTORY TURNOVER RATIO 10.2
DEBTORS TURNOVER RATIO 17.04
INVESTMENTS TURNOVER RATIO 10.2
FIXED ASSETS TURNOVER RATIO 3.22
TOTAL ASSETS TURNOVER RATIO 2.85
ASSET TURNOVER RATIO 3.22

AVERAGE RAW MATERIAL HOLDING 53.8

AVERAGE FINISHED GOODS HELD 34.17
NUMBER OF DAYS IN WORKING CAPITAL 23.4
PROFIT & LOSS ACCOUNT RATIOS
MATERIAL COST COMPOSITION 44.46 21 | P a g e
IMPORTED COMPOSITION OF RAW MATERIALS 0.4
CONSUMED
SELLING DISTRIBUTION COST COMPOSITION 25.55
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RATIO ANALYSIS FORMULA’S:

Analysis of Profitability:

General profitability:

• Gross profit ratio = (Gross profit / Net sales) × 100

Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a
percentage. It expresses the relationship between gross profit and sales.

• Operating ratio = (Operating cost / Net sales) × 100

Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It
is generally expressed in percentage. It measures the cost of operations per dollar of sales.
This is closely related to the ratio of operating profit to net sales.

• Expense ratio = (Particular expense / Net sales) × 100

Expense ratios indicate the relationship of various expenses to net sales. The operating
ratio reveals the average total variations in expenses. But some of the expenses may be
increasing while some may be falling. Hence,expense ratios are calculated by dividing
each item of expenses or group of expense with the net sales to analyze the cause of
variation of the operating ratio.

The ratio can be calculated for individual items of expense or a group of items of a
particular type of expense like cost of sales ratio, administrative expense ratio, selling
expense ratio, materials consumed ratio, etc. The lower the operating ratio, the larger is
the profitability and higher the operating ratio, lower is the profitability.

While interpreting expense ratio, it must be remembered that for a fixed expense like
rent, the ratio will fall if the sales increase and for a variable expense, the ratio in
proportion to sales shall remain nearly the same.

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• Operating profit ratio = (Operating profit / Net sales) × 100

Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. It
is generally expressed in percentage. It measures the cost of operations per dollar of sales.
This is closely related to the ratio of operating profit to net sales

Overall profitability:

• Return on shareholders' investment or net worth = Net profit after interest and
tax / Shareholders' funds

It is the ratio of net profit to share holder's investment. It is the relationship between net
profit (after interest and tax) and share holder's/proprietor's fund. This ratio establishes
the profitability from the share holders' point of view. The ratio is generally calculated in
percentage

• Return on equity capital = (Net profit after tax – Preference dividend) / Paid up equity
capital

In real sense, ordinary shareholders are the real owners of the company. They assume the
highest risk in the company. (Preference share holders have a preference over
ordinary shareholders in the payment of dividend as well as capital. Preference share
holders get a fixed rate of dividend irrespective of the quantum of profits of the
company). The rate of dividends varies with the availability of profits in case of ordinary
shares only. Thus ordinary shareholders are more interested in the profitability of
a company and the performance of a company should be judged on the basis of return
on equity capital of the company.

• Earnings per share (EPS) ratio = (Net profit after tax – Preference dividend) / Number of
equity shares

• Return on gross capital employed = (Adjusted net profit / Gross capital employed) × 100

• Return on net capital employed = (Adjusted net profit / Net capital employed) × 100

Capital employed and operating profits are the main items. Capital employed may be
defined in a number of ways. However, two widely accepted definitions are "gross

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capital employed" and "net capital employed". Gross capital employed usually means
the total assets, fixed as well as current, used in business, while net capital employed
refers to total assets minus liabilities. On the other hand, it refers to total of capital,
capital reserves, revenue reserves (including profit and loss account balance), debentures
and long term loans.

• Dividend yield ratio = Dividend per share / Market value per share

Dividend yield ratio is the relationship between dividends per share and the market
value of the shares.

Share holders are real owners of a company and they are interested in real sense in the
earnings distributed and paid to them as dividend. Therefore, dividend yield ratio is
calculated to evaluate the relationship between dividends per share paid and the market
value of the shares

• Dividend payout ratio or pay-out ratio = Dividend per equity share / Earnings per share

Dividend payout ratio is calculated to find the extent to which earnings per share have
been used for paying dividend and to know what portion of earnings has been retained in
the business. It is an important ratio because ploughing back of profits enables a company
to grow and pay more dividends in future.

Short Term Financial Position or Test of Solvency:

• Current ratio = Current assets / Current liabilities

Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio is also known as "working capital ratio". It is a measure of general
liquidity and is most widely used to make the analysis for short term financial position or
liquidity of a firm. It is calculated by dividing the total of the current assets by total of the
current liabilities

• Quick or acid test of liquid ratio (for immediate solvency) = Liquid assets / Current
liabilities

Liquid ratio is also termed as "Liquidity Ratio", "Acid Test Ratio" or "Quick Ratio".
It is the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of
a firm to pay its short term obligations as and when they become due.

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• Absolute liquid ratio = Absolute liquid assets / Current liabilities

Absolute liquidity is represented by cash and near cash items. It is a ratio of absolute
liquid assets to current liabilities. In the computation of this ratio only the absolute liquid
assets are compared with the liquid liabilities. The absolute liquid assets are cash, bank
and marketable securities. It is to be observed that receivables (debtors/accounts
receivables and bills receivables) are eliminated from the list of liquid assets in order to
obtain absolute4 liquid assets since there may be some doubt in their liquidity.

Current Assets Movement, Efficiency or Activity Ratios:

• Inventory / Stock turnover ratio = Cost of goods sold / Average inventory at cost

Stock turnover ratio and inventory turnover ratio are the same. This ratio is a
relationship between the cost of goods sold during a particular period of time and the cost
of average inventory during a particular period. It is expressed in number of times. Stock
turnover ratio / Inventory turnover ratio indicates the number of time the stock has been
turned over during the period and evaluates the efficiency with which a firm is able to
manage its inventory. This ratio indicates whether investment in stock is within proper
limit or not.

• Debtors of receivables turnover ratios = Net credit sales / Average trade debtors

Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of
debt collection of a firm. In simple words it indicates the number of times average
debtors (receivable) are turned over during a year.

• Average collection period = (Trade debtors No. of working days) / Net credit sales

The Debtors / Receivable Turnover ratio when calculated in terms of days is known
as Average Collection Period or Debtors Collection Period Ratio. The average
collection period ratio represents the average number of days for which a firm has to wait
before its debtors are converted into cash

• Creditors or payables turnover ratio = Net credit purchase / Average trade creditors

This ratio is similar to the debtor’s turnover ratio. It compares creditors with the total
credit purchases. It signifies the credit period enjoyed by the firm in paying creditors.
Accounts payable include both sundry creditors and bills payable. Same as debtor’s

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turnover ratio, creditor’s turnover ratio can be calculated in two forms, creditors’
turnover ratio and average payment period

• Average payment period = (Trade creditors No. of working days) / Net credit purchase

Average payment period ratio gives the average credit period enjoyed from
the creditors.

• Working capital turnover ratio = Cost of sales / Net working capital

Working capital turnover ratio indicates the velocity of the utilization of net working
capital. This ratio represents the number of times the working capital is turned over in the
course of year.

Analysis of Long Term Solvency:

• Debt to equity ratio = Outsiders funds / Shareholders funds or External funds / Internal
funds

Debt-to-Equity ratio indicates the relationship between the external equities or outsiders
funds and the internal equities or shareholders funds. It is also known as external
internal equity ratio. It is determined to ascertain soundness of the long
term financial policies of the company

• Ratio of long term debt to shareholders funds (Debt equity) = Long term
debt / Shareholders funds

• Proprietary of equity ratio = Shareholders funds / Total assets

This is a variant of the debt-to-equity ratio. It is also known as equity ratio or net worth
to total assets ratio. This ratio relates the shareholder's funds to total
assets. Proprietary / Equity ratio indicates the long-term or future solvency position
of the business

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• Fixed assets to net worth = Fixed assets after depreciation / Shareholders' funds

Fixed assets to proprietor’s fund ratio establish the relationship between fixed
assets and shareholders funds. The purpose of this ratio is to indicate the percentage of
the owner's funds invested in fixed assets.

• Fixed assets ratio or fixed assets to long term funds = Fixed assets after depreciation /
Total long term funds

Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures
the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the
intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets

• Ratio of current assets proprietors' funds = Current assets / Shareholders' funds

Current Assets to Proprietors' Fund Ratio establishes the relationship between current
assets and shareholder's funds. The purpose of this ratio is to calculate the percentage of
shareholders funds invested in current assets.

• Debt service or interest coverage ratio = Net profit before interest and tax / Fixed interest
charges

Interest coverage ratio is also known as debt service ratio or debt

service coverage ratio. This ratio relates the fixed interest charges to the income earned
by the business. It indicates whether the business has earned sufficient profits to pay
periodically the interest charges

• Capital gearing ratio = Equity share capital / Fixed interest bearing funds

Closely related to solvency ratio is the capital gearing ratio. Capital gearing ratio is
mainly used to analyze the capital structure of a company. The term capital
structure refers to the relationship between the various long-term form of financing such
as debentures, preference and equity share capital including reserves and surpluses.
Leverage of capital structure ratios are calculated to test the long-term financial position
of a firm.

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Chapter 4
SWOT ANALYSIS

Strengths:
1. Strong and well differentiated brands with leading share positions.
2. Distinctly placed products providing reach to every segment of society.
3. Consumer understanding and systems for building consumer insight.

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4. Integrated supply chain and well spread manufacturing units.

5. Distribution structure with wide reach, high quality coverage.
6. Well placed to take advantage of growth in rural India and lower strata of the society by
introducing products in order to cater to changing consumer tastes and opportunities in Baby
Care sector.
7. It can be a leader in exports by positioning itself as a sourcing hub for Emami companies in
various countries.

Weaknesses:
1. Price positioning in some categories allows for low price competition.
2. Limited success in changing eating habits of people.
3. Competitors focusing on a particular product and eating up Emami’s share.

Opportunities:
1. Growing consumer base due to increasing income levels and new consumers from lower strata
of the society.
2. Untapped market in branded Ayurvedic medicines and other such consumer products.
3. Expansion of horizons towards more and more countries.

Threats:
1. Unfavorable raw material prices due to inflation, reducing profitability.
2. Heavy onslaught of competition in the core categories from emerging players like Johnson and
Johnson will result in higher advertising expenditure
3. Spurious/counterfeit products in rural areas and small towns.
4. Reduction in real income of consumers due to high inflation.

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BIBILOGRAPHY
http://www.accountingformanagement.com/

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