Accounting : Concepts and Conventions

Dr. Rahul Kumar

LBSIM, New Delhi

Common Terms
ACCOUNTING is a language to convey

information
Accounting information is provided by report called

FINANCIAL STATEMENT
A Balance sheet gives financial information about

an ENTITY
ENTITY is any organization for which financial statement is prepared. e.g. business, a college,

Common Terms
BALANCE SHEET shows financial position of the entity as on date The heading of the BALANCE SHEET tells us three things
The fact that the report is a Balance Sheet The name of the ENTITY The date to which the report applies

Common Terms
The Balance sheet has two sides:
Asset Liabilities

ASSETS are valuable resources OWNED by the entity.

LIABILITIES are the entitys obligation to outside parties who have furnished resources. The claim is claim against all the assets. The other source of fund that the entity uses to acquire its assets are called EQUITY.
The term NET ASSETS is used sometimes instead of equity.

Common Terms
There are two sources of equity funds
Paid up capital The amount retained from earning that has not been

distributed to shareholders, RETAINED EARNING

CREDITORS can sue the entity if the amounts due are not paid. SHAREHOLDERS have a residual claim if the entity is dissolved.

Accounting : Concepts & Convention

1. DUAL ASPECT CONCEPT The concept can be written as an equation:Assets = Liabilities +Equity We can rewrite the equation as Asset Liabilities = Equity

Accounting : Concepts & Convention

2. MONEY MEASUREMENT CONCEPT
To be addable, amounts of different kinds of objects must be stated in similar units. By converting different resources to monetary units, one can deal with them arithmetically.

Following facts cannot be learned by reading the balance sheet

The health of the president of the company Whether the strike is beginning at the company

Accounting : Concepts & Convention

4. ENTITY CONCEPT Accounts are kept for entities as distinguished from persons associated with those entities.

5. GOING CONCERN CONCEPT Entity will continue for the foreseeable future and has no intention to curtail its operations.

Accounting : Concepts & Convention

6. ASSET MEASUREMENT CONCEPT If the reliable information is available, the asset is measured at its fair value. 7. CONSERVATISM Increase in equity is recognised only when they are reasonably certain. To be conservative, decreases in equity should be recognized as soon as they probably occur.

Accounting : Concepts & Convention

8. MATERIALITY Professional judgment is needed to decide whether an amount is insignificant or immaterial. 9. REALISATION accrual basis of accounting. Effects of transactions are recognised when they occur and not when their cash or cash equivalent is received or paid.

Understanding Financial Statement

Dr. Rahul Kumar

17th- 20th June, 2013 LBSIM, New Delhi

Composition of financial statement

Financial Statement

Summary of financial transaction which can be classified into

Capital

Revenue

Composition of financial statement

Items of capital nature are reflected in the

Items of revenue nature are reflected in the

Balance Sheet

Profit and Loss Account

The impact on cash balance due to Operation, Financing, and Investing activities during the period

Cash flow statement

FINANCIAL STATEMENT
BALANCE SHEET
Value of Assets and Liabilities in a moment of time

PROFIT AND LOSS ACCOUNT

Value of transactions impacting the value of assets and liabilities during A PERIOD of time

CASH FLOW BALANCE

summarizes the impact on cash balance, independent of valuation

NOTES TO THE ACCOUNTS

Users of Financial Statement

Lenders Employees (Potential Employees) Suppliers Managers Bankers Financial Planners Investors Regulators

Elements of Financial Statement

Financial statement portray the effect of financial transactions by grouping them into broad classes: Assets Liabilities Income Expenditure All impacting EQUITY

Elements of Financial Statement

ASSETS
Assets is the resource controlled by the enterprise as a result of past events and from which future benefits are expected to flow to the enterprise Example
Plant and Machinery, Building, Office equipments etc.

Elements of Financial Statement

Liability Liability is a present obligation of the enterprise arising from past events, settlement of which is expected to result in outflow from the enterprise of resources embodying economic benefits Example
Long term loan, Working capital loan, Overdraft, Sundry creditors

Elements of Financial Statement

Equity Equity is the residual interest in the assets of the enterprise after deducting all its liabilities

Recognition of the elements of the financial statement

Recognition is the process of incorporating an item in the balance sheet or income statement
For example, if an item meets the definition of expense, it cannot be shown as an asset Unclaimed dividend are the obligation of the enterprise which have to be accounted for

Recognition of the elements of the financial statement

Financial statement should be recognised if
It is probable that the future economic benefit associated with the item will flow to or from the enterprise, and The item has a cost or value that can be measured with reliability

Measurement of the Financial Statement Elements

Historical cost
The assets and liabilities are recorded at the values at which they are acquired or incurred

Current Cost
The assets and liabilities are recorded at the values as if they are acquired to incurred currently

Realizable Value
The assets and liabilities are recorded at the value which can be obtained if they are sold or settled

Present Value

Basis of Measurement
The basis for measuring the items in the financial statement should be
Reliability Relevance Consistency Comparability Understandability, and Standardisation

Accounting Environment
Generally Accepted Accounting Principles (GAAP) Indian AS Companies Act, 1956 SEBI Guidelines

IFRS Income Tax Act Guidelines and Opinion of Expert committee Regulators Accounting Policies of the Company

Accounting Standards
Accounting standards are developed to present a
Fair Clear and Complete Financial Statement

Accounting Standards
Why do we need Accounting Standards? Who develops Accounting Standards? How are they Introduced? Are they mandatory? Do they cover all transactions? Are Indian Accounting Standards contemporary?

Fundamental Accounting Assumptions

Accrual basis
Effects of transactions are recognised when they occur and not when their cash or cash equivalent is received or paid.

Going concern
Enterprise will continue for the foreseeable future and has no intention to curtail its operations.

Consistency
To achieve comparability of financial statements, accounting standards are consistently followed.

Distinction of capital and revenue

Capital Revenue

Expenditure which ensures future economic benefit

Expenditure which arises in the ordinary course of business activities Efficiency

Size

Underlying Value
Liability/Obl igation

Equity

Tax

Items of capital and revenue

Capital
Land, building, Plant & Machinery

Revenue
Salaries, Purchases of Inventory, Rent

Some Issues
Pre Incorporation Advertisement Research & Development Asset Repairs Foreign Exchange Differences

Balance Sheet of Infosys Ltd.

P&L Statement of Infosys Ltd.

Cash Flow Statement of Infosys Ltd.

Analysis of Financial Statement

Ratio Analysis Ratios recognise the symbiotic relationships of various items of the Financial Statements Ratios also allow for better comparison through time or between companies As we look at each ratio, ask yourself what the ratio is trying to measure and why is that information important Ratios are used both internally and externally

Categories of Financial Ratios

Short-term solvency or liquidity ratios Long-term solvency or financial leverage ratios Asset management or turnover ratios Profitability ratios Market value ratios

Computing Liquidity Ratios

Current Ratio = CA / CL Quick Ratio = (CA Inventory) / CL Cash Ratio = Cash / CL NWC to Total Assets = NWC / TA Interval Measure = CA / average daily operating costs

Computing Long-term Solvency Ratios

Total Debt Ratio = (TA TE) / TA Debt/Equity = TD / TE Equity Multiplier = TA / TE = 1 + D/E Long-term debt ratio = LTD / (LTD + TE)

Computing Coverage ratio

Times Interest Earned = EBIT / Interest Cash Coverage = (EBIT + Depreciation) / Interest

Computing Inventory Ratios

Inventory Turnover = Cost of Goods Sold / Inventory Days Sales in Inventory = 365 / Inventory Turnover

Computing Receivables Ratios

Receivables Turnover = Sales / Accounts Receivable Days Sales in Receivables = 365 / Receivables Turnover

Computing Total Asset Turnover

Total Asset Turnover = Sales / Total Assets It is not unusual for TAT < 1, especially if a firm has a large amount of fixed assets NWC Turnover = Sales / NWC Fixed Asset Turnover = Sales / NFA

Computing Profitability Measures

Profit Margin = Net Income / Sales Return on Assets (ROA) = Net Income / Total Assets Return on Equity (ROE) = Net Income / Total Equity

Computing Market Value Measures

Market Price Shares outstanding PE Ratio = Price per share / Earnings per share Market-to-book ratio = market value per share / book value per share

Why Evaluate Financial Statements?

Internal uses
Performance evaluation compensation and comparison between divisions Planning for the future guide in estimating future cash flows

External uses
Creditors Suppliers Customers Stockholders

##@@!!!! ! ##@@!!!! ! ##@@!!!! ! ##@@!!!! !

??????? ???????

Schedule VI of the Companies Act, 1956

Applicability of Schedule VI
General Instructions for Preparation of Balance Sheet and Statement of Profit and Loss of a Company in addition to the Notes Incorporated above the Heading of Balance Sheet

Notes to accounts shall contain information in addition to that presented in the Financial Statements and shall provide where required (a) narrative descriptions or desegregations of items recognized in those statements and (b) information about items that do not qualify for recognition in those statements.

GENERAL INSTRUCTIONS
Depending upon the turnover of the company, the figures appearing in the Financial Statements may be rounded off as below:
Turnover Rounding off

less than one hundred crore rupees

one hundred crore rupees or more

To the nearest hundreds, thousands, lakhs or millions, or decimals thereof.

To the nearest, lakhs, millions or crores, or decimals thereof.

Once a unit of measurement is used, it should be used uniformly in the Financial Statements.

GENERAL INSTRUCTIONS
Except in the case of the first Financial Statements the corresponding amounts (comparatives) for the immediately preceding reporting period for all items shown in the Financial Statements including notes shall also be given.

 PART I Form of BALANCE SHEET

Name of the Company. Balance Sheet as at
(Rupees in )

Particulars 1

Note No. 2

Figures as at the end of current reporting period

Figures as at the end of the previous reporting period

PART I Form of BALANCE SHEET

PART I Form of BALANCE SHEET

The analysis of a Business' Health starts with Financial Statement Analysis.

 Financial Statement Analysis

involves careful selection of data from financial statements for the primary purpose of forecasting the financial health of the company. This is accomplished by examining trends in key financial data, comparing financial data across companies, and analyzing key financial ratios.

Who analyzes financial statements?

Internal users
Management Owner Employees

Focus on Planning, evaluating and controlling company operations. Focus on Liqudity, long term cashflow, profitability and long term health(i.e. Solvency) of the firm.

External users
Investors creditors regulatory agencies stock market analysts AUDITORS

Methods of Financial Statement Analysis

1.Horizontal Analysis
Trend/ Index Analysis

2.Vertical Analysis
Common-Size Statements

3.Ratio Analysis

Horizontal Analysis
Uses comparative financial statements to calculate amount or percentage changes in a financial statement item from one period to the next

Horizontal Analysis Example

Ultra Tech Cement Limited Balance Sheet

Horizontal Analysis Example

Calculating Change in Amounts
Amount Change

Current Year Figure

Base Year Figure

Since we are measuring the amount of the change between 2012 and 2013, the amounts for 2012 become the base year figures.

Horizontal Analysis Example

Calculating Change in Percentage
Percentage Change

Amount Change Base Year Figure

100

Horizontal Analysis Example

Ultra Tech Cement Limited Sheet {(13,074Balance 11,597)-11597} 100% = 13%

{(3,127 2,641)-2641} x 100% = +18.40%

Horizontal Analysis Example

Ultra Tech Cement Limited Balance Sheet
Particulars Shareholders' Funds Share Capital Reserves and Surplus Non Current Liabilities Long Term Borrowing Deferred Tax Liabilities (Net) Other Long term liabilities Long term Provisions Current Liabilities Short term Borrowings Trade Payables Other Current Liabilities Short term Provisions Notes 2 3 As at March 31, 2013 274.18 14960.64 15234.82 4 5 6 7 3893.92 1905.92 1.81 134.02 5935.67 8 9 10 7 568.76 2193.43 2540.9 935.18 6238.27 Total 27408.76 As at March 31, 2012 274.07 12585.75 12859.82 3648.19 1737.77 2.4 120.57 5508.93 161.92 2039.49 1674.86 700.17 4576.44 22945.19 Increase / (Decrease) Amount 0.11 2374.89 2375 245.73 168.15 -0.59 13.45 426.74 406.84 153.94 866.04 235.01 1661.83 4463.57 % 0.04% 18.87% 18.47% 6.74% 9.68% -24.58% 11.16% 7.75% 251.26% 7.55% 51.71% 33.56% 36.31% 19.45%

Horizontal Analysis Example

Increase / (Decrease) Particulars Revenue Sale of Products and services (Gross) Less Excise duty Sale of Product and Services (Net) Other Operating Revenues Revenue from Operations (Net) Other Income Total (i) Expenses Cost of Raw Material Consumed Purchase of Stock in Trade Changes in Inventories of Finished Goods, Work-in-Progress and Stock-in-Trade Employee Benefit Expenses Power and Fuel Frieght and Forwarding Expenses Other Expenses Notes Year ended March 31, 2013 22699.96 2682.02 20017.94 157 20174.94 305 20479.94 Year Ended March 31, 2012 20424.99 2266.71 18158.28 151.57 18309.85 371.87 18681.72 Amount 2274.97 415.31 1859.66 5.43 1865.09 -66.87 1798.22 414.42 58.42 -139.45 137.31 -5.03 484.18 393.06 1342.91 % 11% 18% 10% 4% 10% -18% 10% 17% 33% -656% 17% 0% 13% 14% 9%

Revenue from operation increase by 10%. There were also increases in operating expenses (9%). The increased 2792.12 2377.7 235.71 177.29 revenue more than offset the increase in cost, yielding an -118.19 21.26 overall increase in net income (10%). 968.35 831.04 Sales increased by 10% while other income decreased by Less 18%. Captuve Consumtpion of Cement (Net) -44.99 -39.11
Total (ii) Profit before Interest, Depreciation and Tax (PBIDT) (I)-(II) Finance cost Depreciation and Amortisation expenses Profit Before Tax Income Tax Expenses Current Tax Excess Tax Provisions related to prior years Deferred Tax Charge Profit for the Year 15499.46 4980.48 209.71 945.37 3825.4 1005.65 -3.83 168.15 2655.43 4298.94 4223.99 3143.53 15544.45

4303.97 3739.81 2750.47 14201.54

-5.88 1337.03 461.19 -14.15 42.81 432.53 56.68 6.18 160.43 209.24

15% 9% 10% -6% 5% 13% 6% -62% 2078% 9%

14162.43 4519.29 223.86 902.56 3392.87 948.97 -10.01 7.72 2446.19

Vertical Analysis
For a single financial statement, each item is expressed as a percentage of a significant total, e.g., all income statement items are expressed as a percentage of sales

Vertical Analysis Example

% of Total Assets Particulars Notes ASSETS Non Current Assets Fixed Assets Tangible Assets Intangible Assets Capital work in progress Intangible Assets under Development Non Current Investment Long term Loans and Advances Current Assets Current Investment Inventories Trade Receivables Cash and Bank Balances Short term loans and advances Other Current Assets Total As at March 31, 2013 As at March 31, 2012 2013 2012

13074 48.36 3505.31 0.06 16627.73 1981.77 983.17 19592.67

13,074 27,409 = 48% rounded 11,597 22,945 = 51% rounded

3126.95 2350.47 1017.24 142.66 1173.11 5.66 7816.09 27408.76 2640.94 2035.94 765.96 189.58 1163.58 8.23 6804.23 22945.19

11597.24 36.94 1895.99 0.64 13530.81 1147.83 1462.32 16140.96

48% 0% 13% 0% 61% 7% 4% 71% 11% 9% 4% 1% 4% 0% 29% 100%

50.54% 0.16% 8.26% 0.00% 58.97% 5.00% 6.37% 70.35% 11.51% 8.87% 3.34% 0.83% 5.07% 0.04% 29.65% 100.00%

Common-Size Analysis
An analysis of percentage financial statements where all balance sheet items are divided by total assets or liabilities and all income statement items are divided by net sales or revenues.

Common-Size Analysis Example

SAYAJIRAO CORPORATION Common-Size Balance Sheets Amount 2010 2011 2012 Assets Non-current asstes: Land Buildings and equipment, net Total Non-current assets Current assets: Inventory Accounts receivable, net Prepaid expenses Cash Total current assets Common-Size (%) 2010 2011 2012

40,000 80,000 120,000 120,000 35,000 1,000 24,000 180,000 300,000

40,000 85,000 125,000 100,000 40,000 1,200 23,500 164,700 289,700

40,000 120,000 160,000 80,000 60,000 3,000 12,000 155,000 315,000

13 27 40 40 12 0 8 60 100

14 29 43 35 14 0 8 57 100

13 38 51 25 19 1 4 49 100

Common-Size Analysis Example

SAYAJIRAO CORPORATION Common-Size Balance Sheets Amount 2010 2011 2012 Equity and liabilities Stockholders' funds: Share Capital 90,000 90,000 90,000 Reserves and surplus 79,600 69,700 80,000 169,600 159,700 170,000 Non-Current liabilities: Bonds payable, 8% 77,700 80,000 75,000 Current liabilities: Accounts payable 45,700 44,000 67,000 Notes payable 7,000 6,000 3,000 Total current liabilities 52,700 130,400 300,000 50,000 130,000 289,700 70,000 145,000 315,000 Common-Size(%) 2010 2011 2012

30 27 57 26 15 2 18 43 100

31 24 55 28 15 2 17 45 100

29 25 54 24 21 1 22 46 100

Total

Common-Size Analysis Example

SAYAJIRAO CORPORATION Common-Size Income Statements Amount Common-Size (%) 2010 2011 2012 2010 2011 2012 Net sales 450,000 480,000 520,000 100 100 100 Cost of goods sold 300,000 315,000 360,000 67 66 69 Gross margin 150,000 165,000 160,000 33 34 31 Operating expenses 120,000 126,000 128,600 27 26 25 Net operating income 30,000 39,000 31,400 7 8 6 Interest expense 5,200 7,000 6,400 1 1 1 Net income before taxes 24,800 32,000 25,000 6 7 5 Less income taxes (30%) 6,700 9,600 7,500 1 2 1 Net income 18,100 22,400 17,500 4 5 3

Ratio Analysis
Which express a logical relationships between items in a financial statement of a single period (e.g., percentage relationship between revenue and net income)

Categories of Financial Ratios

Short-term solvency or liquidity ratios Long-term solvency or financial leverage ratios Asset management or turnover ratios Profitability ratios Market value ratios

Computing Liquidity Ratios

Current Ratio = CA / CL Quick Ratio = (CA Inventory) / CL Cash Ratio = Cash / CL NWC to Total Assets = NWC / TA

Liquidity Ratio Current Ratio

Balance Sheet Ratios
Liquidity Ratios

Current Ratio
Current Assets Current Liabilities For TATA STEEL March 31, 2013

Shows a firms ability to cover its current liabilities with its current assets.

11530.6/16488.65 = 0.69

Current Ratio Comparisons

Current Ratio
Year 2013 2012 TATA Steel Industry 0.69 0.76

Ratio is <<>> than the industry average.

Liquidity Ratio : Quick Ratio

Balance Sheet Ratios
Liquidity Ratios

Acid-Test (Quick)
Current Assets - Inv Current Liabilities For TATA Steel March 31, 2013

Shows a firms ability to meet current liabilities with its most liquid assets.

11096/16488.65 = 0.67

Acid-Test Ratio Comparisons

Acid-Test Ratio
Year 2013 2012 TATA Steel 0.67 0.69 Industry

Ratio is weaker than the industry average.

Liquidity Ratio : Cash Ratio

Balance Sheet Ratios
Liquidity Ratios

Cash
Cash & Cash Equiv. Current Liabilities For TATA Steel March 31, 2013

Shows a firms ability to meet current liabilities with Cash and Cash equivalents

2218.11/16488.65 = 0.13

Cash Ratio Comparisons

Cash Ratio
Year 2013 2012 TATA Steel 0.13 0.23 Industry

Ratio is weaker than the industry average.

Liquidity Ratio : NWC to Total Assets

Balance Sheet Ratios
Liquidity Ratios

Cash
Net Working Capital Total Assets For TATA Steel March 31, 2013

Shows a firms financial source for assets

-4958.05/101876.9 =- 0.05

NWC to Total Assets Comparisons

NWC to Total Assets
Year 2013 2012 TATA Steel -0.05 -0.04 Industry

Ratio is weaker than the industry average.

Summary of the Liquidity Ratio Comparisons

Ratio TATA Steel Current 0.69 Acid-Test 0.67 Cash 0.13 NWC to Total Assets -0.05 Industry

Strong current ratio and weak acid-test ratio indicates a potential problem in the inventories account. Note that this industry has a relatively high level of inventories.

Computing Long-term Solvency Ratios

Total Debt Ratio = (TA TE) / TA Debt/Equity = TD / TE

Long term Solvency Ratio

Balance Sheet Ratios
Long term solvency Ratios

Total Debt Ratio

Total Debt Total Assets For TATA Steel March 31, 2013 44393 = 0.44 101877

Shows the extent to which the firm is financed by debt.

Long term Solvency Comparisons

Total Debt Ratio

Year 2013 2012 TATA Steel 0.44 0.43 Industry

TATA has <<>> debt utilization relative to the industry average.

Long term Solvency Ratio

Balance Sheet Ratios
Financial Leverage Ratios

Debt-to-Equity
Total Debt Shareholders Equity For TATA Steel March 31, 2013 44393 = 0.77 57485

Shows the extent to which the firm is financed by debt.

Long term Solvency Comparisons

Debt-to-Equity Ratio
Year 2013 2012 TATA Steel 0.77 0.76 Industry

TATA has <<>> debt utilization relative to the industry average.

Computing Coverage ratio

Times Interest Earned = EBIT / Interest Cash Coverage = (EBIT + Depreciation) / Interest

Coverage Ratio
Income Statement Ratios Coverage Ratios

Interest Coverage
EBIT Interest Charged For TATA Steel March 31, 2013 10388 1877 = 5.53

Indicates a firms ability to cover interest charges.

Coverage Ratio Comparisions

Interest Coverage Ratio
Year 2013 2012 TATA Steel 5.53 5.85 Industry

has below average interest coverage relative to the industry average.

Cash Coverage Ratio

Income Statement Ratios Cash Coverage Ratios

Interest Coverage
EBIT + Depreciation Interest Charged For TATA Steel March 31, 2013 12028 1877 = 6.41

Indicates a firms ability to generate cash to cover interest charges.

Coverage Ratio Comparisions

Interest Coverage Ratio
Year 2013 2012 TATA Steel 6.41 6.45 Industry

has below average interest coverage relative to the industry average.

Computing Inventory Ratios

Inventory Turnover = Cost of Goods Sold / Average Inventory Days Sales in Inventory = 365 / Inventory Turnover

Activity Ratio
Income Statement / Balance Sheet Ratios
Activity Ratios Indicates the effectiveness of the inventory management practices of the firm.

Inventory Turnover
Cost of good sold

Avg. Inventories
For TATA Steel March 31, 2013

29589.7 5257.94

= 5.85

Activity Ratio Comparisions

Inventory Turnover Ratio
Year 2013 2012 TATA Steel Industry 5.85 5.45 4.94 4.76

has a very poor inventory turnover ratio.

Computing Receivables Ratios

Receivables Turnover = Sales / Accounts Receivable Days Sales in Receivables = 365 / Receivables Turnover

Activity Ratio
Income Statement / Balance Sheet Ratios
Activity Ratios Indicates quality of receivables and how successful the firm is in its collections.

Receivable Turnover
(Assume all sales are credit sales.)

Annual Net Credit Sales

Receivables
For TATA Steel March 31, 2013

450000 35000

= 8.66

Actiivity Ratio
Income Statement / Balance Sheet Ratios
Activity Ratios Average number of days that receivables are outstanding. (or RT in days)

Avg. Collection Period

Days in the Year

Receivable Turnover
For TATA Steel March 31, 2013

365 8.66

= 43 Days

Computing Payable Ratios

Payable Turnover = Purchase / Avg. Accounts Payable Days Purchase in Payables = 365 / Payable Turnover

Activity Ratio
Payable Turnover
Income Statement / Balance Sheet Ratios
Activity Ratios Indicates the promptness of payment to suppliers by the firm.
(Assume all annual credit purchases)

Annual Credit Purchases

Avg. Accounts Payables For TATA Steel March 31, 2013

10276 6370

= 1.67

Activity Ratio
Income Statement / Balance Sheet Ratios
Activity Ratios Average number of days that payables are outstanding.

PT in days
Days in the Year

Payable Turnover
For TATA Steel March 31, 2013

365 1.67

= 217 Days

Activity Ratio Comparisions

Payable Turnover in Days
Year 2013 2012 TATA Steel 217 268 Industry

has improved the PT in Days.

Is this good?

Computing Total Asset Turnover

Total Asset Turnover = Sales / Total Assets NWC Turnover = Sales / NWC Fixed Asset Turnover = Sales / NFA

Activity Ratio
Total Assets Turnover
Income Statement / Balance Sheet Ratios
Activity Ratios Indicates the overall effectiveness of the firm in utilizing its assets to generate sales.

Net Sales

Total Assets
For TATA Steel March 31, 2013

38199 = 0.37 101877

Activity Ratio Comparisions

Total Assets Turnover Ratio
Year 2013 2012 TATA Steel 0.37 0.35 Industry

Sayajirao has a weak total asset turnover ratio.

Why is this ratio considered weak?

Computing Profitability Measures

Profit Margin = Net Income / Sales Return on Investment (ROI) = Net Income / Total Assets Return on Equity = Net Profit after tax/ Shareholders Equity

Profitability Ratio
Gross profit Margin (%)
Income Statement / Balance Sheet Ratios
Profitability Ratios Indicates the efficiency of operations and firm pricing policies.

Gross Profit (PBIT)

Net Sales
For TATA Steel March 31, 2013

10388 = 27% 38199

Profitability Ratio Comparisions

Gross Profit Margin
Year 2013 2012 TATA Steel Industry 27% 35.1% 33% 36.8%

has a weak Gross Profit Margin.

Profitability Ratio
Net profit Margin

Income Statement / Balance Sheet Ratios

Profitability Ratios Indicates the firms profitability after taking account of all expenses and income taxes.

Net Profit after tax Net Sales

For TATA Steel March 31, 2013

8511 = 22% 38199

Profitability Ratio Comparisions

Net Profit Margin
Year 2013 2012 TATA Steel 22% 27.5% Industry

Profitability Ratio
Return on Investment

Income Statement / Balance Sheet Ratios

Profitability Ratios Indicates the profitability on the assets of the firm (after all expenses and taxes).

Net Profit after tax

Total Assets
For TATA Steel March 31, 2013

5063 = 5% 101877

Profitability Ratio Comparisions

Return on Investment
Year 2013 2012 TATA Steel 5% 7% Industry

Profitability Ratio
Return on Equity
Income Statement / Balance Sheet Ratios
Profitability Ratios Indicates the profitability to the shareholders of the firm (after all expenses and taxes).

Net Profit after tax Shareholders Equity

For TATA Steel March 31, 2013

5063 = 8.8% 57485

Profitability Ratio Comparisions

Return on Equity
Year 2013 2012 TATA Steel 8.8% 12.2% Industry

Computing Market Value Measures

Market Price Shares outstanding PE Ratio = Price per share / Earnings per share Market-to-book ratio = market value per share / book value per share