Ratioanalysis

ACCOUNTANCY PROJECT Ratio Analysis Raymond’s 2007-08

Submitted to-: Mrs. Rachna Banerjee By: Manhar Srivastava 46 ~

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 Manoj Kumar Singh 47  Mansi Duggal – 48  Mayank Sharma - 49  Neeru Parashar - 50 CONTENTS 1. Company Profile 2. Ratio’s Return on Investment Ratios 1. Rate of Net Worth (RONW) 2. Earnings Per Share (EPS) Solvency Ratios 1. Net Asset Value (NAV) 2. Debt Equity 3. Interest Coverage Ratio Liquidity Ratios 1. Current Ratio 2. Quick Ratio 3. Collection Period Allowed to Customers 4. Suppliers Credit 5. Inventory Holding Period Turnover Ratio 1. Fixed Assets Turnover 2. Inventory Turnover Profitability Ratio 1. Gross Profit Margin 2. Net Profit Margin Valuation Ratio

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1. P/E Ratio 2. Market Capitalisation 3. Financial performance of company

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Company Profile The Company is a market leader in the textiles sector in India, has a powerful brand ‘Raymond’ and strong retail presence in the form of ‘The Raymond Shop’ (‘TRS’) domestically. While focusing on its vision of being the leader in fashion and lifestyle segment, company is now also establishing itself as a preferred supplier of value-added premium fabric in the international markets. The Company continues to focus on the booming retail sector and is now concentrating on penetrating into the Tier 3 and 4 towns of the country. The Company has also forayed into the women’s wear segment with offerings in the corporate and smart clothing category. The company is on its way to become a lifestyle solution for discerning customers with an offering of a range of fabrics, garment and accessories in a premium shopping environment. The Company plans to invest significantly in the coming years in expanding its state of the art manufacturing capacities, strengthening and extending the product offerings under its brand and expanding its marketing and distribution network. To cater to the growing domestic and export markets, the Company has undertaken the following initiatives: • Implementation of ERP in textile division; • Addition of a manufacturing facility at Vapi with latest machinery which became fully operational and providing efficient and cost effective production lines. • Setting up a suit plant at Bangalore to cater to the growing demand. India has been on a high growth path for some years now. However, during the past few months, worrying developments like the housing crisis in USA, high inflation – especially in food, fuel and commodities – have emerged. This could increase costs of operations, dampen consumer sentiment and moderate growth going forward.

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RATIO’s RETURN ON INVESTMENT RATIO

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Return on Net Worth (RONW)

This ratio measures the net profit earned on the equity shareholders fund. Current Year –: RONW = = 5.38 % Previous Year –: RONW = = 7.92%

ANALYSISThe return on net worth has dropped down drastically with comparison to last year. Also company has created more reserves for its future projects. This implies•

Overall profitability of company has fallen down. The reason could the economic conditions of the economy.

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Shareholders will receive low dividends in contrast to last year.

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New investors will not find the company lucrative to invest.

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Suppliers will strict the credit policy as risk for them has increased.

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2.

Earnings Per Share (EPS)

The ratio measures the overall profitability in terms of per equity share of capital contributed by the owners. Current Year -: EPS = = Rs. 12.28 Previous year -: EPS = = Rs. 17.51 ANALYSISLast year EPS of company was Rs. 17.51 which has fallen to Rs. 12.28. This is not good for company as well as for investors. This ratio shows that with the same shareholders fund the profit of the company decreased. •

The investors in the company will be highly disappointed because of its performance. Their earnings have fallen down.

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Also company won’t be able to attract new investors. Moreover chances of existing shareholders selling their shares also increase.

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Company needs to increase its EPS as it is a important measure which helps company to survive in future.

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In case company want to raise funds through initial public offer company won’t be able to attract many investors.

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LIQUIDITY RATIO 1. Net Asset Value Ratio (NAV)

This ratio seeks to assess as to what extent the value of equity share of a company contributed at par or at premium or the value created for the shareholders. Current Year -: NAV = = Rs. 227.80 Previous Year -: NAV = = Rs. 220.94 ANALYSISEven though the profit of company has fallen down still Net Asset Value of company has increased though marginally. This shows the efficiency of company management. Company has created more of reserves as it has undertaken many new projects. So it can rely on these reserves for internal financing. NAV of company will help it to raise further capitalborrowed as well as equity because investors will believe that company has significant growth prospects. 2. Debt- Equity Ratio

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This ratio measures the debt- equity proportion in capital structure of the company. Current Year -: Debt- Equity Ratio = = 0.485 times Previous Year -: Debt – Equity Ratio = = 0.435 times ANALYSIS Last year when the profitability of company was high As the profitability of company has reduced significantly they are playing safe by not raising more debt. They have reduced the risk of defaulting in payment of interest. It is a prudent practice i.e. not to put shareholders fund at risk when profitability of company is low. But in comparison to last year this ratio has increased. Company has raised more secured loan and foreign currency loans from banks as they have undertaken few foreign projects also. 3. Interest Coverage Ratio

This ratio measures the capacity of the company to pay the interest liability it has incurred on its long term borrowings, out of the profit.

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Current Ratio -: Interest Coverage Ratio =

= = 5.17 times

Previous Year -: Interest Coverage Ratio =

= = 5.95 times ANALYSISCompany has adequate amount to fulfil its interest liability out of its revenue. Though in comparison to last year, interest coverage ratio has fallen down. But still company was able to maintain it at 5 times which implies it has funds to pay its interest by 5 times. The risk of default in payment is not much. So the suppliers and other creditors need not be worried about their funds. This also develops the creditability of company in market.

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LIQUIDITY RATIO

1. Current Ratio

The ratio measures the ability of a company to discharge its day to day bills, or current liabilities as and when they become due out of cash or current assets.

Current Year -: Current Ratio =

= = 2.27 times

Previous Year -: Current Ratio =

=

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= 1.97 times

ANALYSISThe standard current ratio should be 1.33:1. Whereas company has current ratio of 2.27 in current year and 1.97 in previous year. This shows that company is not employing its resources fully. Short term investments and dividend, interest subsidy and interest receivable have increased a lot. Whereas current liabilities fallen down. Though from this ratio it can be predicted that company’s short term default risk is reduced. It will be able to discharge its obligations in time but it needs to reduce this ratio by putting current assets to use.

2. Quick Ratio

This ratio measures as how quickly company is able to discharge its current liabilities, net working capital out of cash or current assets it possesses.

Current Year -: Quick Ratio =

=

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= 1.24 times

Previous Year -: Quick Ratio =

= = 0.965 times

ANALYSIS The standard quick ratio is 1:1. Company has improved its quick ratio which means now it has the ability to discharge its current liabilities as and when due out of its most liquid assets. Last year company’s liquidity was not good. Possibility of default in payment to suppliers was there. But now this risk is eliminated. Now it has some assets which are not put to use efficiently.

3. Collection Period Allowed to Customers

The ratio measures the credit period allowed by the company to its debtors on credit sales or how fast a company is able to realise its outstanding dues. Current Year -: Collection Period Allowed to Customers =

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= 79.10 days = 79 days

Previous Year -: Collection Period Allowed to Customers = = 75.48 days = 75 days

ANALYSISThe company is able to receive its debts in 2-3 months. It has also extended its credit period by 4 days. The reason behind this could be increase in sales. But debtors have also increased. This shows company is selling more on credit.

4. Suppliers Credit

The ratio measures the average credit period allowed to the company by its creditors or how much leverage it possesses to settle its outstanding payables.

Current Year -:

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Suppliers Credit = = 129.88 days = 130 days

Previous Year -: Suppliers Credit = = 159.37 days = 159 days

ANALYSISCompany is enjoying an excellent period of credit. It is dictating good terms with its suppliers. It has to pay to its creditors in about 4 months. Though this period has decreased in comparison to last year. This also shows company is purchasing less on credit as creditors as reduced despite increase in purchases.

5. Inventory Holding Period

The ratio measures the number of days that cash is blocked in inventory or how fast a company is able to convert its inventory into cash.

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Current Year -: Inventory Holding Period = = 129.63 days = 130 days

Previous Year -: Inventory Holding Period = = 117.4 days = 117 days

ANALYSIS Company is facing long inventory holding period. That means it is holding inventory for long time. Also inventory holding period has increased which shows company has blocked a lot of cash in inventory. It further implies that company is not able to sell its goods at faster rate. So it needs to take action in that respect may be by reducing its selling price. But this can be because company is facing difficulty in procuring raw material because of increase in the cost of raw material.

TURNOVER RATIO ~

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1. Fixed Assets Turnover

The ratio measures the volume of gross income generated by the fixed assets of the company.

Current Year -: Fixed Assets Turnover = = = 1.84 times Previous Year -: Fixed Assets Turnover = = = 1.89 times

ANALYSIS Sales have increased by 2.98%. And fixed assets have increased by 6.4%. This shows company is not using its resources efficiently. There is under usage of fixed assets. In comparison to last year this ratio has also decreased. This under usage can be the cause of lower operating revenues. Company should improve its management and look towards efficient convention of its fixed assets. 2. Inventory Turnover

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This ratio measures the level of inventory Current Year -: Inventory Turnover = = 2.815 times

Previous Year -: Inventory Turnover = = 3.108 times ANALYSIS A lower turnover ratio indicates overstocking, obsolescence and deficiencies in product line. The company is having adequate inventory turnover. It is not too much and not too less. But in respect to last year this ratio has decreased. This means that to sell more it has to keep a stock of more goods.

PROFITABILITY RATIO These ratios measure several intermediate profit margin indicators. 1. Gross Profit Margin

Current Year -: Gross Profit Margin =

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= 29.79 % Previous Year -: Gross Profit Margin = = 31.33% ANALYSIS This ratio indicates the change in gross profit margin. This shows that sales have increased but the gross profit has fallen. This implies change in cost of goods sold is much more than change in sales. In comparison to Net Profit Margin it can concluded that company spends more on its operating and manufacturing activities. 2. Net Profit Margin

Current Year -: Net Profit Margin = = 5.69 % Previous Year -: Net Profit Margin = = 8.37 % ANALYSIS From this ratio it can be interpreted that overall profitability of company has fallen down drastically. The expenses incurred by company have increased much more than increase in income.

VALUATION RATIO ~

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1. P/E Ratio

The ratio measures as to how many times an equity share is priced in stock market in relation to its EPS.

Current Year -: P/E Ratio = = 15.475 times Previous Year -: P/E Ratio = = 14.625 times ANALYSIS Though the market price of equity and earnings per share has reduced in comparison to last year but still its P/E ratio has increased. Despite the existing situation of markets still P/E ratio has increased. So investors should hold on the shares as its performance in past has also been good. So it has scope of recovery and leading to increase in P/E ratio. 2. Market Capitalisation

The ratio provides a base for total valuation of the company based on its market price.

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Current Year -: Market Capitalisation = = Rs. 1140.44 crores Previous Year - : Market Capitalisation = = Rs. 1571.94 crores

ANALYSIS This ratio tells the value of the company. As the market price has decreased the valuation has also shrunk. But from the past performance of the company it can be inferred that valuation of company will improve in future.

NOTES – 1. Profit After Tax Particulars Profit for year after tax Add/ (Less): Prior

Current year 6612.17 1.03

Previous Year 20125.28 88.05

period adjustments Add/ (Less): Tax in

629.10

(1.03)

respect of earlier years PAT including

7242.3

20212.3

exceptional items Add/(Less):

293.87

(9461.84)

Exceptional items PAT excluding

7536.17

10750.19

exceptional items

2. Cost of Goods Sold

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Particulars

Current Year

Previous Year

Material Costs

46855.29

37737.82

Manufacturing and

26467.16

27099.12

Operating Costs (Increase)/ Decrease

(3792.31)

791.45

process stock Employment Costs

23315.98

22558.39

COGS

92846.12

88186.78

in finished and

3. Gross Profit Particulars Sales COGS Gross Profit

Current Year Previous Year 132251.15 128419.35 92846.12 88186.78 39405.03 40232.57

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FINANCIAL ANALYSIS OF COMPANY The key business segments of the Company are Textile and Files & Tools Divisions. The erstwhile denim division of the Company was combined with the denim business of UCO NV, Belgium, to form a 50:50 joint venture from August 1, 2006. Consequently the current year ending March 31, 2008 financials are not strictly comparable with the previous year ending March 31, 2007. Company performance has deteriorated for the following reasons. •

Raw Material Wool prices have remained at a high level throughout the year due to a severe drought in Australia. Alternate vendors have been developed in other countries like South Africa to mitigate the risk of higher price.

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Economy The economy has been witnessing a high inflationary situation together with steep rises in prices of steel in the last quarter of the year due to increased inputs costs like coke, iron ore. Consequent input price increases for the company during the year is a likely scenario. Rupee appreciation adversely affected export realizations.

Growth And Opportunities for company •

During the year, the Company continued to focus on expansion of retail space through its exclusive branded stores. These stores have enhanced the brand image and uplifted the Brand positioning. The Company continued to lay emphasis on product innovation.

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During the year, Company launched “Raymond” Brand under ready to wear premium segment and also launched Brand Extension of ‘Park Avenue’ in women’s wear.

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With all these developments, this year has seen a spectacular growth in the branded apparel business of the Company with high growth rates being sustained quarter after quarter. In the coming years, the Company plans to increase its distribution reach further.

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The overall performance of company has fallen down in comparison to last year performance. The profit earned has fallen down about 64% in respect of last year. Despite fierce competition in domestic and international markets and inspite of the challenges faced including teething issues in the ERP implementation, the Company witnessed an increase in net revenues. The net sales of the company grew marginally from Rs.128419.35 lacs to Rs.132251.15 lacs, an increase of 2.98%. The growth in revenues was largely due to an increase in volumes. High wool prices, employment cost increases and issues in the ERP implementation however resulted in a decline in profit before interest and tax of the division from Rs. 15172.47 lacs to Rs. 8614.85 lacs. but this fall in performance is temporary and because of the current economic situation of India. Company has undertaken many new projects last year. Growth in each project will be gradually leading to overall growth of company. Shareholders need not worry. The pattern of share is similar to that of the BSE Sensex as can be seen from the diagram. This implies with gradual increase in BSE Sensex the share will also recover. So shareholders should hold on the shares.

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