TITAN INDUSTRIES Private Limited

Ratio and cash flow analysis

Submitted by: Noopur Bhardwaj

CONTENTS

i.

Introduction of the company

ii.

Introduction of the sector

iii.

Cash flow analysis

iv.

Ratio analysis

v.

Annexure

vi.

bibliography

TITAN INDUSTRIES PRIVATE LTD.

Titan Industries Limited is the world's fifth largest wrist watch manufacturer and India's leading producer of watches under the Titan, Fastrack, Sonata, Nebula, RAGA, Regalia, Octane & Xylys brand names. It is a joint venture between the Tata Group, and the Tamil Nadu Industrial Development Corporation (TIDCO). Its product portfolio includes watches, accessories and jewellery, in both contemporary and traditional designs. Titan Industries is the organization that brought about a paradigm shift in the Indian watch market when it introduced its futuristic quartz technology, complemented by international styling. After Sonata, a value brand of functionally styled watches at affordable prices, Titan Industries reached out to the youth segment with Fastrack, its third brand, trendy and chic. The company has sold over 135million watches world over and manufactures 13 million watches every year. Entering the largely fragmented Indian jewellery market with no known brands in 1995, Titan Industries launched Tanishq, India's most trusted and fastest growing jewellery brand. Gold Plus, the later addition, focuses on the preferences of semi-urban and rural India. Completing the jewellery portfolio is Zoya, the latest retail chain in the luxury segment. . With over 827 retail stores across a carpet area of over 10, 08,083 sq. ft. Titan Industries has Indias largest retail network spanning over 155 towns. The company has over 340 exclusive World of Titan' showrooms and over 125 Fastrack stores. It also has a large network of over 700 after-sales-service centres. Titan Industries is also the largest jewellery retailer in India with over 130 Tanishq boutiques and Zoya stores, over 31 Gold Plus stores. It also sports over 204 Titan Eye+ stores. Backed by over 6,000 employees, the Company has two exclusive design studios for watches and jewellery.

RATIO ANALYSIS

I.

LIQUIDITY RATIOS
Liquidity refers to the ability of the firm to meet its current obligations as they fall due. The Liquidity ratios are used to access the short term financial position of the concern. Thus they are also called Short Term Solvency ratios. They indicate the firms ability to meet its current obligations out of current resources and thus, the short term creditors of the firm are primarily interested in this ratio. It includes two ratios:

CURRENT RATIO OR WORKING CAPITAL RATIO:

The current ratio of 2:1 is generally accepted as an ideal ratio which means that the current assets of a company should be twice in comparison to the current liabilities. The current ratio of the aforesaid company is calculated to 1.31:1. (A) This indicates that the companys short term financial position is sound and it will be able to meet its obligations in time or as and when they arise. The creditors will also be readily available to provide credit to the company in case the company needs it.

QUICK RATIO OR LIQUITY RATIO

The ideal quick ratio is said to be 1:1. If it is more it is considered to be better. But the quick ratio of titan industries is calculated to 0.40:1(B) which indicates that for every rupee of current liabilities, the company only has .40 paisa of current assets. Therefore the company may not be able to realise cash on a short notice and meet its current obligations. Such a low ratio is also an indicator of overstocking in the company.

II.

SOLVENCY RATIO
The term solvency implies ability of an enterprise to meet its long-term indebtedness and thus, solvency ratio conveys an enterprises ability to meet its longterm obligations. The important solvency ratios are:

DEBT-EQUITY RATIO:
This ratio indicates the proportion between shareholders fund and the long term borrowings. The debt equity ratio of the aforesaid company is 0.012:1.(C) This implies that the company has used more equity than debt which means a lager safety margin for creditors and the soundness of the long-term financial position of the firm. But a lesser debt composition in total capital may lead to reduced shareholder wealth as per EPS analysis.

TOTAL ASSETS TO DEBT RATIO:

This ratio establishes the relationship between total assets and long term debts of the business. Titan industries have a total asset to debt ratio of 270.95:1.(D) This indicates that lower debts are used in financing the assets which means a larger safety margin for lenders.

PROPRIETORY RATIO:
This ratio establishes the relationship between proprietors funds and total assets. The proprietary ratio of the aforesaid company is .31:1 or 31%.(E) Such a high ratio is an indicator of sound financial position of the company from long term point of view because it means that 31% portion of total assets is provided by equity and hence the firm is less dependent on external sources of finance.

III.

ACTIVITY RATIOS OR TURNOVER RATIOS

These ratios measure how well the facilities at the disposal of the concern are being utilised. They indicate the rapidity with which the resources available to the concern are being used to produce sales.

INVENTORY TURNOVER RATIO OR STOCK TURNOVER RATIO:

This ratio indicates the relationship between the cost of goods sold during the year and average stock kept during the year. Titan industries have an inventory turnover ratio of 2.63 times.(F) And the average age of inventory is 138.7 days(G) or 139 days. This indicates that the money blocked in inventory gets converted into sales in 139 days and that the stock gets converted 2.63 times in a year into sales. It is not a sufficient number and shows that the stock does not sell quickly and remains lying in the godown for a long time.

DEBTOR

TURNOVER

RATIO

OR

RECIEVABLES

TURNOVER RATIO:
This ratio indicates the relationship between credit sales and average debtors during the year. As the data about credit sales is not clear therefore we can make an assumption that the sales given to us are credit sales and accordingly the companys debtor turnover ratio comes to 54.2 times(H) with an average collection period of 6.6 days(I) or 7 days . This indicates that on an average, debtors take 7 days to get converted into cash and the more available funds can be put to some other uses.

CREDITOR TURNOVER RATIO OR PAYABLES TURNOVER RATIO:

This ratio indicates the relationship between credit purchases and average creditors during the year. As the data about credit purchases is not clear therefore we can make an assumption that the purchases given to us are credit purchases and accordingly the companys creditor turnover ratio comes to 0.702 times(J) with an average collection period of 520 days(K) . Such a highly low turnover ratio implies availability of more credit with the company and delayed payments but a better liquidity position.

WORKING CAPITAL TURNOVER RATIO:

This ratio establishes the relationship between working capital and sales. The working capital turnover ratio of titan industries is 8.98 times (L) or 9 times. This indicates that approximately 9 times the working capital of the company has been rotated into sales, which shows efficient use of working capital.

FIXED ASSETS TURNOVER RATIO:

This ratio establishes the relationship between net sales and net fixed assets of a company. The fixed ratio of titan industries in the year 2011 was 29.5%(M) and in the year 2012 was 22.5%. The fall of 7% indicates that the fixed assets have not been used that much efficiently as they were in the previous year.

CURRENT ASSETS TURNOVER RATIO:

This ratio establishes the relationship between net sales and current assets. The current assets turnover ratio of the aforesaid company is 2.13 times (N) in the current year and was 1.96 times(P) in the previous year .This indicates that the current assets in the year 2012 have been utilised more efficiently than in the year 2011.

(IV) PROFITABILITY RATIOS

In general terms, efficiency in business is measured by profitability. Profit as compared to the capital employed indicates profitability of the enterprise. Thus, profitability is of utmost importance for a concern. The ratios that measure profitability are as follows:

GROSS PROFIT RATIO:

This ratio establishes the relationship between gross profits on sales to net sales of a firm. The gross profit ratio of titan industries is 17.45% which is adequate as the ratio is appropriate as a higher ratio is better

OPERATING RATIO:
This ratio is computed to establish relationship between operating costs and net sales. Titan industries have a operating ratio of 89.6 %(R) which is indicates that margin of profit on sales is low.

NET PROFIT RATIO:

This ratio shows the relationship between net profit and sales. The net profit ratio of titan industries comes to 6.80 %(S) which show that the rate of net profit earned on sales is quite low.

RETURN ON INVESTMENT (ROI) OR RETURN ON CAPITAL EMPLOYED RATIO:

Return on capital employed judges the overall performance of the enterprise. It measures how efficiently the source entrusted to the business is used. The ROI Of titan industries is 52.25 %. This indicates that the overall performance of the company is good

CASH FLOW ANALYSIS

Although reported earnings (or losses) per share most often take the spotlight in the financial headlines, cash flow can be an even more valuable measure of a company's long-term financial health. Cash flow is exactly what it sounds like. It is cash generated and used by a company's business. It is reported in a financial statement showing two years of data in the company's Annual Report. (Rs. 00,000) The cash flow statement has three sections, cash flow generated by or used by operations, cash flow generated by or used by investing activities, and cash flow generated by or used by financing activities.

Cash flow generated by or used by Operations reflects the cash produced by (or used by) the company's on-going operations. Cash flow generated by (or used by) operations is one of the most important numbers on the cash flow statement, because it is the cash available from on-going operations to reinvest in the business, repay debt, pay dividends, etc. Here In Titan Industries Limited the cash generated through Operations is Rs.15749.83 which is not enough to reinvest and to repay debt, pay dividends, etc.(totals to Rs.17636.36 For the current year) . Secondly, the Company has generated Positive cash from Operating Activities but has seen a Declining trend in cash flow from operating activities, previous year figure for cash flow from operating activity is Rs. 105111.50. Thus it may be concluded that the Company is losing its Liquidity Position and does not have enough cash to repay all capital expenditure and to reinvest in business to grow further. Cash generated by or used by investing activities. This category includes capital expenditures (often called additions to property and equipment), acquisitions or sales of businesses or property for cash, and other investing activities. Most often it will be a negative number dominated by spending on capital projects but the major cash outflow for Expansion of business should be funded by the outside finance so as to reduce the major cash outflow from the enterprise and also to maintain the proper composition of Capital. Cash Used in Investing Activities of Titan Industries Limited is Rs.6989.32 which is normal considering the profile and position of the

Company. Also the Cash outflow is increased in comparison to the previous year, previously it showed at Rs.2547.89. Impact of financing activities on cash. Cash inflows in this category could come from, among other things, bank borrowings, debt issuance, and the sale of equity. Uses of cash for financial purposes include principal payments on debt, share repurchases and cash dividend payments. The Cash Used in Financing Activity of the company is Rs. 23443.60 this is because company has repaid its Borrowings and paid some of finance costs. Conclusion

-------------------------Raito Analysis Conclusion---------------------------

While Concluding the Cash Flow Analysis of the company it may be said that there is Declining behaviour of the cash flow in the organization and some irregularity is shown in the Flow of cash in the organization. Company is not generating enough cash from its core business operations so as to repay the capital expenditure, its financial expenses and to invest in the business for growth and expansion. Also company is not having enough cash available for its owners and Financial Position.

ANNEXURE
(A)
CURRENT RATIO = current assets / current liabilities = 415819.22 / 317475.35 = 1.31 : 1

(B)

QUICK RATIO = quick assets / current liabilities = 127952.32 / 317475.35

(C)

DEBT-EQUITY RATIO = long-term loans / shareholders funds = long-term borrowings + other long-term liabilities / shareholders fund = 588.89 + 1144.20 / 144989.68 = 17733.09 / 144989.68 = 0.012 : 1

(D)

TOTAL ASSET TO DEBT RATIO: =Total Assets / Outside liability = 415819.22-377.49(deferred tax assets) / 588.89+1144.20 =469575..92 / 1733.09 =270.95:1

(E)

PROPRIETARY RATIO = Equity / total assets = 144989.68 / 469575.92 = 03.1:1

(F) INVENTORY TURNOVER RATIO = cost of goods sold / average stock of inventory =opening stock + purchases + consumption closing stock / average stock of inventory = 199382.87 + 115088.28 + 614508.16 287866.90 / 243624.885 = 2.63 times

(G) AVERAGE AGE OF INVENTORY = days in a year / inventory turnover ratio = 365 / 2.63 = 138.7 days

(H) DEBTOR TURNOVER RATIO = net credit sales / average debtors +average B/R ( assuming that the sales given are credit sales ) = 883837.84 / 16310.94 = 54.2 times

(I) AVERAGE COLLECTION PERIOD = days in a year / debtors turnover ratio = 365 / 54.2 = 6.6 or 7 days

(J) CREDITORS TURNOVER RATIO = net credit purchases / average creditors + average B/P (assuming that the given purchases are credit purchases) = 115088.28 / 163642.69 = .703times

(K) AVERAGE PAYMENT PERIOD = no. of days in a year / creditors turnover ratio =365 / .703 = 520 days

(L) WORKING CAPITAL TURNOVER RATIO = net sales / working capital = 883837.84 / 2485.21 =8.98 times

(M) FIXED ASSETS TURNOVER RATIO = net sales / net fixed assets Year 2011 = 883837.84 / 29971.13 =29.5 % Year 2012 = 883837.84 / 39357.72 = 22.5% (N) CURRENT ASSETS TURNOVER RATIO = net sales /current assets = 883837.84 / 415819.22 =2.13 times

(Q)

GROSS PROFIT RATIO = (Gross profit / net sales) * 100 =(154241.40 / 883837.84) * 100 = 17.45 %

(R) OPERATING RATIO = [(COGS + operating expenses) / net sales ] * 100 = [(641112.46 + 150622.51) / 883837.84 ] * 100 = 89.58 % Where COGS = op. stock + purchases + consumption Cl. Stock = 199382.87 + 614508.16 + 115088.28 - 287866.90 =641112.41

And operating expense = 39234.34 + 4489.62 + 106898.55 = 150622.51

(S)

NET PROFIT RATIO = (net profit / net sales) * 100 = (6015.59 / 883837.84) * 100 = 6.80 %

(T)

RETURN ON INVESTMENT =(profit before interest, tax and dividend / capital employed ) * 100 =(79472.36 / 152100.57 ) * 100 = 52.25 % Where PBIT = 83843.89 4371.53 = 79472.36 And Capital employed = 144989.68 + 7488.38 377.49 = 152100.57

(U)

EPS --as per Balance sheet in Annual Report--

BIBLIOGRAPHY
Analysis of financial statements by D.K Goel Analysis of financial statements by T.S Grewal WWW.titan.co.in