INTRODUCTION
Ratios are highly important profit tools in financial analysis that help
financial analysts implement plans that improve profitability, liquidity,
financial structure, leverage, and turnover. Although ratios report mostly
Page |3
COMPANY PROFILE
"BILT is India's largest paper company and the only Indian company to
rank amongst top 100 paper companies in the world"
BILT is the undisputed leader in the Indian paper industry. It is also India's
largest manufacturer and exporter of paper, with a strong presence in all
segments of the usage spectrum that includes Writing & Printing Paper,
Industrial Paper and Specialty Paper. Complementing this is a diversified
production infrastructure with six manufacturing units spread across the
country.
Locations
The group used to be headquartered out of the groups own premises Thapar
House , in Janpath Lane, Connaught Place, but is now based in Gurgaon
due to better returns from Thapar House being rented out. They have
factories in the following locations
• Ashti
Promoters
The group was started by Mr. Lala Karam Chand Thapar, and after his
death in 1963 run by eldest son- Mr. L M Thapar. From Independence till
the 1980s it was one of the top 10 business houses in India.
SCOPE
By studying the various ratios and other related aspects of the project
report presented to them for finance bank or financial institutions come to
know various aspects such as its technical feasibility, economical
feasibility, financial feasibility, marketability, etc. and if the Financial
Institutions/Banks is satisfied with the project report then only the
Financial Institutions/Banks provide the finance of the company's project.
Shareholders :
Shareholders want to judge the earning capacity of the company, its
prospects for future growth and prosperity. They also look for the higher
dividend capacity of the firm.
Employees :
The demand for wage rise, bonus, better working conditions etc., depends
upon the profitability of the firm and in turn depends upon financial
position. For this employees are interested in profitability ratio of the firm.
Government :
In respect of a Government Company, the Members of Parliament, the
Public Accounts Committee is interested in its working and financial
Page |7
Investors :
These are particular about the long-run stability of the business unit. The
investor expects that his capital will be protected from more than a normal
amount of the risk.
Creditors :
The short-term creditors want to find out the ability. of the company meet
the debts as and when they fall due. The long-run creditors are interested in
knowing the company's ability to pay the interest on the amount borrowed
by it and also to pay the debt itself on maturity date.
Management :
The management of the business is greatly interested in knowing the
financial position of the firm. Financial ratios eyes and ears of the
management and it facilitates in drawing future course of action, further
expansion etc.
Financial Institutions/Banks :
The Financial Institutions/Banks who provide credit to the company would
be interested to know the capacity of the firm to discharge its liabilities in
time.
Page |8
HYPOTHESIS
OBJECTIVE
LIMITATIONS
RESEARCH METHODOLOGY
Introduction :
1. Selection of Subject.
4. Collection of Data.
5. Reliability of Data.
6. Analysis of Data.
7. Reporting.
Research wants to make familiar, how his research work is associated with
the above-mentioned elements: -
P a g e | 10
1. Selection of Subject:
c) Technological changes,
d) Unexplored areas,
Researcher had chosen the subject for its research work from the
source of "Working field" listed above, because researches is associated
with the personnel who deals in the financial management aspect of the
enterprises, and the thinks that he can easily and smoothly carryout this
research work on the subject concerned.
Keeping in view the nature and object behind the selection of subject
under research, this dissertation is title as "Interpretation & Analysis of
Financial. Statements of Ballarpur Industries Limited"
The three-year period is chosen for the study of the above subject.
The period starts from financial accounting year 2005 to financial
accounting year 2007.
Researcher feels that three year time period is sufficient for the analysis
and interpretation of financial statements of company. Researchers also
feel that the objects for which research is undertaken can be fulfilled by
considering above mentioned time period.
P a g e | 13
4. Collection of Data:
The data required and necessary for the research study may be obtained
from the following means:
The data for the research study may be classified into two groups:-
(b) Researcher has also collected data from websites of the company
and also other business websites. Researcher has also taken help
from his guide.
5. Reliability of Data :
Researcher feels that data collected for the research work is quite
reliable and authentic. This is because the data has been collected from
audited annual reports of the company. Researcher fully satisfied with the
data collected and means for the research work.
6. Analysis of Data:
Researcher has chosen the above tool for his research work and feels
that they will serve the best to the title of the research study.
7. Reporting :
In this study the structure analysis is adopted for analyzing the financial
statement of the company.
P a g e | 16
The books, which I referred to, gave me the information about the
ratio analysis, how to analyze the financial statement and how to interpret.
INTRODUCTION :
There are many ratios, but among the most· useful are those that
evaluate liquidity, leverage, activity & profitability. Each of the ratios
compares different numbers that assess the firm's operations. The ratios are
especially informative when compared to prior periods or industry averages
or the ratios of the other firms. For the purpose of analysis and
interpretation, the researcher has grouped the accounting ratios of Ballarpur
Industries Limited into four broad categories, viz.
A) Liquidity Ratios
B) Leverage Ratios
C) Activity Ratios
D) Profitability Ratios
A) Liquidity Ratios :
The current assets include those assets, which are in form of cash, near cash or
convertible into cash with in a period of 1 year. The term current assets also
include prepaid expenses and short investments, if any. The current liabilities
include all types of liabilities which will mature for payment within a period of
one year e.g. bank overdraft, bills payable, trade creditors, outstanding expenses,
provision for tax, proposed dividend, unclaimed dividend, accrued interest etc.
The Current Ratio throws light on the firm's ability to pay its current liabilities
out of its current assets. The Current Ratio calculated as above is to be compared
with a standard ratio. Generally, a Current Ratio of 2 times or 2:1 is considered
to be satisfactory.
It is also called the Acid Test Ratio or Liquid Ratio. This ratio establishes
the relationship between quick liquid current assets and current liabilities.
Quick Ratio is used as a measure of the company's ability to meet its
current obligations. A current asset is considered to be liquid if it is
convertible into cash without loss of time and value. The Quick Ratio may
be calculated as follows:
P a g e | 21
This ratio is also known as Super Quick Ratio or Cash Ratio or Cash
Reservoir Ratio. This ratio considers only the absolute liquidity available
with the firm. The cash and bank balance are no doubt; the most liquid
assets and the marketable securities are also considered as highly liquid
assets. In order to have an idea of immediate/super liquidity, therefore, the
cash + bank balance + marketable securities with the current liabilities. The
Absolute Liquidity Ratio/Cash Ratio is calculated as follows:
B) Leverage Ratios:
P a g e | 22
This ratio indicates the relationship between loan funds and net
worth of the company, which is known as gearing. If the proportion of debt
to equity is low, a company is said to be low-geared, and vice-versa. A debt
equity ratio of 2:1 is the norm accepted by financial institutions for
financing of project. The higher the gearing, the more volatile the return to
shareholders.
P a g e | 23
This ratio is also called the times interest earned ratio and it measures the
ability of the firm to pay the fixed interest liability. The Interest Coverage
Ratio may be calculated as follows:
The Financial Leverage Ratio tells about the extent of change in EBI
as a result of change in EBIT. The Financial Leverage Ratio may be
favorable or unfavorable. The ratio is favorable if return on assets is more
than the cost of funds used to acquire the assets and is unfavorable in the
other situation. A favorable Financial Leverage Ratio is also known as
Trading on Equity.
B) Activity Ratios :
This ratio attempts to throw light on the collection and credit policies of the
firm. This ratio is calculated as follows:
C) Profitability Ratios :
P a g e | 28
(ii) the equity shareholders who are interested in the ultimate returns
available to them. The performance of the firm can be evaluated
in terms of its earnings with reference to a given level of assets or
sales or owner interest etc. Broadly, the Profitability Ratios are
calculated by relating the returns with the (i) sales of the firm (ii)
assets of the firm and (iii) the owner's contribution.
The gross profit is the difference between the sales revenue and the
cost of generating those sales. Therefore, the gross profit amount and the
gross profit ratio depend upon the relationship between the selling price
P a g e | 29
and the cost of production including direct expenses. The gross profit ratio
reflects the efficiency with which the firm produces/purchases the goods.
The operating profit refers to the pure operating profit of the firm i.e.
the profit generated by the operation of the firm and hence is calculated
before considering any financial charge (such as interest payment), non-
operating income/loss and tax liability etc. The operating profit is also
termed as Earnings Before Interest and Taxes (EBIT). The Operating Ratio
may be calculated as follows:
The Net Profit Ratio establishes the relationship between the net
profit (after tax) of the firm and the net sales. It is calculated as follows :
Net Sales
Net Sales
This ratio measures the extent of costs incurred for making the sales.
This ratio shows relationship between cost of goods sold plus operating
expenses with the net sales. This ratio is closely related with the ratio of
operating profit to net' sales, which can be- obtained by subtracting the
operating profit from 100, i.e., operating ratio plus operating profit ratio is
100. A rise in Operating Ratio indicates decline in efficiency and vice-
versa. Lower the ratio, better it is.
Usually the profit of the firm is measured in terms of the net profit
after tax and the assets are measured in terms of total assets or total
tangible assets or total fixed assets. The ROA shows as to how much is the
profit earned by the firm per rupee of assets used.
The ROE indicates as to how well the funds of the owner have been used
by the firm. It also examines whether the firm has been able to earn
satisfactory return for the owners or not.
The profitability of the firm can be analyzed from the point of view of the
total funds employed in the firm. The term funds employed or the capital
employed refers to the total long-term sources of funds. It means that the
capital employed comprises of shareholders funds plus long-term debts. It
is calculated as follows:
Net Profit
Earnings Per Share =
Number of Equity Share
EPS is one of the major factors affecting the dividend policy of the
firm and the market prices of the company. Growth in EPS is more relevant
for pricing of shares from absolute EPS. A steady growth in EPS indicates
a good track of profitability.
The dividend pay-out ratio is the ratio between the DPS and the EPS
of the firm Le. it refers to the proportion of the EPS which has been
distributed by the company as dividends. It may be noted that the
DPS and the DP ratio both depends upon the statutory provisions
relating to compulsory appropriations of profits. It is calculated as
follows :
(Rs In crore)
A)Liquidity ratios
3) Absolute Liquidity
ratio= 371.1817 521.4163 155.5282
1) CURRENT RATIO :
3.69
4
2.85
3 2.52
Current
Ratio 2
Year
P a g e | 36
It means that the current assets of the firm are 2 times that of the current
liabilities. The current ratio therefore shows the extent to which the current
assets, which are quickly convertible into cash exceeds the current
liabilities, which will be shortly payable.
Such a high ratio indicates that the company has idle funds. The excess
liquidity prevents the company from maximizing its wealth.
P a g e | 37
2. Quick Ratio :
quickratio
2.5
1.5
0.5
0
2007 2008 2009
Observation
Initially, the company had satisfactory quick ratio but over the years,
the excess liquidity has implied that the funds are not being optimally
utilized.
P a g e | 38
Observation
This ratio considers only the absolute liquidity available with the
firm. The cash and bank balance are no doubt; the most liquid assets and
the marketable securities are also considered as highly liquid assets. In
order to have an idea of immediate/super liquidity, therefore, the cash +
bank balance + marketable securities are compared with the current
liabilities.
P a g e | 39
LEVERAGE RATIOS
(Rs In
crore)
Sr. No. 2009 2008 2006
B)Leverage ratios
3) Financial Leverage =
Earning before interest and tax 438.8437 360.5965 311.9946
Earning before tax 328.6311 254.8869 206.5452
1.34 1.41 1.51
B) LEVERAGE RATIOS
1.2
0.8
0.6
0.4
0.2
2007
2008
2009
Observation
business. In general, the lower the debt-equity ratio, the higher the degree
of protection enjoyed by the creditors.
Observation
The overall interest coverage ratios are higher than the standard
norm, which indicate a better sign both for the firm and for the lenders. For
the firm the profitability of committing default is reduced and for the
lenders the firm is considered to be less risky.
3) FINANCIAL LEVERAGE
Observation
The financial leverage tells about the extent of change in EBI as a result of change
in EBIT. The financial leverage may be favorable or unfavorable. The financial
leverage ratio is favorable if return on assets is more than the cost of funds used to
acquire the assets and is unfavorable in the other situation.
P a g e | 43
This ratio was higher in FY 06-07 i.e. 1.51 but it goes on decreasing up to FY
08-09. This indicates a low interest outflow & consequently lower borrowings.
P a g e | 44
4) PROPRIETARY RATIO
Observation
This ratio has decreased slightly during the study period. This shows
that the dependence on outsiders for financing assets has increased.
P a g e | 45
Activity Ratio
(Rs In
crore)
Sr. No. 2009 2008 2007
C)Activity ratios
Observation
This ratio establishes the relationship between the cost of goods sold
during the year and the average inventory held during the year by the firm.
The numerator is the cost of goods sold and not the net sales. This is
because the inventory account is carried at cost and it must be compared
with the other figure at cost level only. The average stock may be taken as
the average of yearly opening stock and closing stock.
Observation
This ratio in FY 06-07 was 9.63 but goes on decreasing. This shows that the
company's fund is blocked for a long time in debtors. The company has not been
efficient in converting debtors into cash.
P a g e | 48
Observation
This ratio shows how well the fixed assets are being utilized. In computing fixed
assets turnover ratio, the fixed assets are generally taken at written-down value at the
end of the year. However, there is to rigidity about it. It may be taken at original cost or
at present market value depending on the object of the comparison. In fact, the ratio will
have automatic improvements if the written-down value is used. It would be better if the
°ratio is worked out on the basis of the original cost of fixed asset.
The ratio has fallen down in 08-09 and suggests that the fixed assets should be
utilized more efficiently.
P a g e | 49
Observation
This ratio shows how well the fixed assets are being utilized. In
computing fixed assets turnover ratio, the fixed assets are generally taken
at written-down value at the end of the year. However, there is to rigidity
about it. It may be taken at original cost or at present market value
depending on the object of the comparison. In fact, the ratio will have
automatic improvements if the written-down value is used. It would be
better if the °ratio is worked out on the basis of the original cost of fixed
asset.
P a g e | 50
The ratio has fallen down in 08-09 and suggests that the fixed assets
should be utilized more efficiently.
Profitability Ratios
(Rs In crore)
Sr. No. 2009 2008 2007
D) Profitability ratios
37%
37%
37% 36%
36%
Gross Profit Ratio
36% 35%
35%
35%
34%
2007 2008 2009
Year
Observation
The gross profit is the difference between the sales revenue and he
cost of generating those sales. Therefore the gross profit amount and the
gross profit ratio depend upon the relationship between the selling price
and the cost of production including direct expenses. The gross profit
reflects the efficiency with which the firm produces/purchases the goods.
The gross profit has declined in F.Y. 08-09 which indicates that there is
increase in cost of goods sold which has affected the profitability of the
firm in that year.
P a g e | 52
18%
18% 18% 18%
18%
18%
17%
O perating Profit
Ratio
17% 17%
17%
17%
17%
16%
2007 2008 2009
Year
Observation
The operating profit refers to the pure operating profit of the firm i.e.
the profit generated by the operation of the firm and hence is calculated
before considering any financial charge, non-operating income/loss and tax
liability etc. The operating profit shows the percentage of pure profit
earned on every 1 rupee of sales made.
The ratio has remained pretty much consistent over the years.
P a g e | 53
Observation
This ratio shows the net contributions made by every 1 rupee of sales
to the owner funds. The net profit ratio indicates the proportion of sales
revenue available to the owner of the firm and the extent to which the sales
revenue can decrease or the cost can increase without inflicting a loss on
the owners. So, the net profit ratio shows the firm's capacity to face the
adverse economic situations.
P a g e | 54
The net profit has remained pretty much consistent over the years. This
indicates that there is no improvement in the operational efficiency of the
business.
P a g e | 55
19% 19%
19%
19%
Operating
18%
Expense 18% 17%
Ratio
17%
17%
16%
2007 2008 2009
Year
Observation
5. OPERATING RATIO :
83%
83% 83%
83%
83%
Operating82%
Ratio 82% 82%
82%
82%
82%
82%
81%
2007 2008 2009
Year
Observation
This ratio measures the extent of costs incurred for making the sales.
This ratio shows relationship-between cost of goods sold plus operating
expenses with the net sales. This ratio is closely related with the ratio of
operating profit to net sales, which can be obtained by subtracting the
operating profit from 100, i.e., operating ratio plus operating profit ratio is
100.
Profitability Ratio
(Rs In crore)
Sr. No. 2009 2008 2007
6. RETURN ON ASSETS :
P a g e | 60
Observation
Observation
This ratio has remained consistent over the last two years.
This reflects the productivity of the ownership (risk) capital employed in
the firm.
P a g e | 62
P a g e | 63
Observation
The profitability of the firm can be analyzed from the point of view
of the total funds employed in the firm. The term funds employed or the
capital employed refers to the total long-term sources of funds. It means
that the capital employed comprises of shareholders funds plus long-term
debts.
Observation
The more the earning per share better are the performance and
prospects of the company. Generally 10-20 times of EPS are considered as
a justified market price of a share.
Observation
Observation
The dividend pay-out ratio is the ratio between the DPS and the EPS
of the firm i.e. it refers to the proportion of the EPS which has been
distributed by the company as dividends. It may be noted that the DPS and
the DP ratio both depends upon the statutory provisions relating to
compulsory appropriations of profits.
This ratio has decreased which reflects that the company is slightly
conservative in distributing the dividends.
P a g e | 70
SUGGESTIONS
1. The company should try to improve its current ratio and quick
ratio, as excess liquidity affects the overall profitability of the firm.
The company can invest its idle funds in order to earn more profits and
thus increase the earning per share. This would benefit the shareholders
and put the company in better light.
The company needs to manage its fixed assets more efficiently in order
to further increase its sales. The contribution of fixed assets in the
revenue generation hasn’t proved to be satisfactory.
P a g e | 71
Although, the other profit ratios haven’t shown a decline but they haven’t
shown an increase as well. This suggests that there has been no
improvement in the operational efficiency of the company.
Whenever profit incur the company should try to give more dividend
to both equity and preference shareholders. Increasingly these ratios will
definitely helps the market share price to shoot up.
P a g e | 72
CONCLUSION
A) Liquidity Position :
The current ratio and quick ratio are higher than the ideal
ratio. It shows the company's excess liquidity.
P a g e | 73
B) Leverage Position:
C) Activity Position:
D) Profitability Position:
P a g e | 74
BIBLIOGRAPHY
Analysis of Financial
Statements … Vivek Sharma
P a g e | 76
Website :
www.bilt.com
Other :
Annual Reports of Ballarpur Industries Limited
(---In
Crs)