FINANCIAL ANALYSIS

RATIO ANALYSIS
LIQUIDITY RATIOSLiquidity refers to the ability of a firm to meet its obligations in short run, usually one year. Liquidity ratios are generally based on the relationship between current assets (the source for meeting short term obligations) and current liabilities.


CURRENT RATIO The ratio is mainly used to give an idea of the company's ability
to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations.

CURRENT RATIO =

CURRENT ASSETS CURRENT LIABILITIES

CURRENT RATIO

Mar' 2007

Mar'2008

Mar' 2009

INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES

1.8 31.84

1.88 12.91

1.74 11.42

Current ratio for Motilal Oswal Financial Services has been very high in the previous year 2007. Though in 2009, it has reduced from 31.84 to 11.42, it still remains a very high figure. This indicates that the company has greater short term solvency. Indiabulls Securities possesses current assets that are almost twice its current liabilities. But current assets with Motilal Oswals are far greater than its current liabilities. Both the companies maintain more than the satisfactory margin of current assets over current liabilities. Short term creditors of the company are primarily interested in knowing the companys ability to pay its short term creditors as and when they become due.

 QUICK RATIO-

It is a measure of instant debt paying capacity of the business enterprise. This ratio measures financial position of a business at a point of time. It is based on those current assets which are highly liquid (inventories which are deemed to be least liquid are excluded). Thus it is fairly stringent measure of liquidity.

QUICK RATIO = QUICK CURRENT ASSETS CURRENT LIABILITIES *QUICK CURRENT ASSETS= CURRENT ASSETS INVENTORIES PREPAID EXPENSES
QUICK RATIO Mar' 2007 INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES
1.8 31.84

Mar'2008

Mar' 2009
1.74 10.57

1.88 12.83

Quick ratio for Indiabulls Securities remains same as the current ratio since there are no inventories with the company. Current assets with Motilal Oswals are highly liquid to meet the current obligations and are far greater than the current obligations. The ratio has declined in previous year 2009 as compared against previous year 2007. The company has funds available for immediate conversion of assets into cash. But it is not always a good position. The company can employ the current assets to its more productive resources since the current obligations stand out to be a miniature figure against the assets possessed by the company.

 CASH RATIO - The cash ratio is the most stringent and conservative of the three short-term liquidity ratios (current, quick and cash). It only looks at the most liquid short-term assets of the company, which are those that can be most easily used to pay off current obligations.

CASH RATIO = CASH & BANK BALANCE + CURRENT INVESTMENTS CURRENT LIABILITIES
CASH RATIO

Mar' 2007 INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES

1.41 1.97

Mar'2008
2.6 0.048

Mar' 2009
1.78 5.21

The cash ratio for Indiabulls increased in 2009 after suffering a dip in 2008. The company possesses enough cash to meet its short term obligations. The cash ratio for Motilal Oswals significantly increased in the year 2009 as compared to year 2008. But this ratio also suffered a fall in 2008 as against the year 2007. Motilal Oswals also have enough ready cash to meet its short term obligations. Moreover the company also has an opportunity to invest this ready cash into revenue generating purposes.

PROFITABILITY RATIOSProfitability reflects the final result of business operations. There are two types of profitability ratios:
y y

Profit margin ratios show the relationship between profit and sales. Rate of return ratios reflect the relationship between profit and investment.

 NET PROFIT RATIO- This ratio measures the rate of net profit earned on sales.
It reflects efficiency with which a firm produces its products as well as pricing. It is better to have high net profit ratio for a company because it indicates higher profitability for the company.

NET PROFIT RATIO = NET OPERATING PROFIT NET SALES

NET PROFIT RATIO Mar' 2007 INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES
53.00% 79.34%

Mar'2008
68.00% 79.25%

Mar' 2009
8.00% 92.98%

Net profit ratio for Indiabulls has declined considerably as compared to the previous year 2008 when it increased. This decrease is due to reduced operating profit and sales while operating profit reduced by greater proportion. This decrease in operating profit may be due

to increase in cost of sales or due to decrease in sales revenue owing to fall in selling price while expenses increased. For Motilal Oswals, the ratio has increased annually for the three consecutive years. It measures the overall efficiency of management. But this may not be a true picture and the increased ratio may be due to increase in sales without a corresponding increase in cost of goods sold.

 OPERATING RATIO- Operating ratio shows the operational efficiency of the business. Lower operating ratio shows higher operating profit and vice versa. This ratio establishes the relationship between total cost incurred and sales.

OPERATING RATIO = COST OF GOODS SOLD + OPERATING EXPENSES NET SALES

OPERATING RATIO Mar' 2007 Mar'2008 Mar' 2009

INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES

0.66 28.47

0.45 36.95

1.53 11.7

Operating ratio has increased for Indiabulls compared to the previous years. It indicates that operational inefficiency of the company. While the operating ratio for Motilal Oswals has decreased considerably. Lower ratio reflects efficiency of management.

RETURN ON INVESTMENT- This ratio indicates overall profitability of the

business. This is the broadest measure of overall performance of an enterprise. The objective of calculating this ratio is to find out how much income the use of Rs. 100 of capital generates.

RETURN ON INVESTMENT = PROFIT BEFORE INTEREST, TAX & DIVIDENDS CAPITAL EMPLOYED
RETURN ON INVESTMENT Mar' 2007 Mar'2008 Mar' 2009

69.00% INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES 7.80%

61.80% 10.90%

10.52% 16.90%

Return on investment has decreased by significantly higher percentage for Indiabulls. This is because of highly reduced profit before interest, tax & dividends. Return on investment for Motilal Oswals improved annually over past three consecutive years. It indicates improvements in overall profitability of the business.

LEVERAGE RATIOSFinancial Leverage refers to the use of debt finance. Leverage Ratios help in assessing the risk arising from the use of debt capital.


DEBT EQUITY RATIO-

The debt equity ratio shows the relative contributions of creditors and owners. The lower the debt equity ratio, the higher the degree of protection enjoyed by the creditors.

DEBT EQUITY RATIO =

DEBT EQUITY
DEBT EQUITY RATIO Mar' 2007 Mar'2008
1.044

Mar' 2009
0.38

INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES

0.1239

Debt equity ratio for Indiabulls increased in the year 2008 as compared to the year 2007. This ratio increased due to greater proportionate increase in debt as against a minimal increase in equity. In 2009, the ratio reduced from 1.044 to 0.38. This increase was due to increase in debt as well as the equity but the increase in 2009 was lower than increase in 2008. Lower debt level indicates improvement in earnings on net worth is possible provided growth plans are to be funded from untapped borrowings. There is no debt in Motilal Oswal. It is a company financed wholly from its internal equity.

 DEBT RATIO- A ratio that indicates what proportion of debt a company has relative to its assets. The measure gives an idea to the leverage of the company along with the potential risks the company faces in terms of its debt-load.

DEBT RATIO = TOTAL DEBT TOTAL ASSET

DEBT RATIO

Mar' 2007

Mar'2008

Mar' 2009

INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES

0.058

0.269

0.148

Debt ratio in 2009 decreased when compared to the same in 2007 but experienced an increase in 2008. This decrease is because the amount of borrowings with the company in 2009 decreased against the borrowings in 2008. Also the total assets possessed decreased i.e. the proportion of debt relative to its assets reduced by approximately 50% of what it was in 2008. Motilal Oswal is a self sustained company and possesses no borrowings. It is a company wholly financed from its internal equity.

DEBT TO TOTAL FUND RATIO-

This ratio is very similar to the debt-equity ratio. A ratio under 1 means a majority of assets are financed through equity, above 1 means they are financed more by debt. Furthermore you can interpret a high ratio as a "highly debt leveraged firm". Companies with high ratios are placing themselves at risk, especially in an increasing interest rate market. Creditors are bound to get worried if the company is exposed to a large amount of debt and may demand that the company pay some of it back.

DEBT TO TOTAL FUND RATIO = TOTAL LIABILITIES TOTAL ASSETS

DEBT TO TOTAL FUND RATIO Mar' 2007 INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES
0.5 0.022

Mar'2008
0.575 0.052

Mar' 2009
0.529 0.081

The ratio for Indiabulls experienced very minor changes. The total liabilities and the total assets increased by an equal proportion in the year 2008and decreased by almost an equal proportion in the year 2009. So the ratio remained almost equal along the last three consecutive years. The ratio for Motilal Oswal though very low, has increased annually by very marginal amount. Indiabulls is solvent because its total liabilities are only 50% of the assets. While at Motilal Oswals, the total liabilities are merely 8% of the assets. Thus it is also solvent.

ACTIVITY RATIOActivity ratios help investors evaluate a firms ability to effectively and efficiently manage its operations and assets. These ratios are based on the relationship between the level of activity, represented by sales or cost of goods sold, and the levels of various assets.  CAPITAL TURNOVER RATIO- Capital turnover is used to calculate the rate of return on common equity, and is a measure of how well a company uses its stockholders' equity to generate revenue. The higher the ratio is, the more efficiently a company is using its capital.

CAPITAL TURNOVER RATIO =

COST OF SALES CAPITAL EMPLOYED ASSETS DEPRICIATION) +

*CAPITAL EMPLOYED= WORKING

(FIXED

CAPITAL
Mar' 2007 Mar'2008 Mar' 2009

INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES

1.19 0.019

0.89 0.025

1.12 0.0009

Capital turnover ratio for Indiabulls declined in 2008 as against 2007. Though the ratio improved in the previous year 2009 but it still remained lower than what the company realized in 2007. However it has been comparatively successful in making efficient use of financial resources at its disposal. Whereas Capital turnover ratio for Motilal Oswals stands out to be very low. Moreover it declined in 2009 by a significant value. A low ratio may signify that the capital is lying idle or that any of the constituents of capital employed has been inflated. Also the sales have been suppressed.  NET WORKING CAPITAL TURNOVER RATIO A Company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better

because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.

NET WORKING CAPITAL TURNOVER = RATIO CAPITAL

COST OF SALES NET WORKING

NET WORKING CAPITAL TURNOVER RATIO

Mar' 2007

Mar'2008

Mar' 2009

INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES

1.69 0.019

1.05 0.025

1.5 0.0009

Net working capital turnover for Indiabulls declined in 2009 as compared to the same in 2007. Both the net sales and the net working capital declined in 2009. Even though it declined internally, it still remained a high ratio in comparison to the ratio realized by Motilal Oswals whose ratio stands at significantly lower levels. A higher ratio here indicates efficient use of working capital and quick turnover of current assets. While lower ratio indicates low turnover of these assets.

 FIXED ASSET TURNOVER RATIO- This ratio shows the efficiency of the business house in utilizing its fixed assets. Higher this ratio, better it is because it indicates higher efficiency i.e. every rupee invested in fixed assets generates higher sales. With the help of this ratio, arrangement for disposal or alternative uses of such unutilized or under utilized assets may be made.

FIXED ASSET TURNOVER RATIO = FIXED DEPRICIATION

NET SALES ASSET-

FIXED ASSET TURNOVER RATIO

Mar' 2007

Mar'2008

Mar' 2009

INDIABULLS SECURITIES MOTILAL OSWAL FINANCIAL SERVICES

5.76 3210

4.35 5571

Fixed asset turnover ratio for Indiabulls showed efficiency of business in generating sales from its investment in its fixed assets for all three consecutive years. The ratio stands out to be a very figure for Motilal Oswals. This high fixed asset turnover ratio may be due to the fact that the fixed assets would have been acquired at lower cost and no depreciation has been written off. Also sales may have increased due to increase in price and may not really reflect efficiency of the firm.