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ASSIGNMENT ON FINANCIAL STATEMENT ANALYSIS

Of

BERGER PAINTS

Submitted by:

Swati Agrawal (2011MB63) & Ankit Kumar Gupta (2011MB55)


Submitted to:

Dr. Tanuj Nandan

SCHOOL OF MANAGEMENT STUDIES


MOTILAL NEHRU NATIONAL INSTITUTE OF TECHNOLOGY 2011-2012
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INTRODUCTION:
Berger Paints India Limited (BPIL) is one of India's foremost paint companies, currently ranked as second largest on the basis of consolidated sales turnover in Indian paint industry. Established in 17th December, 1923, the company then known as Hadfiled's (India) Limited; was a small paint company based in Kolkata having its only manufacturing facility at Howrah, West Bengal to produce ready mixed stiff paints, varnishes and distempers. Post independence, towards the end of 1947, British Paints (Holdings) Limited, U.K acquired Hadfield's (India) Limited and thus British Paints (India) Limited was incorporated. From a production capacity of 150 tonnes and sales turnover of around Rs. 25 lakhs in 1947, the company has come a long way to become at one point of time; a part of the worldwide BERGER group in 1983 and thereby acquiring its present name Berger Paints India Limited to having subsequently gone through further ups & downs as well as ownership changes to gain its present status wherein the majority stake is with Delhi based Dhingra brothers and business revenue close to Rs.2000 crs. Today Berger Paints India Limited, having solely used and developed the name and trademark BERGER and all its variants in India, is a household name in paint. With Head Office in Kolkata the company manufactures and markets a range of decorative & industrial paint products under various product brands and has it operations spread throughout the length & breath of the country; with seven manufacturing facilities in India and more than 82 depots, several regional & area offices, besides four facilities overseas. It has a workforce of over 2300 employees and a countrywide distribution network of 12000 plus dealers.

QUALITY POLICY
Berger Paints are committed to provide full satisfaction to our customers with respect to Quality, Reliability and Delivery and attain Quality Leadership for all products that are offered by us. We shall achieve this goal by:

Establishing a Quality Management System conforming to International Standards. Institutionalizing a culture of "Getting it Right, First Time." Upgrading our Technology continuously to meet expectations of customers. Planned and structured Training and Development Programmes for all employees. Creating an environment which encourages team effort and where each individual's contribution is recognized and valued.

PHILOSOPHY

RATIO ANALYSIS
Ratio analysis is a process of identifying the financial strengths and weaknesses of the firm. This may be accomplished either through a trend analysis of the firms ratios over a period of time or through a comparison of the firms ratios with its nearest competitors and with the industry averages. The four most important financial dimensions, which a firm would like to analyze, are: Liquidity, Leverage, Activity and Profitability. Ratio analysis is a very useful tool to raise relevant questions on a number of managerial issues. It provides clues to investigate those issues in detail. However, caution needs to be applied while interpreting ratios as they are calculated from the accounting numbers. Accounting numbers suffer from accounting policy changes, arbitrary allocation procedures and inflation.

1) LIQUIDITY RATIO:
Liquidity Ratios measure the firms ability to meet current obligations, and are, calculated by establishing relationships between current assets and current liabilities. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.

a)

Current Ratio:
This ratio is obtained by dividing the 'Total Current Assets' of a company by its 'Total Current Liabilities'. The ratio is regarded as a test of liquidity for a company. It expresses the 'working capital' relationship of current assets available to meet the company's current obligations.

Current Ratio = Current Assets / Current Liabilities


Current Liabilities= total current liabilities + short term loan

By year By self By source

Mar 2007 1.36977 4 1.37289 7

Mar 2008 1.52746 1 1.52746 0

Mar 2009 1.639668 1.639667

Mar 2010 1.636252 1.636251

Mar 2011 1.606728 1.606727

Analysis:
Current assets are increasing in comparison to Current Liabilities. It shows the good performance of the company. Current liabilities include the short term loans.
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b)

Quick Ratio: An indicator of a company's short-term liquidity. The quick


ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.

Quick Ratio = (Current Assets Inventory) / Current Liabilities


Mar 2007 0.64401 7 0.52841 0 Mar 2008 0.77494 4 0.62374 1 Mar 2009 0.871438 0.711866 Mar 2010 0.867996 0.675059 Mar 2011 0.871887 0.695726

By year By self By source

Analysis: Usually high liquid ratios an indication that the firm is liquid and has the
ability to meet its current or liquid liabilities in time. Ratio is increasing that indicates, liquid assets are increasing over the years in comparison to the current liabilities. There is

difference between the ratios taken from source and actual calculation but the trend is same.

2) Activity or Turnover Ratios:


Activity Ratios reflect the firms efficiency in utilizing its assets in generating sales, and are calculated by establishing relationships between sales and assets. Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues. Activity Ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets a) Debtors Turnover Ratio: An accounting measure used to quantify a firm's effectiveness in extending credit as well as collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets
.

Debtors Turnover Ratio = Credit Sales / Average debtors

Average Debtors = (Opening Debtors + Closing Debtors) / 2 Mar 2007 10.2849 4 10.4880 0 Mar 2008 10.0600 10.1235 Mar 2009 9.92766 10.01015 Mar 2010 9.36408 9.50544 Mar 2011 10.10575 10.32564

By year By self By source

Analysis: Here credit sales is not available so total sales is taken into consideration and year end balance of debtor is taken. Debtors turnover ratio is decline from Mar07-Mar10 that implies management is not efficient to collect money from its debtors but in financial year 11 debtor seems to be more liquid in nature. b) Inventory Turnover Ratio: This ratio indicates the efficiency of the firm in producing and selling its product. It is calculated by dividing the cost of good sold by the average inventory. Inventory Turnover Ratio = Cost of goods sold / Average Inventory

Average Inventory = (Opening Inventory + Closing Inventory) / 2 Mar 2007 5.87574 4 4.66 Mar 2008 5.86530 3 5.92 Mar 2009 6.33423 6 6.64 Mar 2010 Mar 2011

By year By self By source

6.47156 4 6.534213 6.37 5.87

Analysis: A low turnover is usually a bad sign because products tend to deteriorate as they sit in a warehouse. COGS is not available so total sales is taken into consideration. That is why there is a difference in actual and calculated ratio. c) Fixed Asset Turnover Ratio: The fixed asset turnover ratio measures the company's effectiveness in generating sales from its investments in plant, property, and equipment. It is especially important for a manufacturing firm that uses a lot of plant and equipment in its operations to calculate its fixed asset turnover ratio. Fixed Asset Turnover Ratio = Sales / Net Fixed assets Mar 2007 9.86462 NA Mar 2008 9.64783 5 NA Mar 2009 9.36268 8 NA Mar 2010 Mar 2011

By year By self By source

8.42727 6 8.178116 NA NA

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Analysis: Companies with low profit margins tend to have high asset turnover, those
with high profit margins have low asset turnover - it indicates pricing strategy. From the above trend we can say that profit margin have been increased over a period of time.
3)

PROFITABILITY RATIOS:

A class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time. For most of these ratios, having a higher value relative to a competitor's ratio or the same ratio from a previous period is indicative that the company is doing well.

a)

Gross Profit Margin Ratio: The gross profit margin reflects the efficiency with
which management produces each unit of product. This ratio indicates the average spread between the cost of good sold and the sales revenue. Gross Profit Margin Ratio = (Gross Profit / Sales) * 100 Gross profit = PBDITA (profit before depreciation, interest, tax and amortization)

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By year By self By source

Mar 2007 9.81694 9.80714

Mar 2008 9.83309 5 9.80496 0

Mar 2009 9.34560 7 8.68160 1

Mar 2010

Mar 2011

10.9576 5 11.02387 10.9499 9 11.01472

Analysis: Increase in ratio indicates that sales price would be increased and COGS remain constant OR there would be lower COGS with consistency in price.

b)

Net Profit Margin Ratio:


Net profit margin ratio establishes the relationship between net profit and sales and indicates management efficiency in manufacturing, administrating and selling of the product. Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. Net Profit Margin Ratio = (Net Profit / Sales) * 100 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011

By year

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By self By source

6.26050 4 6.25070 6

6.02456 1 5.99642 7

5.2342 4.5701

6.56388 6.455109 6.55623 6.445968

Analysis:
Gross profit margin ratio of the company is increasing over the period of time but net profit margin ratio is constant or declining this indicates that the companies operating expenses relative to sales are increasing.
c)

Return on Capital Employed: Return on capital employed ratio is considered to be


the best measure of profitability in order to assess the overall performance of the business. It indicates how well the management has used the investment made by owners and creditors into the business. Higher the return on capital employed, the more efficient the firm is in using its funds. It is also called return on net assets (RONA).

Return on Capital Employed=RONA = (EBIT (1-T) / Capital Employed)*100 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011

By year

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By self By source

25.4714 NA

24.2095 2 NA

22.5555 8 NA

26.8394 9 NA

24.2326 NA

Analysis:
From the above trend we can say that company efficiency in using their fund in decreasing, ratio is high but consistent decline in the profitability. There is inclined movement but again it dip down very steeply.

d) Return on Net Worth:


A return on shareholders equity or return on net worth is calculated to see the profitability of owners investment. The ratio reveals how well the resources of the firm are being used, higher the ratio, better are the results. The inter firm comparison of this ratio determines whether the investments in the firm are attractive or not as the investors would like to invest only where the return is higher.

Return on Net Worth (ROE) = (NPAT / Net Worth) * 100 Net worth = Total assets total liabilities

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By year By self By source

Mar 2007 30.11528 4 30.26

Mar 2008 26.38319 8 26.47

Mar 2009 21.37610 5 21.43

Mar 2010

Mar 2011

19.18464 5 20.512856 19.21 20.56

Analysis: Above trend indicates that return on equity is high but it is consistently
decreasing. Company efficiency in using owners fund is decreasing.

e) Return on Total Assets:


The ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations must be paid Return on Total Assets = {EBIT(1-T) / Total Assets} * 100 Mar 2007 17.73957 Mar 2008 17.87087 Mar 2009 17.6808 Mar 2010 16.95584 Mar 2011 17.38921

By year By self

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By source

NA

NA

NA

NA

NA

Analysis:
Company profitability against its total assets is declining because proportion of increase in assets is more than proportion increase in profit. And there is robust increase in assets in the year 2010 but the profit has not increase significantly.

f)

EPS (Earning Per Share): The portion of a company's profit allocated to each
outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. EPS calculations made over years indicate whether or not the firms earning power on per share basis has changed over that period.

EPS(Earning Per Share) = NPAT / No. of equity shares outstanding

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By year By self By source

Mar 2007 2.605099 2.61

Mar 2008 2.887675 2.88

Mar 2009 2.783558 2.78

Mar 2010 3.471527 3.49

Mar 2011 4.285519 4.29

Analysis:
Company earning power on per share basis has been increased over the period this act as a positive indicator for investment in the company. There is huge increase in the net profit of the company, and the number of subscribed shares also increased.
g)

Dividend Per Share: The the sum of declared dividends for every ordinary share
issued. Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued.

Dividend Per Share = Equity Dividend / No. of equity shares outstanding Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011

By year

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By self By source

1.00008 1.00

0.499886 .40

0.599926 .60

1.100059 1.11

1.300017 1.30

Analysis:
There is a sharp decline in dividend paid to the share holders in 2008 because in this year company increased their retained earning from 46 to 73 crore, so there would be lesser profit remain for the dividend. Then profit of the company increasing and more profit available for dividend.
4)

Leverage/ Solvency Ratios:

Leverage Ratios measure the proportion of outsiders capital in financing the firms assets, and are calculated by establishing relationships between borrowed capital and equity capital.

a)

Debt-Equity Ratio: This relationship describing the lenders contribution for each
rupee of the owner contribution is called debt-equity ratio. DE ratio is directly computed by dividing total debt by net worth.

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Debt-Equity Ratio = Total debt / Net worth Mar 2007 0.41803 2 0.42003 7 Mar 2008 0.34646 6 0.34752 8 Mar 2009 0.187992 0.212295 Mar 2010 0.039059 0.039072 Mar 2011 0.108657 0.108782

By year By self By source

Analysis: Ratio is less than one that means equity money is more than debt money in the
company and it consistently declining from 2007 till 2010 that is safety measure indicates the healthy position of the company.

b) Interest Coverage Ratio:-

The interest coverage ratio is used to test the firms debt serving capacity. This ratio shows the number of times the interest charges are covered by funds that are ordinarily available for their payment.

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By year By self By source Mar 2007 11.11276 11.09990

ICR=PBIT/INTEREST Mar 2008 10.29421 10.26056 Mar 2009 9.007175 8.272667 Mar 2010 36.66316 36.63368 Mar 2011 18.33333 18.31609

Analysis:
It is an index of the financial strength of an enterprise. A high debt service ratio or interest coverage ratio assures the lenders a regular and periodical interest income. But too high a ratio indicates that the firm is very conservative in using debt, as in the year 2010 and company is not using debt to the best advantage of shareholders.

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Appendices

Appendix I Appendix II Appendix III

Executive Summary of Statement Appropriation of Profit Shareholders Fund

Appendix I : Executive Summary


Berger Paints India Ltd. Rs. Crore (Non-Annualised) Total income Mar 2007 12 mths 1341.13 21 Mar 2008 12 mths 1543.61 Mar 2009 12 mths 1726.52 Mar 2010 12 mths 1854.37 Mar 2011 12 mths 2337.46

Sales Income from financial services Total expenses Raw material expenses Power, fuel & water charges Compensation to employees Indirect taxes Selling & distribution expenses Other operational exp. of indl. enterprises Other oper. exp. of non-fin. service enterprises PBDITA PBDTA PBT PAT Net worth Paid up equity capital (net of forfeited capital) Reserves & surplus Total borrowings Current liabilities & provisions Total assets Gross fixed assets Net fixed assets Investments Current assets Loans & advances Growth (%) Total income Total expenses PBDITA PAT Net worth Total assets

1326.89 1.94 1288.54 624.04 13.2 58.12 163.97 152.07 0 0 130.26 120.15 102.24 83.07 275.84 63.77 212.07 115.25 234.09 633.33 258.65 134.51 12.82 475.75 8.82

1528.41 1.92 1464.35 696.06 15.05 68.16 183.07 174.19 0 0 150.29 137.51 118.78 92.08 349.01 63.77 285.24 120.86 257.76 736.17 299.93 158.42 21.85 546.22 7.65

1695.77 2.38 1651.92 798.08 17.18 76.84 179.65 196.16 0 0 158.48 143.15 122.75 88.76 415.23 63.77 351.46 87.92 268.68 780.96 341.49 181.12 29.53 568.44 0

1830.32 3.75 1744.68 839.89 17.86 89.8 137.1 230.85 0 0 200.56 195.81 169.4 120.14 626.23 69.21 557.02 24.43 365.2 1027.08 403.34 217.19 170.2 637.5 0

2297.56 16.32 2257.64 1097.6 22.61 107.61 204.79 298.05 0 0 253.28 241.1 211.12 148.31 723.01 69.21 653.8 78.55 471.14 1284.13 496.28 280.94 117.59 883.17 0

18.037476 1 19.335778 3 12.545360 3 18.181818 2 20.373782 6 19.917067

15.097716 1 13.644124 4 15.376938 4 10.846274 2 26.747576 4 16.237980 22

11.849495 7 12.809096 2 5.4494643 7 3.6055603 8 19.084452 4 6.0841925

7.4050691 6 5.6152840 3 26.552246 3 35.353763 50.975515 5 31.515058

26.051435 3 29.401380 2 26.286398 1 23.447644 4 15.486605 4 25.027261

4 Profitability ratios (%) PBDITA Net of P&E/Total income net of P&E PAT Net of P&E/Total income net of P&E PAT Net of P&E/Avg. net worth PAT/Avg. net worth PAT Net of P&E/Avg. total assets PAT/Avg. total assets Liquidity ratios (times) Current ratio Debt to equity ratio Interest cover Debtors (days) Creditors (days) 1.3728970 1 0.4200379 11.099901 1 34.801660 3 58.310911

9.7039522 7 6.1849366 1 32.815683 8 32.867119 14.281901 4 14.304286 8

9.7111160 1 5.9390349 8 29.335040 4 29.472673 4 13.384446 9 13.447243 5

8.5829553 5 4.5182654 5 20.281586 9 23.228305 2 10.216659 1 11.701040 8

10.808799 3 6.4716890 6 23.044572 23.071457 4 13.274042 6 13.289529

10.827682 1 6.3365065 8 21.953099 5 21.984228 2 12.815797 8 12.833970 1

1.5274608 5 0.3475285 4 10.260563 4 36.05438 53.776689 2

1.6396677 1 0.2122953 6 8.2726679 7 36.462978 5 48.618840 6

1.6362516 4 0.0390723 7 36.633684 2 38.399064 1 58.118505 6

1.6067276 7 0.1087829 6 18.316092 35.348870 1 61.749254 6

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Appendix II -Appropriation of profits


Berger Paints India Ltd. Rs. Crore (NonAnnualised) Profit/loss after tax Dividends Equity dividends Preference dividends Dividend tax Retained profits Transfer from reserves Balance brought forward Transfer to reserves Profit ratios (times) Equity dividend / PAT Pref. dividend / PAT Dividend tax / PAT Retained profits / PAT 0.383893 1 0 0.058384 5 0.557722 4 0.1731103 4 0 0.0294309 3 0.7974587 3 0.2155250 1 0 0.0366155 9 0.7478594 0.3168803 1 0 0.0526052 9 0.6305144 0.3033510 9 0 0.0496932 1 0.6469557 Mar 2007 12 mths 83.07 36.74 31.89 0 4.85 46.33 0 25 46.33 Mar 2008 12 mths 92.08 18.65 15.94 0 2.71 73.43 0 25 9.21 Mar 2009 12 mths 88.76 22.38 19.13 0 3.25 66.38 0 89.22 8.88 Mar 2010 12 mths 120.14 44.39 38.07 0 6.32 75.75 0 146.71 12.01

Mar 2011 12 mths 148.31 52.36 44.99 0 7.37 95.95 0 210.45 14.83

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Appendix III - Shareholder's funds


Berger Paints India Ltd. Rs. Crore (Non-Annualised) Net worth Authorised equity capital Issued equity capital Subscribed equity capital Paid-up equity capital Forfeited equity capital Paid-up preference capital Capital contibution, suspense & application money Bonus share capital Number of shares (in Lakhs) Authorised equity shares Issued equity shares Subscribed equity shares (net) Equity shares alloted without payment being received in cash Call in arrears amount From directors From others Reduction in equity capital Reduction in equity capital (lakh shares) Free reserves Security premium reserves (net of deductions) Other reserves General reserves Balance from profit & loss account Specific reserves Capital, debt, investment & other reserves Debenture/bond redemption reserves Foreign project reserves Investment fluctuation reserve Employee stock option reserve Revaluation reserves Accumulated losses Revenue expenses directly charged to reserves Ma r 2006 12 mth s Mar 2007 12 mths 275.84 65 63.78 63.77 63.77 0 0 0 50.89 Mar 2008 12 mths 349.01 65 63.78 63.77 63.77 0 0 0 50.89 Mar 2009 12 mths 415.23 75 63.78 63.77 63.77 0 0 0 50.89 Mar 2010 12 mths 626.23 75 69.22 69.21 69.21 0 0 0 50.89 Mar 2011 12 mths 723.01 75 69.22 69.21 69.21 0 0 0 50.89

3250 3189.18204 318.87464 31.51187 0 0 0 0 0 210.63 0.01 0 185.62 25 0.06 0.06 0 0 0 0 1.38 0 0

3250 3189.1820 4 3188.7246 4 170.44235 0 0 0 0 0 283.94 0.01 0 194.71 89.22 0.06 0.06 0 0 0 0 1.24 0 0

3750 3189.1820 4 3188.7246 4 170.44235 0 0 0 0 0 350.31 0.01 0 203.59 146.71 0.06 0.06 0 0 0 0 1.09 0 0

3750 3461.1820 4 3460.7246 4 370.44235 0 0 0 0 0 555.98 129.93 0 215.6 210.45 0.06 0.06 0 0 0 0 0.98 0 0

3750 3461.18204 3460.72464 244.39487 0 0 0 0 0 651.93 129.93 0 230.43 291.57 0.94 0.06 0 0 0 0.88 0.93 0 0

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