Cash flow statement

(A) Cash from operations 2012–13 2013–14 2014–15

Net profit as per income statement 364,000 672,000 840,000
Add: Non-operating expenses
Depreciation 100,000 400,000 660,000

Less: Non-operating income (NIL) (NIL) (NIL)

Less: Increase in current assets

and decrease in current liabilities

Accounts receivable (300,000) (1,200,000) (600,000)

Inventories (320,000) (1,180,000) (750,000)

Add: Decrease in current assets

and increase in current liabilities

Accounts payable 260,000 1,468,000 1,052,000

Net cash inflow/outflow from 104,000 160,000 1,202,000
operations (A)

(B) Cash from investing activity

Purchase of fixed assets (the outflow (2,000,000) (1,000,000) (2,860,000)
of cash)
Net cash outflow from investing (2,000,000) (1,000,000) (2,860,000)
activity (B)
(C) Cash from financing activity
Inflow from the issue of equity shares 1,200,000 400,000 400,000

Borrowings (long term) 736,000 500,000 1,264,000

Net cash inflow from financing (C) 1,936,000 900,000 1,664,000

Net cash inflow/outflow 40,000 60,000 6,000

Common size balance sheet

2012–13 2013–14 2014–15
Assets
Fixed assets (net of depreciation) 74.2187 44.6429 51.3325
Cash and cash equivalence 1.5625 1.7857 1.1577
Accounts receivable 11.7188 26.7857 22.9358
Inventories 12.5 26.7857 24.5740
Total 100 100 100
Liabilities
Equity share capital (shares of ₹10 46.8750 28.5714 21.8436
each)
Reserve and surplus 14.2188 18.5000 20.4893
Long-term borrowings 28.75 22.0715 27.3045
Current liabilities 10.1562 30.8571 30.3626
Total 100 100 100

Common size Income Statement

2012–13 2013–14 2014–15
 Assets
Fixed assets (net of depreciation) 74.2187 44.6429 51.3325
Cash and cash equivalence 1.5625 1.7857 1.1577
Accounts receivable 11.7188 26.7857 22.9358
Inventories 12.5 26.7857 24.5740
Total 100 100 100
Liabilities
Equity share capital (shares of ₹10 46.8750 28.5714 21.8436
each)
Reserve and surplus 14.2188 18.5000 20.4893
Long-term borrowings 28.75 22.0715 27.3045
Current liabilities 10.1562 30.8571 30.3626
Total 100 100 100

Trend analysis of Income statement

2012–13 2013–14 2014–15
Total revenue 100 240 400
Cost of goods sold 100 228 387
Gross profit 100 259 421
Operating expenses:
General, administration, and 100 563 1250
selling expenses 100 400 660
Depreciation 100 263 567
Interest expenses (on borrowings)
Profit before tax (PBT) 100 185 231
Tax @ 30% 100 185 231
Profit after tax (PAT) 100 185 231
Ratios Formula
Name of ratio Formula Interpretation
Gross margin It reflects the gross m
(profit ratio) Gross margin ÷ Net sales revenue firm through manufactu
proportion of revenue
margin reflects the com
based on the cost of
efficiency of reducing
cost. It is believed that
constant or show an up
turn reflects the op
efficiency of the organ
most cases is useful
for manufacturing organ
Profit margin Net income or PAT ÷ Sales revenue The net profit ratio is c
the overall efficiency
based on its revenue.
calculated with profit b
after tax, and it reflect
overall organizational ef
Return on assets Profit after tax ÷ Total assets
Or
It indicates the profit ear
[Net income + Interest (1 — Tax rate)]
÷ (Total assets)
Return on [Net income + Interest (1 — Tax rate)])
invested ÷ (Long term liabilities
The objective of ROIC
capital + Shareholders' equity)
capital. It assesses
(ROIC) Or
company is able to get
 Earnings before interest, tax, to the capital it has inve
EBITDA ( depreciation, and
)
amortization
÷ [Debt (Outside liabilities) + Equity]

Return on This ratio reflects th

shareholder Net income or PAT ÷ Shareholders' equity shareholders’ fund, i.e.,
s’ equity surpluses. It indicates
(ROE) owners’ fund and show
and owners of the com
trend of profits generate
Earnings per Net income or PAT ÷ Number of shares outstanding This is the amount of pr
share (EPS) equity shareholder after
expenses. This ratio is
investors for making in
and is also used to g
shareholders informatio
on their shares.
Price–earnings Market price per share ÷ Net income per share (EPS) The P/E ratio is a prom
ratio firm’s performance vis-à
(P/E ratio) of its common stock. Th
the performance of
anticipated/judged by
indicates how the compa
perform in the future
market and investors.
Assets Sales revenue ÷ Total assets It indicates efficiency in
turnover explains the
ratio revenue-generating cap
total assets.
Fixed Sales revenue ÷ Fixed assets This explains the reven
assets capacity of the firm with
turnover assets employed.
Capital intensity Sales revenue ÷ PPE (property, plant & equipment) Companies with large
(such as petrochemical
steel firms) focus on this
PPE severely impa
fluctuations in the bus
activity of a firm. This
contribution by PPE to
company.

Invested Sales revenue ÷ (Long term liabilities + This ratio is analyzed

capital shareholders’ equity) return on investment (R
turnover profit margin × investme
Inventory Cost of goods sold or Cost of sales This ratio explains
turnover Average inventory inventories in relation
inventory turnover r
movement of inventor
turnover ratio indicates
inventory, which further
efficient
movement of inventory.
 Inventory days 365 days or 52 weeks or 12 months
Inventory turnover
This ratio indicates the
Or
firm’s inventory in days.
Inventory
Cost of sales ÷ 365
Receivable Credit sales ÷ Average accounts receivable This indicates the mov
turnover with reference to credi
computed to
assess the efficiency in t
management/collection
receivable.
Receivable days 365 days or 52 weeks or 12 months
Receivable turnover
This indicates the mana
Or
receivables in days.
Average accounts receivable
Credit sales ÷ 365
Payable turnover Credit purchases This indicates payables
Average accounts payable credit purchases. It is c
payables are
paid on time or not.

Payable days 365 days or 52 weeks or 12 months

Payable turnover This indicates how man
Or made to suppliers. It as
Average accounts payable in the management/pa
Credit sales ÷ 365 payable.
Working Sales revenue ÷ Working capital
capital
This ratio explains how
turnover
capital, i.e., the net cu
(where Working
The higher the turno
capital is Current
working capital utilizatio
assets — Current
liabilities)
Current ratio Current assets ÷ Current liabilities This ratio indicates the
pay its short-term liabi
higher the ratio, the
company is of paying it
However, a high current
large portion of working
reduce the firm’s profita
ratio should be neither t
Acid test (quick) Quick assets ÷
This ratio is calculated t
ratio Current liabilities
position of the firm. Ho
(Monetary current assets
pay its present obligat
= Quick assets – Inventory – Prepaid
more rigorous test of
expenses)
current ratio.

Financial This ratio measures the

leverage Assets ÷ Shareholders’ equity company and then com
ratio assets or equity. It in
assets owned by shareh
When the majority of t
by shareholders of t
believed that the firm
When creditors own t
assets, it is said to be h
 indicator is required to a
the capital structure of
order to decide whethe
such a firm should
be undertaken or not.
Debt-to-equity ratio Long term liabilities ÷ Shareholders’ equity Debt usually has a low
Or equity; hence, it is us
Total liabilities ÷ Shareholders’ equity Raising financing throug
fixed liabilities in terms
interest. It also adds to
liability has to be met e
not performing well. Th
loss if the ROI is lower
(interest); therefore, the
should
be reasonable.
Debt Long term liabilities This ratio indicates the
capitalization Long term liabilities + Shareholders’ equity by the
company. It indicates
of investing in the busine

Times interest Pretax operating profit + Interest The lower the interest
earned or the Interest higher the company’s d
interest Or higher the possibility o
coverage ratio Earnings before interest and taxes determines how easily
Interest make payments of inte
loans. A high intere
indicates the strength
to pay
interest.
Proprietary Proprietary funds ÷ Total assets A proprietary fund mea
fund Or capital, free reserves
ratio Net worth ÷ Total assets losses, and fictitious as
Or expenses). Total asse
Proprietary funds ÷ Total funds assets. This ratio expla
total assets financed out
The higher the rati
dependence on outside
stable
the position of the comp
Dividend yield Dividend per share ÷ Market price per share This ratio indicates the
the company each year
price.
Dividend payout Dividends ÷ Net income This ratio indicates th
Or distributed to the sh
Dividends ÷ Earnings per share amount kept as retain
business. When compar
and previous years, it
prospects of the comp
earnings are high and th

Ratios for this case

 Ratio Year 1 Calculation Year 2 Calculation Year 3 Calculation

Current ratio 660,000 3,100,000 4,456,000

260,000 = 2.54 1,728,000 = 1.79 2,780,000 = 1.6
Acid test ratio 340,000 1,600,000 2,206,000
= 1.31 = 0.93 = 0.79
260,000 1,728,000 2,780,000

Receivable turnover ratio 1,800,000 4,320,000 7,200,000

300,000 = 6 times 900,000 = 4.8 times 1,800,000 = 4 time
365 365 365
Receivable days = 61 days = 76 days = 91 days
6 4.8 4

Inventory turnover ratio 1,240,000 2,832,000 4,800,000

= 3.875 = 3.1 = 2.56
320,000 910,000 1,875,000
365 365 365
Inventory days = 94 days = 117 days = 143 days
3.875 3.1 2.56
Long-term debt to total 736,000 1,236,000 2,500,000
capital = 29% = 22% = 27%
2,560,000 5,600,000 9,156,000

Debt-to-equity ratio 736,000 1,236,000 2,500,000

= 0.61 = 0.77 = 1.25
1,200,000 1,600,000 2,000,000

Gross margin ratio 760,000 1,968,000 3,200,000

= 38% = 41% = 40%
2,000,000 4,800,000 8,000,000

Net margin ratio 364,000 672,000 840,000

= 18.2% = 14% = 10.5%
2,000,000 4,800,000 8,000,000

Return on equity 364,000 672,000 840,000

25% 22%
1,564,000 = 23% 2,636,000 = 9,156,000 =

Return on fixed assets 364,000 672,000 840,000

27%
1,900,000 = 19.16% 2,500,000 = 4,700,000 = 17.87%

Return on total assets 364,000 672,000 840,000

12% 9%
2,560,000 = 14.22% 5,600,000 = 9,156,000 =

Interest coverage ratio 580,000 1,118,000 1,540,000

= 9.67 7.08 4.53
60,000 158,000 = 340,000 =

Total assets turnover 2,000,000 4,800,000 8,000,000

ratio
(Total revenu ÷ Total 2,560,000 5,600,000 9,156,000
assets e = 0.78 = 0.86 0.87
)
Fixed assets turnover 2,000,000 4,800,000 8,000,000
ratio
(Revenue ÷ Fixed assets) 1,900,000 2,500,000 4,700,000
= 1.05 = 1.92 = 1.70
Current assets turnover 2,000,000 4,800,000 8,000,000
ratio (Revenue ÷ = 3.03 = 1.79
660,000 3,100,000 4,456,000
Current assets = 1.54
Workin capital turnover 2,000,000 4,800,000 8,000,000
= 5 = 3.5 = 4.77
 g
ratio (Revenue ÷ 400,000 1,372,000 1,676,000
Working
capital)