Profitability Ratios

Gross Profit Margin

20%
          Normal Increase
31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
  2007 2008 2009 2010 2011 2011
Sales 497.70 958.50 1124.70 1291.9 1315.75 1473.64
574.719
Gross Profit 175.00 407.70 330.70 359.3 499.985 6
Gross Profit Margin 35.16 42.54 29.40 27.81 38.00 39.00

The gross profit margin has declined for the year 2008-09 and 2009-10. This has happened
even though the sales have increased. The reason for this is the rising inflation resulting in an
increase in the cost of goods sold. The projections show that the margins are expected to
increase due to increase in volume and reduction in cost of goods sold.

Operating Profit Margin

20%
          Normal Increase
31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
  2007 2008 2009 2010 2011 2011
Sales 497.70 958.50 1124.70 1291.90 1315.75 1473.64
Operating Profit 55.10 141.10 21.30 -43.40 121.28 142.08
Operating Profit
Margin 11.07 14.72 1.89 -3.36 9.22 9.64

This margin depicts the margins due to operations and from no other activities. Same as the
GPM this has declined in 2008-09 and 2009-10. It has even become negative in the year
2009-10. This is due to an increase in operational expenses such as advertising even during
bad years. However, the projected margins are set to improve with increase in sales justifying
the increase in operational expenses.

Net Profit Margin

20%
          Normal Increase
 31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
  2007 2008 2009 2010 2011 2011
Sales 497.70 958.50 1124.70 1291.9 1315.75 1473.64
Net Profit 55.10 123.30 -8.90 -80.10 91.42 109.35
Net Profit Margin 11.07 12.86 -0.79 -6.20 6.95 7.42

This margin too has reduced. In fact it is negative for 2 consecutive years. The reasons for the
decline are the same as cited above. The conditions are expected to improve due to improving
macroeconomic conditions.

Leverage Ratios:

Debt Equity Ratio

20%
          Normal Increase
31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
  2007 2008 2009 2010 2011 2011
Debt 88.7 161.9 248.8 287.6 189.6 192.29
Equity 31.8 79.3 51.1 -29 74.92 81.41
Debt to Equity Ratio 2.79 2.04 4.87 -9.92 2.53 2.36

The debt-to-equity ratio measures the capitalization of the company. It looks at how much
debt your company has in relationship to the worth of the company. If you have a negative
net worth, it means that you have more debt than you have assets to cover the debt. As seen
from the table the debt to equity ratio was negative for the fiscal year ending 2010. The
projections and a restriction on dividend drawing will play an important role in improving the
situation.

Interest Coverage Ratio

20%
          Normal Increase
31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
  2007 2008 2009 2010 2011 2011
Interest   1.3 6.6 9.5 5.91 5.91
EBIT 11.07 14.72 1.89 -3.36 121.8 142.67
Interest Coverage Ratio   11.32 0.29 -0.35 20.61 24.14
The ratio is used to determine how easily a company can pay interest on outstanding debt.
The lower the ratio, the more the company is burdened by debt expense. When a company's
interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be
questionable. An interest coverage ratio below 1 indicates the company is not generating
sufficient revenues to satisfy interest expenses. For this particular company, the ratio has
fallen down tremendously to become negative in the year 2009-10. This does not bode well
for the company. However, a post loan projection analysis increases the company’s interest
coverage ratio to a very good level.

Liquidity Ratio:

Current Ratio

20%
          Normal Increase
31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
  2007 2008 2009 2010 2011 2011
Total current assets 104.70 210.80 210.10 171.50 177.04 219.51
Total current liabilities 85.60 157.80 234.20 278.70 189.6 192.29
Current Ratio 1.22 1.34 0.90 0.62 0.93 1.14

The current ratio is the standard measure of any business' financial health. It tells us whether
a business is able to meet its current obligations by measuring if it has enough assets to cover
its liabilities. The current ratio for the company initially rose and then started declining
continuously, suggesting that the firm is not able to meet its current liabilities. However, the
projected analysis shows an increase in the ratio from 0.62 in 2009-10 to 0.93 in 2010-11
even under normal post loan scenario. This is seen as a positive sign.

Quick Ratio

20%
          Normal Increase
31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
  2007 2008 2009 2010 2011 2011
Current Assets –
Inventory 56.60 101.80 67.90 91.50 71.78 98.62
Current Liabilities 85.60 157.80 234.20 278.70 232.07 251.60
Quick Ratio 0.66 0.65 0.29 0.33 0.31 0.39
It further refines the current ratio by measuring the amount of the most liquid current assets
there are to cover current liabilities. The quick ratio is more conservative than the current
ratio because it excludes inventory and other current assets, which are more difficult to turn
into cash. Therefore, a higher ratio means a more liquid current position and vice versa. The
company’s quick ratio declined to 0.29 in 2008-09. However, the same increased in 2009-10
which was a bad period for the firm with an inclination to increase more providing greater
liquidity to the firm.

Activity Ratios

Inventory holding period

20%
          Normal Increase
31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
  2007 2008 2009 2010 2011 2011
Inventory 48.1 109 142.2 80 87.58 117.24
COGS 322.70 550.80 794.00 932.60 815.77 898.92
Inventory holding
Period 54.41 72.23 65.37 31.31 39.19 47.60

This ratio shows that the company takes how many days to convert its inventory into cash.
The inventory holding period for the firm increased in the fiscal years 2007-08 and 2008-09.
However, as the effects of recession are beginning to wear off the period has reduced
considerably. The increase in the projected figures is due to the assumption that he will stock
more to meet the future demands.

Debtor Collection Period

20%
          Normal Increase
31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
  2007 2008 2009 2010 2011 2011
Credit Sales 248.85 479.25 562.35 645.95 657.88 736.82
Accounts Receivable 36.60 73.60 55.30 82.40 86.58 96.97
Debtor Receivable
Period 53.68 56.05 35.89 46.56 46.69 48.04
#Assumption: 50% of the sales are on credit
This ratio is important from the point of view of collection policy and the quality of debtors
that company has. This period for the company has been between 55-35 days. The smaller the
collection period, more cash with the firm to utilize in other activities.

Creditor Payment Period

20%
          Normal Increase
31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
  2007 2008 2009 2010 2011 2011
Credit Purchases   367.20 389.87 475.60 394.73 442.09
Accounts Payable 57.40 88.40 135.60 144.30 82.00 93.33
Credit Payment Period   87.87 126.95 110.74 75.82 77.06
rd
#Assumption: 2/3 of the purchases made are credit
#Assumption: Credit Purchases = Raw Materials + suppliers
Hence, no figure for the year 2007 is given as no such break up is mentioned

This shows how many days of credit does the company enjoy from its suppliers. Usually the
company enjoying longer credit than it is given to other buyers is considered favourable. The
company has a good credit rating and enjoys a credit period of more than 100 days on an
average. This leaves it with cash to finance other operational activities.