FINANCIAL PERFORMANCE EVALUATION USING RATIO ANALYSIS

RAVI SINGLA BHAVNEET SHARMA MBA-2{3rd SEM} 120426202 120426182

RATIO MEANING
A financial analysis comparison in which certain financial statement items are divided by one another to reveal their logical interrelationships. Ratio analysis is one of the oldest methods of financial statements analysis. It was developed by banks and other lenders to help them chose amongst competing companies asking for their credit.

WHAT ARE FINANCIAL RATIOS ?

Shortcut Sneak-Peek

Connecting the Dots

COMMON TECHNIQUES USED IN THE INTERPRETATION OF THESE NUMBERS.

Horizontal Analysis

Cross-Sectional Analysis

IMPORTANCE OF RATIO TO DIFFERENT USER GROUPS

Management: Turnover and Operating Performance Ratios

Shareholders: Profitability

Debt holders and Suppliers: Cash Flow and Liquidity

Credit Rating Agencies: Solvency

ABOUT THE COMPANY

HCL is a leading global Technology and IT Enterprise with annual revenues of US$ 6.3 billion. The HCL Enterprise comprises two companies listed in India, HCL Technologies ( www.hcltech.com ) and HCL Info systems (www.hclinfosystems.in). The 35 year old enterprise, founded in 1976, is one of India's original IT garage start ups. Its range of offerings span R&D and Technology Services, Enterprise and Applications Consulting, Remote Infrastructure Management, BPO services, IT Hardware, Systems Integration and Distribution of Technology and Telecom products in India. The HCL team comprises 92,000 professionals of diverse nationalities, operating across 31 countries including 505 points of presence in India. HCL has global partnerships with several leading Fortune 1000 firms, including several IT and Technology majors.

ESTABLIHMENT OF COMPANY
a) The INTIAL YEARS

Developed the first indigenous micro-computer at the same time as Apple and 3 years before IBM's PC in 1978.

b) THE GROWTH PHASE

HCL, which was hitherto known as the pioneer in modern computing made the advent into software development. HCL's R&D was spun off as HCL Technologies in 1997 to mark their advent into the software services arena.

c) THE INTERNATIONAL PHASE

Today, HCL sells more PCs in India than any other brand, runs Northern Ireland's largest BPO operation, and manages the network for Asia's largest stock exchange

PRODUCT HIGHLIGHTS

HCL INFOSYSTEMS

IT Hardware

Internet Infrastructure

Facilities Management

HCL AND RATION ANALYSIS

CURRENT RATIO

QUICK RATIO

CASH RATIO

INVENTORY TURNOVER RATIO

PROFITABILITY RATIOS
Gross Profit Margin

GROSS PROFIT MARGIN

NET PROFIT MARGIN

OPERATING PROFIT MARGIN

DEBT RATIO'S/SOLVENCY RATIO

Debt Ratio

DEBT EQUITY RATIO

RETURN ON EQUITY OF HCL

Year Net Profit after Tax and Preference Dividend Rs. in crores 237.10 61.54 Equity Capital Rs. in crores 1947.04 1917.16 Ratio

2011 2012

12.17% 3.2%

PROPRIETY RATIO

INTEREST COVERAGE RATIO

350 300 250 200 150 100 50 0 EBIT

Intrest expenses 15.74

33.08

Propritor ratio

2011
2012

311.07
141.63

19.7
4.28

ACTIVITY RATIO/OPERATING PERFORMANCE RATIO

Inventory Turnover Ratio

FIXED ASSET TURNOVER RATIO

RETURN ON ASSETS OF HCL

Year Net Income Rs. in crores Total Assets Rs. in crores 4565.87 4867.20 Ratio

2011 2012

237.10 61.54

5.19% 1.26%

RETURN ON CAPITAL EMPLOYED OF HCL

Year EBIT Rs. in crores Capital Employed Rs. in crores Ratio

2011 2012

311.07 141.63

2214.6 2241.6

0.13 0.06

FINDINGS OF THE STUDY

The current ratio has been decreased from year 2011 to 2012 which shows decreasing working capital. But still the situation of company is under control and assets can easily handle the liabilities.
The liquid ratio Sales have reduced hence pilling up the inventory and if we subtract the amount of inventory it reduces the value of current assets. But still Company can easily cover its current liabilities with its quick assets. The cash ratio is decreasing year after year. So it shows that the cash position is not utilized effectively and efficiently. The inventory turnover ratio two years indicated a good inventory policy and efficiency of business operations of the company.

The fixed assets turnover ratio isnt maintained. There is an increase in production but sales have fallen.
The proprietary ratio of two years is below the satisfactory level, that is, 50%. It indicates the shareholders are losing interests in the Company. Low debt equity ratio is considered favorable from management. It means greater claim of shareholders over the assets of the company than those of creditors.

The Net Profit for the two years has been decrease which shows that the Excess of selling and distribution expenses and there is Increase in Depreciation cost. There is no good operational efficiency of the business concern due to increase in finance cost.
Stand alone balance sheet proves that the financial performance for each succeeding year is very much satisfactory as compared with its previous year during the period of 2011 to 2012.

SUGGESTION OF THE STUDY

The company should look indigenous suppliers for its raw material and spare parts requirements and reduce its lead

time.
The company is increasing its installed capacity and its production too each year but the increase in production is not in proportion to installed capacity. Thus, the two must be matched. Availing more credit from its suppliers. Prompt collection from its debtors. Moving towards zero Financial Performance . Improvement in Inventory Conversion Period, mainly reduction in Work in Progress. Reduction in loans and inter-corporate deposits and utilizing the money to pay off debts and loans taken by the company. Given the working loan of Rs. 56,84,50,000 and interest thereon is Rs. 4,40,80,000 in 2010 which is almost 7.75%. So, the company might consider some other sources of cheaper loans. The company can maintain separate books of accounts for their manufacturing and trading businesses for more clarity and transparency in operations.

THANK YOU