Finance ReportSubmitted by Joydip PatiPGP11-13/Sec B/Roll 38 29-Feb-12

CONTENTSSrl. No. Topics Page No.

1.

Introduction

3

2.

Analysis

4-18

3.

Capital Structure Analysis

4-9

4.

Dividend Policy

9-15

5.

Industry Analysis

15-17

6.

Bibliography

18

Joydip Pati

Page 2

IntroductionFollowing are the ratios which have been taken up to carry out the Financial Analysis: Debt to Equity (DE) Ratio: A measure of a company's financial leverage is calculated by dividing its total debts by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. Debt to Equity (DE) Ratio= Debt/Equity

Financial Leverage Ratio: Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. Financial Leverage Ratio = Total Assets/Equity

Dividend Payout Ratio: The percentage of earnings paid to shareholders in dividends. The payout ratio provides an idea of how well earnings support the dividend payments. More mature companies tend to have a higher payout ratio. Dividend Payout Ratio = Dividend per Share/EPS Price Earning (PE) Ratio: The PE Ratio measures the amount investors are willing to pay for each rupee of earnings; the higher the ratio, the greater the confidence of investors in the firms future.

Price Earning (PE) Ratio= Market price per Share/EPS

Joydip Pati

Page 3

Longitudinal Analysis & Cross sectional AnalysisAutomobile Industry:5 4.5 4 3.5 3 2.5 2 1.5 1 0.511 0.5 0 2011 2010 2009 0.031 0.069 0.079 1.71 1.11095141 1.076483935 Maruti Udyog LTD. Mahindra & Mahindra Tata Motors 3.738498379 4.490780726

DE Ratio

Interpretation:2011- The DE ratio indicates the margin of safety to the creditors. As the DE Ratio of Maruti is 3.1:100 it implies that for 3.1 rupees of outside liability, the firm has 100 rupees of owners capital, or stake of creditors is 3.1% of the owners, now if we take a look at TATA Motors ratio is 1.71 which indicates its comparatively less risky proposition for the shareholders.

Joydip Pati

Page 4

3 2.633855072 2.5 2.479945461

Financial Leverage Ratio

2 1.703768074 1.511218587 1.5 1.2063485 1.065339541 1 0.621411582 0.5 0.189862225 0 2011 2010 2009 Maruti Udyog LTD. Mahindra & Mahindra Tata Motors

Interpretation:2011: As the Financial Leverage Ratio of TATA Motors is 2.47 it means part of total assets is being provided by the creditors meaning less protection to the creditors, as compared to Mahindra. From the graph above we can also see that over the period the ratio of Mahindra has been coming down significantly and TATA Motors ratio has been on the rise.

Joydip Pati

Page 5

FMCG Industry:

1.4 1.2 1 0.804 0.8 1.20674712

DE Ratio

P&G 0.6 0.4 0.2 0 0.000981785 0.006 0.004061553 0.007 2011 2010 2009 0.01 HUL ITC 0.347661909 0.327295203

Interpretation:2011- The DE Ratio of P&G is 0.8:1 it implies that for 0. 8 rupees of outside liability, the firm has 1 rupees of owners capital, or stake of creditors is 80% compared to the owners, now if we take a look at HUL ratio is 0.0009 which indicates its comparatively have less risky proposition for the shareholders.

Joydip Pati

Page 6

3.5 3.126540693 Financial 3 2.90738369

Leverage Ratio

2.5 2.136848445 2 1.852011855 P&G HUL 1.5 1.140662311 1 0.724445229 0.423721089 1.143541673 1.071959544 Tata Motors

0.5

0 2011 2010 2009

Interpretation:2011: As the Financial Leverage Ratio of HUL is 2.90 it means part of total assets is being provided by the creditors meaning less protection to the creditors, as compared to P&G which has a fairly lower ratio of 0.72 indicating that the net worth of share capital exceeds fixed assets & also indicates that Working Capital is partly financed by the Share holders funds.

Joydip Pati

Page 7

IT Industry:0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2011 0.003052462 0 0.234811224 TCS Infosys Wipro 0.342677813 0.417451792

DE Ratio

0.005591139 0 2010 2009 0.003052175 0

Interpretation: 2011- The DE Ratio of Wipro is 0.23:1 it implies that for 0. 23 rupees of outside liability, the firm has 1 rupees of owners capital, or stake of creditors is 23% compared to the owners, now if we take a look at TCS ratio is 0.003 which indicates its comparatively have less risky proposition for the shareholders.

Joydip Pati

Page 8

1.2 0.961772405

Financial Leverage Ratio 1.1681275341.06082152

1

0.920339866 0.830745796 0.82415723

0.8

0.86797898 0.814866367 0.656418704 TCS Infosys Wipro

0.6

0.4

0.2

0 2011 2010 2009

Interpretation:2011: As the Financial Leverage Ratio of HUL is 0.961 it means that all the assets is being provided by the Shareholders meaning more protection to the creditors. Wipro has the least ratio of 0.81 indicating that more of the net worth of share capital exceeds fixed assets & also indicates that Working Capital is partly financed by the Share holders funds. From the graph above we can also see that over the period the ratio of Wipro has been coming down significantly and TCS ratio is increasing every year.

Joydip Pati

Page 9

Automobile Industry:1.2 1.011800802 1 1.026431718

Payout Ratio

0.8 0.666 Maruti Udyog Ltd 0.6 Mahindra & Mahindra Tata Motors 0.4

0.2

0.094

0.0578369 2011 2010

0.05 2009

0

Interpretation: As per the graph TATA Motors has the highest Pay Out Ratio as compared to Maruti & Mahindra which signifies that the investors seeking high current income & limited capital growth will prefer TATA and the investors seeking Capital gains prefer lower PO Ratio as capital gains are taxed at lower rates.

Joydip Pati

Page 10

FMCG Industry:2 1.8 1.6 1.4 1.2 P&G 1 0.8 0.6 0.4 0.2 0.006143667 0 2011 2010 2009 0.478 0.578778135 0.035283993 0.694 0.643564356 0.654450262 0.427 HUL ITC 1.893

Payout Ratio

Interpretation:As per the graph ITC has the highest Pay Out Ratio as compared to HUL & P&G which signifies that the investors seeking high current income & limited capital growth will prefer ITC and the investors seeking Capital gains prefer lower PO Ratio as capital gains are taxed at lower rates.

Joydip Pati

Page 11

IT Industry:

0.6 0.534473544 0.5 0.4 0.302571861 0.3 0.2 0.1 0 0.001841621 2011

0.560695262

0.576368876 0.522193211

Payout Ratio

0.314630309 0.24907841

TCS Infosys Wipro

0.098376783

2010 2009

Interpretation:As per the graph Infosys has the highest Pay Out Ratio as compared to TCS & Wipro in the year 2011 which signifies that the investors seeking high current income & limited capital growth will prefer Infosys and the investors seeking Capital gains prefer lower PO Ratio as capital gains are taxed at lower rates.

Joydip Pati

Page 12

Industry-wise Analysis (2011 figures):

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

0.4

0.552

0.596

2.45 5.69

Payout Ratio Current Ratio DE Ratio

0.724

0.75110825 0.62 0 Automobile FMCG IT

Interpretation:Payout Ratio: From the graph we can analyse that the Companies we have taken in the FMCG industry has reached a matured stage and thus its offering a higher ratio (0.596), where as the IT and Automobile companies are in a growing stage and thus offers a lower Pay Out Ratios 0.552 and 0.4 respectively. Current Ratio: From the graph we can see that IT industry has the highest Current Ratio 5.69:1 that means for every 1 rupee of Current liability, current asset of 5.69 times is available to meet current liability.Joydip Pati Page 13

Current ratio of FMCG industry is 0.72:1 that signifies CA are only 72% of CL, the liquidity position as measured by the Current Ratio is better in case of IT industry than FMCG, There fore from the creditors point of view its a more risky venture. In contrast a sufficient cushion in IT industry and even with 5 times shrinkage in the value of its assets that will be able to meet its obligations in full. DE Ratio: Capital intensive companies in the Automobile industry are having higher rate of DE Ratio (0.75), where as FMCG companies which are matured are mostly zero debt companies.

Joydip Pati

Page 14

Industry & Respective Company Analysis:Automobile Industry:100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Payout Ratio PE Ratio 0.4 17.02 0.946 15.841 0.4389 26.5515 Tata Motors M&M Maruti Automobile 0.6667 8.6683

Interpretation:PE Ratio: As compared to industry standars of 17.02 M&M has a PE Ratio of 26.55 meaning that investors are paying more for each unit of net income, so the stock of M&M is more expensive as compared to TATA motors having a lower PE Ratio of 8.66. Payout Ratio: As per the industry standards of 0.4 Maruti has the highest and M&M has the lowest payout ratio. That means that Maruti is distributing more of its profits then the industry average.

Joydip Pati

Page 15

FMCG :100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Payout Ratio PE Ratio 0.596555687 180.1961167 0.694227769 36.0968661 33.1201248 0.617283951 471.3713592 ITC HUL P&G FMCG 0.47815534

Interpretation:PE Ratio: As compared to industry standards of 180.1961167 ITC has a PE Ratio of 471.3713592 meaning that investors are paying more for each unit of net income, so the stock of ITC is more expensive as compared to P&G having a lower PE Ratio of 33.1201248. It also shows the current investor demand for a Company share. If the PE ratio of a company is very high but still investors prefer to buy that share, that shows that the investors are expecting consistent future growth. Payout Ratio: As per the industry standards of 0.596555687 HUL has the highest and ITC has the lowest payout ratio. That means that HUL is distributing more of its profits then the industry average.

Joydip Pati

Page 16

IT Industry:100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Payout Ratio PE Ratio 0.302571861 25.64493141 27.01966717 88.26319953 0.356315696 1 212.125 WIPRO INFOSYS TCS IT

0.552962519

Interpretation:PE Ratio: As compared to industry standars of 88.26319953 Wipro has a high PE Ratio of 212.125 meaning that investors are paying more for each unit of net income, so the stock of Wipro is more expensive as compared to Infosys having a lower PE Ratio of 25.64493141. Payout Ratio: As per the industry standards of 0.552962519 Wipro has the highest and TCS has the lowest payout ratio. That means that Wipro is distributing more of its profits then the industry average.

Joydip Pati

Page 17

Bibliography:To complete this project we have taken help of the following: Annual Reports of the Companies www.yahoofinance.com Financial Analysis by Khan & Jain www.wikipedia.com

Joydip Pati

Page 18

Appendix:

Joydip Pati

Page 19