ACCOUNTANCY

PROJECT

Ratio Analysis

Raymond’s

2007-08

Submitted to-:

Mrs. Rachna Banerjee

By:-Manhar Srivastava -

46Manoj Kumar Singh -

47

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Mansi Duggal – 48Mayank Sharma - 49Neeru Parashar - 50

CONTENTS

1. Company Profile

2. Ratio’s

Return on Investment Ratios

1. Rate of Net Worth (RONW)

2. Earnings Per Share (EPS)

Solvency Ratios

1. Net Asset Value (NAV)

2. Debt Equity

3. Interest Coverage Ratio

Liquidity Ratios

1. Current Ratio

2. Quick Ratio

3. Collection Period Allowed to Customers

4. Suppliers Credit

5. Inventory Holding Period

Turnover Ratio

1. Fixed Assets Turnover

2. Inventory Turnover

Profitability Ratio

1. Gross Profit Margin

2. Net Profit Margin

Valuation Ratio

1. P/E Ratio

2. Market Capitalisation

3. Financial performance of company

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Company Profile

The Company is a market leader in the textiles sector in India, has a

powerful brand ‘Raymond’ and strong retail presence in the form of

‘The Raymond Shop’ (‘TRS’) domestically. While focusing on its vision of

being the leader in fashion and lifestyle segment, company is now also

establishing itself as a preferred supplier of value-added premium fabric in

the international markets.

The Company continues to focus on the booming retail sector and is now

concentrating on penetrating into the Tier 3 and 4 towns of the country. The

Company has also forayed into the women’s wear segment with offerings in

the corporate and smart clothing category. The company is on its way to

become a lifestyle solution for discerning customers with an offering of a

range of fabrics, garment and accessories in a premium shopping

environment.

The Company plans to invest significantly in the coming years in expanding

its state of the art manufacturing capacities, strengthening and extending the

product offerings under its brand and expanding its marketing and

distribution network.

To cater to the growing domestic and export markets, the Company has

undertaken the following initiatives:

• Implementation of ERP in textile division;

• Addition of a manufacturing facility at Vapi with latest machinery which

became fully operational and providing efficient and cost effective production

lines.

• Setting up a suit plant at Bangalore to cater to the growing demand.

India has been on a high growth path for some years now. However, during

the past few months, worrying developments like the housing crisis in USA,

high inflation – especially in food, fuel and commodities – have emerged.

This could increase costs of operations, dampen consumer sentiment and

moderate growth going forward.

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RATIO’s

RETURN ON INVESTMENT RATIO

1. Return on Net Worth (RONW)

This ratio measures the net profit earned on the equity shareholders fund.

Current Year –:

RONW =

= 5.38 %

Previous Year –:

RONW =

= 7.92%

ANALYSIS-

The return on net worth has dropped down drastically with comparison to

last year. Also company has created more reserves for its future

projects. This implies-

Overall profitability of company has fallen down. The reason could the

economic conditions of the economy.

Shareholders will receive low dividends in contrast to last year.

New investors will not find the company lucrative to invest.

Suppliers will strict the credit policy as risk for them has increased.

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2. Earnings Per Share (EPS)

The ratio measures the overall profitability in terms of per equity share of

capital contributed by the owners.

Current Year -:

EPS =

= Rs. 12.28

Previous year -:

EPS =

= Rs. 17.51

ANALYSIS-

Last year EPS of company was Rs. 17.51 which has fallen to Rs. 12.28.

This is not good for company as well as for investors. This ratio shows

that with the same shareholders fund the profit of the company

decreased.

The investors in the company will be highly disappointed because

of its performance. Their earnings have fallen down.

Also company won’t be able to attract new investors. Moreover

chances of existing shareholders selling their shares also

increase.

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Company needs to increase its EPS as it is a important measure

which helps company to survive in future.

In case company want to raise funds through initial public offer

company won’t be able to attract many investors.

LIQUIDITY RATIO

1. Net Asset Value Ratio (NAV)

This ratio seeks to assess as to what extent the value of equity share of

a company contributed at par or at premium or the value created for the

shareholders.

Current Year -:

NAV =

= Rs. 227.80

Previous Year -:

NAV =

= Rs. 220.94

ANALYSIS-

Even though the profit of company has fallen down still Net Asset Value

of company has increased though marginally. This shows the efficiency

of company management. Company has created more of reserves as it

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has undertaken many new projects. So it can rely on these reserves for

internal financing. NAV of company will help it to raise further capital-

borrowed as well as equity because investors will believe that company

has significant growth prospects.

2. Debt- Equity Ratio

This ratio measures the debt- equity proportion in capital structure of the

company.

Current Year -:

Debt- Equity Ratio =

= 0.485 times

Previous Year -:

Debt – Equity Ratio =

= 0.435 times

ANALYSIS

Last year when the profitability of company was high As the profitability

of company has reduced significantly they are playing safe by not raising

more debt. They have reduced the risk of defaulting in payment of

interest. It is a prudent practice i.e. not to put shareholders fund at risk

when profitability of company is low. But in comparison to last year this

ratio has increased. Company has raised more secured loan and foreign

currency loans from banks as they have undertaken few foreign projects

also.

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3. Interest Coverage Ratio

This ratio measures the capacity of the company to pay the interest

liability it has incurred on its long term borrowings, out of the profit.

Current Ratio -:

Interest Coverage Ratio =

=

= 5.17 times

Previous Year -:

Interest Coverage Ratio =

=

= 5.95 times

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ANALYSIS-

Company has adequate amount to fulfil its interest liability out of its

revenue. Though in comparison to last year, interest coverage ratio has

fallen down. But still company was able to maintain it at 5 times which

implies it has funds to pay its interest by 5 times. The risk of default in

payment is not much. So the suppliers and other creditors need not be

worried about their funds. This also develops the creditability of company

in market.

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LIQUIDITY RATIO

1. Current Ratio

The ratio measures the ability of a company to discharge its day to day

bills, or current liabilities as and when they become due out of cash or

current assets.

Current Year -:

Current Ratio =

=

= 2.27 times

Previous Year -:

Current Ratio =

=

= 1.97 times

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ANALYSIS-

The standard current ratio should be 1.33:1. Whereas company has

current ratio of 2.27 in current year and 1.97 in previous year. This

shows that company is not employing its resources fully. Short term

investments and dividend, interest subsidy and interest receivable have

increased a lot. Whereas current liabilities fallen down. Though from this

ratio it can be predicted that company’s short term default risk is

reduced. It will be able to discharge its obligations in time but it needs to

reduce this ratio by putting current assets to use.

2. Quick Ratio

This ratio measures as how quickly company is able to discharge its

current liabilities, net working capital out of cash or current assets it

possesses.

Current Year -:

Quick Ratio =

=

= 1.24 times

Previous Year -:

Quick Ratio =

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=

= 0.965 times

ANALYSIS

The standard quick ratio is 1:1. Company has improved its quick ratio

which means now it has the ability to discharge its current liabilities as

and when due out of its most liquid assets. Last year company’s liquidity

was not good. Possibility of default in payment to suppliers was there.

But now this risk is eliminated. Now it has some assets which are not put

to use efficiently.

3. Collection Period Allowed to Customers

The ratio measures the credit period allowed by the company to its

debtors on credit sales or how fast a company is able to realise its

outstanding dues.

Current Year -:

Collection Period Allowed to Customers =

= 79.10 days

= 79 days

Previous Year -:

Collection Period Allowed to Customers =

= 75.48 days

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= 75 days

ANALYSIS-

The company is able to receive its debts in 2-3 months. It has also

extended its credit period by 4 days. The reason behind this could be

increase in sales. But debtors have also increased. This shows company

is selling more on credit.

4. Suppliers Credit

The ratio measures the average credit period allowed to the company by

its creditors or how much leverage it possesses to settle its outstanding

payables.

Current Year -:

Suppliers Credit =

= 129.88 days

= 130 days

Previous Year -:

Suppliers Credit =

= 159.37 days

= 159 days

ANALYSIS-

Company is enjoying an excellent period of credit. It is dictating good

terms with its suppliers. It has to pay to its creditors in about 4 months.

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Though this period has decreased in comparison to last year. This also

shows company is purchasing less on credit as creditors as reduced

despite increase in purchases.

5. Inventory Holding Period

The ratio measures the number of days that cash is blocked in inventory

or how fast a company is able to convert its inventory into cash.

Current Year -:

Inventory Holding Period =

= 129.63 days

= 130 days

Previous Year -:

Inventory Holding Period =

= 117.4 days

= 117 days

ANALYSIS

Company is facing long inventory holding period. That means it is

holding inventory for long time. Also inventory holding period has

increased which shows company has blocked a lot of cash in inventory. ~ 15 ~

It further implies that company is not able to sell its goods at faster rate.

So it needs to take action in that respect may be by reducing its selling

price. But this can be because company is facing difficulty in procuring

raw material because of increase in the cost of raw material.

TURNOVER RATIO

1. Fixed Assets Turnover

The ratio measures the volume of gross income generated by the fixed

assets of the company.

Current Year -:

Fixed Assets Turnover =

=

= 1.84 times

Previous Year -:

Fixed Assets Turnover =

=

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= 1.89 times

ANALYSIS

Sales have increased by 2.98%. And fixed assets have increased by

6.4%. This shows company is not using its resources efficiently. There is

under usage of fixed assets. In comparison to last year this ratio has also

decreased. This under usage can be the cause of lower operating

revenues. Company should improve its management and look towards

efficient convention of its fixed assets.

2. Inventory Turnover

This ratio measures the level of inventory

Current Year -:

Inventory Turnover =

= 2.815 times

Previous Year -:

Inventory Turnover =

= 3.108 times

ANALYSIS

A lower turnover ratio indicates overstocking, obsolescence and

deficiencies in product line. The company is having adequate inventory

turnover. It is not too much and not too less. But in respect to last year

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this ratio has decreased. This means that to sell more it has to keep a

stock of more goods.

PROFITABILITY RATIO

These ratios measure several intermediate profit margin indicators.

1. Gross Profit Margin

Current Year -:

Gross Profit Margin =

= 29.79 %

Previous Year -:

Gross Profit Margin =

= 31.33%

ANALYSIS

This ratio indicates the change in gross profit margin. This shows that

sales have increased but the gross profit has fallen. This implies change

in cost of goods sold is much more than change in sales. In comparison

to Net Profit Margin it can concluded that company spends more on its

operating and manufacturing activities.

2. Net Profit Margin

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Current Year -:

Net Profit Margin =

= 5.69 %

Previous Year -:

Net Profit Margin =

= 8.37 %

ANALYSIS

From this ratio it can be interpreted that overall profitability of company

has fallen down drastically. The expenses incurred by company have

increased much more than increase in income.

VALUATION RATIO

1. P/E Ratio

The ratio measures as to how many times an equity share is priced in

stock market in relation to its EPS.

Current Year -:

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P/E Ratio =

= 15.475 times

Previous Year -:

P/E Ratio =

= 14.625 times

ANALYSIS

Though the market price of equity and earnings per share has reduced in

comparison to last year but still its P/E ratio has increased. Despite the

existing situation of markets still P/E ratio has increased. So investors

should hold on the shares as its performance in past has also been

good. So it has scope of recovery and leading to increase in P/E ratio.

2. Market Capitalisation

The ratio provides a base for total valuation of the company based on its

market price.

Current Year -:

Market Capitalisation =

= Rs. 1140.44 crores

Previous Year - :

Market Capitalisation =

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= Rs. 1571.94 crores

ANALYSIS

This ratio tells the value of the company. As the market price has

decreased the valuation has also shrunk. But from the past performance

of the company it can be inferred that valuation of company will improve

in future.

NOTES –

1. Profit After Tax

Particulars Current year Previous Year

Profit for year after tax 6612.17 20125.28

Add/ (Less): Prior

period adjustments

1.03 88.05

Add/ (Less): Tax in

respect of earlier years

629.10 (1.03)

PAT including

exceptional items

7242.3 20212.3

Add/(Less):

Exceptional items

293.87 (9461.84)

PAT excluding

exceptional items

7536.17 10750.19

2. Cost of Goods Sold

Particulars Current Year Previous Year

Material Costs 46855.29 37737.82

Manufacturing and 26467.16 27099.12

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Operating Costs

(Increase)/ Decrease

in finished and

process stock

(3792.31) 791.45

Employment Costs 23315.98 22558.39

COGS 92846.12 88186.78

3. Gross Profit

Particulars Current Year Previous Year

Sales 132251.15 128419.35

COGS 92846.12 88186.78

Gross Profit 39405.03 40232.57

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FINANCIAL ANALYSIS OF COMPANY

The key business segments of the Company are Textile and Files & Tools

Divisions. The erstwhile denim division of the Company was combined with the

denim business of UCO NV, Belgium, to form a 50:50 joint venture from August 1,

2006. Consequently the current year ending March 31, 2008 financials are not

strictly comparable with the previous year ending March 31, 2007.

Company performance has deteriorated for the following reasons.

Raw Material

Wool prices have remained at a high level throughout the year due to a severe

drought in Australia. Alternate vendors have been developed in other

countries like South Africa to mitigate the risk of higher price.

Economy

The economy has been witnessing a high inflationary situation together with

steep rises in prices of steel in the last quarter of the year due to increased

inputs costs like coke, iron ore. Consequent input price increases for the

company during the year is a likely scenario. Rupee appreciation adversely

affected export realizations.

Growth And Opportunities for company

During the year, the Company continued to focus on expansion of retail

space through its exclusive branded stores. These stores have enhanced the

brand image and uplifted the Brand positioning. The Company continued to

lay emphasis on product innovation.

During the year, Company launched “Raymond” Brand under ready to wear

premium segment and also launched Brand Extension of ‘Park Avenue’ in

women’s wear.

With all these developments, this year has seen a spectacular growth in the

branded apparel business of the Company with high growth rates being

sustained quarter after quarter. In the coming years, the Company plans to

increase its distribution reach further.

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The overall performance of company has fallen down in comparison to last

year performance. The profit earned has fallen down about 64% in respect of

last year.

Despite fierce competition in domestic and international markets and inspite of

the challenges faced including teething issues in the ERP implementation, the

Company witnessed an increase in net revenues. The net sales of the

company grew marginally from Rs.128419.35 lacs to Rs.132251.15 lacs, an

increase of 2.98%. The growth in revenues was largely due to an increase in

volumes. High wool prices, employment cost increases and issues in the ERP

implementation however resulted in a decline in profit before interest and tax

of the division from Rs. 15172.47 lacs to Rs. 8614.85 lacs.

but this fall in performance is temporary and because of the current economic

situation of India. Company has undertaken many new projects last year.

Growth in each project will be gradually leading to overall growth of company.

Shareholders need not worry. The pattern of share is similar to that of the BSE

Sensex as can be seen from the diagram. This implies with gradual increase

in BSE Sensex the share will also recover. So shareholders should hold on

the shares.

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