wipro ratio analysis
TRANSCRIPT
Introduction Of The Ratio Analysis
Ratio analysis involves establishing a comparative relationship between the components of financial
statements. It presents the financial statements into various functional areas, which highlight
various aspects of the business like liquidity, profitability and assets turnover, financial structure. It
is a powerful tool of financial analysis, which recognizes a company’s strengths as well as its
potential trouble spots.
It can be further classified as in different categories of Ratio.
Liquidity Ratios
Profitability Ratios
Asset Turnover Ratios
Finance Structure Ratios
Valuation Ratios
Liquidity Ratio
Liquidity refers to the existence of the assets in the cash or near cash form. This ratio indicates the
ability of the company to discharge the liabilities as and when they mature. The financial resources
contributed by owners or supplemented by outside debt primarily come in the cash form as under in
the balance sheet form.
The following Liquidity Ratios are calculated for the company.
Current Ratio
Quick Ratio
Net Working Capital
Current Ratio
This ratio shows the proportion of Current Assets to Current Liabilities. It is also known as “Working
Capital Ratio” as it is a measure of working capital available at a particular time. It’s a measure of
short term financial strength of the business. The ideal current ratio is 2:1 i.e. Current Assets should
be equal to Current Liabilities.
Current Ratio = Current Assets
Current Liabilities
Current Ratio
Year 2003-04 2004-05 2005--06 2006-07 2007-08
Ratios 1.26 1.58 1.44 1.67 2.13
Current Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-080.00
0.50
1.00
1.50
2.00
2.50
1.26
1.581.44
1.67
2.13
Current Ratios
Ratios
Current Ratio Analysis
Interpretation
Current ratio is always 2:1 it means the current assets two time of current liability.
After observing the figure the current ratio is fluctuating.
In the year 2008 ratio is showing good shine.
Hear ratio is increase as a increasing rate from 2004 to 2008.
Company is no where near the ideal ratio in every year but every company can not achieve this
ratio.
Current ratio is increased in 2007-08 as compared to 2003-04 because of increase in Inventories
100.96% and 123.77 % increased in Cash and Bank balance.
Current ratio is decreased in 2005-06 as compared to the last year because of increase in
liabilities by 45.39% and 93.19% in increasing in Provision.
Quick Ratio
This ratio is designed to show the amount of cash available to meet immediate payments. It is
obtained by dividing the quick assets by quick liabilities. Quick Assets are obtained by deducting
stocks from current assets. Quick liabilities are obtained by deducting bank over draft from current
liabilities.
Quick Ratio = Quick Assets
Current Liabilities
Quick Ratio
Year 2003-04 2004-05 2005--06 2006-07 2007-08
Ratios 1.2 1.5 1.4 1.6 2.0
Quick Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-080.0
0.5
1.0
1.5
2.0
2.5
1.2
1.51.4
1.6
2.0
Quick Ratios
Ratios
Quick Ratio Analysis
Interpretation
Standard Ratio is 1:1
Company’s Quick Assets is more than Quick Liabilities for all these 5 years.
In 2007-08 the ratio is increasing because of increase in bank and cash balance.
So all the years has quick ratio exceeding 1, the firm is in position to meet its immediate obligation
in all the years.
In 2005-06 quick ratio is decreased because the increase in quick assets is less proportionate to
the increased quick liabilities.
The Quick ratio was at its peak in 2007-08, while was lowest in the 2004-05.
Networking Captial
Networking capital = Current Assets – Current Liabilities
Net working capital
Year 2003-04 2004-05 2005-06 2006-07 2007-08
Trend 4534.3 10497.8 13798.0 28050.0 61577.0
Networking Capital
2003-04 2004-05 2005--06 2006-07 2007-080.0
10000.0
20000.0
30000.0
40000.0
50000.0
60000.0
70000.0
4534.310497.8
13798.0
28050.0
61577.0
Net working capital
Trend
Networking capital
Interpretation
This ratio represents that part of the long term funds represented by the net worth and long
term debt, which are permanently blocked in the current assets.
It is Increasing Double than year by year because of assets increasing fast than liabilities.
Profitability Ratios
A company should earn profits to survive and grow over a long period of time. It would be wrong to
assume that every action initiated by management of company should be aimed at maximizing
profits, irrespective of social as well as economical consequences. It is a fact that sufficient must be
earned to sustain the operation of the business to be able to obtain funds from investors for
expansion and growth and to contribute towards the responsibility for the welfare of the society in
business environment and globalization.
The profitability ratios are calculated to measure the operating efficiency of the company.
The following Profitability Ratios are calculated for the company.
Gross Profit Ratio
Operating Profit Ratio
Net Profit Ratio
Rate Of Return On Investment
Rate Of Return On Equity
Gross Profit Ratio
This is the ratio expressing relationship between gross profit earned to net sales. It is a useful
indication of the profitability of business. This ratio is usually expressed as percentage. The ratio
shows whether the mark-up obtained on cost of production is sufficient however it must cover its
operating expenses.
Gross Profit Ratio = Gross Profit X 100
Sales
Gross profit ratio analysis
Year 2003-04 2004-05 2005--06 2006-07 2007-08
Trend 29.8 31.7 32.6 33.7 33.0
Table 5.4 Gross Profit Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-0827.0
28.0
29.0
30.0
31.0
32.0
33.0
34.0
35.0
29.8
31.7
32.6
33.733.0
Gross profit ratio analysis
Trend
Gross Profit Ratio Analysis
Interpretation
GP Ratio shows how much efficient company is in Production.
GP is decreasing 2007-08 due to higher production cost.
Gross sales and services are increasing year by year so in effect Gross profit ratio is icreasing year
by year up to 2007.
Operating Profit Ratio
This ratio shows the relation between Cost of Goods Sold + Operating Expenses and Net Sales. It
shows the efficiency of the company in managing the operating costs base with respect to Sales. The
higher the ratio, the less will be the margin available to proprietors.
Operating Profit Ratio = COGS+Operating expences X 100
Sales
Operating ratio
Year 2003-04 2004-05 2005--06 2006-07 2007-08
Trend 83.5 80.0 79.0 77.9 81.7
Operating Profit Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-0875.0
76.0
77.0
78.0
79.0
80.0
81.0
82.0
83.0
84.0 83.5
80.0
79.0
77.9
81.7
Operating ratio
Trend
Operating Profit Ratio Analysis
Interpretation
Operating ratio is lowest during current 2007.
This shows that the expenses incurred to earn profit were less compared to the previous two
years.
Operating ratio is decreses feom 2004 to anward decreasing rate.
From the graph conclusion is made that company is not on the right track by efficiently cutting
down manufacturing, administrative and selling distribution expenses.
Net Profit Ratio
= Net profit x 100
Net sales
Net profit ratio
Year 2003-04 2004-05 2005-06 2006-07 2007-08
Trend 16.3 19.4 19.2 19.8 17.7
Net Profit Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-080.0
5.0
10.0
15.0
20.0
25.0
16.3
19.4 19.2 19.817.7
Net profit ratio
Trend
Net Profit Ratio Analysis
Interpretation
After observing the figure the ratio is fluctuating.
Company has rise in its net profit in 2006-07 as compared to the previous year because the
company has increased its sales 41.45% .
Though the company’s sale is continuously rising but the net profit is not so much increased so
management should take some steps to decrease its expenses.
Sales is decrease in 2008 compare to 2007
The overall ratio is showing good position of the company.
Return On Investment
Rate of Return on Investment indicates the profitability of business and is very much in use among
financial analysts.
ROI= EBIT X 100
Total Assets
Return On Investment
Year 2003-04 2004-05 2005--06 2006-07 2007-08
Trend 32.7 39.7 35.7 30.6 18.6
Rate of Return on Investment Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-080.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
32.7
39.735.7
30.6
18.6
Return on investment
Trend
Rate of Return on Investment Ratio Analysis
Interpretation
From the above observation it can be seen that ratio is fluctuating.
In the year 2005-06 Rate of Return on Investment is slightly increase as compared to previous year
Ratio is decreasing after 2005 at adecreasing rate because of asseets increase compare to sales.
The company’s Total Assets is increased to 86.51%, so ROI is decreased so conclusion made that
company is not utilizing its assets and investment efficiently.
Rate of Return on Equity
Rate of Return on Equity shows what percentage of profit is earned on the capital invested by ordinary
share holders.
Rate of Return on Equity = Profit for the Equity
Net worth
Rate of return on equoty
Year 2003-04 2004-05 2005--06 2006-07 2007-08
Trend % 22.2 11.5 7.1 10.0 5.5
Rate of Return on Equity Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-080.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
27.630.7 30.8 30.3
13.9
Rate of return on equoty
Trend %
Rate of Return on Equity Analysis
Interpretation
ROE is remaining almost same Between 2005 to 2007, but it is decrease in2008 because the the
company has increase share capital but profit not getting that much increase.
Company is getting same return on equity.
As a result the share holders are getting higher return every year and investment portfolio scheme
selection was a judicious decision taken by the company.
This happens because Profit and Share Capital both increasing same way.
Asset Turnover Ratios
Asset Turnover Ratio are basically productivity ratios which measure the output produced from the
given input deployed. This relationship is shown as under
Productivity = Output
Input
Assets are inputs which are deployed to generate production (or sales). The same set of assets when
used intensively produces more output or sales. If the asset turnover is high, it shows efficient or
productive use of input.
The following Assets Turnover Ratios are calculated for the company.
Total Assets Turnover
Net Fixed Assets Turnover
Net Working Capital Turnover
Inventory Turnover Ratio
Debtor Turnover (in times)
Total Asset Turnover Ratio
The amounts invested in business are invested in all assets jointly and sales are affected through
them to earn profits. Thus it is the ratio of Sales to Total Assets. .It is the ratio which measures the
efficiency with which assets were turned over a period.
Total Asset Turnover Ratio = Sales
Total Assets
Total assets turnover ratio
Year 2003-04 2004-05 2005-06 2006-07 2007-08
Trend 1.5 1.5 1.6 1.5 1.2
Total Asset Turnover Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-08
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.81.5 1.5 1.6
1.5
1.2
Total assets turnover ratio
Time
Total Asset Turnover Ratio Analysis
Interpretation
The total assets turnover ratio is almost same in all years.
The Assets turnover Ratio is near by 1.5 in all 5 years which shows effective utilization of assets
from the company’s view point.
In the year 2005-06 ratio is increased because of company’s total assets is increased by 24.52%,
but sales is increased by 29.92%.So the ratio is increased but in current year it is decreased
because sale increasing by 41.45% and Assets increasing by 49.28%.
Net Fixed Assets Turnover
To ascertain the efficiency & profitability of business the total fixed assets are compared to sales. The
more the sales in relation to the amount invested in fixed assets, the more efficient is the use of fixed
assets. It indicates higher efficiency. If the sales are less as compared to investment in fixed assets it
means that fixed assets are not adequately utilized in business. Of course excessive sale is an indication
of over trading and is dangerous.
Net Fixed Assets Turnover Ratio = Sales
Net Fixed Assets
Total fixed assets turnover ratio
Year 2003-04 2004-05 2005--06 2006-07 2007-08
Time 4.0 4.2 4.9 4.0 2.4
Net Fixed Asset Turnover Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-08
0.0
1.0
2.0
3.0
4.0
5.0
6.0
4.04.2
4.9
4.0
2.4
Total fixed assets turnover ratio
Time
Net Fixed Assets Turnover Ratio Analysis
Interpretation
Here the ratio of Net Fixed Asset Turnover is continuously increasing up to 2006 and after that it
has strated decline.Because sales as wellas assets boths are equally increase.
Net Fixed Assets Turnover Ratio is increasing year by year because of Sale is increasing
continuously.
It indicates that the company maximizes the use of its fixed assets to earn profit in the business so
that whatever amount is invested by company in fixed asset, gives maximum productivity which
helps to increase sales as well as profit.
Inventory Turnover Ratio
Inventory Turnover Ratio: The no. of times the average stock is turned over during the year is known as
stock turnover ratio.
Inventory Turnover Ratio = COGS
Average stock
Total Inventory turnover ratio
Year 2003-04 2004-05 2005-06 2006-07 2007-08
Time 30.3 22.6 24.3 19.8 16.0
Inventory Turnover Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-080.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0 30.3
22.624.3
19.816.0
Total Inventory turnover ratio
Time
Inventory Turnover Ratio Analysis
Interpretation
From the above calculation we can say that the ratio is decreasing. It mens inventory is not spdly
convert in to sales. So that it is bad for the company.
In 2003-04 ratio is increased as compared to after that all year so management should take care
about good efficiency of stock management.
But in 2006 onward ratio is decreasing because of increase in COGS. So company should devise a
systematic operational plan for inventory control.
Average age of Inventories
This ratio indicates the waiting period of the investments in inventories and is measured in days, weeks
or months. Inventory turnover and average age of inventories are inversely related.
Average age of Inventories Ratio = 360 days
Inventory Turnover
Average age of Inventories
Year 2003-04 2004-05 2005--06 2006-07 2007-08
Days 11.9 15.9 14.8 18.2 22.4
Average age of Inventories Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-08
0.0
5.0
10.0
15.0
20.0
25.0
11.915.9
14.818.2
22.4
Average age of Inventories
Days
Average age of Inventories Ratio Analysis
Interpretation
This graph shows that inventory convert into cash in short time period.
Inventory turnover ratio is low in 2003-04 So In this year inventory is converted in cash 11.9 days.
The inventory conversation in to cash time duration is increases from 2004 to every year so the
management should tray to efficient inventory conversation,so it will It shows that company
effectiveness utilizing its Inventories in quickly.
Debtor Turnover Ratio
Debtor turnover ratio: The debtor turnovers suggest the no. of times the amount of credit sale is
collected during the year.
Debtor’s Turnover Ratio = Sales
Average Debtors
Debtors turn over in (times)
Year 2003-04 2004-05 2005--06 2006-07 2007-08
Time 4.9 3.8 3.7 3.7 1.5
Debtor Turnover Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-080.0
1.0
2.0
3.0
4.0
5.0
6.0
4.9
3.8 3.7 3.7
1.5
Debtor turnover ratio
Time
Debtor Turnover Ratio Analysis
Interpretation
Debtor turnover indicates how quickly the company can collect its credit sales revenue.
Here the ratio is continuously decreasing, so that the company’s collection of credit sales is
efficient management is improved its collection period every year so it shows that the
management have an ability to collect its money from his debtors. So they can invest that money
on Assets, HRD and other investments.
Finance Structure Ratios
Finance Structure Ratios indicate the relative mix or blending of owner’s funds and outsiders’ debt funds
in the total capital employed in the business. It should be noted that equity funds are the prime fund
which increase progressively through reinvestment of profits, while outside debt funds are
supplementary funds and are added at the discretion of the management.
The following Finance Ratios are calculated for the company.
Debt Ratio
Debt-Equity Ratio
Interest Coverage Ratio
Debt Ratio
Debt ratio indicates the long term debt out of the total capital employed.
Debt Ratio = Long Term Debt
Total Capital Employed
Debt Ratio Analysis
Debt Ratio
2003-04 2004-05 2005-06 2006-07 2007-08
Trend 0.0284 0.0165 0.0114 0.0383 0.384
2003-04 2004-05 2005-06 2006-07 2007-080
0.050.1
0.150.2
0.250.3
0.350.4
Debt Ratio
Trend
Debt Ratio Analysis
Interpretation
From the above calculation it seems that the ratio is fluctuating.
In 2007-08 the ratio is increased as compared to the previous year because the total loan funds
are increased by 661.56%.
In 2005-06 Company has issued equity Share and also loan is decreased.
Its means that now company trying to increasing Trading on equity.
Debt-Equity Ratio
This ratio is only another form proprietary ratio and establishes relation between the outside long term
liabilities and owner funds. It shows the proportion of long term external equity & internal Equities.
Debt Equity Ratio = Total Long Term debt
Share holder equity
Debt - Equity Ratio AnalysisDebt- Equity Ratio
Year 2003-04 2004-05 2005-06 2006-07 2007-08
Trend 0.027 0.012 0.011 0.030 0.376
2003-04 2004-05 2005-06 2006-07 2007-080
0.050.1
0.150.2
0.250.3
0.350.4
0.027 0.012 0.011 0.03
0.376
Debt equity ratio
Trend
Debt-Equity Ratio Analysis
Interpretation
It shows companies accumulated more equity than required company has to refocus to its
strategic policies and plans and try to accumulate more debt funds in future so as to make the
balance between debt and equity.
There is only current year ratio is some what sufficient.
Interest Coverage Ratio
Interest Coverage Ratio: The ratio indicates as to how many times the profit covers the payment of
interest on debentures and other long term loans hence it is also known as times interest earned
ratio. It measures the debt service capacity of the firm in respect of fixed interest on long term
debts.
Interest Coverage Ratio = EBIT
Interest
Intrest coverage ratio
Year 2003-04 2004-05 2005--06 2006-07 2007-08
Trend 3.4 5.0 4.5 4.2 21.9
Interest Coverage Ratio Analysis
2003-04 2004-05 2005--06 2006-07 2007-080.0
5.0
10.0
15.0
20.0
25.0
Intrest coverage ratio
Trend
Interest Coverage Ratio Analysis
Interpretation
After observing the figure it shows that the ratio has mix trend up to 2006.
In the year 2007-08 company has not much debt compare to EBIT so interest coverage ratio is high
but in 2007-08 company increasing its external debt so company have pay more interest among
its earnings so interest coverage ratio falling down compare to previous year.
Valuation Ratios
Valuation ratios are the result of the management of above four categories of the functional ratios.
Valuation ratios are generally presented on a per share basis and thus are more useful to the equity
investors.
The following Valuation Ratios are calculated for the company.
Earnings Per Share
Dividend pay-out Ratio
P/E Ratio
Profit Margin
Earnings Per Share
This ratio measures profit available to equity share holders on per share basis. It is not the actual
amount paid to the share holders as dividend but is the maximum that can be paid to them.
Earnings per Share = Net Profits for Equity Shares
No. of Equity Shares
Earnings per Share
Earnings Per Share
Year 2003-04 2004-05 2005-06 2006-07 2007-08
Trend(Rs.) 7.43 11.70 14.70 20.62 22.62
2003-04 2004-05 2005-06 2006-07 2007-080
5
10
15
20
25
7.43
11.714.7
20.6222.62
Earning per share
Trend(Rs.)
Earnings per Share Ratio Analysis
Interpretation
Earninig per share is increasing as a increasing rate it is good for invester and share holder.
In 2007-08 Profit is increasing by 42.30% and No Equity share Holder increased by 2.03%, Due to
that EPS Ratio is increasing in Current year.
Dividend Pay-out Ratio
This ratio indicate split of EPS between Cash Dividends and reinvestment of Profit. If the Company
has Profitable projects than it will prefer to keep dividend pay out ratio lower.
Dividend pay-out Ratio = Dividend per Share in Earnings per share in Rupees
Dividend Pay-out Ratio AnalysisDividend pay-out Ratio
Year 2003-04 2004-05 2005-06 2006-07 2007-08
Trend(Rs.) 1.54 4.68 2.94 3.77 3.43
2003-04 2004-05 2005-06 2006-07 2007-080
1
2
3
4
5
1.54
4.68
2.943.77 3.43
Dividend pay out ratio
Trend(Rs.)
Dividend Pay-out Ratio Analysis
Interpretation
In all years there is fluctuation in ratio.
If the company wants to prosper in future with flying colors then ideally more amounts should be
reinvested in the business rather than distributing as dividend.
In 2005-06 company has reinvested in business for expansion.
P/E Ratio
P/E Ratio is computed by dividing the current market price of a share by earning per share. This is
Popular measure extensively used in Investment analysis.
P/E Ratio = Current Market Price of Share
Earnings per Share
P/E Ratio Analysis
P/E Ratio
Year 20003-04 2004-05 2005-06 2006-07 200708
Trend 31.36 19.91 15.85 11.30 10.30
20003-04 2004-05 2005-06 2006-07 20070805
101520253035
31.36
19.9115.85
11.3 10.3
PE ratio
Trend
P/E Ratio Analysis
Interpretation
In 2004-05 P/E Ratios is high means Share price of company is Stable and Share holder are
interested to invest in the company’s share.
But in 2006-07 P/E Ratio is Falling down word So company share price is not as stable as
compare to previous year.
Profit margin ratio
Profit margin ratio= PAT/Sales*100
Year 2007-08 2006-07 2005-06 2004-05 2003-04
Net Sales and Services 199796 149982 106030 81605.6 58400.23
PAT 32829 29,421 20674 16285.4 10315
Ratio 16% 20% 19% 20% 18%
Profit margin ratio
2007-0818%
2006-0721%
2005-0621%
2004-0521%
2003-0419%
Profit Margin Ratio
Profit margin ratio
Interpretation
The ratio is shows equal for middle three year it means the company has maintain the equal
ratio for year 2005 to 2007.
The ratio shows decline in current year it is bad sign for the company.
