Analysis Financial Analysiss

FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

ANALYSIS & FINDINGS

I. RETURN ON INVESTMENT (ROI) RATIOS:

1. RONW (%) = PAT – Preference dividend. Equity shareholders fund.

2010-2011

- 2562100000 x 100

5432430000

= - 47.16 %

2009-2010

- 1043700000 x 100

5464050000

= -19.10%

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2008-2009

- 297260000 x 100

5548280000

= - 5.36%

2007 – 2008

459050000 x 100

6780840000

=6.77%

2006 – 2007

833833000 x 100

3111862000

= 26.80%

Inference:

The ratio was high in 2006 – 2007 and declined in coming five years due to market depressions and crisis. A high ratio usually means a high dividend, suppliers willing to extend more favorable terms, strengthening of the financial position of the company, better prospects.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

But the ratios continuously declines here and had dipped to – 47.16% which shows continuous depression in the return on equity shareholders fund and company’s inability to perform up to the mark.

2. Earning per share = PAT – Preference Dividend

Weighted average number of Equity share

Objective

It is widely used ratio to measure the profits available to the equity shareholders on a per share basis. EPS is calculated on the basis of current profits and not on the basis of retained profits.

As such, increasing EPS may indicate the increasing trend of current profits per equity share. However, EPS does not indicate how much of the earnings are paid to the owners by way of dividend and how much of the earnings are retained in the business.

2010-2011

- 2562100000

46126170

= Rs (55.55)

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2009-2010

- 1043700000

46126170

= Rs (22.63)

2008-2009

- 297260000

461261170

= Rs (6.44)

2007 – 2008

459050000

46126170

= Rs 9.95

2006 – 2007

833833000

39800750

= Rs 20.95

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

Inference:

The company had an adequate EPS in 2006 – 2007 but it declined in the subsequent years to follow which dipped to a Rs -55.55 in the year 2010 - 2011. The decline in EPS shows drop in the profitability in terms of per equity share of capital contributed by the owner and hence decreases the shareholders wealth. The company also stopped giving dividend to its shareholders after 2007 – 2008 which shows company’s unsound financial performance.

II. SOLVENCY RATIOS

The term ‘solvency’ implies ability of an enterprise to meet its long term indebtness and thus, solvency ratios convey the long term financial prospects of the company. The shareholders, debenture holders and other lenders of the long-term finance/term loans may be basically interested in the ratios falling under this group.

Following are the different solvency ratios:

1. NAV = Equity shareholders fund

No. of Equity shares outstanding

2010-2011

5432430000

46126170

= Rs 117.77

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2009-2010

5464050000

46126170

= Rs 118.46

2008-2009

5548280000

461261170

= Rs 120.28

2007 – 2008

6780840000

46126170

= Rs 147.00

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2006 – 2007

3111862000

39800750

= Rs 78.19

Inference:

There has been a significant rise in the NAV of the company in 2007 – 2008 which shows the efficiency of the company management in building up back-up of reserves and surplus to fall back upon but it declined in the subsequent years to follow as the company had undergone a vast corporate restructuring by acquiring many companies and expanding its operations.

2. Debt Equity = Long term debt

Total Net worth

The debt-equity ratio is worked out to ascertain soundness of the long term financial policies of the firm. This ratio expresses a relationship between debt (external equities) and the equity (internal equities).

Debt means long-term loans, i.e., debentures, public deposits, loans (long term) from financial institutions. Equity means shareholder’s funds, i.e., preference share capital, equity share capital, reserves less losses and fictitious assets like preliminary expenses.

Objective

The objective of this ratio is to arrive at an idea of the amount of capital supplied to the concern by the proprietors and of asset ‘cushion’ or cover available to its creditors on liquidation of the organization equity.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

It also indicates the extent to which the firm depends upon outsiders for its existence. In other words, it portrays the proportion of total funds acquired by a firm by way of loans.

A high debt-equity ratio may indicate that the financial stake of the creditors is more than that of the owners. A very high debt-equity ratio may make the proposition of investment in the organization a risky one.

While a low ratio indicates safer financial position, a very low ratio may mean that the borrowing capacity of the organization is being underutilized.

The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as auto manufacturing tend to have a debt/equity ratio above 2, while personal computer companies have a debt/equity of under 0.5.

The readers of financial management may remember that to borrow the funds from outsiders is one of the best possible ways to increase the earnings available to the equity shareholders, basically due to two reasons:

a) The expectations of the creditors in the form of return on their investment are comparatively less as compared to the returns expected by the equity shareholders.

b) The return on investment paid to the creditors is a tax-deductible expenditure

2010-2011

19128800000

1702500000

= 11.24 times.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2009-2010

17951300000

4296200000

= 4.18 times.

2008-2009

12147300000

5424100000

= 2.24 times.

2007 – 2008

9226900000

6780800000

= 1.36 times

2006 – 2007

= 5834200000

3111900000

= 1.87 times.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

Inference:

It shows a trend of increasing debt to equity ratio which shows the company is gradually increasing its long term debt which can be fulfilled by its equity shareholders fund and therefore it indicates unsound capital structure. As it is increasing gradually it shows the company is presently not in a position to raise more funds. The long term debt of the company is increasing at a fast pace to meet its expanding operations but it is unable to meet it with its present networth which is not good for the company.

III. LIQUIDITY RATIO

Liquidity ratios measure the short term solvency, i.e., the firm’s ability to pay its current dues and also indicate the efficiency with which working capital is being used.

Commercial banks and short-term creditors may be basically interested in the ratios under this group. They comprise of following ratios:

1. Current ratio = current assets /Current Liabilities

Current ratio is a relationship of current assets to current liabilities.‘current assets’ means the assets that are either in the form of cash or cash equivalents or can be converted into cash or cash equivalents in short time(say within a year) like cash, bank balances, marketable securities, sundry debtors, stock, bills receivables, prepaid expenses.

‘Current liabilities’ means liabilities repayable in as short time like sundry creditors, bills payable, outstanding expenses, bank overdraft.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

Objective

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities with its short-term assets.

The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. 

While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign.

The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash.

An acceptable current ratio varies by industry. For most industrial companies 1.5 is an acceptable CR. A standard CR for a healthy business is close to 2.

However, a blind comparison of actual current ratio with the standard current ratio may lead to unrealistic conclusions. A very high ratio indicates idleness of funds, poor investment policies of the management and poor inventory control, while a lower ratio indicates lack of liquidity and shortage of working capital.

2010-2011

= 12043920000

2095900000

= 5.75 times.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2009-2010

= 12369490000

1800930000

= 6.87 times

2008-2009

= 10196170000

1401910000

= 7.27 times.

2007 – 2008

= 7369590000

2137370000

= 3.45 times

2006 – 2007

= 7026976000

2168303000

= 3.24 times.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

Inference:

The company has fluctuating current ratio but an acceptable value and can meet its current obligations. It had a rise in 2008 – 2009 which shows its sound position to meet its obligations but it decreased to 5.75 in the year 2010 – 2011 which is not good for the company.

2. Quick ratio = current assets, Loans & Advances - inventories + Short term investments_____________________

Current Liabilities + Provisions

Liquid ratio is a relationship of liquid assets with current liabilities. It is fairly stringent measure of liquidity.

Liquid assets are those assets which are either in the form of cash or cash equivalents or can be converted into cash within a short period. Liquid assets are computed by deducting stock and prepaid expenses from the current assets. Stock is excluded from liquid assets because it may take some time before it is converted into cash. Similarly, prepaid expenses do not provide cash at all and are thus, excluded from liquid assets.

Objective

The ratio of current assets less inventories to total current liabilities. This ratio is the most stringent measure of how well the company is covering its short-term obligations, since the ratio only considers that part of current assets which can be turned into cash immediately (thus the exclusion of inventories). The ratio tells creditors how much of the company's short term debt can be met by selling

all the company's liquid assets at very short notice also called acid-test ratio. The current ratio does not indicate adequately the ability of the enterprise to discharge the

current liabilities as and when they fall due. Liquid ratio is considered as a refinement of

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

current ratio as non-liquid portion of current assets is eliminated to calculate the liquid assets. Thus it is a better indicator of liquidity.

A quick ratio of 1:1 is considered standard and ideal, since for every rupee of current liabilities, there is a rupee of quick assets. A decline in the liquid ratio indicates over-trading, which, if serious, may land the company in difficulties.

2010-2011

= 12043920000 - 72450000

2095900000

= 5.71 times.

2009-2010

= 12369490000 - 59680000

1800930000

= 6.84 times

2008-2009

= 10196170000 - 51830000

1401910000

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

= 7.24 times.

2007 – 2008

= 7369590000 - 19180000

2137370000

= 3.44 times

2006 – 2007

= 7026976000 - 16152000

2168303000

= 3.23 times.

Inference:

The quick ratio is in line with generally accepted 1:1 and has grown adequately in 2008 – 2009 which shows better position of the company to meets its obligations. But it declined in the following years, but is in an acceptable condition due to strong back of Reliance group.

IV. RESOURCES EFFICIENCY OR TURNOVER RATIOS

1. Fixed Assets Turnover Ratio (times) = Net sales Net Block of Fixed Assets

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2010-2011

= 4866920000

8626780000

= 0.56 times.

2009-2010

= 4600410000

8482750000

= 0.54 times

2008-2009

= 4852680000

6679700000

= 0.73 times.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2007 – 2008

= 2703540000

5239030000

= 0.52 times

2006 – 2007

= 761540000

1786040000

= 0.42 times.

Inference:

The ratio had a rise in 2008 – 2009 compared to its previous year but then had steep decline in its subsequent years which shows under utilization of its fixed assets for generating income for the company.

2. Debtors Turnover Ratio (times) = Sales

Average Debtors

Objective

This ratio indicates the speed at which the sundry debtors are converted in the form of cash. However this intention is not correctly achieved by making the calculations in this way.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2010-2011

= 4866920000

2061790000

= 2.36 times.

2009-2010

= 4600410000

2336520000

= 1.97 times

2008-2009

= 4852680000

1958085000

= 2.48 times.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2007 – 2008

= 2703540000

1040305000

= 2.60 times

2006 – 2007

= 761540000

525720000

= 1.45 times.

Inference:

The collection procedure of the company has been appropriate throughout

these five years. It has been viewed that the ratio was very appropriate in

2007 – 2008 but has slightly dropped in 2010 – 2011. It shows the ability of the company to convert the debtors of the company to cash receivables and recover its dues.

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

V. PROFITABILITY / PROFIT MARGIN RATIOS:

1. Net Profit Margin = Net Profit / loss x 100

Net sales

2010-2011

= - 2562100000 x 100

5428740000

= - 47.20 %

2009-2010

= - 1043700000 x 100

4907730000

= -21.27%

2008-2009

= - 297260000 x 100

5508280000

= - 5.40%

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2007 – 2008

= 459050000 x 100

3242070000

=14.16%

2006 – 2007

= 833833000 x 100

3938534000

= 21.17%

Inference:

The profitability has a high ratio in the year 2006 – 2007 at 21.17% but has decreased to -47.20% in the year 2010 – 2011 which shows the gross profit margin had decreased which is not healthy for the company.

2. Asset Turnover Ratio = Sales

Average total assets

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2010-2011

= 4866920000

23988275000

= 0.20 times

2009-2010

= 4600410000

20555450000

= 0.22 times

2008-2009

= 4852680000

16851635000

= 0.29 times

2007 – 2008

= 2703540000

12541165000

=0.22 times

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2006 – 2007

= 761540000

8590945000

= 0.09 times.

Inference –

The company had a low asset turnover ratio in the year 2006 – 2007 i.e. 0.09 times but rised 2008 – 2009 to 0.29 but then subsequently decreased in the year 2010 – 2011 to 0.20 times. It indicates a significant drop in the utilization of the assets.

3. Return on Asset or Return on Investment = Profit / loss after tax x 100

Average total asset

2010-2011

= - 2562100000 x 100

23988275000

= -10.68%

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

2009-2010

= - 1043700000 x 100

20555450000

= -5.08%

2008-2009

= - 297260000 x 100

16851635000

= - 1.76%

2007 – 2008

= 459050000 x 100

12541165000

=3.66%

2006 – 2007

= 833833000 x 100

8590945000

= 9.71%

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FINNANCIAL ANNALYSIS OF RELIANCE MEDIA WORKS

Inference –

The Reliance Media Works ltd’s return on asset declined from 9.71% in the year 2006 – 2007 to -10.68% , indicating a fall in the overall profitability of the company.

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