Ratio Analysis of Walmart

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FINANCIAL ACCOUNTING AND ANALYSIS Page 1

RATIO ANALYSIS OF WALMART

By

VISHAL PATEL

(MBA)

A report submitted in partial fulfillment of

The requirements of

MBA PROGRAM 2013-2015

For the Module

Financial Accounting and Analysis

To

Prof. Meghna Dangi

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ACKNOWLEDGMENT

I heartily wish to extend heartfelt appreciation and gratitude to numerous Mentors, benefactors, and constituents who have collectively endowed the Wherewithal, faith and encouragement for me to navigate and complete my Project journey.

To Professor Meghna Dangi, my supporting advisor, who gently and patiently endured my academic tardiness, I offer commensurate veneration?

To the faculty and staff of the School of Management and Entrepreneurship, AURO University, Surat.

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TABLE OF CONTENT

Ch. No

Topic

Page

No

1. INTRODUCTION:

 BACKGROUND OF THE STUDY

 HISTORY OF THE COMPANY

 OBJECTIVE OF COMPANY

 SWOT ANALYSIS

5

2. LITERATURE REVIEW 12

3. RESEARCH METHODOLOGY 14

4. THEORITICAL FRAME WORK OF RATIOS 16

5. RATIO ANALYSIS 18

6. CONCLUSION AND RECOMMENDATION 35

REFERENCES 36

APPENDIXES

 Balance sheet

 Profit and loss A/c

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ABSTRACT

Every report has its own theme. The essence of this report is to know the financial condition of WALMART. This report helps to know about what WALMART is all about and how the company is performing in financial terms. To measure the financial performance of the company, ratio analysis is conducted. For this analysis to be conducted, data is needed. Balance sheet and profit and loss account of the company are used which is purely an secondary data ( given in appendixes) to make such analysis. The time period taken for conducting this analysis is from 2009 to 2013 i.e. five years. The conclusion made from this analysis is that WALMART has been growing strongly and is performing well in every financial aspect.

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CHAPTER-1 - INTRODUCTION

Back ground of the study

Wal-Mart is the largest retail store in the United States, and is larger than any other retail chain in the world. Currently Wal-Mart operates over 4,150 retail facilities globally. Also, the company is the dominant retail store in Canada, Mexico, and the United Kingdom. According to the Fortune 500 index of the wealthiest and most powerful corporations in the world, Wal-Mart holds the number one spot, ranked by its total sales. The company is ranked as the second most admired company in the world by Fortune.

Wal-Mart provides general merchandise: family apparel, health & beauty aids, household needs, electronics, toys, fabrics, crafts, lawn & garden, jewelry and shoes. Also, the company runs a pharmacy department, Tire & Lube Express, and Photo processing center as well. When Sam Walton created Wal-Mart in 1962, he declared that three policy goals would define his business: respect for the individual, service to customers, and striving for excellence.

Wal-Mart's corporate management strategy involves selling high quality and brand name products at the lowest price (Vance, 119). In order to keep low prices, the company reduces costs by the use of advanced electronic technology and warehousing. It also negotiates deals for merchandise directly from manufacturers, eliminating the middleman.

Wal-Mart's community outreach focuses on the goals of providing customer satisfaction, involving itself with local community services, and providing scholarships. Its emphasis is on children and environmental issues.

During the 1970s, the retail industry became highly competitive, but, at the same time the economy became weak due to inflation. Sears was the leading retailer in the nation, during the 1970s, however, the recession of 1974-1975 and inflation affected Sears adversely. Sears targeted middle class families and expanded its overhead. Wal-Mart's strategy was to compete with its rivals and lower overhead expenses. Compared with Sears, who consisted of more than 6,000 distribution centers, Wal-Mart had only 2,500 comparable units.

Today, Wal-Mart has 1,636 retail stores. There are 1,093 Wal-Mart Super centers, 502 Sam's Clubs, 31 Wal-Mart Neighborhood stores and 1,183 international stores. Its core retail business can be divided into four retail divisions: Wal-Mart stores, super centers, Sam's Club warehouses and neighborhood markets. Wal-Mart stores and Super centers provide "one-stop family shopping"; combining groceries and general merchandise departments. Sam's Club is the

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nation's leading members-only warehouse club. Neighborhood Markets offer a convenient shopping experience for customers who need groceries, pharmaceuticals and general merchandise.

History of the company:

1962 : Wal-Mart opened the first store In Rogers, Ark.

1970 : Wal-Mart opens first distribution center and home office in Bentonville, Ark. 1970 : Wal-Mart traded stocks as a publicly held company

1971 : Wal-Mart in five states: Arkansas, Kansas, Louisiana, Missouri and Oklahoma. 1972 : Wal-Mart approved and listed on the New York Stock Exchange.

1973 : Wal-Mart in Tennessee.

1974 : Wal-Mart stores now in Kentucky and Mississippi, Texas becomes 9

th

.

1977 : Wal-Mart entered Illinois. 11th state: Alabama. 1981 : Wal-Mart opened at Georgia and South Carolina 1982 : Wal-Mart opened at Florida and Nebraska.

1983 : First SAM'S CLUB opened in Midwest City, OK People Greeter implemented at all store.

Wal-Mart enters Indiana, Iowa, New Mexico and North Carolina.

1984: David Glass named company president. Wal-Mart enters Virginia

1985 : Wal-Mart has 882 stores with sales of $8.4 billion and 104,000 Associates. Company

adds stores in Wisconsin and Colorado.

1986 : Wal-Mart enters Minnesota.

1989 : Wal-Mart is now in 26 states with the addition of Michigan, West Virginia and Wyoming. 1990 : Wal-Mart becomes nation's No. 1 retailer. McLane Company of Temple, Texas acquired

Wal-Mart enters California, Nevada, North Dakota, Pennsylvania, South Dakota and Utah.

1991 : Wal-Mart enters Connecticut, Delaware, Maine, Maryland, Massachusetts, New

Hampshire, New Jersey and New York. "Sam's American Choice" brand products introduced. International market entered for first time with the opening of a unit Mexico City.

1992 : Sam Walton passes away April 5. S. Robson Walton named chairman of the board April

7. Wal-Mart has entered 45 states with the addition of Idaho, Montana and Oregon. Wal-Mart enters Puerto Rico.

1993 : Wal-Mart enters Alaska, Hawaii, Rhode Island and Washington.

1994 : Wal-Mart enters Canada by the acquisition of Woolco, and takes over 123 former Woolco

stores across Canada. It opens 96 stores in Mexico. Three value clubs open in Hong Kong.

1995 : Wal-Mart enters its 50th state - Vermont - and builds three units in Argentina and five in

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1996 : Wal-Mart enters China

1997 : Wal-Mart replaces Woolworth on the Dow Jones Industrial Average

2000 : Wal-Mart ranked 5

th

by FORTUNE magazine in its Global Most Admired All-Stars list. H. Lee Scott named president and CEO of Wal-Mart Stores, Inc. Wal-Mart ranked #1 Corporate Citizen in America in the 2000 Cone/Roper Report, an annual national survey on philanthropy and corporate citizenship.

2001 : Wal-Mart has the biggest single day sales in history: $1.25 billion on the day after Thanksgiving. (www.walmartstore.com. About Wal-Mart)

2007 : Walmart.com launched Site to Store service, enabling customers to make a purchase

online and pick up merchandise in stores.

2010 : Bharti Walmart, a joint venture, opened its first store in India.

OBJECTIVE OF THE COMPANY:

As a major international public company, Walmart has lots of objectives. Here are some of them taken directly from Walmart‘s 2011 Annual Report

“Expand multi-channel initiatives” Strategies:

 Develop and execute a global eCommerce strategy

 Accelerate global online channel growth

 Have accessible stores available for all of the customers‘ needs

Tactics:

 Conduct research on customers

 Use new formats, such as Walmart Express™, in urban and rural markets.

 Open Walmart‘s first convenience format stores, Walmart Express, in the second quarter.  Investing in global eCommerce (online commerce)

 Create technology platforms and applications for every Walmart market

 Deepening their understanding of consumer trends and creating new analytical tools.

 Leveraging multi-channel innovations like Site-to-Store®, Pick Up TodaySM and Fed-Ex® Site to Store

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“Grow in the United States” Strategies:

 Keep improving Sam‘s Club®

 Maintain excellent customer service – Give the customers what they want: quality products at affordable prices

 Implement a four-point plan to improve comparable store sales (Investopedia says: ―This statistic [comparable store sales] allows investors to determine what portion of new sales has come from sales growth and what portion from the opening of new stores.‖)

 Implement productivity initiatives

Tactics:

 Open more supercenters

 Attract more customers and Sam‘s Club members

 Open Walmart‘s first convenience format stores, Walmart Express, in the second quarter.  Expanding their assortment, reallocating selling space and enhancing productivity initiatives

to reduce costs.

 Adding services to their pharmacies, such as free monthly health screenings and hearing centers.

 Continue to add exciting brands in key categories, including apparel, jewelry, technology and entertainment.

 Conduct research on customers

“Improve returns” Strategies:

 Balance their commitment to aggressive growth with their long-term plan

 Achieve positive comparable store sales [through four-point plan]

 Enhance shareholder value

Tactics:

 Opening supercenters in new regions of Canada and changing the competitive environment in Brazil with a shift to EDLP [every day low prices].

 Leveraging multi-channel innovations like Site-to-Store®, Pick Up TodaySM and Fed-Ex® Site to Store

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 Expanding their assortment, reallocating selling space and enhancing productivity initiatives to reduce costs.

 Adding services to their pharmacies, such as free monthly health screenings and hearing centers.

 Continue to add exciting brands in key categories, including apparel, jewelry, technology and entertainment.

 Attract more customers and Sam‘s Club members

 Open Walmart‘s first convenience format stores, Walmart Express, in the second quarter.

Mission slogan:

"Save money. Live better."

Saving people money so they can live better was a goal Sam Walton envisioned when he opened the first Wal-Mart store more than 40 years ago. Today, with thousands of stores in a number of formats around the globe, this mission is embedded in our business; it lives in our culture; and it impacts every part of our Company — from our customers and our shareholders, to our associates and our communities.

 SWOT ANALYSIS:

Strengths

1 Scale of operations. Walmart is the largest retailer in the world with more than $400 billion in revenue and 10,130 stores. It makes Walmart the giant that no other retailer can match. Due to such large scale of operations, the corporate can exercise strong buyer power on suppliers to reduce the prices. It can also achieve higher economies of scale than competitors because of its size. Higher economies of scale results in lower prices that are passed to consumers.

2 Competence in information systems. The corporate achieves significant cost savings because of its extensive information systems that tracks orders, inventory levels, sales and other related information in real time. All this information can be instantly accessed, analyzed and decisions made at each store. Effective management of supply chain and logistics is one of the most important factors for Walmart success.

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3 Wide range of products. Walmart can offer wider range of products than any other retailer. It sells grocery, entertainment, health and wellness, apparel and home related products among many other categories and offers both branded and own label goods. Wide range of products attracts more customers to Walmart stores.

4 Cost leadership strategy. This strategy has helped Walmart to become the low cost leader in the retail market. This strategy requires selling products ant the lowest price possible and providing a no frill services to achieve higher economies of scale and attract masses of consumers and that is exactly what the company is doing. It sells products at much lower prices than competitors do, builds warehouse style superstores that contain extensive range of products but doesn‘t offer much additional benefits or services. All of this result in cost reductions and lower prices for consumers.

Weaknesses

1. Labor related lawsuits. Walmart faces labor related lawsuits every year, which costs millions of dollars for the company. It is criticized for poor work conditions, low wages, unpaid overtime work and female discrimination. In addition to litigation costs, corporate‘s reputation has been damaged and fewer skilled workers are willing to work for it.

2. High employee turnover. The business suffers from high employee turnover that increases firm‘s costs, as it has to train new employees more often. The main reason for high employee turnover is low skilled, poorly paid jobs.

3. Little differentiation. Walmart has no differentiation compared to its competitors, which might hurt the company in the future if commodity prices or average consumer income would increase. In this case, low cost leadership strategy wouldn‘t be as effective as it currently is and Walmart‘s main competitive advantage would erode.

4. Negative publicity. The company is often criticized for its questionable practices such as bribery of authorities or poor work conditions. Negative publicity damages corporate‘s reputation.

Opportunities

1. Retail market growth in emerging markets. Retail markets grew by at least 5% on average in emerging markets in the last year, opening huge opportunities for Walmart‘s revenue growth. The business currently operates in Brazil, Mexico, China and India markets. Walmart should increase its presence in these markets to sustain future growth.

2. Rising acceptance of own label products. The sales of private label products have increased by more than 40% over the last 10 years. This reveals increasing consumer acceptance of supermarket chain products compared to national brand products. Walmart has an opportunity

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FINANCIAL ACCOUNTING AND ANALYSIS Page 11 to increase the number of private label products sold at its stores and earn higher profit margins.

3. Trend toward healthy eating. The current trend of eating healthier food has resulted in higher demand for grocery products. Walmart has an opportunity to expand its grocery stores to earn more income from this trend.

4. Online shopping growth. Online retail sector grew by 4.7% in the US in 2011, reaching $197 billion. Walmart being the biggest offline retailer has huge opportunities to expand its presence in online retail market. The company can offer convenience to pick up the goods ordered online in its more than 10,000 stores and can offer even lower prices online than at the store. As a result, Walmart can reach more customers and increase its revenue.

Threats

1. Increasing competition from brick and mortar and online competitors. Competitors like Target, Costco, Amazon and Tesco (in UK) are putting huge efforts to eliminate price differences that Walmart enjoys. Except the lower prices, Walmart doesn‘t differ from other low cost retailers and will experience increased competition from them in the future.

2. Increasing resistance from local communities. Walmart superstores have a negative impact on local retailers and communities. Some of the local retailers are usually forced to close off when Walmart superstore opens in the area. This affects not only the retailers but their families and the community as a whole.

3. Rising commodity product prices. Rising commodity prices squeeze Walmart‘s profit margins and erode its competitive advantage. As prices go up, the cost difference between the retailers decreases and competition shifts from price to product and service differentiation.

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CHAPTER – 2 - LITERATURE REVIEW:-

There are a number of studies that address claims about Wal-Mart‘s impacts on local labor markets, emphasizing the retail sector. However, we regard much of this literature as uninformative about the causal impact of Wal-Mart on retail employment and earnings. First, some of the existing work is by advocates for one side or the other in local political disputes regarding Wal-Mart‘s entry into a particular market. These studies are often hastily prepared, plagued by flawed methods and arbitrary assumptions, and sponsored by interested parties such as Wal-Mart itself, its competitors, or union groups(e.g., Bianchi and Swinney, 2004; Freeman, 2004; and Rodino Associates, 2003), and can hardly be expected to provide impartial evidence on Wal-Mart‘s effects. Hence, they are not summarized here. There is also an academic literature on the impact of Wal-Mart stores, focusing on the effects of Wal-Mart openings on local employment, retail prices and sales, poverty rates, and the concentration of the retailing industry, as well as the impact on existing businesses. This research is limited by three main factors: the restriction of much of it to small regions (often a single small state); its lack of focus on employment and earnings effects; and its failure to account for the endogeneity of Wal-Mart locations, either at all or (in our view) adequately. Many of these studies, especially the early ones, focus on the effects of Mart at the regional level, spurred by the expansion of Wal-Mart into a particular region. The largest number of studies focus on the effects of Wal-Wal-Mart on retail busin/esses and sales, rather than on employment and earnings. The earliest study, which is typical of much of the research that has followed, is by Stone (1988). He defines the ―pull factor‖ for a specific merchandise category as the ratio of per capita sales in a town to the per capita sales at the state level, and examines the changes in the pull factor for different merchandise categories in host and surrounding towns in Iowa after the opening of Wal-Mart stores. Stone finds that in host towns, pull factors for total sales and general merchandise (to which all Wal-Mart sales belong) rise after the arrival of Wal-Wal-Mart. Pull factors for eating and drinking and home furnishing also go up because Wal-Mart brings in more customers. However, pull factors for grocery, building materials, apparel, and specialty stores decline, presumably due to direct competition from Wal-Mart. He also finds that small towns surrounding Wal-Mart towns suffer a

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larger loss in total sales compared to towns that are further away.7 Related results for other regions—which generally, although not always, point to similar conclusions—are reported in Keon, et al. (1989), Barnes, et al. (1996), Davidson and Rummel (2000)

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CHAPTER – 3 – RESEARCH METHODOLODY Topic: - WALMART financial ratio analysis.

Research design:-

A research design is the way or the methods or the procedure followed to conduct an scientific research. Some of the types of research design are exploratory research design, descriptive research design and causal research design. Each has its own meaning. Causal research design helps us to know a cause and effect relation between two variables, whereas exploratory research design is used to find new ideas and insight. Descriptive research design is a type of research method that is used when one wants to get information on the current status of a person or an object. in this study there only one company and no new ideas are to be found. The major focus would be on to know current financial position of WALMART. For this a descriptive type of research design is used.

Time period:-

Data from 2008 to 2012 are collected to analyse the performance of the WALMART.

Objective of the study:-

Objective means the main purpose of the report i.e. stating why this report is prepared and what it wants to say. The only objective of this study is to WALMART‘S current financial position with the use of various financial ratios.

Data collection method: -

There are two ways one can collect data i.e. through primary source (which means generating one‘s own information by surveys or interviews etc.) or through secondary source (which are readily available like information in newspaper, magazines, websites etc.). For this report only secondary data are used as the basic objective is to study WALMART‘S financial position, there is no need to conduct a survey or interviews, which are sources of primary data.

Type of data:-

Data included in the balance sheet, profit and loss account and cash flow statement of the company are used.

Method of analysis:-

Various financial ratios are used to evaluate the corporate financial positions along with various graphs and charts.

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Limitations of the study:-

1) Secondary data is never cent percent correct. So if the data used in the report for evaluation are incorrect or incomplete the results would be misleading.

2) Alteration of data at source of origin can alter the results. 3) Time constraints.

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CHAPTER – 4

THEORETICAL FRAME WORK OF RATIOS

Ratio Analysis is the calculation and comparison of main indicators - ratios which are derived from the information given in a company's financial statements (which must be from similar points in time and preferably audited financial statements and developed in the same manner). It involves methods of calculating and interpreting fina ncial ratios in order to assess a firm's performance and status. This Analysis is primarily designed to meet informational needs of investors, creditors and management. The objective of ratio analysis is the comparative measurement of financial data to facilitate wise investment, credit and managerial decisions.

Importance and Advantages of Ratio Analysis

Ratio analysis is an important tool for analyzing the company's financial performance. The following are the important advantages of the accounting ratios.

1. Analyzing Financial Statements

Ratio analysis is an important technique of financial statement analysis. Accounting ratios are useful for understanding the financial position of the company. Different users such as investors, management. bankers and creditors use the ratio to analyze the financial situation of the company for their decision making purpose.

2. Judging Efficiency

Accounting ratios are important for judging the company's efficiency in terms of its operations and management. They help judge how well the company has been able to utilize its assets and earn profits.

3. Locating Weakness

Accounting ratios can also be used in locating weakness of the company's operations even though its overall performance may be quite good. Management can then pay attention to the weakness and take remedial measures to overcome them.

4. Formulating Plans

Although accounting ratios are used to analyze the company's past financial performance, they can also be used to establish future trends of its financial performance. As a result, they help formulate the company's future plans.

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It is essential for a company to know how well it is performing over the years and as compared to the other firms of the similar nature. Besides, it is also important to know how well its different divisions are performing among themselves in different years. Ratio analysis facilitates such comparison.

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CHAPTER – 5 - RATIO ANALYSIS

1)

Profitability ratio

:-

The name says it all. It shows the profitability of the firm.

Every corporate house or firm needs to earn profit not only to survive but also to expand or diversify. Not only this, profit needs to be earned to give returns to investors, payment to creditors, salaries and wages to the employees, and the list goes on.

This class of ratio are used to evaluate the company‘s ability to generate excess revenue over expenses

.

A) Gross profit ratio:-

GP ratio is a ratio which shows relationship between sales and gross profit. It is a very effective tool for finding the operational performance of the company.

This can be found out by dividing gross profit by net sales.

GPR = GROSS PROFIT /NET SALES *100

(IN $ BILLION) 2009 2010 2011 2012 2013 NET SALES 401.09 408.21 421.85 446.95 496.16 GROSS PROFIT 97.03 103.56 106.56 111.82 116.67 GP RATIO 24.19% 25.37% 25.26% 25.02% 23.51%

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Analysis:-

By viewing this we see that the gross profit ratio increases from year 2009 to 2010 but then this ratio decreases inspite of increase in gross profit.This means that gross profit increases although ratio decreases.

B) Net Profit Ratio:-

NP ratio is an another tool to measure the profitability of the firm. It is an indicator about how efficient is the firm is and well it is able to control it‘s costs. It‘s an indicator about how much revenues are converted into actual profits by the company.

This can be calculated by dividing profit after tax by net sales.

NPR = NPAT / NET SALES *100

(IN $ BILLION) 2009 2010 2011 2012 2013 PAT 13.25 14.41 15.36 15.77 17 NET SALES 401.09 408.21 421.85 446.95 469.16 NP RATIO _3.30% _3.53% _3.64% _3.53% _3.62% 24.19% 25.37% 25.26% 25.02% 23.51% 22.50% 23.00% 23.50% 24.00% 24.50% 25.00% 25.50% 26.00% 2009 2010 2011 2012 2013

GP RATIO

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Analysis: -

By analyzing this graph we see that profit margin increase year by year except year 2012 that mean company achieve good profit from business and company tries to maintain this by increasing net sales .

2) Liquidity ratio:-

Lteiquidity ratios are those ratios which show the company‘s ability to meet the company‘s short term obligations. These ratios help to measure the ability of the firm to pay back their obligations when they become due.

A) Current ratio:-

This is a balance sheet financial performance ratio which shows whether the company has the ability or assets to repay their current liabilities over the next one year.if the ratio is more than1:1

3.30% 3.53% 3.64% 3.53% 3.62% 3.10% 3.20% 3.30% 3.40% 3.50% 3.60% 3.70% 2009 2010 2011 2012 2013

NP Ratio

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that means company has those assets to repay their current liabilities, if less opposite would be the situation.

It could be found out by dividing current assets by current liabilities.

CURRENT RATIO = CURRENT ASSET / CURRENT LIABLITIES

(IN $ BILLION) 2009 2010 2011 2012 2013 CURRENT ASSET 48.95 48.33 51.89 54.98 59.94 CURRENT LIABLITIES 55.39 55.56 58.48 62.30 71.82 CURRENT RATIO 0.88 0.87 0.89 0.88 0.83

Analysis:-

We say that current ratio is high till year 2012 but in year 2013 its become too much low mainly due to its current liability increase and also its asset increase with that. So company believes in tries to maintains that ratio.

Current ratio 0.8 0.82 0.84 0.86 0.88 0.9 2009 ₂₀₁₀ 2011 ₂₀₁₂ 2013 0.88 0.87 0.89 0.88 0.83

Current ratio

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B) Acid test ratio:-

Another type of liquidity ratio, which measures short term liquidity position of the company is acid test ratio also known as quick ratio.

This ratio suggest whether the firm has enough short term assets to cover its short term liabilities without selling it‘s inventory. This means the company having enough backing to pay current assets almost immediately.

For this liquid assets are divided by liquid liabilities, where liquid assets includes all current assets except for inventory and prepaid expenses, because they cannot be converted into cash immediately for payments, while liquid liabilities include all current liabilities except for bank overdraft and cash credit because they are not to be paid immediately.

QUICK OR ACID TEST RATIO = LIQUID ASSET / LIQUID LIABILITIES

(IN $ BILLION) 2009 2010 2011 2012 2013 LIQUID ASSET 14.44 15.18 15.57 14.27 16.14 LIQUID LIABILITIES 55.39 55.56 58.48 62.30 71.82 QUICK OR ACID TEST RATIO 0.26 0.27 0.27 0.23 0.22 0.26 0.27 0.27 0.23 _0.22 0 0.05 0.1 0.15 0.2 0.25 0.3 2009 2010 2011 2012 2013

Acid test ratio

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Analysis: -

Quick ratio is increasing till the year 2010, then it has shown a declining trend. It means that quick assets is not increasing by the same percentage as the current liabilities.

3)

Turnover

ratios

:-

Accounting ratios that measure a firm's ability to convert different accounts within their balance sheets into cash or sales. Companies would like to convert those accounts into cash as fast as possible. This type of turnover ratios shows if they are able to do so or not.

A) Inventory turnover ratio:-

In accounting, the Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. The equation for inventory turnover equals the Cost of goods sold divided by the average inventory. Inventory turnover is also known as inventory turns, stock turn, stock turns, turns, and stock turnover.

INVENTORY TURNOVER RATIO = COGS/AVGRAGE STOCK (IN $ BILLION) 2009 2010 2011 2012 2013 COGS 297.32 297.5 307.65 327 343.99 AVERAGE STOCK 34.84 33.84 34.74 38.52 42.26 INVENTORY TURNOVER RATIO 8.53 8.79 8.86 8.49 8.14

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Analysis:-

The inventory turnover ratio is not consistent from the year 2009 to the year 2013. From the year 2009 to the year 2011, it has shown an increasing trend, indicating that number of times the inventory is sold or used has increased. But it has declined in 2012 and 2013 showing that number of times the inventory sold or used has decreased.

B) Fixed asset turnover ratio:-

Fixed asset turnover is the ratio of sales to value of fixed assets, indicating that how well the company uses its fixed assets to generate sales.

Higher the ratio, the better it is because it would mean that the company has less amount of money tied up in fixed assets for each unit of sales revenue.

A declining ratio indicates that the company has overinvested in plant, machinery, or other fixed assets. 8.53 8.79 8.86 8.49 8.14 7.6 7.8 8 8.2 8.4 8.6 8.8 9 2009 2010 2011 2012 2013

Inventory turnover ratio

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FIXED ASSETS TURNOVER RATIO = NET SALES / FIXED ASSETS (IN $ BILLION) 2009 2010 2011 2012 2013 NET SALES 401.09 408.21 421.85 446.95 496.16 FIXED ASSETS 284.96 340.11 357.49 371.63 390.56 FIXED ASSETS TURNOVER RATIO 1.41 1.20 1.18 1.20 1.27

Analysis:-

This ratio has declined all these years except 2013 where it has shown a bit of improvement. This ratio shows that how much of sales is generated by using fixed assets.

1.41 1.2 1.18 1.2 1.27 1.05 1.1 1.15 1.2 1.25 1.3 1.35 1.4 1.45 2009 2010 2011 2012 2013

Fixed assets ratio

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C) Current assets turnover ratio:-

It indicates the companies capability of generating sales by effectively using its current assets.

Higher current ratio is good for the company as it indicates that the company is able to generate maximum amount of sales revenue with minimum amount of capital. Vice versa would be the case if the ratio is low.

CURRENT ASSET TURNOVER RATIO = NET SALES / CURRENT ASSET

(IN $ BILLION) 2009 2010 2011 2012 2013 NET SALES 401.09 408.21 421.85 446.95 496.16 CURRENT ASSET 48.95 48.33 51.89 54.98 59.94 CURRENT ASSET TURNOVER RATIO 8.19 8.45 8.13 8.13 8.28 7.95 8 8.05 8.1 8.15 8.2 8.25 8.3 8.35 8.4 8.45 2009 2010 2011 2012 2013 8.19 8.45 8.13 8.13 8.28

Current assets ratio

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Analysis: -

Current Assets Turnover Ratio is increasing in one year and decreasing in another year and so forth. This means that the amount of sales generated by current assets is increasing in one year and then decreasing in another and so forth.

D)

Assets turnover ratio.

Asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in

generating sales revenue or sales income to the company.

ASSET TURNOVER RATIO = NET SALES / AVGRAGE ASSET

(IN $ BILLION) 2009 2010 2011 2012 2013 SALES 401.09 408.21 421.85 446.95 496.16 AVGRAGE ASSETS 163.49 196.42 180.36 189.36 198.26 ASSET TURNOVER RATIO 2.45 2.08 2.34 2.36 2.50 2.45 2.08 2.34 2.36 2.5 0 0.5 1 1.5 2 2.5 3 2009 2010 2011 2012 2013

Assets turnover ratio

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Analysis: -

The company is able to increase its assets turnover ratio over the years. This increasing trend in ratio shows increase in sales generated by increase in overall assets of the company.

E)

Working capital turnover ratio:

Working capital means current assets minus current liabilities. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. The higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.

WORKING CAPITAL TURNOVER RATIO = NET SALES / WORKING CAPITAL

(IN $ BILLION) 2009 2010 2011 2012 2013 NET SALES 401.09 408.21 421.85 446.95 496.16 WORKING CAPITAL 22.89 27.84 23.53 23.79 21.9 WORKING CAPITAL TURNOVER RATIO 17.52 14.66 17.93 18.79 22.66

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Analysis

Working capital turnover ratio has increased since the year 2010. It indicates that lot of sales is generated as compared to the money used in funding the sales.

4)

Solvency ratio

:-

Solvency ratio‘s measures company ability to meet its long term obligations. It provides an assessment of the likelihood of a company to continue congregating its debt obligations.

A) Debt equity ratio =

It is a long term solvency ratio which indicates how much part of the capital is provided by shareholders and how much part by creditors.

Also termed as external internal ratio, a 1:1 ratio indicates creditors and shareholders have equal contribution in total capital.

A ratio higher than 1:1 means the portion of assets contributed by shareholders is more, which creditors like because it gives more creditability of their money to them.

A ratio lower than 1:1 means the contribution of assets by creditors is more, which shareholders like to get money from creditors.

17.52 14.66 17.83 18.79 0 2 4 6 8 10 12 14 16 18 20 2009 2010 2011 2012 2013

Working capital

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DEBT EQUITY RATIO = DEBT / SHAREHOLDER’S FUND

(IN $ BILLION) 2009 2010 2011 2012 2013 DEBT 40.56 46.62 55.17 64.94 49.03 SHAREHOLDER‘S FUND 67.48 73.24 71.66 76.17 82.26 DEBT EQUITY RATIO 0.60 0.64 0.77 0.85 0.60

Analysis:-

Debt equity ratio has increased from the year 2009 to the year 2012 indicating that outside creditors for the company has increased over the years. But in the year 2013, this ratio has declined showing decrease in outside creditors.

0.6 0.64 0.77 0.85 0.6 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 2009 2010 2011 2012 2013

Debt equity

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Proprietary ratio:-

The proprietary ratio shows that how sound is the capital structure of the company. This means what is the contribution of shareholders in the total capital structure of the company.

An higher proprietary ratio indicates the contribution of the shareholders is more in the capital structure and thus giving greater security to the creditors.

A lower ratio indicates the company is very heavily dependent on debt foe its operations, thus reducing the interest of creditors in the company, increase in interest expenses and also increase in risk of bankruptcy.

PROPRIETARY RATIO = TOTAL ASSETS / PROPRIETORS FUND

(IN $ BILLION) 2009 2010 2011 2012 2013 PROPRIETORS FUND 65.29 70.75 68.54 71.32 76.34 TOTAL ASSETS 333.91 388.44 409.38 426.61 450.5 PROPRIETARY RATIO 0.196 0.182 0.167 0.167 0.169 0.15 0.16 0.17 0.18 0.19 0.2 2009 2010 2011 2012 2013 0.196 0.182 0.167 0.167 0.169

Proprietary ratio

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Analysis: -

This ratio has declined from the year 2009 to the year 2013. It indicates that the capital structure of the company has more of debts as compared to proprietor‘s fund.

B) Return on asset ratio:-

An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings.

It indicates number of dollar earned on each dollar of asset.

Higher ratio means the company is earning more dollars per dollar of asset.

RETURN ON ASSET RATIO = NET PROFIT AFTER TAX / NET ASSETS

(IN $ BILLION) 2009 2010 2011 2012 2013 NET PROFIT AFTER TAX 13.25 14.41 15.36 15.77 17 NET ASSETS 163.49 196.42 180.36 189.36 198.26 ROA RATIO 8.10% 7.34% 8.52% 8.33% 8.57% 8.10% 7.34% 8.52% _8.33% 8.57% 6.50% 7.00% 7.50% 8.00% 8.50% 9.00% 2009 2010 2011 2012 2013

ROA ratio

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Analysis:

Except the year 2010, it has shown an increasing trend. It shows that earning of company is more as compare to each unit of asset.

C) Return on Equity (ROE)

Return on equity (ROE) measures the rate of return on the ownership interest (shareholders'

equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are generally considered good.

RETURN ON EQUITY= PAT/AVG. SHAREHOLDER EQUITY

(IN $ BILLION) 2009 2010 2011 2012 2013 NET PROFIT AFTER TAX 13.25 14.41 15.36 15.77 17.00 AVG. SHAREHOLDER EQUITY 66.54 70.36 72.45 73.96 79.26 ROE RATIO 19.91% 20.48% 21.20% 21.32% 21.45%

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Analysis:

It has shown an increasing trend from the year 2009 till the year 2013. It indicates that company‘s efficiency in generating profit from shareholder‘s equity has increased all these years.

19.00% 19.50% 20.00% 20.50% 21.00% 21.50% 2009 2010 2011 2012 2013 19.91% 20.48% 21.20% 21.32% 21.45%

ROE ratio

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CHAPTER – 6 – CONCLUSION

 Ratio analysis has a major significance in analyzing the financial performance of a company over a period of time. Decisions affecting product prices, per unit costs, volume or efficiency have an impact on the profit margin or turnover ratios of a company.

 Financial ratios are essentially concerned with the identification of significant accounting data relationships, which give the decision-maker insights into the financial performance of a company.

 The analysis of financial statements is a process of evaluating the relationship between component parts of financial statements to obtain a better understanding of the firm‗s position and performance.

 The first task of financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second step is to arrange the information in a way to highlight significant relationships. The final step is interpretation and drawing of inferences and conclusions. In brief, financial analysis is the process of selection, relation and evaluation.

 Ratio analysis in view of its several limitations should be considered only as a tool for analysis rather than as an end in itself. The reliability and significance attached to ratios will largely hinge upon the quality of data on which they are based. They are as good or as bad as the data itself. Nevertheless, they are an important tool of financial analysis.

 Ratios make the related information comparable. A single figure by itself has no meaning, but when expressed in terms of a related figure, it yields significant interferences. Thus, ratios are relative figures reflecting the relationship between related variables. Their use as tools of financial analysis involves their comparison, as single ratios, like absolute figures, are not of much use.

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REFERENCES



www.moneycontrol.com

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ANNEXURE

BALANCE SHEET

Assets 2009 2010 2011 2012 2013

Cash & Short Term

Investments 7.28B 7.91B 7.4B 6.55B 7.78B Cash Only - 3.07B 1.7B 1.75B 7.78B Short-Term Investments - 4.84B 5.69B 4.8B 0 Total Accounts Receivable 3.91B 4.14B 5.09B 5.94B Accounts Receivables, Net 3.91B 4.14B 5.09B 5.94B 6.77B Accounts Receivables, Gross 3.91B 4.14B 5.09B 5.94B 6.88B Bad Debt/Doubtful Accounts - - - - (115M) Other Receivables 0 0 0 0 0 Inventories 34.51B 33.16B 36.32B 40.71B 43.8B Finished Goods 34.51B 33.16B 36.32B 40.71B 43.8B Work in Progress 0 0 0 0 0 Raw Materials 0 0 0 0 0

Progress Payments &

Other 0 - - 0 0

Other Current Assets 3.26B 3.12B 59.94B 1.77B 1.59B

Miscellaneous Current

Assets 3.26B 3.12B 3.09B 1.77B 1.59B

Total Current Assets 48.95B 48.33B 51.89B 54.98B 59.94B

Net Property, Plant &

Equipment 95.65B 102.31B 107.88B 112.32B 116.68B

Property, Plant &

Equipment - Gross 131.16B 143.52B 154.49B 160.94B 171.72B

Buildings 73.81B 77.45B 79.05B 84.28B 90.69B

Land & Improvements 19.85B 22.59B 24.39B 23.5B 25.61B

Computer Software and

Equipment - - - - -

Other Property, Plant &

Equipment - 35.45B 38.29B 39.23B 40.9B

Accumulated Depreciation 35.51B 41.21B 46.61B 48.61B 55.04B

Total Investments and

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FINANCIAL ACCOUNTING AND ANALYSIS Page 38 Other Long-Term Investments 0 0 0 0 0 Long-Term Note Receivable 0 0 0 0 0 Intangible Assets 15.26B 16.13B 16.76B 20.65B 20.5B Net Goodwill 15.26B 16.13B 16.76B 20.65B 20.5B

Net Other Intangibles 0 0 0 0 0

Other Assets 3.37B 3.94B 4.13B 4.72B 5.23B

Tangible Other Assets 0 3.94B 4.13B 4.72B 5.23B

Total Assets 163.43B 175.41B 185.3B 193.41B 203.11B

Liabilities 2009 2010 2011 2012 2013

ST Debt & Current

Portion LT Debt 7.67B 4.92B 6.02B 6.35B 12.72B

Short Term Debt 1.51B 523M 1.03B 4.05B 6.81B

Current Portion of Long

Term Debt 6.16B 4.4B 4.99B 2.3B 5.91B

Accounts Payable 28.85B 30.45B 33.56B 36.61B 38.08B

Income Tax Payable 701M 1.37B 157M 1.21B 2.33B

Other Current Liabilities 18.17B 18.83B 18.75B 18.14B 18.69B Dividends Payable - - - - - Accrued Payroll 5.58B 5.99B 5.9B 5.09B 5.06B Miscellaneous Current Liabilities 12.59B 12.84B 12.85B 13.05B 13.63B Total Current Liabilities 55.39B 55.56B 58.48B 62.3B 71.82B Long-Term Debt 34.55B 36.4B 43.84B 47.08B 41.42B

Long-Term Debt excl.

Capitalized Leases 31.35B 33.23B 40.69B 44.07B 38.39B

Non-Convertible Debt 31.35B 33.23B 40.69B 44.07B 38.39B

Convertible Debt 0 0 0 0 0

Capitalized Lease

Obligations 3.2B 3.17B 3.15B 3.01B 3.02B

Provision for Risks &

Charges 0 0 0 0 684M

Deferred Taxes 2.87B 1.04B 1.7B 3.88B 3.62B

Deferred Taxes - Credit 3.08B 5.74B 6.34B 4.62B 4.37B

Deferred Taxes - Debit 202M 4.71B 4.64B 738M 757M

Other Liabilities 2.94B 4.47B 4.99B 3.25B 2.56B

Other Liabilities (excl.

Deferred Income) 2.94B 4.47B 4.99B 3.25B 2.56B

Deferred Income - - - - -

Total Liabilities 95.95B 102.18B 113.65B 117.24B 120.85B

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Preferred Stock (Carrying

Value) 0 0 0 0 0

Redeemable Preferred

Stock 0 0 0 0 0

Non-Redeemable

Preferred Stock 0 0 0 0 0

Common Equity (Total) 65.29B 70.75B 68.54B 71.32B 76.34B

Common Stock Par/Carry

Value 393M 378M 352M 342M 332M

Retained Earnings 63.66B 66.64B 63.97B 68.69B 72.98B

ESOP Debt Guarantee 0 0 0 0 0

Cumulative Translation Adjustment/Unrealized For. Exch. Gain

(2.41B) - 1.29B (813M) 176M Unrealized Gain/Loss Marketable Securities 0 0 0 0 0 Revaluation Reserves 0 0 0 0 0 Treasury Stock 0 0 0 0 0 Total Shareholders' Equity 65.29B 70.75B 68.54B 71.32B 76.34B Accumulated Minority Interest 2.19B 2.49B 3.11B 4.85B 5.91B Total Equity 67.48B 73.24B 71.66B 76.17B 82.26B Liabilities & Shareholders' Equity 163.43B 175.41B 185.3B 193.41B 203.11B

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PROFIT AND LOSS ACCOUNT

Patricular 2009 2010 2011 2012 2013

Sales/Revenue 401.09B 408.21B 421.85B 446.95B 469.16B

Cost of Goods Sold

(COGS) incl. D&A 304.06B 304.66B 315.29B 335.13B 352.49B COGS excluding D&A 297.32B 297.5B 307.65B 327B 343.99B Depreciation & Amortization Expense 6.74B 7.16B 7.64B 8.13B 8.5B Depreciation - 7.16B 7.64B 8.13B 8.4B Amortization of Intangibles - 0 0 0 101M Gross Income 97.03B 103.56B 106.56B 111.82B 116.67B SG&A Expense 77.52B 78.92B 81.02B 85.27B 88.87B Research & Development 0 0 0 0 0 Other SG&A 77.52B 78.92B 81.02B 85.27B 88.87B Other Operating Expense 0 0 0 0 0 Unusual Expense 0 689M - 0 0

EBIT after Unusual

Expense 0 (689M) - 0 0 Non Operating Income/Expense 3.29B 0 0 0 0 Non-Operating Interest Income 284M 181M 201M 162M 187M Equity in Affiliates (Pretax) - - - - - Interest Expense 2.18B 2.07B 2.21B 2.32B 2.25B

Gross Interest Expense 2.27B 2.15B 2.27B 2.38B 2.33B

Interest Capitalized 88M 85M 63M 60M 74M

Pretax Income 20.9B 22.07B 23.54B 24.4B 25.74B

Income Tax 7.15B 7.14B 7.58B 7.94B 7.98B

Income Tax - Current

Domestic 5.34B 6.4B 5.24B 5.34B 6.23B

Income Tax - Current

Foreign 1.23B 1.25B 1.47B 1.4B 1.77B

Income Tax - Deferred

Domestic 655M (371M) 857M 1.5B 30M

Income Tax - Deferred

Foreign (74M) (133M) 19M (299M) (48M)

Income Tax Credits 0 0 0 0 0

Equity in Affiliates 0 0 0 0 0

Other After Tax Income

(Expense) 0 0 0 0 0

Consolidated Net

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FINANCIAL ACCOUNTING AND ANALYSIS Page 41 Minority Interest Expense 499M 513M 604M 688M 757M Net Income 13.25B 14.41B 15.36B 15.77B 17B Extraordinaries & Discontinued Operations 146M (79M) 1.03B (67M) 0

Extra Items & Gain/Loss

Sale Of Assets 0 0 0 0 0

Cumulative Effect -

Accounting Chg 0 0 0 0 0

Discontinued Operations 146M (79M) 1.03B (67M) 0

Net Income After

Extraordinaries 13.4B 14.34B 16.39B 15.7B 17B

Preferred Dividends 0 0 0 0 0

Net Income Available to

Common 13.25B 14.41B 15.36B 15.77B 17B EPS (Basic) 3.40 3.71 4.48 4.54 5.04 Basic Shares Outstanding 3.94B 3.87B 3.66B 3.46B 3.37B EPS (Diluted) 3.39 3.70 4.47 4.52 5.02 Diluted Shares Outstanding 3.95B 3.88B 3.67B 3.47B 3.39B EBITDA 26.25B 31.8B 33.18B 34.69B 36.3B