Analysing An Industry For Investment Finance Essay

I being a possible investor would wish to analyze and understand the industry before doing the investing to guarantee a good return on the investing and range of growing.

Industry Introduction

After analyzing the assorted industries i have decided to put in tyre fabrication industry. The beginning of the Indian Tyre Industry dates back to 1926 when Dunlop Rubber Limited set up the first Sur company in West Bengal. MRF followed suit in 1946. Since so, the Indian Sur industry has grown quickly. The program to put is made due to the undermentioned grounds

Harmonizing to a survey by Credit Analysis and Research Limited ( CARE ) , the Sur industry is expected to demo a healthy growing rate of 9-10 per centum over the following five old ages.

Many inventions go oning.

Four major companies entirely hold 63 % of the organized ty rhenium market out of the 40 listed companies in the Sur sector.

Tyre is in demand at 3 different phases. Original equipment market, replacing market and export market.

The portions of Sur industries have been executing good in the stock market.

I would reexamine the public presentation of the major companies in Sur sector to make up one’s mind which company to put so that maximal return can be generated. In order to reexamine the public presentation of the company I would analyze the Balance sheet and Income statement of the company and compare it with the old old ages. Common size statements will be prepared to do easy comparings of the public presentation with the anterior old ages. Assorted ratio analysis tools besides helps in understanding the company ‘s fiscal wellness better.

Company Introduction

In tyre companies i had a survey on the following 4 companies since these are the best 4 companies which put together make up 63 % of the entire market portion.

Apollo Surs

MRF

JK Surs

Ceat

I have decided to take the following two company ‘s on the footing of market capitalisation, gross revenues turn over & A ; gross. Both the company ‘s are into fabricating broad scope of Surs such as truck, coach, light truck, radial and cross-ply, rider auto radial, farm radial and cross-ply, off-the-road, earthmover & A ; industrial Surs.

Apollo Tyres Limited

It ‘s the fastest turning top T Sur maker, with one-year turnover of Rs 5036.80 crores ( 2009-2010 ) . It was founded in 1976. Its first works was commissioned inA PerambraA inA KeralaA province. In 2006 the company acquired Dunlop Tyres International ofA South Africa. The company now has four fabricating units in India. It has a web of over 4,000 franchises in India, of which over 2,500 are sole mercantile establishments. “ Apollo Tyres Ltd. ” has been pioneer in the execution of “ Six Sigma ” among all the Sur companies in India, and is in the list of top 15 tyre makers of the universe in footings of Revenues.

MRF

MRF is the leader in the Sur industry for over 21 old ages. First tyre company to accomplish a bend around of around 5000 crores. This shows MRF ‘s laterality in the industry. Global presence across 65 states and besides the first company to export Sur to US. The one-year turnover of MRF is around Rs 5672.84 crores ( 2009-2010 ) . The company now has Six fabricating units in India.

Common Size Statements

Common size fiscal statements explains the company ‘s financials statements as a per centum of a common base figure. Normally the balance sheet entire is considered as a base for common size balance sheets and for common size income statement the gross revenues sum is considered as base. The advantage of common size statements is that since all the figures are expressed as per centums to the base it becomes really easy to compare and analyze the public presentation between companies and between the different clip period. It facilitates comparing of the different size companies and besides the same company for over different period of clip.

The common size balance sheet and income statement of Apollo Surs and MRF is prepared in order to do easy comparings between the companies every bit good as between the old ages.

Common Size Balance Sheet of Apollo Tyres

( Rs. in Crores )

Particulars

Mar ’09

Mar ’08

Mar ’07

Beginnings Of Fundss

Entire Share Capital

50.41

2.46 %

48.85

2.88 %

46.41

2.91 %

Equity Share Capital

50.41

2.46 %

48.85

2.88 %

46.41

2.91 %

Share Application Money

0

0.00 %

4.57

0.27 %

11.72

0.73 %

Preference Share Capital

0

0.00 %

0

0.00 %

0

0.00 %

Militias

1302.18

63.48 %

1176.84

69.47 %

917.56

57.44 %

Reappraisal Militias

3.12

0.15 %

3.16

0.19 %

3.16

0.20 %

Networth

1355.71

66.09 %

1233.42

72.81 %

978.85

61.27 %

Secured Loans

462.39

22.54 %

223.15

13.17 %

473.76

29.66 %

Unbarred Loans

233.13

11.37 %

237.51

14.02 %

144.94

9.07 %

Entire Debt

695.52

33.91 %

460.66

27.19 %

618.7

38.73 %

Entire Liabilitiess

2051.23

100.00 %

1694.08

100.00 %

1597.55

100.00 %

Application Of Fundss

Gross Block

1838

89.60 %

1569.66

92.66 %

1492.51

93.43 %

Less: Accum. Depreciation

694.66

33.87 %

598.66

35.34 %

541.66

33.91 %

Net Block

1143.34

55.74 %

971

57.32 %

950.85

59.52 %

Capital Work in Advancement

281.41

13.72 %

94.41

5.57 %

80.46

5.04 %

Investings

297.45

14.50 %

302.71

17.87 %

258.11

16.16 %

Inventories

417.05

20.33 %

513.29

30.30 %

451.95

28.29 %

Assorted Debtors

87.28

4.26 %

155.13

9.16 %

203.06

12.71 %

Cash and Bank Balance

175.36

8.55 %

156.13

9.22 %

131.7

8.24 %

Entire Current Assets

679.69

33.14 %

824.55

48.67 %

786.71

49.25 %

Loans and Progresss

590.65

28.79 %

538.56

31.79 %

451.75

28.28 %

Fixed Deposits

165.24

8.06 %

109.73

6.48 %

40.3

2.52 %

Entire CA, Loans & A ; Progresss

1435.58

69.99 %

1472.84

86.94 %

1278.76

80.05 %

Deffered Recognition

0

0.00 %

0

0.00 %

0

0.00 %

Current Liabilitiess

627.15

30.57 %

718.31

42.40 %

681.64

42.67 %

Commissariats

479.55

23.38 %

428.83

25.31 %

289.12

18.10 %

Entire CL & A ; Commissariats

1106.7

53.95 %

1147.14

67.71 %

970.76

60.77 %

Net Current Assetss

328.88

16.03 %

325.7

19.23 %

308

19.28 %

Assorted Expenses

0.15

0.01 %

0.26

0.02 %

0.12

0.01 %

Entire Assetss

2051.23

100.00 %

1694.08

100.00 %

1597.54

100.00 %

Common Size Balance sheet of MRF Tyres

( Rs. in Crores )

Particulars

Sep ’09

Sep ’08

Sep ’07

Beginning of financess

A

Entire Share Capital

4.24

0.26 %

4.24

0.20 %

4.24

0.27 %

Equity Share Capital

4.24

0.26 %

4.24

0.20 %

4.24

0.27 %

Share Application Money

0

0.00 %

0

0.00 %

0

0.00 %

Preference Share Capital

0

0.00 %

0

0.00 %

0

0.00 %

Militias

1,357.18

82.04 %

1,116.55

53.60 %

981.91

61.60 %

Reappraisal Militias

0

0.00 %

0

0.00 %

0

0.00 %

Networth

1,361.42

82.30 %

1,120.79

53.81 %

986.15

61.87 %

Secured Loans

189.75

11.47 %

634.29

30.45 %

395.55

24.81 %

Unbarred Loans

103.04

6.23 %

327.9

15.74 %

212.31

13.32 %

Entire Debt

292.79

17.70 %

962.19

46.19 %

607.86

38.13 %

Entire Liabilitiess

1,654.21

100.00 %

2,082.98

100.00 %

1,594.01

100.00 %

Application Of Fundss

A

Gross Block

2,734.33

165.30 %

2,422.56

116.30 %

2,046.74

128.40 %

Less: Accum. Depreciation

1,800.77

108.86 %

1,556.01

74.70 %

1,389.99

87.20 %

Net Block

933.56

56.44 %

866.55

41.60 %

656.75

41.20 %

Capital Work in Advancement

286.24

17.30 %

443.68

21.30 %

243.03

15.25 %

Investings

148.57

8.98 %

68.56

3.29 %

72.02

4.52 %

Inventories

650.47

39.32 %

984.28

47.25 %

693.34

43.50 %

Assorted Debtors

580.03

35.06 %

610.05

29.29 %

551.92

34.62 %

Cash and Bank Balance

59.6

3.60 %

102.06

4.90 %

72.88

4.57 %

Entire Current Assets

1,290.10

77.99 %

1,696.39

81.44 %

1,318.14

82.69 %

Loans and Progresss

405.59

24.52 %

307.03

14.74 %

244.5

15.34 %

Fixed Deposits

0.29

0.02 %

0.29

0.01 %

0.29

0.02 %

Entire CA, Loans & A ; Progresss

1,695.98

102.53 %

2,003.71

96.19 %

1,562.93

98.05 %

Deffered Recognition

0

0.00 %

0

0.00 %

0

0.00 %

Current Liabilitiess

966.41

58.42 %

1,039.90

49.92 %

729.36

45.76 %

Commissariats

443.73

26.82 %

259.62

12.46 %

211.36

13.26 %

Entire CL & A ; Commissariats

1,410.14

85.25 %

1,299.52

62.39 %

940.72

59.02 %

Net Current Assetss

285.84

17.28 %

704.19

33.81 %

622.21

39.03 %

Assorted Expenses

0

0.00 %

0

0.00 %

0

0.00 %

Entire Assetss

1,654.21

100.00 %

2,082.98

100.00 %

1,594.01

100.00 %

Common Size Income Statement of Apollo Tyres

( Rs. in Crores )

Particulars

Mar ’09

Mar ’08

Mar ’07

Income:

Gross saless Employee turnover

4,559.23

100.00 %

4,255.04

100.00 %

3,781.01

100.00 %

Excise Duty

468.37

10.27 %

549.11

12.90 %

490.07

12.96 %

Net Gross saless

4,090.86

89.73 %

3,705.93

87.10 %

3,290.94

87.04 %

Other Income

9.64

0.21 %

11.29

0.27 %

17.43

0.46 %

Stock Adjustments

-37.41

-0.82 %

51.32

1.21 %

39.41

1.04 %

Entire Income

4,063.09

89.12 %

3,768.54

88.57 %

3,347.78

88.54 %

Outgo

Natural Materials

2,947.64

64.65 %

2,523.61

59.31 %

2,375.82

62.84 %

Power & A ; Fuel Cost

149.29

3.27 %

134.82

3.17 %

132.68

3.51 %

Employee Cost

207.55

4.55 %

226.83

5.33 %

199.22

5.27 %

Other ManufacturingExpenses

59.85

1.31 %

51.52

1.21 %

12.77

0.34 %

Selling and Admin Expenses

304.56

6.68 %

285.58

6.71 %

243.86

6.45 %

Assorted Expenses

28.19

0.62 %

44.68

1.05 %

34.59

0.91 %

Preoperative Exp Capitalised

0

0.00 %

0

0.00 %

0

0.00 %

Entire Expenses

3,697.08

81.09 %

3,267.04

76.78 %

2,998.94

79.32 %

Operating Net income

356.37

7.82 %

490.21

11.52 %

331.41

8.77 %

PBDIT

366.01

8.03 %

501.5

11.79 %

348.84

9.23 %

Interest

103.83

2.28 %

80.26

1.89 %

89.23

2.36 %

PBDT

262.18

5.75 %

421.24

9.90 %

259.61

6.87 %

Depreciation

98.01

2.15 %

87.81

2.06 %

74.23

1.96 %

Other Written Off

0

0.00 %

0

0.00 %

0

0.00 %

Net income Before Tax

164.17

3.60 %

333.43

7.84 %

185.38

4.90 %

Extra-ordinary points

6.98

0.15 %

0

0.00 %

0

0.00 %

PBT ( Post Extra-ord Items )

171.15

3.75 %

333.43

7.84 %

185.38

4.90 %

Tax

63.05

1.38 %

114.14

2.68 %

72

1.90 %

Reported Net Net income

108.12

2.37 %

219.3

5.15 %

113.42

3.00 %

Entire Value Addition

749.44

16.44 %

743.43

17.47 %

623.11

16.48 %

Preference Dividend

0

0.00 %

0

0.00 %

0

0.00 %

Equity Dividend

22.68

0.50 %

25.2

0.59 %

20.88

0.55 %

Corporate Dividend Tax

3.86

0.08 %

4.28

0.10 %

2.93

0.08 %

Per portion informations ( annualised )

Shares in issue ( hundred thousand )

5,040.25

4,884.45

464.02

Gaining Per Share ( Rs )

2.15

4.49

24.44

Equity Dividend ( % )

45

50

45

Book Value ( Rs )

26.84

25.09

207.74

Common Size Income Statement of MRF

( Rs. in Crores )

Particulars

Sep ’09

Sep ’08

Sep ’07

Income:

Gross saless Employee turnover

6,164.06

100.00 %

5,731.63

100.00 %

5,054.20

100.00 %

Excise Duty

484.49

7.86 %

670.82

11.70 %

643.98

12.74 %

Net Gross saless

5,679.57

92.14 %

5,060.81

88.30 %

4,410.22

87.26 %

Other Income

11.29

0.18 %

-2.22

-0.04 %

11.94

0.24 %

Stock Adjustments

-214.24

-3.48 %

89.23

1.56 %

77.21

1.53 %

Entire Income

5,476.62

88.85 %

5,147.82

89.81 %

4,499.37

89.02 %

Outgo

Natural Materials

3,613.20

58.62 %

3,645.42

63.60 %

3,124.83

61.83 %

Power & A ; Fuel Cost

285.54

4.63 %

294.88

5.14 %

220.51

4.36 %

Employee Cost

316.82

5.14 %

275.71

4.81 %

240.02

4.75 %

Other Fabrication Expenses

76.17

1.24 %

87.87

1.53 %

51.47

1.02 %

Selling and Admin Expenses

446.66

7.25 %

387.64

6.76 %

376.88

7.46 %

Assorted Expenses

21.51

0.35 %

20.44

0.36 %

22.05

0.44 %

Preoperative Exp Capitalised

0

0.00 %

0

0.00 %

0

0.00 %

Entire Expenses

4,759.90

77.22 %

4,711.96

82.21 %

4,035.76

79.85 %

Operating Net income

705.43

11.44 %

438.08

7.64 %

451.67

8.94 %

PBDIT

716.72

11.63 %

435.86

7.60 %

463.61

9.17 %

Interest

68.92

1.12 %

66.25

1.16 %

49.24

0.97 %

PBDT

647.8

10.51 %

369.61

6.45 %

414.37

8.20 %

Depreciation

249.32

4.04 %

169.52

2.96 %

153.41

3.04 %

Other Written Off

0

0.00 %

0

0.00 %

0

0.00 %

Net income Before Tax

398.48

6.46 %

200.09

3.49 %

260.96

5.16 %

Extra-ordinary points

-3.29

-0.05 %

13.89

0.24 %

0

0.00 %

PBT ( Post Extra-ord Items )

395.19

6.41 %

213.98

3.73 %

260.96

5.16 %

Tax

142.16

2.31 %

69.42

1.21 %

89.18

1.76 %

Reported Net Net income

256.32

4.16 %

141.97

2.48 %

171.78

3.40 %

Entire Value Addition

1,146.70

18.60 %

1,066.54

18.61 %

910.93

18.02 %

Preference Dividend

0

0.00 %

0

0.00 %

0

0.00 %

Equity Dividend

10.6

0.17 %

8.48

0.15 %

8.48

0.17 %

CorporateDividend Tax

1.8

0.03 %

1.44

0.03 %

1.44

0.03 %

Per portion informations ( annualised )

Shares inissue ( hundred thousand )

42.41

42.41

42.41

Gaining Per Share ( Rs )

604.37

334.74

405.03

Equity Dividend ( % )

250

200

200

Book Value ( Rs )

3,210.03

2,642.66

2,325.20

RATIO ANALYSIS

Ratio analysis is a tool used to quantitatively analyze the information in a company ‘s fiscal statements. Ratios areA calculated from current twelvemonth Numberss and are so compared to old old ages, other companies, the industry, or even the economic system to judge the public presentation of the company.

Significance of Ratio Analysis

Evaluation of liquidness

Evaluation of Profitableness

Evaluation of Operating Efficiency

Evaluation of Financial Strength

Inter-firm and Intra-firm comparing

Budgeting

Profitability Ratios:

Ratio

Formula

Numerator

Denominator

Significance

Operating Net income Ratio

Operating Profit/ Gross saless

Gross saless Less Cost of gross revenues

Gross saless cyberspace of returns

Index of Operating Performance of concern.

Net Net income Ratio

Net Profit/ Gross saless

Net net income as per P & A ; L Account

Gross saless cyberspace of returns

Index of Overall Profitability.

Tax return on Capital Employed

Entire Earnings/ Capital Employed

Net incomes after Tax

( + ) Int.on Debt Fund

( + ) Non-Operating Adjts.

Capital employed can be computed utilizing ( a ) Assets Route or ( B ) Liability Route

Overall profitableness of the concern on the entire financess employed. If ROCE & gt ; Interest Rate, usage of debt financess is justified.

Return on Net Worth

Equity Earnings/ Shareholder ‘s Fundss

Net incomes after Tax

Net Fixed Assetss

( + ) Internet Working Capital

( – ) External Liabilitiess

Indicates profitableness of Equity Funds and Owner ‘s financess invested in the concern.

Tax return on entire plus

Operating profit/ entire net assets

Gross saless Less Cost of gross revenues

Net sum assets

Shows return on entire assets used in concern

Liquidity / Solvency Ratio:

Ratio

Formula

Numerator

Denominator

Significance

Current Ratio

Current Assets/ Current Liabilitiess

Inventories/ Stockss

( + ) Drs & A ; B/R

( + ) Cash & A ; Bank

( + ) Receivables

( + ) Short-term loans

( + ) Marketable Investing

S. Creditors

( + ) O/S disbursals

( + ) Short term loans & A ; Progresss

( + ) Bank o/d / hard currency recognition

( + ) Prov for Tax

( + ) Proposed Dividend

( + ) unclaimed dividend

Ability to refund short-run committednesss quickly. Ideal ratio is 2:1

High Ratio indicates being of idle current assets

Quick Ratio

Quick Assets/ Quick Liabilities

Current Assetss

( – ) Inventories

( – ) Prepaid Expenses

Current Liabilitiess

( – ) Bank o/d

( – ) Cash recognition

Ability to run into immediate liabilities. Ideal ratio is 1.33: 1

Long-run Solvency Ratio:

Ratio

Formula

Numerator

Denominator

Significance

Debt-Equity Ratio

Debt/Equity

Unsecured bonds + Long term loans from fiscal Institutions

Debt + Equity or Fixed Assets + Net working capital

Indicates the relationship between debt & A ; Equity. Ideal ratio is 2:1

Coverage Ratios:

Ratio

Formula

Numerator

Denominator

Significance

Interest Coverage Ratio

EBIT/Interest

Net incomes before Interest and Tax

Interest on Debt

Indicates ability to run into involvement duties of the current twelvemonth. Should by and large be greater than 1.

Turnover/ Performance Ratios:

Ratio

Formula

Numerator

Denominator

Significance

Debtors Turnover Ratio

Credit Sales/ Avg a/cs receivable

Credit gross revenues cyberspace of returns

Average a/cs receivable = A? ( Opg. bal + Clg. Bal )

Indicates the velocity of aggregation of recognition gross revenues / Debtors.

Stock Turnover Ratio

Cost Of Goods Sold/ Average Stock

Opening Stock

( + ) Purchases

( – ) Closing Stock

( Opening Stock + Closing Stock ) /2

Indicates how fast stock list is used/ sold. High T/O ratio indicates fast moving stuff while low ratio may intend dead or inordinate stock.

Fixed Assets Turnover Ratio

Turnover/ Net Fixed Assetss

Gross saless cyberspace of returns

Net Fixed Assetss

Ability to bring forth gross revenues per rupee of Fixed Asset

Using the expression explained the undermentioned ratios are calculated for the two company ‘s

A

Ratios of Apollo Surs

Ratios of MRF

Profitability Ratios

Mar ’09

Mar ’08

Mar’07

Sep’09

Sep ’08

Sep’07

Operating Net income Margin ( % )

8.71

13.22

10.07

12.42

8.65

10.24

Net Net income Margin ( % )

2.63

5.89

3.42

4.5

2.8

3.89

Tax return On Capital Employed ( % )

13.02

24.6

17.44

27.88

13.11

18.97

Return On Net Worth ( % )

7.99

17.89

11.62

18.82

12.66

17.42

Tax return on Assetss Including Reappraisals

3.43

7.73

4.42

2.47

4.2

6.78

Liquidity/Solvency Ratios

A

A

A

A

A

A

Current Ratio

1.15

0.99

0.83

1.16

0.9

1.05

Quick Ratio

0.91

0.83

0.84

0.73

0.78

0.92

Long-run Solvency Ratio

A

A

A

A

A

A

Debt Equity Ratio

0.51

0.38

0.64

0.22

0.86

0.62

Coverage Ratios

A

A

A

A

A

A

Interest Coverage ratio

3.67

7.51

4.04

6.69

4.12

6.14

Turnover/ Activity/ Performance Ratios

A

A

A

A

A

A

Inventory Turnover Ratio

11.77

8.72

7.33

10.17

6.09

6.37

Debtors Turnover Ratio

33.75

20.69

17.4

9.54

8.71

8.08

Entire Assets Turnover Ratio

2.01

2.21

2.08

3.47

2.45

2.78

Cash Flow Indicator Ratios

A

A

A

A

A

A

Dividend Payout Ratio Net Net income

24.54

13.44

20.99

4.83

6.98

5.77

Gaining Retention Ratio

73.45

86.71

79.64

95.05

92.79

93.96

Interpretation of Common Size Financial Statements and Ratios