Financial Analysis of IRCTC

8/11/2019 Financial Analysis of IRCTC

1/51

PROJECT REPORT ONFinancial Statement Analysis of Indian Railway Catering

and Tourism Corporation Limited(IRCTC)

Submitted in the Fulfilment for the Requirement ofBachelors of Business Administration(BBA)Guru Govind Singh Indraprastha University

Submitted by: Aartiroll no:04224501709

6th semester(2009-12)

Jagannath International Management SchoolKalkaji, New Delhi


2/51

INDEX

Declaration Acknowledgement Executive summery Objective of the study Research Methodology Introduction Company Profile Financial Statements

Balance Sheet Income statement

Financial Statement analysiso Comparative Financial Statement Analysis

Comparative Balance Sheet Common size Balance Sheet Trend percent analysis of Balance Sheet Comparative Income statement Common size Income statement

Trend percent analysis of Income statement Cash Flow Statement

o Ratio Analysis Current Ratio Quick Ratio Earnings per share Earnings Yield Return on share holder's fund Net Profit Margin Return on capital employed

o Graphical Analysis Of Ratios

Who uses these analyses? Importance Advantages Limitations Conclusion Bibliography
http://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/q/quickratio.asphttp://www.investopedia.com/terms/q/quickratio.asphttp://www.investopedia.com/terms/c/currentratio.asp


3/51

DECLARATION

I hereby declare that the project titled FINANCIALSTATEMENT ANALYSIS OFIRCTC Ltd. is an original piece of research work carried out by me under the

guidance and supervision of Project Guide: The information has been collected from

genuine & authentic sources. The work has been submitted in partial fulfilment of the

requirement of BACHLOR OF BUSINESS ADMINISTRATION (BBA).

Place: Delhi Signature:

Date:


4/51

ACKNOWLEDGEMENT

The SATISFACTION EUPHORIA THAT ACCOMPANIES THE SUCCESSFULCOMPLETION OF ANY WORK WOULD BE INCOMPLETE UNLESS WE MENTIONTHE NAME OF THE PERSON, WHO MADE IT POSSIBLE, WHOSE CONSTANTGUIDANCE AND ENCOURAGEMENT SERVED AS A BECKON OF LIGHT ANDCROWNED OUR EFFORTS WITH SUCCESS. I CONSIDER IT A PRIVILEGE TOEXPRESS THROUGH THE PAGES OF THIS REPORT, A FEW WORDS OFGRATITUDE AND RESPECT TO THOSE WHO GUIDED AND INSPIRED IN THECOMPLETION OF THIS PROJECT.

I AM DEEPLY INDEBTED TO --------------WHOGUIDEDANDHELPEDMEIN MYPROJECT MAKINGWHOLEADME TO THESUCCESSFUL COMPLETIONPF

MY PROJECT.

IT WOULDBE ASINETO FORGET TOEXPRESSDEVOTIONALTHANKSTO DIFFERENT AUTHORSTO WHOMITOOKREFERENCEANDTO INTERNET TECHNOLOGY WHICHMADEGETTINGINFORMATION SO EASY.

EXECUTIVE SUMMARY


5/51

Project Title: Financial Statement Analysis

Company Name: Indian Railway Catering and Tourism CorporationLimited(IRCTC)

The training at IRCTC Limited involved the day to day working at corporate accounts

departments with the senior & junior managers in the company. This project helped

me to get the deeper understanding of the process of Financial Statement Analysis

and how decisions are taken to strengthen the financial position.

For this study four yearscomparative Income Statement & Balance Sheet have

been taken for calculating ratio analysis. Main objective in undertaking this project is

to supplement academic knowledge with absolute practical exposure to day to day

functions of the sector.

Financial analysis which is the topic of this project refers to an assessment of the

viability, stability and profitability of a business. This important analysis is performed

usually by finance professionals in order to prepare financial or annual reports.

These financial reports are made with using the information taken from financial

statements of the company and it is based on the significant tool of Ratio Analysis.

These reports are usually presented to top management as one of their basis in

making crucial business decisions.

During the summer training period at IRCTC Limited, I had close connection with

preparation of financial statements and also their analysis which was made by

professionals in the accounting team of the company. This experience was an

emphasis on the importance of these Ratios which could be the roots of decisionsmade by management that can make or break the company. So, I was influenced to

allocate the aim of this project to study the details about these ratios and their

possible effects on the decisions.


6/51


7/51

RESEARCH METHODOLOGY

Research framework: This study is based on the data about IRCTC LTD for adetailed study of its financial statements, documents and system ratios and finally to

recognize and determine the position of the company.

Types of data which helped to prepare this report:1. First type is the primary data which was collected personally to be used andstudied to prepare and reach the objectives already mentioned.

2. The secondary data which was already prepared so these data was only used toreach the aims and objectives of this project. These data has been collected from thefinancial reports of the company.

How the data was collected:The sources of collecting the primary data was through interviews, observation andquestionnaire, however the secondary one was collected from the financialstatements already available to the employees of the company and some of whichwas published.

Personal Interview:Personal Interview method requires a person known as the interviewer askingquestions generally in a face to face contact to the other person or persons.

Different questions and information I could collect during these two methods are:

1. The beginning and history of the IRCTC Ltd.2. Numbers of staff working for different departments.3. The mission & vision of the company.4. Areas of operations5. Other company related information.

Printed and Digital Sources:The secondary data I collected was through the study of the financial statementsalready existed in the company in form of printed files or digital files reserved in thecompany for further references. I had chosen these files because of the reliability

and suitability of these information which I was also sure about the accuracy of them.These files consist of:

1. Annual report of the company2. Financial balance sheets3. Income statements4. Financial reports5. Different reports prepared by Finance Department

INTRODUCTION


8/51

FINANCIAL STATEMENTSFinancial statements are summaries of the operating, financing, and investmentactivities of a business. Financial statements should provide information useful toboth investors and creditors in making credit, investment, and other business

decisions. And this usefulness means that investors and creditors can use thesestatements to predict, compare, and evaluate the amount, timing, and uncertainty ofpotential cash flows. In other words, financial statements provide the informationneeded to assess a companys future earnings and therefore the cash flowsexpected to result from those earnings. In this chapter, we discuss the four basicfinancial statements: the balance sheet, the income statement, the statement of cashflows, and the statement of shareholders equity. The analysis of financial statementsis provided in Part Six of this book.

ACCOUNTING PRINCIPLES AND ASSUMPTIONSBeing a MINI RATNA GOVT. OF INDIA ENTERPRISE;IRCTC has to follow

DPE(Department of Public Enterprise ) guidelines

The accounting data in financial statements are prepared by the firms managementaccording to a set of standards, referred to as generally accepted accountingprinciples (GAAP). The financial statements of a company whose stock is publiclytraded must, by law, be audited at least annually by independent public accountants(i.e., accountants who are not employees of the firm). In such an audit, theaccountants examine the financial statements and the data from which thesestatements are prepared and attestthrough the published auditors opinionthatthese statements have been prepared according to GAAP. The auditors opinionfocuses on whether the statements conform to GAAP and that there is adequatedisclosure of any material change in accounting principles.The financial statements are created using several assumptions that affect how weuse and interpret the financial data:

statements are not market or replacement values, but rather reflect the original cost(adjusted for depreciation, in the case of depreciable assets).

of measurement is the dollar. While this seems logical, theeffects of inflation, combined with the practice of recording values at historical cost,may cause problems in using and interpreting these values.

eriods of time. Generally, statementsare produced to cover a chosen fiscal year or quarter, with the income statement andthe statement of cash flows spanning a periods time and the balance sheet andstatement of shareholders equity as of the end of thespecified period. But becausethe end of the fiscal year is generally chosen to coincide with the low point of activityin the firms operating cycle, the annual balance sheet and statement ofshareholders equity may not be representative of values for the year.

Most businesses use accrual accounting, where income and revenues are matchedin timing such that income is recorded in the period in which it is earned andexpenses are reported in the period in which they are incurred to generate revenues.The result of the use of accrual accounting is that reported income does not


9/51


10/51

Indian Railway Catering and Tourism Corporation (IRCTC) is a subsidiary of

theIndian Railways that handles the catering, tourism and online ticketing operations

of the railways. The Corporation has posted impressive operational and financial

numbers during the year 2009-10. The total income of the Corporation reached

Rs.721.97 Crore registering an increase of 16.68 per cent over previous year and it

made a contribution of Rs.82.28 Crore to the Railways revenues, which was an

increase of 7.50 % over the previous year. The Corporation earned a net profit of

Rs.63.05 Crore, indicating an increase of 35.6 per cent over the previous year. It

recommended a dividend of Rs.12.61 Crore, again indicating an increase of 35.5 per

cent. The dividend payout is 63.05 per cent on the Equity Share Capital.

The Corporation realized 85 % payment of the current bills from its customers

indicating sound commercial performance. The total outstanding at the end of the

year was Rs. 232 Crore out of which Rs. 144 Crore was to come from the Railways.

The Corporation has a nationwide presence spread over 1008 stations of the Indian

Railways and 350 pair of trains. It has provided catering in 18 numbers of additional

new trains that got introduced during 2009-10 and for the first time there has been a

paradigm shift in providing mandatory catering in non-AC sleeper coaches of

Duronto Trains as against the earlier provision in the AC coaches of Rajdhani and

Shatabdi Trains. During the year 2009-10, 9 new Duronto trains have been

introduced. In the premium food segment IRCTC commissioned 13 new Food Plazas

/ Fast Food units during the year and taking the number to 78 and also

commissioned 25 Jan Ahaar outlets for sale of low priced wholesome food and

regional cuisines for not so affluent travelling passengers.

During the year, the Ministry of Railways started the process of review of Catering

Policy and recently, on 21st July, 2010, the Ministry of Railways has issued the New

Catering Policy, 2010. The revised policy has laid down that all catering services

other than Food Plazas and fast food units would be managed by Zonal Railways.

With the new challenges come greater opportunities.

IRCTC has a tremendous potential for growth in tourism and it would aim to expand

its business to become a major tourism player in the country. Also the premier

catering segment on Railways would be expanded apart from the industrial and

institutional catering business to enlarge its activities and sustain its revenues.
http://en.wikipedia.org/wiki/Indian_Railwayshttp://en.wikipedia.org/wiki/Indian_Railways


11/51

Two Plants of Railneer Packaged Drinking water are being operated by IRCTC at

Nangloi (Delhi) and Danapur (Bihar). During the year, the production of Railneer at

Nangloi and Danapur was 3.19 Crore and 2.23 Crore bottles respectively as against

installed capacity of 3.34 Crore and 2.45 Crore bottles respectively.

During the year, the capacity of Danapur Plant was increased from 5,500 Cartons

per day to 8,500 Cartons per day.

Two new plants at Palur and Ambernath are in the process of setting up by IRCTC.

The construction of Railneer Plant at Palur (Tamil Nadu) is in advance stage and

likely to be commissioned soon. The plan for Ambernath plant has been finalized and

the tender process is likely to start in a few months.

The Corporation continued to provide greater customer focus with improved methods

of feedback and customer complaints management and has shown continued

improvement in food and safety audit ratings as well as customers satisfaction

surveys conducted by independent 3rd parties. The majority ratings have been

above 80 %, it has also made progress in ISO certification and HACCP certification.

During the year, the Corporations Tourism activities increased manifold. The

numbers of tourist have gone up by 35 %. The train / coach charters have gone up

by 55 %. The number of Bharat Darshan Trains has been increased by 30 % and Hill

charters increased by 44 %. The Corporation has successfully tied up with Kendriya

Vidyalaya for undertaking students educational trips under its Travel to learn

schemes as well as with Tamil Nadu Government under Sarva Shiksha Abhiyan. At

the top end, it has successfully launched its super luxury tourist trainThe

Maharajas Express. The train has also been voted as best Luxury Tourist

Train in the country.


12/51

The following awards have been conferred on IRCTC :

Rated Excellent for MOU Evaluation for the year 2008-09 by Department of Public

Enterprises.

CNBC Awaaz-Travel AwardsThe Special Commendation for Redefining IndianRailways Award2009 for E-ticketing by Ms. Selja, Honble Minister of Tourism.

PC Quest awarded the Excellence Award for Most Innovative Project in 2009 for

139-Rail Sampark.

QCI DL Shah National Award on Economics of QualityQCI - D. L. Shah National

Award for our initiatives on food safety and Economics of Quality by Quality Council

of India by Dr. Masaki Imai , Quality Guru of Japan.

The Grand Jury of the M Billionth Award South Asia for the year 2010Certificate

of Recognition SMS 139 Railway Enquiry.

ICWAI National Quality Award for Excellence in Cost Management 2009: First

Prize under public service sector medium category by Shri Salman Khurshid,

Honble Minister of State for CorporateAffairs.

CNBC Awaaz Travel Award 2010for the Maharajas Express-The Best Luxury

Train from HonbleUnion Minister for Tourism, Kumari Selja.

The India Pride Award-Gold from Shri Pranab Mukherjee, Honble Union Minister of

Finance for Internet Ticketing.

The SKOCHs-The World Open Award for Integrated Train Enquiry System (ITES)

from the Controller of Certifying Authority, Government of India.The Corporations e-

ticketing website www.irctc.co.in continued to be voted as one of the most popular

websites with more than one Crore hits per day. Its internet ticketing in terms number

of passengers has grown by more than 60 % and in terms of value of tickets it has

grown by more than 50 %. It touched a highof 3 lakh 7 thousand tickets booked in a

day and on an average during March, 2010 it sold more than 2 lakh 50 thousands

tickets per day.

The integrated train enquiry system has won several awards and has handled more

than 7 lakh calls per day. It has successfully launched the SMS service for providing

the train running and PNR information and handled over one crore SMS in 2009 - 10.

The Comptroller and Auditor General of India has conducted the supplementary

audit on audited accounts of the Corporation for the year ended 31st March, 2010under Section 619(4) of Companies Act, 1956 andhas offered NIL Comments on the

same.

IRCTC has been complying with the requirements of Corporate Governance as

stipulated by the Department of Public Enterprises (DPE), Government of India.


13/51

Board of Directors

ChairmanShri Vivek Sahai,Chairman Railway Board and Member Traffic

Managing DirectorShri Rakesh Kumar Tandon,

Functional DirectorsDr. Nalin Shinghal,Director (Tourism & Marketing)

Shri Vinod Asthana,Director(Catering Services)

Shri V.R. Gupta,Director(Finance)

Government DirectorsSmt. Mani AnandExecutive Director(T&C),Railway Board,Ministry of Railways

Shri Naresh SalechaExecutive Director(FC),Railway Board,Ministry of Railways

Independent DirectorsShri Jagdeep S. ChhokarShri Alok ShivapuriShri R.N. BhardwajShri R.K. Agrawal

Audit Committee:ChairmanShri R.N. Bhardwaj,

MembersShri Vinod Asthana,Shri Jagdeep S. ChhokarShri Alok ShivapuriShri R.K. Agrawal

Company Secretary:Shri Rakesh Gogia

Statutory Auditors:

M/S S.P. Marwaha & Co.,Chartered Accountants,New Delhi.


14/51

OFFICES

Registered and Corporate Office:9th Floor, Bank of Baroda Building,16 Parliament Street, New Delhi-110 001.

Part Portion of Corporate Office:2nd and 5th Floor, STC Building,Jawahar Vyapar Bhawan,1 Tolstoy Marg, New Delhi - 110001

Internet Ticketing Office:New Operations Centre,Northern Railway Reservation Office,IRCA Complex, Chelmsford Road,

New Delhi-110055.

Railneer Plant, Nangloi:Northern Railways Wireless Station Area,Opp. Nangloi Bus Depot, Rohtak Road,Nangloi, Delhi-110 041.

Railneer Plant, Danapur:Loco Colony,South of R.P.F. Barracks, Khagul,Danapur-801105 (Bihar)

North Zone :Ginger Rail Yatri Niwas,Ground Floor,New Delhi Railway Station,Ajmeri Gate Side,New Delhi-110001

East ZoneI & II:Old Koilaghat Building,3, Koilaghat Street,Kolkata-700001.

West Zone :2nd Floor,New Administrative Building,Central Railway, CST,Mumbai-400001.

South Zone :6A, The Rain Tree Place,9, Mc Nicolas Road, Chetpet,Chennai-600034.

South Central Zone :

2nd Floor, Am Sri Classic Complex,Sarojini Devi Road,Secunderabad-500071


15/51

Financial Achievements

During the year 2009-10, the Corporation achieved a total income of Rs.721.97Crore as compared to Rs.618.77 Crore in 2008-09 thereby registering a growth ofapprox. 17 %. The increase in income was achieved mainly due to quantum jump in

internet ticketing (from Rs.74.81 Crore to Rs.112.07 Crore) and tourism activities(from Rs.27.94 Crore to Rs.44.73 Crore).Quantum jump in internet ticketing was witnessed due to excellent level of serviceand upgraded infrastructure. The growth in tourism business was achieved due toIRCTCs focused approach on developingtourism business segment.A net profit of Rs.63.05 Crore was earned during 2009-10 as compared to Rs 46.50Crore in 2008-09 due to enhanced revenue and control on expenditure. An amountof Rs.30.00 Crore has been provided towards Haulage Charges as was providedduring the previous year. As at 31st March 2010, the Reserves and Surplus of theCorporation stood at Rs.142.76 Crore. The Net Worth went up from Rs.114.46Crore during the previous year to Rs.162.76 Crore during the year under review.

Profit earned by the Corporation has been appropriated in the following manner:

CONTRIBUTION TO REVENUES OF RAILWAYS: During the year the Corporation contributed a sum of Rs. 82.28 crore to the

revenues of Indian Railways as against a sum of Rs. 76.54 Crore during theprevious year. Contribution to the Revenues of Railways comprises HaulageCharges, Concession fee, License fee, User Charges and Dividend. Thesharing of revenues with the various Zonal Railways has been made in termsof Memorandum of Understanding dated 17th January, 2007. In addition tothe above, tickets worth Rs.6011 Crore were booked during the year asagainst Rs.3889 Crore during the previous year.


16/51

Scorecard of Packages from IRCTC

During 2009-10, a total of 43,258 passengers availed of IRCTC tourpackages(rail tour packages and land tour packages) as against 31,943passengers during the previous year.

248 Train / Coach Charterswere undertaken by the Corporation as against159 Charters during the previous year.

57 BharatDarshan - Village on Wheelstrips were operated with a total of22,621 passengers as against 47 trips with 18,801 passengers during theprevious year.

36 Hill Charters were operated on hill railways as against 25 Chartersoperated during the previous year.

Mahaparinirvan Express, Buddhist Circuit Special Train and otherBuddhist trains during its Third season, the trains have gained popularitywith an increase of almost 110 % in number ofpassengers. A multi-prongedmarketing strategy has been put in place for the forthcoming season.

Educational Tours:7,829 students and teachers have availed the facility of educational tours as

against 22,801 students and teachers during the last year to variousdestinations. The decline was due to shifting of Delhi Govt. Business tovarious State Tourism Corporations etc.During the year, IRCTC made a tie-up with the Kendriya Vidyalaya Sangathanfor operating Educational Trips under its travel and learn scheme. A tie-upwas made with Tamil Nadu Government for operating educational tours forchildren from backward and under privileged classes under the Sarva ShikshaAbhiyan scheme, under which 3,272 children participated.

Maharajas Express; IRCTCs top end luxury tourist train the MaharajasExpress was completed in the currentyear. The train made two trial trips from

6th13th and 14th20th March, 2010 and was formally flagged ofon 20thMarch, 2010 at Kolkata by Honble Minister for Railways, Ms. Mamta Banerjee

Luxury trainsPalace on wheels ; fairy queen ; deccan Odyssy have givena 100% performance.


17/51

OTHER AREAS OF INVOLLVEMENT OF IRCTC

Integrated Train Enquiry System (139-Rail Sampark Call Centre):IRCTC is managing a Call Centre for passenger enquiry. A customer can dial 139from anywhere in the country and get all information from Call Centre related to train

timing, PNR confirmation, train routes and other relevant information related toIndian Railways.

Tourism PortalIRCTC continue to strengthen its national tourism award winning tourism portal

www.railtourismindia.com,as a One Stop Travel Shop meeting all the travel & tourism needs of customers. Thisincludes online booking of tour packages, hotels, air tickets and Cab Rental acrossthe country.

Packaged Drinking Water (Railneer):Two Plants of Railneer Packaged Drinking water are operating at Nangloi (Delhi) andDanapur (Bihar).During the year, the production of Railneer at Nangloi and Danapurwas 3.19 Crore and 2.23 Crore bottles respectively. During the year, the capacity ofDanapur Plant was increased from 5,500 Cartons per day to 8,500 Cartons per day.Two Railneer Plants at Palur (Tamil Nadu and Ambernath (Maharashtra) are beingset up.The distribution of the Railneer is being done at various Railway Stations, inaddition to, supplies to Parliament House, PMO, Railway Board and Ministry ofExternal Affairs etc.

The results of the tests carried out by accredited laboratories on Railneer PackagedDrinking Water indicate that the quality of Railneer, conforms to European EconomicCommunity (EEC) norms for pesticides residue.

DIVIDEND & CAPITAL STRUCTURE of IRCTC

DIVIDENDKeeping in view the financial results, the Board of Directors recommended interimdividend of Rs.4.00 Crore. The Board of Directors have now recommended a TotalDividend of Rs.12.61 Crore (Approximately, 20 % of the Net Profit) including interimdividend for the year 2009-10.

The total dividend for the year will be Rs. 6.31 per share as against Rs.4.65 pershare paid for the previous year.The total dividend pay out for the year would beRs.12.61crore as against Rs.9.31 crore paid for the previous year.

CAPITAL STRUCTUREAs on 31st March 2010, paid-up share capital of the Corporation stood at Rs.20.00Crore. The Government of India holds the entire paid up share capital of theCorporation. During the year, there was no change in the paid-up share capital.


18/51

Financial Statements of Indian Railway Catering andTourism Corporation Limited(IRCTC)


19/51

Balance Sheet

Infinancial accounting,a balance sheetor statement of financial positionis a

summary of the financial balances of asole proprietorship,abusiness partnership or

acompany.Assets,liabilities andownership equity are listed as of a specific date,

such as the end of itsfinancial year.A balance sheet is often described as a

"snapshot of a company's financial condition". Of the four basicfinancial statements,

the balance sheet is the only statement which applies to a single point in time of a

business' calendar year.

A standard company balance sheet has three parts: assets, liabilities and ownership

equity. The main categories of assets are usually listed first, and typically in order

ofliquidity.Assets are followed by the liabilities. The difference between the assets

and the liabilities is known as equity or thenet assets or thenet worth or capitalof

the company and according to theaccounting equation,net worth must equal assets

minus liabilities.

Another way to look at the same equation is that assets equals liabilities plus owner's

equity. Looking at the equation in this way shows how assets were financed: either

by borrowing money (liability) or by using the owner's money (owner's equity).

Balance sheets are usually presented with assets in one section and liabilities and

net worth in the other section with the two sections "balancing."A business operating entirely in cash can measure its profits by withdrawing the

entire bank balance at the end of the period, plus any cash in hand. However, many

businesses are not paid immediately; they build up inventories of goods and they

acquire buildings and equipment. In other words: businesses haveassets and so

they can not, even if they want to, immediately turn these into cash at the end of

each period. Often, these businesses owe money to suppliers and to tax authorities,

and the proprietors do not withdraw all their original capital and profits at the end of

each period. In other words businesses also haveliabilities.
http://en.wikipedia.org/wiki/Financial_accountinghttp://en.wikipedia.org/wiki/Sole_proprietorshiphttp://en.wikipedia.org/wiki/Partnershiphttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Liability_(financial_accounting)http://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Financial_yearhttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Net_assetshttp://en.wikipedia.org/wiki/Net_worthhttp://en.wikipedia.org/wiki/Accounting_equationhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Liability_(financial_accounting)http://en.wikipedia.org/wiki/Liability_(financial_accounting)http://en.wikipedia.org/wiki/Liability_(financial_accounting)http://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Accounting_equationhttp://en.wikipedia.org/wiki/Net_worthhttp://en.wikipedia.org/wiki/Net_assetshttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Financial_yearhttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Liability_(financial_accounting)http://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Companyhttp://en.wikipedia.org/wiki/Partnershiphttp://en.wikipedia.org/wiki/Sole_proprietorshiphttp://en.wikipedia.org/wiki/Financial_accounting


20/51

BALANCE SHEET(as at 31st march2008)

Amt. Total

Sources of Funds:

Shareholders Funds

Share Capital Rs. 2,000.00

Reserves and Surplus Rs. 5,884.92

Deferred Tax Liability (net) Rs. 258.97

TOTAL

Rs.

8,143.89

Application of Funds:

Fixed Assets

Gross Block Rs. 6,137.97

Less: Depreciation Rs. -2,438.02

Net Block Rs. 3,699.95

Add : Capital Work in Progress Rs. 90.58

Rs.

3,790.53

Investments

Rs.

0.20

Deferred Tax Asset nil

Current Assets, Loans and advances:

Interest accrued on Investment

Rs.

0.10

Inventories Rs. 573.19

Sundry Debtors Rs. 19,206.69

Cash and Bank Balances Rs. 11,677.32

Other Current Assets Rs. 651.52

Loans & Advances Rs. 8,554.20

Rs.

40663.02

Less: Current Liabilities and provisions:

Current Liabilities Rs. -32,389.69

Provisions Rs. -3,920.17

Rs -36,309.86

Net Current Assets /working capital

Rs.

4,353.16

Miscellaneous Expenditure to the extent not written off or adjusted nil

TOTAL

Rs.

8,143.89

Note: All figures in lakh Rupees


21/51


Amt. Total

Sources of Funds:

Shareholders Funds




TOTAL

Rs.

11,632.51


Fixed Assets





Rs. 5,208.39

Investments

Rs.

250.20




Rs.

0.12



Cash and Bank Balances Rs. 13,732.94Other Current Assets Rs. 448.04


Rs.

52,020.61




Rs-45,846.6

Net Current Assets /working capital Rs. 6,173.92


TOTAL

Rs.

11,632.51

Note:All figures in lakh Rupees


22/51


Amt. Total

Sources of Funds:

Shareholders Funds




TOTAL

Rs.

8,143.89


Fixed Assets

Gross Block Rs. 6,137.97Less: Depreciation Rs. -2,438.02



Rs.

3,790.53

Investments

Rs.

0.20




Rs.

0.10






Rs.

40663.02




Rs -36,309.86


Rs.

4,353.16


TOTAL Rs.8,143.89


23/51


Amt. Total

Sources of Funds:

Shareholders Funds



Deferred Tax Liability (net) nil

TOTAL

Rs.

21,141.04


Fixed Assets




Add : Capital Work in Progress Rs. 1,636.08

Rs.

9,200.21

Investments

Rs.

0.20




Rs.

0.12






Rs.

66,935.48




Rs.-54,994.85


Rs.

11,940.63


TOTAL

Rs.

21,141.04

Note:All figures in lakh Rupees


24/51

Income statement

Income statement (also referred to asprofit and loss statement (P&L), statement of

financial performance, earnings statement, operating statement or statement of

operations) is a company'sfinancial statement that indicates how

therevenue (money received from the sale of products and services before

expenses are taken out, also known as the "top line") is transformed into thenet

income (the result after all revenues and expenses have been accounted for, also

known as the "bottom line"). It displays the revenues recognized for a specific period,

and thecost andexpenses charged against these revenues, includingwrite-

offs (e.g.,depreciation andamortization of variousassets)andtaxes.The purpose of

the income statement is to showmanagersandinvestors whether the company

made or lost money during the period being reported.

The important thing to remember about an income statement is that it represents a

period of time. This contrasts with thebalance sheet,which represents a single

moment in time.

Charitable organizations that are required to publish financial statements do not

produce an income statement. Instead, they produce a similar statement that reflects

funding sources compared against program expenses, administrative costs, and

other operating commitments. This statement is commonly referred to as

thestatement of activities.Revenues and expenses are further categorized in thestatement of activities by the donor restrictions on the funds received and expended.

The income statement can be prepared in one of two methods. The Single Step

income statement takes a simpler approach, totaling revenues and subtracting

expenses to find the bottom line. The more complex Multi-Step income statement (as

the name implies) takes several steps to find the bottom line, starting with thegross

profit.It then calculatesoperating expenses and, when deducted from the gross

profit, yields income from operations. Adding to income from operations is the

difference of other revenues and other expenses. When combined with income fromoperations, this yields income before taxes. The final step is to deduct taxes, which

finally produces the net income for the period measured
http://en.wikipedia.org/wiki/Financial_statementhttp://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Net_incomehttp://en.wikipedia.org/wiki/Net_incomehttp://en.wikipedia.org/wiki/Costhttp://en.wikipedia.org/wiki/Expensehttp://en.wikipedia.org/wiki/Write-offhttp://en.wikipedia.org/wiki/Write-offhttp://en.wikipedia.org/wiki/Depreciationhttp://en.wikipedia.org/wiki/Amortizationhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Charitable_organizationshttp://www.1800net.com/nprc/fasb117.html#2http://en.wikipedia.org/wiki/Gross_profithttp://en.wikipedia.org/wiki/Gross_profithttp://en.wikipedia.org/wiki/Operating_expenseshttp://en.wikipedia.org/wiki/Operating_expenseshttp://en.wikipedia.org/wiki/Gross_profithttp://en.wikipedia.org/wiki/Gross_profithttp://www.1800net.com/nprc/fasb117.html#2http://en.wikipedia.org/wiki/Charitable_organizationshttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Managementhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Amortizationhttp://en.wikipedia.org/wiki/Depreciationhttp://en.wikipedia.org/wiki/Write-offhttp://en.wikipedia.org/wiki/Write-offhttp://en.wikipedia.org/wiki/Expensehttp://en.wikipedia.org/wiki/Costhttp://en.wikipedia.org/wiki/Net_incomehttp://en.wikipedia.org/wiki/Net_incomehttp://en.wikipedia.org/wiki/Revenuehttp://en.wikipedia.org/wiki/Financial_statement


25/51

Financial Statement analysis


26/51

Comparative Financial Statement analysis

Comparative Financial Statement analysis provides information to assess the

direction of change in the business. Financial statements are presented as on a

particular date for a particular period. The financial statement Balance Sheet

indicates the financial position as at the end of an accounting period and the financial

statement Income Statement shows the operating and non-operating results for a

period. But financial managers and top management are also interested in knowing

whether the business is moving in a favourable or an unfavourable direction. For this

purpose, figures of current year have to be compared with those of the previous

years. In analyzing this way, comparative financial statements are prepared.

Comparative Financial Statement Analysis is also called as Horizontal analysis.

The Comparative Financial Statement provides information about two or more years'

figures as well as any increase or decrease from the previous year's figure and it'spercentage of increase or decrease. This kind of analysis helps in identifying the

major improvements and weaknesses. For example, if net income of a particular

year has decreased from its previous year, despite an increase in sales during the

year, is a matter of serious concern. Comparative financial statement analysis in

such situations helps to find out where costs have increased which has resulted in

lower net income than the previous year.

Comparative Balance Sheet

In order to analyze comparative balance sheets and develop Statement of CashFlows, we first consider any increases or decreases in your current asset and currentliability accounts between the two years of balance sheet information.Here's the rule we should always remember when developing your Statement ofCash Flows:

Increases in current asset accounts, decrease cash.Decreases in current asset accounts, increase cash.Increases in current liability accounts, increase cash.Decreases in current liability accounts, decrease cash.

We must look at the last two years of the firm's balance sheets and compare thedifferences between the two in order to develop the Statement of Cash Flows.

A comparative balance sheet usually has two columns of amounts that appear to theright of the account titles or other descriptions such as Cash and Cash Equivalents,Accounts Receivable, Accounts Payable, etc. The first column of amounts containsthe amounts as of a recent moment or point in time, say December 31, 2009. To theright will be a column containing corresponding amounts from an earlier date, suchas December 31, 2008. The older amounts appear further from the account titles ordescriptions as the older amounts are less important.

Providing the amounts from an earlier date gives the reader of the balance sheet apoint of reference ;something to which the recent amounts can be compared.


27/51

Comparative Income statement

A comparative income statement shows revenue and expenses over the current andprevious years, how much revenue and expenses have increased or decreased, and

the percentage they have increased or decreased.A comparative income statement is a multi-column income statement, where theresults of multiple accounting periods are shown in separate columns. The intent ofthis format is to allow the reader to compare the results of multiple historical periods,thereby giving a view of how the business is performing over time.The most common presentation format for a comparative income statement is toshow the results of the most recent accounting period in the column immediatelyadjacent to the row titles, while the results of earlier periods are shown progressivelyfurther to the right.An example of this format for a multi-month presentation is March | February |January.An alternative presentation format is the reverse, where the results of the mostrecent period are listed furthest to the right. However, this is a less usable format,since if many columns are used, the reader cannot easily associate the linedescriptions on the far left side of the presentation with the most recent financialresults listed on the far right side.

Cash Flow Statement

Infinancial accounting,a cash flow statement, also known as statement of cash

flowsor funds flow statement, is afinancial statement that shows how changes

inbalance sheet accounts and income affectcash and cash equivalents,and breaks

the analysis down to operating, investing, and financing activities. Essentially, the

cash flow statement is concerned with the flow of cash in and cash out of the

business. The statement captures both the current operating results and the

accompanying changes in thebalance sheet.As an analytical tool, the statement of

cash flows is useful in determining the short-term viability of a company, particularly

its ability to pay bills. International Accounting Standard 7 (IAS 7), is theInternational

Accounting Standardthat deals with cash flow statements.

People and groups interested in cash flow statements include:

Accounting personnel, who need to know whether the organization will be able to

cover payroll and other immediate expenses

Potentiallenders orcreditors,who want a clear picture of a company's ability to

repay

Potentialinvestors,who need to judge whether the company is financially sound

Potential employees or contractors, who need to know whether the company will

be able to afford compensation

Shareholders of the business.
http://en.wikipedia.org/wiki/Financial_accountinghttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/International_Accounting_Standardhttp://en.wikipedia.org/wiki/International_Accounting_Standardhttp://en.wikipedia.org/wiki/Lenderhttp://en.wikipedia.org/wiki/Creditorhttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Creditorhttp://en.wikipedia.org/wiki/Lenderhttp://en.wikipedia.org/wiki/International_Accounting_Standardhttp://en.wikipedia.org/wiki/International_Accounting_Standardhttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Financial_statementshttp://en.wikipedia.org/wiki/Financial_accounting


28/51

Purpose

The cash flow statement was previously known as the flow of Cash statement. The

cash flow statement reflects a firm's liquidity.

The balance sheet is a snapshot of a firm's financial resources and obligations at a

single point in time, and the income statement summarizes a firm's financial

transactions over an interval of time. These two financial statements reflect

theaccrual basis accounting used by firms to match revenues with the expenses

associated with generating those revenues. The cash flow statement includes only

inflows and outflows of cash and cash equivalents; it excludes transactions that do

not directly affect cash receipts and payments. These non-cash transactions include

depreciation or write-offs on bad debts or credit losses to name a few.The cash flow

statement is acash basis report on three types of financial activities: operatingactivities, investing activities, and financing activities. Non-cash activities are usually

reported in footnotes.

The cash flow statement is intended to

1. provide information on a firm'sliquidity andsolvency and its ability to

changecash flows in future circumstances

2. provide additional information for evaluating changes in assets, liabilities and

equity3. improve the comparability of different firms' operating performance by

eliminating the effects of differentaccounting methods

4. indicate the amount, timing and probability of future cash flows

The cash flow statement has been adopted as a standard financial statement

because it eliminates allocations, which might be derived from different accounting

methods, such as various timeframes for depreciating fixed assets.
http://en.wikipedia.org/wiki/Accounting_methods#Accrual_basishttp://en.wikipedia.org/wiki/Accounting_methods#Cash_basishttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Solvencyhttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Accounting_methodshttp://en.wikipedia.org/wiki/Accounting_methodshttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Solvencyhttp://en.wikipedia.org/wiki/Market_liquidityhttp://en.wikipedia.org/wiki/Accounting_methods#Cash_basishttp://en.wikipedia.org/wiki/Accounting_methods#Accrual_basis


29/51

Cash flow activities

The cash flow statement is partitioned into three segments, namely:

1) cash flow resulting from operating activities;

2) cash flow resulting from investing activities ; and

3) cash flow resulting from financing activities.

The money coming into the business is called cash inflow, andmoney going out from

the business is called cash outflow.

Operating activities

Operating activities include theproduction,sales and delivery of the company's

product as well as collecting payment from its customers. This could include

purchasing raw materials, building inventory, advertising, and shipping the product.

Under IAS 7, operating cash flows include:

Receipts from the sale of goods or services

Receipts for the sale of loans, debt or equity instruments in a trading portfolio

Interest received on loans

Dividends received on equity securities

Payments to suppliers for goods and services

Payments to employees or on behalf of employees

Interest payments (alternatively, this can be reported under financing activities in

IAS 7, and US GAAP)

Items which are added back to [or subtracted from, as appropriate] the net income

figure (which is found on the Income Statement) to arrive at cash flows from

operations generally include:

Depreciation (loss of tangible asset value over time)

Deferred tax

Amortization (loss of intangible asset value over time)

Any gains or losses associated with the sale of a non-current asset, because

associated cash flows do not belong in the operating section.(unrealized

gains/losses are also added back from the income statement)
http://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Production,_costs,_and_pricinghttp://en.wikipedia.org/wiki/Saleshttp://en.wikipedia.org/wiki/Depreciationhttp://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Amortization_(business)#Accountinghttp://en.wikipedia.org/wiki/Amortization_(business)#Accountinghttp://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Depreciationhttp://en.wikipedia.org/wiki/Saleshttp://en.wikipedia.org/wiki/Production,_costs,_and_pricinghttp://en.wikipedia.org/wiki/Money


30/51

Investing activities

Examples of Investing activities are

Purchase or Sale of an asset (assets can be land, building, equipment,

marketable securities, etc.)

Loans made to suppliers or received from customers

Payments related to mergers and acquisitions

Financing activities

Financing activities include the inflow of cash frominvestors such

asbanks andshareholders,as well as the outflow of cash to shareholders

asdividends as the company generates income. Other activities which impact the

long-term liabilities and equity of the company are also listed in the financing

activities section of the cash flow statement.

Under IAS 7,

Proceeds from issuing short-term or long-term debt

Payments of dividends

Payments for repurchase of company shares

Repayment of debt principal, including capital leases

For non-profit organizations, receipts of donor-restricted cash that is limited to

long-term purposes

Items under the financing activities section include:

Dividends paid

Sale or repurchase of the company'sstock

Netborrowings

Payment of dividend tax

Disclosure of non-cash activities

Under IAS 7, non-cash investing and financing activities are disclosed in footnotes to

the financial statements. Under US General Accepted Accounting Principles (GAAP),

non-cash activities may be disclosed in a footnote or within the cash flow statement

itself. Non-cash financing activities may include Leasing to purchase an asset

Converting debt to equity

Exchanging non-cash assets or liabilities for other non-cash assets or liabilities

Issuing shares in exchange for assets
http://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Shareholderhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Investor


31/51

Preparation methods

The direct method of preparing a cash flow statement results in a more easily

understood report. The indirect method is almost universally used, because FAS 95

requires a supplementary report similar to the indirect method if a company choosesto use the direct method.

Direct method

The direct method for creating a cash flow statement reports major classes of gross

cash receipts and payments. Under IAS 7, dividends received may be reported

under operating activities or under investing activities. If taxes paid are directly linked

to operating activities, they are reported under operating activities; if the taxes are

directly linked to investing activities or financing activities, they are reported under

investing or financing activities

Indirect method

The indirect method uses net-income as a starting point, makes adjustments for all

transactions for non-cash items, then adjusts from all cash-based transactions. An

increase in an asset account is subtracted from net income, and an increase in a

liability account is added back to net income. This method converts accrual-basis net

income (or loss) into cash flow by using a series of additions and deductions.


32/51

Ratio Analysis


33/51

Ratio Analysis

A tool used by individuals to conduct a quantitative analysis of information in a

company's financial statements. Ratios are calculated from current year numbers

and are then compared to previous years, other companies, the industry, or even theeconomy to judge the performance of the company. Ratio analysis is predominately

used by proponents of fundamental analysis.

There are many ratios that can be calculated from the financial statements pertaining

to a company's performance, activity, financing and liquidity. Some common ratios

include the price-earnings ratio, debt-equity ratio, earnings per share, asset turnover

and working capital

Which Ratio for whom:As before mentioned there are varieties of people interested to know and read theseinformation and analyses, however different people for different needs. And it isbecause each of these groups have different type of questions that could beanswered by a specific number and ratio.Therefore we can say there are different ratios for different groups, these groups withthe ratio that suits them is listed below:

1. Investors: These are people who already have shares in the business or they arewilling to be part of it. So they need to determine whether they should buy shares inthe business, hold on to the shares they already have or sell the shares they already

own. They also want to assess the ability of the business to pay dividends. As aresult the Return on Capital Employed Ratio is the one for this group.

2. Lenders: This group consists of people who have given loans to the company sothey want to be sure that their loans and also the interests will be paid and on thedue time. Gearing Ratios will suit this group.

3. Managers: Managers might need segmental and total information to see how theyfit into the overall picture of the company which they are ruling. And ProfitabilityRatios can show them what they need to know.

4. Employees: The employees are always concerned about the ability of thebusiness to provide remuneration, retirement benefits and employment opportunitiesfor them, therefore these information must be find out from the stability andprofitability of their employers who are responsible to provide the employees theirneed. Return on Capital Employed Ratio is the measurement that can help them.

5. Suppliers and other trade creditors: Businesses supplying goods and materialsto other businesses will definitely read their accounts to see that they don't haveproblems, after all, any supplier wants to know if his customers are going to paythem back and they will study the Liquidity Ratio of the companies.


34/51

6. Customers: are interested to know the Profitability Ratio of the business withwhich they are going to have a long term involvement and are dependent on thecontinuance of presence of that.

7. Governments and their agencies: are concerned with the allocation of

resources and, the activities of businesses. To regulate the activities of them,determine taxation policies and as the basis for national income and similarstatistics, they calculate the Profitability Ratio of businesses.

8. Local community: Financial statements may assist the public by providinginformation about the trends and recent developments in the prosperity of thebusiness and the range of its activities as they affect their area so they are interestedin lots of ratios.

9. Financial analysts: they need to know various matters, for example, theaccounting concepts employed for inventories, depreciation, bad debts and so on.

therefore they are interested in possibly all the ratios.

10. Researchers: researchers' demands cover a very wide range of lines of enquiry

ranging from detailed statistical analysis of the income statement and balance sheet

data extending over many years to the qualitative analysis of the wording of the

statements depending on their nature of research.


35/51

Current Ratio

Thecurrent ratio is a popular financial ratio used to test a company'sliquidity (also

referred to as its current orworking capital position) by deriving the proportion of

current assets available to cover current liabilities.

The concept behind this ratio is to ascertain whether a company's short-term assets

(cash, cash equivalents, marketable securities, receivables and inventory) are

readily available to pay off its short-term liabilities (notes payable, current portion of

term debt, payables, accrued expenses and taxes). In theory, the higher the current

ratio, the better.

Formula:

CURRENT RATIO = CURRENT ASSETCURRENT LIABILITIES

Calculation ofcurrent ratio for IRCTC

Year Ratio

2008 40663.02/32389.69=1.26

2009 52020.61/3833.64=1.35

2010 60514.81/47852.94=1.26

2011 66935.48/48720.34=1.37
http://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/l/liquidity.asphttp://www.investopedia.com/terms/w/workingcapital.asphttp://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/w/workingcapital.asphttp://www.investopedia.com/terms/l/liquidity.asphttp://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/c/currentratio.asp


36/51

Quick Ratio

Thequick ratio or the quick assets ratio or theacid-test ratio is a liquidity indicator

that further refines the current ratio by measuring the amount of the

mostliquid current assets there are to cover current liabilities. The quick ratio is more

conservative than the current ratio because it excludes inventory and other current

assets, which are more difficult to turn into cash. Therefore, a higher ratio means a

more liquid current position.

Formula:

QUICK RATIO = LIQUID ASSETS OR (CASH OR EQUIVALENTS+SHORT TERM INVESTMENTS+A/Cs RECEIVABLE)

CURRENT LIABILITIES

OR=TOTAL CURRENT ASSETNON LIQUID ASSET

CURRENT LIABILITIES

Calculation ofquick ratio for IRCTC

Year Ratio

2008 (40663.02-19858.21)32389.64

=0.632009 (5020.61-2320.06)

38334.64=1.28

2010 (60514.81-23704.35)47852.94

=0.76

2011 (66935.48-27005.41)40720.34

=0.98
http://www.investopedia.com/terms/q/quickratio.asphttp://www.investopedia.com/terms/q/quickratio.asphttp://www.investopedia.com/terms/a/acidtest.asphttp://www.investopedia.com/terms/l/liquidasset.asphttp://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/c/currentratio.asphttp://www.investopedia.com/terms/l/liquidasset.asphttp://www.investopedia.com/terms/a/acidtest.asphttp://www.investopedia.com/terms/q/quickratio.asphttp://www.investopedia.com/terms/q/quickratio.asp


37/51

Earnings per share

The portion of a company's profit allocated to each outstanding share of commonstock. Earnings per share serves as an indicator of a company's profitability.

Formula:

E.P.S. = Net IncomeDividends on Preferred Stockor Profit Available for appropriationAverage Outstanding Shares

When calculating, it is more accurate to use a weighted average number of shares

outstanding over the reporting term, because the number of shares outstanding can

change over time. However, data sources sometimes simplify the calculation by

using the number of shares outstanding at the end of the period.

Diluted EPS expands on basic EPS by including the shares of convertibles or

warrants outstanding in the outstanding shares number.

Calculation of EPS for IRCTC (Face Value of Rs.10 per share)

Year E,P.S

2008 Rs. 297825000 /28720000

=Rs. 10.37

2009 Rs. 554333000 /23842000

=Rs. 23.25

2010 Rs. 725933000 /23024000

=Rs. 31.53

2011 Rs. 736259000 /24227000

=Rs. 30.39


38/51

Earnings YieldThe earnings per share for the most recent 12-month period divided by the current

market price per share. The earnings yield (which is the inverse of the P/E ratio)

shows the percentage of each dollar invested in the stock that was earned by the

company.

The earnings yield is used by many investment managers to determine optimal asset

allocations.

Earning Yeild = E.P.S.

Market Price Per Share.

Money managers often compare the earnings yield of a broad market index (such asthe S&P 500) to prevailing interest rates, such as the current 10-year Treasury yield.

If the earnings yield is less than the rate of the 10-year Treasury yield, stocks as a

whole may be considered overvalued. If the earnings yield is higher, stocks may

considered undervalued relative to bonds.

Economic theory suggests that investors in equities should demand an extra risk

premium of several percentage points above prevailing risk-free rates (such as T-

bills) in their earnings yield to compensate them for the higher risk of owning stocks

over bonds and other asset classes.

Calculation of Earnings Yield for IRCTC(Face Value of Rs.10 per share)

Year Earnings Yield

2008 10.37 /45.60

=0.227

2009 23.25 /70.32

=0.330

2010 31.53 /95.22

=0.331

2011 30.39 /95.65

=0.317


39/51

Return on share holder's fund

It is the ratio of net profit to share holder's investment. It is therelationship between net profit (after interest and tax) and shareholder's/proprietor's fund.

This ratio establishes the profitability from the share holders' point ofview. The ratio is generally calculated in percentage.

The two basic components of this ratio are net profits and shareholder's funds.Shareholder's funds include equity share capital, (preference share capital) and allreserves and surplus belonging to shareholders. Net profit means net income afterpayment of interest and income tax because those will be the only profits availablefor share holders.

Formula:

Return on share holder's fund = Net profit (after interest and tax) 100Share holder's fund

This ratio is one of the most important ratios used for measuring the overallefficiency of a firm. As the primary objective of business is to maximize its earnings,this ratio indicates the extent to which this primary objective of businesses beingachieved. This ratio is of great importance to the present and prospectiveshareholders as well as the management of the company. As the ratio reveals howwell the resources of the firm are being used, higher the ratio, better are the results.

Calculation of Return on share holder's fund

Year Return2008 2074.91 x 100

8143.89

=25.48

2009 4650.11 x 10011632.51

=39.97

2010 5305.22 x 10016275.66

=32.59

2011 5078.63 x 10021141.04

=24.02


40/51

Net Profit Margin.

A ratio of profitability calculated as net income divided by revenues, or net profits

divided by sales. It measures how much out of every dollar of sales a company

actually keeps in earnings.

Profit margin is very useful when comparing companies in similar industries. A higher

profit margin indicates a more profitable company that has better control over its

costs compared to its competitors. Profit margin is displayed as a percentage; a 20%

profit margin, for example, means the company has a net income of Rs.0.20 for each

dollar of sales.

Looking at the earnings of a company often doesn't tell the entire story. Increased

earnings are good, but an increase does not mean that the profit margin of acompany is improving. For instance, if a company has costs that have increased at a

greater rate than sales, it leads to a lower profit margin. This is an indication that

costs need to be under better control.

Formula:

Net Profit Margin = Net profit (before interest and tax) 100

Sales

Calculation of Net Profit Margin on share holder's fund

Year Net Profit Margin2008 3297.52 x 100

50850.85

=6.48

2009 7384.60 x 10059330.64

=12.46

2010 9475.96 x 10069202.47

=13.69

2011 12578.96 x 10073796.09

=17.04


41/51

Gross Profit Margin

A financial metric used to assess a firm's financial health by revealing the proportion

of money left over from revenues after accounting for the cost of goods sold. Gross

profit margin serves as the source for paying additional expenses and future savings.

Formula:

Gross Profit Margin = (RevenueCOGS) OR Gross Profit 100Sales

Suppose that ABC Corp. earned Rs.20 lakh in revenue from producing widgets and

incurred Rs.10 lakh in COGS-related expense. ABC's gross profit margin would be

50%. This means that for every dollar that ABC earns on widgets, it really has only

Rs.0.50 at the end of the day.

This metric can be used to compare a company with its competitors. More efficient

companies will usually see higher profit margins.

A measure of how well a company controls itscosts.It is calculated by dividing a

company'sprofit by itsrevenues and expressing the result as a percentage. The

higher the gross profit margin is, the better the company is thought to control

costs.Investors use the gross profit margin to compare companies in the same

industry and well as in different industries to determine what are the most profitable.

It is also called the profit margin or simply themargin.

A measure calculated by dividing gross profit by net sales. Gross profit margin is an

indication of a firm's ability to turn a dollar of sales into profit after the cost of goods

sold has been accounted for.
http://financial-dictionary.thefreedictionary.com/Costshttp://financial-dictionary.thefreedictionary.com/Profithttp://financial-dictionary.thefreedictionary.com/Revenueshttp://financial-dictionary.thefreedictionary.com/Investorshttp://financial-dictionary.thefreedictionary.com/Marginhttp://financial-dictionary.thefreedictionary.com/Marginhttp://financial-dictionary.thefreedictionary.com/Investorshttp://financial-dictionary.thefreedictionary.com/Revenueshttp://financial-dictionary.thefreedictionary.com/Profithttp://financial-dictionary.thefreedictionary.com/Costs


42/51


43/51

Return on capital employed

A ratio that indicates the efficiency and profitability of a company's capital

investments.

Formula:

Gross Profit Margin = E.B.I.T 100Capital Employed

Capital Employed = Total assets-current liabilities

ROCE should always be higher than the rate at which the company borrows,

otherwise any increase in borrowing will reduce shareholders' earnings.

A variation of this ratio is return on average capital employed (ROACE), which takes

the average of opening and closing capital employed for the time period.

The prime objective of making investments in any business is to obtain satisfactoryreturn on capital invested. Hence, the return on capital employed is used as ameasure of success of a business in realizing this objective.

Return on capital employed establishes the relationship between the profit and

the capital employed. It indicates the percentage of return on capital employed in thebusiness and it can be used to show the overall profitability and efficiency of thebusiness.

Calculation of Return on capital employed

Year Net Profit Margin

2008 3297.52 x 1007884.92

=41.82

2009 7384.60 x 10011445.81

=64.51

2010 9475.96 x 10016275.66

=58.22

2011 12578.96 x 10021141.04

=59.50


44/51

GRAPHICAL ANALYSIS OF RATIOES


45/51

020

4060

80

2008

2009

2010

2011

RETURN ON CAPITAL EMPLOYED

RETURN ON CAPITAL

EMPLOYED


46/51


47/51

Who uses these analyses?

Financial statements are used and analyzed by a different group of parties, thesegroups consists of people both inside and outside a business. Generally, these usersare:

A. Internal Users: are owners, managers, employees and other parties who aredirectly connected with a company:

1. Owners and managers require financial statements to make important businessdecisions that affect its continued operations. Financial analysis is then performed onthese statements to provide management with more detailed information. Thesestatements are also used as part of management's report to its stockholders, and itform part of the Annual Report of the company.

2. Employees also need these reports in making collective bargaining agreementswith the management, in the case of labour unions or for individuals in discussingtheir compensation, promotion and rankings.

B. External Users: are potential investors, banks, government agencies and otherparties who are outside the business but need financial information about thebusiness for numbers of reasons.

1. Prospective investors make use of financial statements to assess the viability ofinvesting in a business. Financial analyses are often used by investors and isprepared by professionals (financial analysts), thus providing them with the basis in

making investment decisions.

2. Financial institutions (banks and other lending companies) use them to decidewhether to give a company with fresh loans or extend debt securities (such as along- term bank loan ).

3. Government entities (tax authorities) need financial statements to ascertain thepropriety and accuracy of taxes and duties paid by a company.

4.Media and the general public are also interested in financial statements of somecompanies for a variety of reasons.


48/51

IMPORTANCERatio analysis is an important technique of financial analysis. It is a means forjudging the financial health of a business enterprise. It determines and interprets theliquidity,solvency,profitability,etc. of a business enterprise.

to understand various figures in the financial statementsthrough the use of different ratios. Financial ratios simplify, sumarise, and systemisethe accounting figures presented in financial statements.

profitability and financial soundnesscan be made between one industry and another. Similarly comparision of currentyear figures can also be made with those of previous years with the help of ratioanalysis and if some weak points are located, remidial masures are taken to correctthem.

of costs, sales, profits and other important facts. Such trends are useful for planning.

el of activities, can be set as standards forjudging actual performance of a business. For example, if owners of a business aimat earning profit @ 25% on the capital which is the prevailing rate of return in theindustry then this rate of 25% becomes the standard. The rate of profit of each yearis compared with this standard and the actual performance of the business can bejudged easily.

discloses the position of business with liquidity viewpoint, solvency view point,profitability viewpoint, etc. with the help of such a study, we can draw conclusionregardings the financial health of business enterprise.

ADVANTAGES

Ratio analysis is an important and age-old technique of financial analysis. Thefollowing are some of the advantages of ratio analysis:1. Simplifies financial statements: It simplifies the comprehension of financialstatements. Ratios tell the whole story of changes in the financial condition of thebusiness.

2. Facilitates inter-firm comparison: It provides data for inter-firm comparison.Ratios highlight the factors associated with successful and unsuccessful firm. They

also reveal strong firms and weak firms, overvalued and undervalued firms.3. Helps in planning: It helps in planning and forecasting. Ratios can assistmanagement, in its basic functions of forecasting. Planning co-ordination, controland communications.

4. Makes inter-firm comparison possible: Ratios analysis also makes possiblecomparison of the performance of different divisions of the firm. The ratios arehelpful in deciding about their efficiency or otherwise in the past and likelyperformance in the future.

5. Help in investment decisions: It helps in investment decisions in the case ofinvestors and lending decisions in the case of bankers etc.


49/51

LIMITATIONSThe ratios analysis is one of the most powerful tools of financial management.Though ratios are simple to calculate and easy to understand, they suffer fromserious limitations.1. Limitations of financial statements: Ratios are based only on the information

which has been recorded in the financial statements. Financial statementsthemselves are subject to several limitations. Thus ratios derived, there from, arealso subject to those limitations. For example non-financial changes thoughimportant for the business are not relevant by the financial statements. Financialstatements are affected to a very great extent by accounting conventions andconcepts. Personal judgment plays a great part in determining the figures forfinancial statements.

2. Comparative study required: Ratios are useful in judging the efficiency of thebusiness only when they are compared with past results of the business. However,such a comparison only provide glimpse of the past performance and forecasts for

future may not prove correct since several other factors like market conditions,management policies, etc. may affect the future operations.

3. Problems of price level changes: A change in price level can affect the validityof ratios calculated for different time periods. In such a case the ratio analysis maynot clearly indicate the trend in solvency and profitability of the company. Thefinancial statements, therefore, be adjusted keeping in view the price level changes ifa meaningful comparison is to be made through accounting ratios.

4. Lack of adequate standard: No fixed standard can be laid down for ideal ratios.There are no well accepted standards or rule of thumb for all ratios which can beaccepted as norm. It renders interpretation of the ratios difficult.

5. Limited use of single ratios: A single ratio, usually, does not convey much of asense. To make a better interpretation, a number of ratios have to be calculatedwhich is likely to confuse the analyst than help him in making any good decision.

6. Personal bias: Ratios are only means of financial analysis and not an end initself. Ratios have to interpret and different people may interpret the same ratio indifferent way.

7. Incomparable: Not only industries differ in their nature, but also the firms of thesimilar business widely differ in their size and accounting procedures etc. It makescomparison of ratios difficult and misleading.


50/51

CONCLUSION

Ratios make the related information comparable. A single figure by itself has nomeaning, but when expressed in terms of a related figure, it yields significant

interferences. Thus, ratios are relative figures reflecting the relationship betweenrelated variables. Their use as tools of financial analysis involves their comparisonas single ratios, like absolute figures, are not of much use.

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 acompany.

accounting data relationships, which give the decision-maker insights into thefinancial performance of a company.

ancial statements is a process of evaluating the relationshipbetween component parts of financial statements to obtain a better understanding ofthe firms position and performance.

vant to thedecision under consideration from the total information contained in the financialstatements. The second step is to arrange the information in a way to highlightsignificant relationships. The final step is interpretation and drawing of inferences

and conclusions. In brief, financial analysis is the process of selection, relation andevaluation.

for analysis rather than as an end in itself. The reliability and significance attached toratios will largely hinge upon the quality of data on which they are based. They areas good or as bad as the data itself. Nevertheless, they are an important tool offinancial analysis.


51/51

Documents

Financial Analysis of IRCTC