CHAPTER 1

INTRODUCTION OF GMK EXPORTS LIMITED

GMK Exports commenced operations toward the end of financial year 1998-1999 as

a partnership firm, engaged in international trading and domestic trading activity.

Main activities undertaken by the Company under international export include direct

export, indirect exports and imports of various goods and merchandise. Domestically,

Company mainly deals in sales and purchase of Commodities. GMK Exports was

established on December 01, 1998 as a Partnership Firm. On August 31, 2005 the

Company was incorporated as a Public Limited Company (GMK EXPORTS

LIMITED). The Company is engaged in the business of Trading and Export of

Commodities. The core export of the Company consists of Agro Based Commodities.

The Company was conferred Certificate of Recognition as an Export House in May

2002. It is engaged exports (Direct and Indirect) and local sales. The Company has

specialized and created a niche for itself in the area of exports of agro-based

commodities.

The Company has developed business strategy to switch over exports from one

commodity to another with change in demand or inconsistency in pricing for any

commodity during any season. This policy adopted by the management ensures that

the Company does not pass through a lean period during the year.

GMK Exports is the business of Exporting commodities and merchandise from

India. Company commenced operations towards the end of Financial Year 1999-2000

as a partnership firm with exporting pulses. Over the years Company developed

exports of various agro based commodities and merchandise. The Company is

engaged in exports of various commodities like Red Split Lentils, Onions, Peanuts in

shell, Brass items, Sugar, Wheat Flour, Soya Bean Meal, Rape Seed Meal, Chilly,

Jiggery, Watermelon, Sesame, Seeds, Maize, Sun Flower Meal, Rice, Chick Peas,

Yellow Split Lentil, Sesame Seed Meal, Castor Seed Meal, Castor, etc.

In 1999, Company had started with one buyer in Colombo, Sri Lanka and today it

has a Customer Base of over 75 in a number of countries like South East Asia, Middle

East, Europe, Africa and the United States of America Markets and sources

commodities from close to 400 suppliers directly and indirectly.

It has a reliable supply chain with more than 400 suppliers spread over different parts

of the country and developed adequate and competitive logistic facility across the

country. It is exporting from a number of sea ports alongthe entire coastline of India

like Mundra, Kandla, JNPT, Nhava Shiva, Mumbai, Chennai, Kakinada, Vizag, apart

from the dry ports. This gives it competitive advantage by cutting transport and

freight cost.

GMK Exports Ltd has been continuously studying and analyzing international

markets and domestic production trends to keep pace with changing demand and

trends in the domestic and international market.

Main Objects

To carry on the business in India or Globally as traders, dealers, exporters, importers,

buyers, sellers, merchants, indenters, commission agents, brokers, buying, selling

agents, factors, distributors, stockiest, in all kinds of products and articles of

merchandise and to undertake carry on or acquire agencies of all kinds and for all

types of products and articles of merchandise, commodities and to act as

manufacturers representatives and to set up import and export houses for all types of

products required or ordered by customers.

Strength of the Company

Professional Management: The Company is managed by a qualified management

team with several years of relevant experience. The management team is supported by

Board of Directors who are qualified and having experience in various knowledge

domains.

Strong Customer Relationship: Company started operation in December 1999 with

just one customer. Today, Company services over 75 customers from a number of

countries across five continents.

Large Sourcing Capacities:Over the years SEL has developed a network and

bonding with brokers and over 400 suppliers to be able to source large quantities of

commodities from the right place at the right time at right price.

Timely Delivery: Meeting customer deadline and expectation for quality on a

consistent basis is paramount for SEL's business. Dealing in commodities especially

in case of perishable commodities timely delivery of goods is of utmost importance.

SEL meticulously plans the entire logistics right from procuring the orders from

customers to arranging to procure goods from manufacturers through brokers to

arranging the shipment through C&F agents for timely delivery to customers across

the Globe.

Subsidiary Companies

Sakuma Exim DMCC, incorporated in Dubai, United Arab Emirates is a wholly

owned subsidiary of the Company.In terms of Section 212(a) of the Companies Act,

1956, the Central Government, Ministry of Corporate Affairs vide its General

Circular 2/2011 dated 8th February, 2011 has granted a general exemption to the

Company from the requirement of attaching to its annual report, the Balance Sheet,

Statement of Profit and Loss and the report of the Directors and Auditors thereon of

its subsidiary. Accordingly the same is not attached to the Balance Sheet of the

Company. Shareholders who wish to obtain a copy of Annual Accounts of subsidiary

company may write to the Compliance Officer at the registered office of the

Company. Members can also email their request at the email address of the

Compliance Office, Mrs. JyotiDeshpande; jyotip@gmk exportsltd.com

Board of Directors

The Board consists of 6 Directors’ out of which 3 are Independent Directors.

Composition of the Board and category of Directors are as follows:

Name Executive/Non-Executive Promoter/IndependentMr. Chander MohanMr. SaurabhMalhotraMs. ShipraMedirattaMr.Ashok Kumar DodaMr. RadheShyamMr. Satyendra J. Sonar

Executive- Chairman & DirectorExecutive-Managing DirectorNon ExecutiveNon ExecutiveNon ExecutiveNon Executive

PromoterPromoterPromoterIndependentIndependentIndependent

CHAPTER 2

FINANCIAL STATEMENTS

The major financial statements of a company are the balance sheet, income statement

and cash flow statement (statement of sources and applications of funds). These

statements present an overview of the financial position of a firm to both the

stakeholders and the management of the company. But unless the information

provided by these statements is analyzed and interpreted systematically, the true

financial position of the company cannot be understood. The analysis of financial

statements plays an important role in determining the financial strength and

weaknesses of a company relative to that of other companies in the same industry.

The analysis also reveals whether the company’s financial position has been

improving or deteriorating over time.

BALANCE SHEET AS AT 31 MARCH, 2012

Particulars Note No.

As at 31st March, 2012

As at31st March, 2011

AEQUITY AND LIABILITIES

1 Shareholder's Funda) Share Capitalb) Reserve and Surplus

2 Non-current Liabilities Deferred tax liabilities(Net)

3 Current Liabilitiesa) Short-term borrowingsb) Trade payablesc) Other current liabilitiesd) Short-term provisions

TOTAL

B ASSETS

1 Non-current assetsa) Fixed assets

i) Tangible Assetsb) Non-current Investmentsc) Long-term loans and advancesd) Other non-current assets

2 Current Assetsa) Inventoriesb) Trade Receivablesc) Cash and Cash Equivalentsd) Short-term loans and advancese) Other Current Assets

TOTAL

34

25.6

5678

9.A101112

1314151617

164,259,430 424,739,818

588,999,248

10,200,348 10,200,348

636,754,902116,215,243365,053,954

25,969,073 1,143,993,172

164,259,430 409,457,868

573,717,298

12,403,215 12,403,215 12,403,215

385,422,182 74,347,778 21,477,014

20,928,207 502,175,181

1,743,192,768 1,088,295,694

47,150,4362,806,281

17,421,768

9,622,314 77,000,799

920,424,287283,176,16233,203,135

427,471,129 1,917,256

1,666,191,696

46,464,3361,669,823

22,546,768 9,622,314

80,303,241

482,123,725136,600,861316,136,92264,587,673

8,543,272 1,007,992,453

1,743,192,768 1,088,295,694

STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED

31 MARCH, 2012

Particulars Note No.

As at 31st March, 2012

As at31st March, 2011

1 Revenue from operations(gross)Less: Excise Duty Revenue from operations(net)2 Other Income3 Total Revenue(1+2)4 Expenses

a) Purchases of stock-in-tradeb) Changes in inventories of finished goods, work-in-

progress and stock-in-tradec) Employee benefits expensed) Finance costse) Depreciation and amortization expensef) Other expenses

Total expenses5 Profit/(Loss) before exceptional and extraordinary

items and tax (3-4) 6 Exceptional items7 Profit/(Loss) before extraordinary items and tax (5+6)8 Extraordinary items9 Profit/(Loss) before tax (7+8)10 Tax expense:

a) Current tax expense for current yearb) Current tax expense relating to prior yearsc) Net current tax expensed) Deferred tax

11 Profit/(Loss) from continuing operations (9+10)

18

19

20.a20.b

21229.B23

9.A101112

9,656,030,998 -

9,656,030,998 43,057,767

9,699,088,765

8,592,995,229(438,300,562)

18,952,23347,417,8158,280,110

1,368,671,271 9,598,016,096

101,072,669 -

101,072,669 -

101,072,669

33,300,000 3,100,000

36,400,000 (2,202,867) 34,197,133

66,875,536

6,326,494,337 1,738,713

6,324,755,624 19,957,945

6,344,713,569

5,872,512,436(322,153,124)

12,079,63821,366,8418,797,905

678,605,090 6,271,208,786 6,271,208,786

73,504,783 -

73,504,783 -

73,504,783

25,293,900 220,065

25,513,965

25,513,965(2,099,968)

23,413,997

50,090,786

CASH FLOW STATEMENT FOR THE YEAR ENDED 31

MARCH,2012.

Particulars As at 31st March, 2012

As at31st March, 2011

ACash flow from operating activities

Net profit / (Loss) before extraordinary items and tax

Adjustments for:

Depreciation and amortization

(Profit)/Loss on sale/ write off of assets

Finance costs

Interest income

Dividend income

Net (gain)/Loss on sale of investments

Operating profit/(Loss) before working capital changes

Changes in working capital:

Adjustments for(increase)/decrease in operating assets:

Inventories

Trade receivables

Short-term loans and advances

Long-term loans and advances

Other current assets

Adjustments for increase/(decrease) in operating liabilities

Trade payables

Other current liabilities

101,072,669

8,280,110

-

47,417,815

(6,800,886)

(1,301,630)

-

148,668,078

(438,300,562)

(144,353,434)

(362,883,456)

7,000,000

6,626,016

41,867,465

308,725,242

73,504,783

8,797,905

32,272

21,366,841

(14,848,415)

(1,659,675)

(199,177)

86,994,534

(322,153,124)

(69,306,183)

4,388,737

-

(3,450,713)

59,327,940

(1,842,639)

Short-term provisions

Net income tax(paid)/refunds

Net cash flow from/(used in) operating activities(A)

BCash flow from investing activities

Capital expenditure on fixed assets, including capital advances

Proceeds from sale of fixed assets

Current investments not considered as cash and cash equivalents

- Purchased

- Proceeds from sale

- Purchase of long-term investments

- Subsidiaries

- Others

Interest received

Dividend received

Net cash flow from/(used in) investing activities(B)

CCash Flow from financing activities Redemption/buy back of preference/equity sharesNet increase/(decrease) in working capital borrowings

Proceeds from other short-term borrowings

Repayment of other short-term borrowings

Finance cost

Dividends paid

Tax on dividend

Net cash flow from/(used in) financing activities (C)

Net Increase/(decrease) in cash and cash equivalents (A+B+C)

Cash and cash equivalents at the beginning of the year

5,167,755

(427,482,896)

(38,275,000)

(465,757,896)

(8,966,211)

(524,800,000)

524,80,000

(1,131,458)

(5,000)

6,800,886

1,301,630

(2,000,153)

-

(246,041,448)

(21,666,456)

(267,707,904)

(513,072)

126,463

115,239,146

-

-

14,848,415

1,659,675

131,360,627

-

236,832,720

222,392,616

(207,892,616)

(47,417,815)

(16,425,943)

(2,664,700)

184,824,262

(282,933,787)

316,136,922

(100,009,200)385,422,182

260,000,000

(260,000,000)

(21,366,841)

(9,576,225)

(1,643,031)

252,826,885

116,479,608

199,657,314

Cash and cash equivalents at the end of the year

Reconciliation of Cash and cash equivalents with the Balance Sheet

Cash and cash equivalents as per Balance Sheet (Refer Note 15)

Cash and cash equivalents at the end of the year*

33,203,135

33,203,135

33,203,135

316,136,922

316,136,922

316,136,922

CHAPTER 3

FINANCIAL RATIO ANALYSIS

Financial Ratio Analysis involves the calculation and comparison of ratios which are

derived from the information given in the company’s financial statement. The

historical trends of these ratios can be used to make inferences about a company’s

financial condition, its operations and its investment attractiveness. Financial Ratio

Analysis groups the ratios into categories that tell us about the different facets of a

company’s financial state of affairs. Some of the categories of ratios are described

below:

Liquidity Ratios give a picture of a company’s short term financial situation or

solvency.

Operational/Turnover Ratios show how efficient a company’s operations and how

well it is using its assets.

Leverage/Capital Structure Ratios show the quantum of debt in a company’s capital

structure.

Profitability Ratios use margin analysis and show the return on sales and capital

employed.

Valuation Ratios show the performance of a company in the capital market.

LIQUIDITY RATIO

Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year)

obligations. The ratios which indicate the liquidity of a company are current ratio,

Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below.

CURRENT RATIO: Current ratio is the ratio of total current assets (CA) to total

current liabilities(CL). Current assets include cash and bank balances; inventory of

raw materials, semi-finished and finished goods; marketable securities; debtors (net of

provision for bad and doubtful debts); bills receivable; and prepaid expenses. Current

liabilities consist of trade creditors, bills payable, bank credit, provision for taxation,

dividends payable and outstanding expenses. This ratio measures the liquidity of the

current assets and the liability of a company to meet its short-term debt obligation.

CR measures the ability of the company to meet its CL, i.e., CA gets converted into

cash in the operating cycle of the firm and provides the funds needed to pay for CL.

The higher the current ratio, the greater the short-term solvency. While interpreting

the current ratio, the composition of current assets must not be overlooked. A firm

with a high proportion of current assets in the form of cash and debtors is more liquid

than one with a high proportion of current assets in the form of inventories, even

though both the firms have the same current ratio. Internationally, a current ratio of

2:1 is considered satisfactory.

If you decide your business’s current ratio is too low, you may be able to raise it

by:

Paying some debts.

Increasing your current assets from loans or other borrowings with a maturity

of more than one year.

Converting non-current assets into current assets.

Increasing your current assets from new equity contributions.

Putting profits back into the business.

Current Ratio= Current Assets Current Liabilities

=1,666,191,9691,143,993,172

=1.46:1

Current ratio of 1.46 shows GMK Exports Ltd has not that much liquidity as SEL has

no enough current assets to meet current liabilities with a margin of safety for possible

losses in current assets.

QUICK TEST RATIO (ACID TEST RATIO): Quick Ratio (QR) is the ratio

between quick current assets (QA) and CL. QA refers to those current assets that can

be converted into cash immediately without any value dilution. QA includes cash and

bank balances, short-term marketable securities, and sundry debtors. Inventory

and prepaid expenses are excluded since these cannot be turned into cash as and when

required.

QR indicates the extent to which a company can pay its current liabilities without

relying on the sale of inventory. This is a fairly stringent measure of liquidity because

it is based on those current assets which are highly liquid. Inventories are excluded

from the numerator of this ratio because they are deemed the least liquid component

of current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of

the quick ratio is that it ignores the timing of receipts and payments.

Quick Ratio= Quick Assets Current Liabilities

=283,176,162+33,203,135+427,471,1291,143,993,172

=0.65:1

Cash Ratio :Cash ratio is the ratio of cash and cash equivalents of a company to its

current liabilities. It is an extreme liquidity ratio since only cash and cash equivalents

are compared with the current liabilities. It measures the ability of a business to repay

its current liabilities. Cash and bank balances and short term marketable securities are

the most liquid assets of a firm, financial analysts look at the cash ratio. The cash ratio

is computed as follows:

Cash Ratio=Cash + Cash Equivalents Current Liabilities

=33,203,1351,143,993,172

=0.03%

OPERATIONAL RATIO

These ratios determine how quickly certain current assets can be converted into cash.

They are also called efficiency ratios or asset utilization ratios as they measure the

efficiency of a firm in managing assets. These ratios are based on the relationship

between the level of activity represented by sales or cost of goods sold and levels of

investment in various assets. The important turnover ratios are debtors turnover ratio,

average collection period, inventory turnover ratio, fixed asset turnover ratio, and total

asset turnover ratio.Operating financial ratios are numbers that business managers use

to help assess and make decisions about the health of a company. Operating financial

ratios can be especially useful because most management decisions usually affect

operations -- the principal activities a company engages in for the purpose of

delivering a profit. Operating financial ratios usually exclude revenue or expenses

associated with things like interest, taxes, non-operating investments, currency

fluctuations and sales of assets.

These are described below:

Average Collection Period: ACP is calculated by dividing the days in a year by the

debtors' turnover. The average collection period represents the number of day's worth

of credit sales that is blocked with the debtors (accounts receivable). The average

collection period is the number of days, on average, that it takes a company to collect

its credit accounts or its accounts receivables. In other words, this financial ratio is the

average number of days required to convert receivables into cash.It is computed as

follows:

Average Collection Period= 365xAccounts Receivable TurnoverCredit Sales

=365 x 283,176,1629,445,760,693

=10.94 days

The ACP can be compared with the firm's credit terms to judge the efficiency of

credit management. For example, if the credit terms are 2/10, net 45, an ACP of 85

days means that the collection is slow and an ACP of 40 days means that the

collection is prompt.

This ratio measures the quality of debtors. A short collection period implies prompt

payment by debtors. It reduces the chances of bad debts. Similarly, a longer collection

period implies too liberal and inefficient credit collection performance. It is difficult

to provide a standard collection period of debtors.

Inventory or Stock Turnover Ratio: ITR refers to the number of times the inventory

is sold and replaced during the accounting period. Inventory turnover is the ratio of

cost of goods sold to average inventory. It is an activity / efficiency ratio and it

measures how many times per period, a business sells and replaces its inventory

again.It is calculated as follows:

Inventory or Stock Turnover Ratio=Cost of Goods SoldAverage Inventory

= 8,154,694,667 701,274,006

=11.63

Average Inventory is calculated as the sum of the inventory at the beginning and at

the end of the period divided by 2.Cost of goods sold figure is obtained from

the income statement and the values of beginning and ending inventory are obtained

from the balance sheets at the start and at the end of the accounting period.

ITR reflects the efficiency of inventory management. The higher the ratio, the more

efficient is the management of inventories, and vice versa. However, a high inventory

turnover may also resultfrom a low level of inventory which may lead to frequent

stock outs and loss of sales and customergoodwill. For calculating ITR, the average of

inventories at the beginning and the end of the year istaken. In general, averages may

be used when a flow figure (in this case, cost of goods sold) isrelated to a stock figure

(inventories).

Fixed Assets Turnover: The FAT ratio measures the net sales per rupee of

investment in fixed assets. The fixed asset turnover ratio measures the company's

effectiveness in generating sales from its investments in plant, property, and

equipment. It is especially important for a manufacturing firm that uses a lot of plant

and equipment in its operations to calculate this ratio.Fixed asset turnover ratio

compares the sales revenue a company to its fixed assets. This ratio tells us how

effectively and efficiently a company is using its fixed assets to generate revenues.

This ratio indicates the productivity of fixed assets in generating revenues. If a

company has a high fixed asset turnover ratio, it shows that the company is efficient at

managing its fixed assets. Fixed assets are important because they usually represent

the largest component of total assets.

There is no standard guideline about the best level of asset turnover ratio. Therefore, it

is important to compare the asset turnover ratio over the years for the same company.

This comparison will tell whether the company’s performance is improving or

deteriorating over the years. It is also important to compare the asset turnover ratio of

other companies in the same industry. This comparison will indicate whether the

company is performing better or worse than others.This ratio is usually used in

capital-intensive industries where major purchases are for fixed assets. This ratio

should be used in subsequent years to see how effective the investment in fixed assets

has been.It can be computed as follows:

Fixed Assets Turnover=Net Sales Average Net Fixed Assets

=9,445,760,69388,712,655

=106.48 times

This ratio measures the efficiency with which fixed assets are employed. A high ratio

indicates a high degree of efficiency in asset utilization while a low ratio reflects an

inefficient use of assets. However, this ratio should be used with caution because

when the fixed assets of a firm are old and substantially depreciated, the fixed assets

turnover ratio tends to be high (because the denominatorof the ratio is very low).The

fixed assets usually include property, plant and equipment. The value of goodwill,

long-term deferred tax and other fixed assets that do not belong to property, plant and

equipment is usually subtracted from the total fixed assets to present a more

meaningful fixed asset turnover ratio. 

Total Assets Turnover: TAT is the ratio between the net sales and the average total

assets.This ratio measures how efficiently an organization is utilizing its assets.The

lower the total asset turnover ratio(the lower the # Times), as compared to historical

data for the firm and industry data, the more sluggish the firm's sales. This may

indicate a problem with one or more of the asset categories composing total assets -

inventory, receivables, or fixed assets. The small business owner should analyze the

various asset classes to determine in which current or fixed asset the problem lies. The

problem could be in more than one area of current or fixed assets.

Since current assets also include the liquidity ratios, such as the current and quick

ratios, a problem with the total asset turnover ratio could also be traced back to these

ratios.

Many business problems can be traced back to inventory but certainly not all. The

firm could be holding obsolete inventory and not selling inventory fast enough. With

regard to accounts receivable, the firm's collection period could be too long and credit

accounts may be on the books too long. Fixed assets, such as plant and equipment,

could be sitting idle instead of being used to their full capacity. All of these issues

could lower the total asset turnover ratio.

It can be computed as follows:

Total Assets Turnover=Net Sales Average Total Assets

=9,445,760,6931,415,744,231

=6.67 times

LEVERAGE/CAPITALSTRUCTURE RATIO

Any ratio used to calculate the financial leverage of a company to get an idea of the

company's methods of financing or to measure its ability to meet financial obligations.

There are several different ratios, but the main factors looked at include debt, equity,

assets and interest expenses.

A ratio used to measure a company's mix of operating costs, giving an idea of how

changes in output will affect operating income. Fixed and variable costs are the two

types of operating costs; depending on the company and the industry, the mix will

differ.

These ratios measure the long-term solvency of a firm. Financial leverage refers to the

use of debt finance. While debt capital is a cheaper source of finance, it is also a risky

source. Leverage ratios help us assess the risk arising from the use of debt capital.

Two types of ratios are commonly used to analyze financial leverage - structural

ratios and coverage ratios. Structural ratios are based on the proportions of debt and

equity in the financial structure of a firm. Coverage ratios show the relationship

between the debt commitments and the sources for meeting them.

The long-term creditors of a firm evaluate its financial strength on the basis of its

ability to pay the interest on the loan regularly during the period of the loan and its

ability to pay the principal on maturity.

Debt-Equity Ratio:A measure of a company's financial leverage calculated by

dividing its total liabilities by stockholders' equity. It indicates what proportion of

equity and debt the company is using to finance its assets.

A high debt/equity ratio generally means that a company has been aggressive in

financing its growth with debt. This can result in volatile earnings as a result of the

additional interest expense.

This ratio shows the relativeproportions of debt and equity in financing theassets of a

firm. The debt includes short-termand long-term borrowings. The equity includesthe

networth (paid-up equity capital andreserves and surplus) and preference capital. Itcan

be calculated as:

Debt-Equity Ratio=Total Liabilities Shareholder’s Equity

= 1,154,193,520588,999,248

= 1.96

If a lot of debt is used to finance increased operations (high debt to equity), the

company could potentially generate more earnings than it would have without

this outside financing. If this were to increase earnings by a greater amount than the

debt cost (interest), then the shareholders benefit as more earnings are being spread

among the same amount of shareholders. However, the cost of this debt financing

may outweigh the return that the company generates on the debt through investment

and business activities and become too much for the company to handle. This can lead

to bankruptcy, which would leave shareholders with nothing.

Return on Investment: A performance measure used to evaluate the efficiency of

an investment or to compare the efficiency of a number of different investments. To

calculate ROI, the benefit (return) of an investment is divided by the cost of the

investment; the result is expressed as a percentage or a ratio.It indicates the efficiency

that management uses the company’s assets.

In the above formula "gains from investment", refers to the proceeds obtained from

selling the investment of interest.  Return on investment is a very popular metric

because of its versatility and simplicity. That is, if an investment does not have a

positive ROI, or if there are other opportunities with a higher ROI, then the

investment should be not be undertaken.

Return on Investment=Net profit after taxesTotal Assets

=66,876,000

1,743,192,768

=0.04%

The calculation for return on investment and, therefore the definition, can be modified

to suit the situation -it all depends on what you include as returns and costs. The

definition of the term in the broadest sense just attempts to measures the profitability

of an investment and as such, there is no one “right” calculation.

In order to interpret the Return on Assets ratio, you need comparative data such as

trend (time series) or industry data. The business owner can look at the company's

return on assets ratio across time and also at industry data to see where the company's

return on assets ratio lies. The higher the return on assets ratio, the more efficiently

the company is using its asset base to generate sales.

The Return on Assets ratio is one of the key components of the Model in calculating

Return on Equity.

Return on Equity:One of the most important profitability metrics is return on equity

(or ROE for short). Return on equity reveals how much profit a company earned in

comparison to the total amount of shareholder equity found on the balance sheet. If

you think back to lesson three, you will remember that shareholder equity is equal to

total assets minus total liabilities. It's what the shareholders "own". Shareholder equity

is a creation of accounting that represents the assets created by the retained earnings

of the business and the paid-in capital of the owners.

The amount of net income returned as a percentage of shareholders equity. Return on

equity measures a corporation's profitability by reveling how much profit a company

generates with the money shareholders have invested.

It indicates the how profitably the owners fund have been utilized by the firm.

Return on Equity=Net Income X 100 Average Shareholder’s Equity

=89,942,000 X 100581,358,273

=15.47%

This 15.47% is the return that management is earning on shareholder equity.

Net income is considered for the full fiscal year after taxes and preferred stock

dividends but before common stock dividends. Shareholders' Equity does not include

preferred stocks and is used as an annual average.Return on Equity varies

substantially across different industries. Therefore, it is recommended to compare

return on equity against company's previous values or return of a similar company.

Some industries have high return on equity because they require less capital invested.

Other industries require large infrastructure build before generating any revenue. It is

not a fair conclusion that the industries with a higher Return on Equity ratio are better

investment than the lower ones. Generally, the industries which are capital-intensive

and with a low return on equity have a limited competition. But, the industries with

high return on equity and small assets bases have a much higher competition because

it is a lot easier to start a business within those industries.

Earnings per share:Earnings per share or EPS is considered as an indicator for

choosing the stocks for investment. On the basis of the EPS it is determined what is

the earning of the company per share. As earning of the company is a vital part of the

fundamental analysis of the stocks, and EPS is a standardized form of calculating the

earning, it helps to compare the earnings of the companies while making the selection

of stocks by the traders. For considering the potential of a particular company the

Earnings per share or the EPS of the company for the past few years are considered by

the experts. The sign of a potentially good company is the rising EPS for the

successive years. It is believed that a higher EPS is a sign of a profit making

company. Therefore, while choosing the stocks for investment EPS is a vital

parameter that cannot miss.

EPS or the earning per share ratio is also a vital parameter for deducting the P/E ratio

of a particular stock. P/E ratio is calculated by dividing the current price of a single

share of a stock with the EPS of that stock. The P/E ratio is one of the predominant

indicators of the potential of a stock and EPS is obviously plays a crucial part in

calculation of the P/E ratio. So there is no doubt about the fact that EPS of a particular

stock is very much important in fundamental analysis of the stocks. If you want to

choose the right stocks for investment you must take a serious consideration about the

EPS of the stock along with other parameters that are important for fundamental

analysis.

It indicates the profit available to the equity shareholders on a per share basis.

Earnings per share=Earnings available to Equity ShareholdersNumber of Equity Shares

= 66,875,536 16,425,943

= 4.07 per share.

The earnings per share is a good measures of profitability and when compared with EPS of similar companies, it gives a view of the comparative earnings or earnings power of the firm. EPS ratio calculated for a number of years indicates whether or not the earnings power of the company has increased.

ACTIVITY RATIO

Inventory Turnover:Measures the activity/liquidity of inventory of a firm;The speed

with which inventory is sold.Inventory Turnover Ratio is one of the efficiency ratios

and measures the number of times, on average, the inventory is sold and replaced

during the fiscal year. Inventory Turnover Ratio measures company's efficiency in

turning its inventory into sales. Its purpose is to measure the liquidity of the inventory.

Inventory Turnover Ratio is figured as "turnover times". Average inventory should be

used for inventory level to minimize the effect of seasonality.This ratio should be

compared against industry averages.

Inventory Turnover Ratio formula is:

Inventory Turnover=Net Sales Closing Inventory

= 9,445,760,693

920,424,287

= 10.26 times

A low inventory turnover ratio is a signal of inefficiency, since inventory usually

has a rate of return of zero. It also implies either poor sales or excess inventory. A low

turnover rate can indicate poor liquidity, possible overstocking, and obsolescence, but

it may also reflect a planned inventory buildup in the case of material shortages or in

anticipation of rapidly rising prices.

A high inventory turnover ratio implies either strong sales or ineffective buying (the

company buys too often in small quantities, therefore the buying price is higher).A

high inventory turnover ratio can indicate better liquidity, but it can also indicate a

shortage or inadequate inventory levels, which may lead to a loss in business.

High inventory levels are usual unhealthy because they represent an investment with a

rate of return of zero. It also opens the company up to trouble if the prices begin to

fall.

A good rule of thumb is that if inventory turnover ratio multiply by gross profit

margin (in percentage) is 100 percent or higher, then the average inventory is not too

high.

Net Working Capital Turnover:To assess the effectively the Net Working Capital is

used to generate sales. The working capital turnover ratio measures how well a

company is utilizing itsworking capital to support a given level of sales. Working

capital is current assets minus current liabilities. A high turnover ratio indicates that

management is being extremely efficient in using a firm's short-

term assets and liabilities to support sales.

Divide net sales by working capital (which is current assets minus current liabilities).

The calculation is usually made on an annual basis, and uses the average working

capital during that period. The calculation is:

Net working capital turnover=Net Sales Net Working Capital

=9,445,760,693 522,198,797

= 18.09 times

The working capital turnover ratio measures the efficiency with which the working

capital is being used by a firm. A high ratio indicates efficient utilization of working

capital and a low ratio indicates otherwise. But a very high working capital turnover

ratio may also mean lack of sufficient working capital which is not a good situation.

An extremely high working capital turnover ratio can indicate that a company does

not have enough capital to support it sales growth; collapse of the company may be

imminent. This is a particularly strong indicator when the accounts

payable component of working capital is very high, since it indicates that

management cannot pay its bills as they come due for payment.

An excessively high turnover ratio can be spotted by comparing the ratio for a

particular business to those reported elsewhere in its industry, to see if the business is

reporting outlier results.

Asset Turnover:The formula for the asset turnover ratio evaluates how well a

company is utilizing its assets to produce revenue.

The numerator of the asset turnover ratio formula shows revenues which is found on a

company's income statement and the denominator shows total assets which is found

on a company's balance sheet. Total assets should be averaged over the period of time

that is being evaluated. For example, if a company is using 2009 revenues in the

formula to calculate the asset turnover ratio, then the total assets at the beginning and

end of 2009 should be averaged.

It should be noted that the asset turnover ratio formula does not look at how well a

company is earning profits relative to assets. The asset turnover ratio formula only

looks at revenues and not profits. This is the distinct difference between return on

assets (ROA) and the asset turnover ratio, as return on assets looks at net income, or

profit, relative to assets.The efficiency which the firm uses all its

assetstogeneratesales.

Asset Turnover=SalesTotal Assets

= 9,445,760,6931,743,192,768

= 5.42

The higher the ratio, the more sales that a company is producing based on its assets.

Thus, a higher ratio would be preferable to a lower one. However, different industries

cannot be compared to one another as the assets required to perform business

functions will vary. An example of this would be comparing an ecommerce store that

requires little assets with a manufacturer who requires large manufacturing facilities

and storage warehouses.

Another breakdown for the formula for asset turnover ratio is companies that are

using their assets now for future sales. This may be more of an issue for companies

that sale highly profitable products but not that often.

Fixed Asset Turnover:Fixed asset turnover ratio compares the sales revenue a

company to its fixed assets. This ratio tells us how effectively and efficiently a

company is using its fixed assets to generate revenues. This ratio indicates the

productivity of fixed assets in generating revenues. If a company has a high fixed

asset turnover ratio, it shows that the company is efficient at managing its fixed

assets. Fixed assets are important because they usually represent the largest

component of total assets.

There is no standard guideline about the best level of asset turnover ratio. Therefore, it

is important to compare the asset turnover ratio over the years for the same company.

This comparison will tell whether the company’s performance is improving or

deteriorating over the years. It is also important to compare the asset turnover ratio of

other companies in the same industry. This comparison will indicate whether the

company is performing better or worse than others.

An increasing trend in fixed assets turnover ratio is desirable because it means that the

company has less money tied up in fixed assets for each unit of sales. A declining

trend in fixed asset turnover may mean that the company is over investing in

the property, plant and equipment.

This ratio is usually used in capital-intensive industries where major purchases are for

fixed assets. This ratio should be used in subsequent years to see how effective the

investment in fixed assets has been.To assess the amount of sales generated by each

fixed asset dollar.

The formula for calculation of fixed asset turnover ratio is given below:

Fixed Asset Turnover=SalesFixed Assets

= 9,445,760,69347,150,436

= 200 times

The fixed assets usually include property, plant and equipment. The value of

goodwill, long-term deferred tax and other fixed assets that do not belong to property,

plant and equipment is usually subtracted from the total fixed assets to present a more

meaningful fixed asset turnover ratio. 

LEVERAGE RATIO

Debt to Asset Ratio:The Debt to Asset Ratio measures the percentage of the

company's Total Assets that are financed with debt (Total Liabilities). This ratio

basically looks at what debt the company owes, and compares that debt to what assets

the company owns.

Debt to Assets Ratio = Total Debt Total assets

= 1,154,193,5201,743,192,768

= 0.66:1

The 0.66:1 multiple in the ratio indicates a low amount of leverage, so SEL has

enough assets to repay its liability.

The higher the ratio, the greater risk will be associated with the firm's operation. In

addition, high debt to assets ratio may indicate low borrowing capacity of a firm,

which in turn will lower the firm's financial flexibility. Like all financial ratios, a

company's debt ratio should be compared with their industry average or other

competing firms.

Total liabilities divided by total assets. The debt/asset ratio shows the proportion of a

company's assets which are financed through debt. If the ratio is less than 0.5, most of

the company's assets are financed through equity. If the ratio is greater than 0.5, most

of the company's assets are financed through debt. Companies with high debt/asset

ratios are said to be "highly leveraged," not highly liquid as stated above. A company

with a high debt ratio (highly leveraged) could be in danger if creditors start to

demand repayment of debt.

Proprietary Ratio:Proprietary ratio refers to a ratio which helps the creditors of the company in seeing that their capital or loans which the creditors have given to the company are safe. Proprietary ratio can be calculated as follows – Proprietors funds/Total Assets.In the above formula proprietary funds includes equity and preference share capital of the company and reserves and surplus of the company, while total assets of company includes both fixed assets and current assets of the company but it excludes fictitious assets which company may have.Proprietary ratio highlights the financial position of the company and therefore Proprietary ratio can be interpreted as good if it is high because a higher proprietary ratio would imply that company has enough capital to repay its creditors whenever any such demand is made by the creditors. A lower proprietary ratio would imply that company is not in a position to pay all of its creditors and therefore a low proprietary ratio is a cause of concern for the creditors of the company.

Proprietary Ratio=Proprietor’s FundTotal Assets

= 588,999,2481,743,192,768

= 0.34

The higher this Proprietary ratio denotes that the shareholders have provided the funds

to purchase the assets of the concern instead of relying on other sources of funds like

bank borrowings, trade creditors and others

However, too high a proprietary ratio say 100%  means that management has not

effectively utilize cheaper sources of finance like trade and long term creditors. As

these sources of funds are cheaper, the inability to make use of it might lead to lower

earnings and hence a lower rate of dividend payout.

This ratio is a test of credit strength as too low a proprietary ratio would mean that the

enterprise is relying a lot more on its creditors to supply its working capital.

Debt to Equity Ratio: Assess the funds provided by creditors versus the funds by owners.

Debt to Equity Ratio=Total Debt Shareholder’s Equity

= 636,754,902 588,999,248

= 1.08

Current Liabilities to Equity: Assess the short-term financing portion versus that

provided by owners.The debt-to-equity ratio (D/E) is a financial ratio indicating the

relative proportion of shareholders' equity and debt used to finance a company's

assets.[1] Closely related to leveraging, the ratio is also known as Risk, Gearing or

Leverage. The two components are often taken from the firm's balance sheet or

statement of financial position (so-called book value), but the ratio may also be

calculated using market values for both, if the company's debt and equity are publicly

traded, or using a combination of book value for debt and market value for equity

financially.

Current Liabilities to Equity=Current Liabilities

Shareholder’s Equity

= 1,143,993,172

588,999,248

= 1.94

OTHER RATIOS

Price per Earning Ratio:Assess the amount investors are willing to pay for each

dollar of earnings. In stock trading, the P/E ratio (price-to-earnings ratio) of a share

(also called its "P/E", or simply "multiple") is the ratio of the market price of that

share divided by the annual Earnings per Share (EPS).[2]

The P/E ratio is a widely used valuation multiple used as a guide to the relative values

of companies: a higher P/E ratio means that investors are paying more for each unit of

current net income, so the stock is more "expensive" than one with a lower P/E ratio.

The P/E ratio can be regarded as being expressed in years: the price is in currency per

share, while earnings are in currency per share per year, so the P/E ratio shows the

number of years of earnings which would be required to pay back the purchase price,

ignoring inflation, earnings growth and the time value of money.

Price per Earning Ratio=Market price per share

Earnings per share

= 14.50

4.07

= 3.56 times

By comparing price and earnings per share for a company, one can analyze the

market's stock valuation of a company and its shares relative to the income the

company is actually generating. Stocks with higher (or more certain) forecast earnings

growth will usually have a higher P/E, and those expected to have lower (or riskier)

earnings growth will usually have a lower P/E. Investors can use the P/E ratio to

compare the value of stocks: if one stock has a P/E twice that of another stock, all

things being equal (especially the earnings growth rate), it is a less attractive

investment. Companies are rarely equal, however, and comparisons between

industries, companies, and time periods may be misleading. P/E ratio in general is

useful for comparing valuation of peer companies in similar sector or group.

Either the stock is undervalued or the company's earnings are thought to be in decline.

Alternatively, current earnings may be substantially above historic trends or the

company may have profited from selling assets.

Dividend Payout Ratio:Dividend payout ratio compares the dividends paid by a

company to its earnings. The relationship between dividends and earnings is

important. The part of earnings that is not paid out in dividends is used for

reinvestment and growth in future earnings. Investors who are interested in short term

earnings prefer to invest in companies with high dividend payout ratio. On the other

hand, investors who prefer to have capital growth like to invest in companies with

lower dividend payout ratio.

Dividend payout ratio differs from company to company. Mature, stable and large

companies usually have higher dividend payout ratio. Companies which are young

and seeking growth have lower or modest dividend payout ratio.

Investors usually seek a consistent and/or improving dividends payout ratio. The

dividend payout ratio should not be too high. The earnings should support the

payment of dividends. If the company pays high levels of dividends it may become

for it to maintain such levels of dividends if the earnings fall in the future. Dividends

are paid in cash; therefore, high dividend payout ratio can have implications for the

cash management and liquidity of the company.

It indicates the percentage of profit that is paid out as dividend. The part of the

earnings not paid to investors is left for investment to provide for future earnings

growth. Investors seeking high current income and limited capital growth prefer

companies with high Dividend payout ratio. However investors seeking capital

growth may prefer lower payout ratio because capital gains are taxed at a lower rate.

High growth firms in early life generally have low or zero payout ratios. As they

mature, they tend to return more of the earnings back to investors. Note that dividend

payout ratio is calculated as DPS/EPS.

The formula for calculation of dividend payout ratio is given below:

Dividend Payout Ratio=Annual Dividend per share

Current market price per share

=1 14.50

=0.069 times

It should be noted that the dividends are not paid from “earnings”; in fact they are

paid from the “cash”. Dividend payout ratio compares dividends to the earnings, not

to the cash. A company will not be able to pay dividends if it does not have sufficient

cash even if it has a high level of earnings. 

A shareholder has two sources of return, namely periodic income in the form of

dividends and capital appreciation. Dividend payout ratio tells what percentage of

total earnings the company is paying back to shareholders. A healthy dividend payout

ratio leads to investor confidence in the company.

Plowback ratio (also called retention rate) is equals 1 − payout ratio and it equals the

earnings retained divided by total earnings for the period.

IMPORTANCE AND LIMITATIONS OF RATIO ANALYSIS

Advantages:

Liquidity position

Long term solvency

Operating efficiency

Overall profitability

Inter-firm comparison

Trend Analysis

Disadvantages:

Difficulty in comparison

Impact of inflation

Conceptual diversity