HCL Ratio Analysis

8/11/2019 HCL Ratio Analysis

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National Institute of Fashion Technology

HYDERABAD

Master of Fashion Management (2013-15)

FINANCIAL MANAGEMENT

RATIO ANALYSIS

Submitted by:

Santhi Biju(29)

Submitted to:

Prof. A Rajya Lakshmi



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CONTENT

SL

NO:

TOPIC PAGE NUMBER

1 INTRODUCTION 5

2 COMPANY PROFILE 7

3 ANALYSIS AND INTERPRETATION 9

4 FINDINGS AND SUGGESTIONS 23

5 CONCLUSION 25



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ACKNOWLEDGEMENT

I take this opportunity to express our sincere feelings of gratitude to Asst. Prof. A

Rajya Lakshmi for giving us an opportunity and valuable suggestions to undertake

this Project Work on Ratio Analysis. I am also thankful to the NIFT Faculty for giving us this opportunity to learn as well

as supporting us on every step. Last but not least I would like to express my heart

full thanks to our friends for extending their great cooperation towards

completion of our Project Work in time.





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INTRODUCTION

Ratio analysis is a technique of analyzing the financial statement of industrial

concerns. Now a day this technique is sophisticated and is commonly used in

business concerns. Ratio analysis is not an end but it is only means of betterunderstanding of financial strength and weakness of a firm.

Ratio analysis is one of the most powerful tools of financial analysis which helps in

analyzing and interpreting the health of the firm. Ratios are proved as the basic

instrument in the control process and act as back bone in schemes of the business

forecast.

With the help of ratio we can determine

The ability of the firm to meet its current obligation. The limit or extent to which the firm has used its borrowed funds.

The efficiency with which the firm is utilizing in generating sales revenue.

The operating efficiency and performance of the company.

Classification of Ratios

Ratios can be classified into different categories depending upon the basisof classification.

I. TRADITIONAL CLASSIFICATION

Traditional Classification has been on the basis of financial statements, on

which ratio may be classified as follows.

1. Profit & Loss account ratios.

E.g. Gross Profit Ratio, Net Profit Ratio, Operating Ratio etc.

2. Balance sheet ratio.

E.g. Current Ratio, Debt Equity Ratio, Working Capital Ratio etc.

3. Composite/Mixed ratio.



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E.g. Stock Turnover Ratio, Debtors Turnover Ratios, Fixed Assets Turnover Ratio

etc.

II. FUNCTIONAL CLASSIFICATION OF RATIOS

Functional ratios

1.

Liquidity ratios

a) Current Ratio

b)

Quick Ratio

2. Leverage Ratios

a)

Debt-equity Ratio

b)

Current Asset to Proprietor’s fund Ratio

III. PROBABILITY RATIOS

a. Gross profit Ratio

b. Operating profit Ratio

c. Return on investment

IV. ACTIVITY RATIO

i. Inventory Turnover Ratio

ii. Asset Turnover Ratio:

a.

Fixed Asset Turnover Ratio

b. Current Asset Turnover Ratio

iii. Working Capital Turnover Ratio.



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COMPANY PROFILE

HCL is a leading global Technology and IT Enterprise with annual revenues of US$

6.3 billion. The HCL Enterprise comprises two companies listed in India, HCLTechnologies (www.hcltech.com) and HCL Info systems (www.hclinfosystems.in).

The 35 year old enterprise, founded in 1976, is one of India's original IT garage

startups. Its range of offerings span R&D and Technology Services, Enterprise and

Applications Consulting, Remote Infrastructure Management, BPO services, IT

Hardware, Systems Integration and Distribution of Technology and Telecom

products in India. The HCL team comprises 92,000 professionals of diverse

nationalities, operating across 31 countries including 505 points of presence in

India. HCL has global partnerships with several leading Fortune 1000 firms,

including several IT and Technology majors.

Type : Public

Industry : IT sector

Founder : Mr.Shiv Nadar

Services : IT and outsourcing services

Revenue : 11,024.14 crore

Operating income : 256.58 crore

Net income : 177.23 crore

Website : www.hclinfosystems.in



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ESTABLISHMENT OF THE COMPANY

PRODUCT HIGHLIGHTS

a) The INTIAL

YEARS

• Developed the first indigenous micro-computer at the same time as Appleand 3 years before IBM's PC – in 1978.

b) THE GROWTHPHASE

• HCL, which was hitherto known as the pioneer in modern computing madethe advent into software development. HCL's R&D was spun off as HCLTechnologies in 1997 to mark their advent into the software services arena.

c) THEINTERNATIONAL

PHASE

• Today, HCL sells more PCs in India than any other brand, runs NorthernIreland's largest BPO operation, and manages the network for Asia'slargest stock exchange



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HCLINFOSYSTEMS

IT HardwareInternet

InfrastructureFacilities

Management





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INTERPRETATION

The above table shows that HCLs current ratio is clearly stating that from the year

2009-10 the ratio was 1.5 and had a drastic growth to 1.92 in 2010-11 and grew

to 1.95 but face a decline in the year 2012-13, but the year 2013-14 shows a

growth of 1.82. Which is balanced from the previous year decline. The current

assets has been increased than that of current liabilities.

An ideal current ratio is 2:1 for every one rupee of current liabilities, current

assets of doable rupee are available. The current ratio determines margin of

safety for creditors, there has been increase in the ratio during 2013-14 compared

with 2009-10.

2. Quick Ratio/Acid Test Ratio

Quick ratio establishes relationship between quick or liquid assets &

current liabilities. It is also known as acid test ratio. An asset is said to be liquid if

it can be converted into case within short period of time without loss of value.

The prepaid expenses and stock were excluded.

1.5

1.92 1.95

1.38

1.82

0

0.5

1

1.5

2

2.5

2009-10 2010-11 2011-12 2012-13 2013-14

CURRENT RATIO

RATIO



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Quick ratio = Current assets-inventories__

Current Liabilities

INTERPRETATION

The above table shows that the quick assets of HCL has been increased to 1.76

(2013-14) than that of 1.42 in 2012-13.But it had a drastic decline to 2.19 (2010-11) to 1.82 in 2011-12. This ratio measures firm’s ability to serve short term

liabilities. The ideal quick ratio is “1”. A low quick ratio represents that firm’s

liquidity poison is not good.

0

0.5

1

1.5

2

2.5

2009-10 2010-11 2011-12 2012-13 2013-14

QUICK RATIO

RATIO

YEAR QUICK ASSETS CURRENT LIABILITIES QUICK RATIO2009-10 1633.26 2,217.44 1.71

2010-11 2149.53 1,724.01 2.19

2011-12 2610.96 1,755.41 1.84

2012-13 3033.62 2,613.79 1.42

2013-14 5518.04 3,748.66 1.76



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II. Leverage Ratio

Leverage ratios are also known as capital structure ratio. These ratios indicate

mix of funds provided by owners & lenders. As a general rule these should be

appropriate mix debt & owners’ equity in financing the firm’s assets.

Leverage ratios are calculated to judge the long long-term financial position of

the company. Some of the popular leverage ratios are:

a. Debt-Equity Ratio

Debt-Equity ratio shows the relative contribution of creditors and owners.

Debt-Equity also known as External-Internal equity ratio. It is calculated to

measure the relative claims of outsiders against firm assets.

Debt-Equity Ratio = Total Debt_

Net Worth

YEAR TOTAL DEBT NET WORTH DEBT EQUITY RATIO

2009-10 513.73 3,488.24 0.15

2010-11 1,397.39 4,935.86 0.28

2011-12 847.40 5,859.15 0.14

2012-13 698.87 6,606.58 0.11

2013-14 615.14 10,237.74 0.06



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0.15

0.28

0.14

0.11

0.06

0

0.05

0.1

0.15

0.2

0.25

0.3

2009-10 2010-11 2011-12 2012-13 2013-14

DEBT-EQUITY RATIO

RATIO

INTERPRETATION

The table shows that the total debt ratio of HCL had decreased in the year 2013-

14 and 2011-12 from 0.28 to 0.06 and had fluctuation to 0.15 in the year 2009-10and further increased to 0.28 in the 2010. The company had decreased in the

total debt by 0.06 in net worth.

Debt equity ratio measures ultimate solvency of the company. It provides a

margin of safety to creditors, thus when the ratio is smaller the creditors are

more secured. An appropriate debt equity ratio is 0.33.A ratio higher than this isan indication of risky financial policies.

III. Profitablility Ratios

The primary objective of a business undertaking is to earn profits. Profit is the

difference between revenue & expenses over a period of time. Profit is output of

a company & company will have no further if it fails to make sufficient profit

Profits are thus a useful measure of overall efficiency of a firm.

These ratios are calculated to measure the operating efficiency of the company.

Beside management, creditors, owners are also interested in the profitability of

the company. Generally profitability ratios are calculated either in relation to

sales or in relation to investment. The various profitable ratios are:





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INTERPRETATION:

The above table shows the gross profit ratio of HCL the table indicates that the

ratio in the year 2009 was 24.33 and in the year 2010 it reduced to 22.43.further

it had drastically change in gross profit to 18.02 in the year 2011 and 24.21 in the

year 2012 and increased to 33.14 in the year 2013.

The company had fluctuated by increase of 33.14% in gross profit. The gross profit

indicates the degree to which the selling price of goods per unit may declinewithout resulting in losses on operation of the firm .It reflects the efficiency with

which firm produces its products.

0

5

10

15

20

25

30

35

2009-10 2010-11 2011-12 2012-13 2013-14

GROSS PROFIT RATIO

RATIO

YEAR GROSS PROFIT SALES G.P RATIO

2009-10 1,957.86 3,488.24 24.33

2010-11 2,293.37 4,935.86 22.43

2011-12 2,600.22 5,859.15 18.022012-13 3,153.74 6,606.58 24.21

2013-14 3,764.05 10,237.74 33.14



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b) Operating Profit Ratio

It is the relation between cost of goods sold & operating expenses on one hand &

the sales on the other hand. It measures the cost of operations per rupee of sales.

Operating Profit Ratio = Operating Cost X 100

Sales

INTERPRETATION:

The above table shows the firm’s operating ratio increasing drastically from 29.72in the year 2009 to 27.83 and 22.31 in the years 2010 and 2011 but further

fluctuating to 28.18 in the year 2012 and 36.67 in the year 2013.

An increase in the ratio over a previous period is an indication of improvement in

an operational efficiency of a concern the higher the ratio is more successful the

business is, but a lower ratio indicates large amount of manufacturing expenses.

0

5

10

1520

25

30

35

40

2009-10 2010-11 2011-12 2012-13 2013-14

OPERATING PROFIT RATIO

RATIO

YEAR OPERATING COST SALES RATIO

2009-10 562.75 3,488.24 29.72

2010-11 2,233.20 4,935.86 27.83

2011-12 2,653.28 5,859.15 22.31

2012-13 3,297.95 6,606.58 28.18

2013-14 4,055.70 10,237.74 36.67



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2. Profitability in relation to Investment

a. Return on shareholders’ Investment:

Return on shareholders investments, popularly known as ROI. It is the

relationship between net profit after tax & shareholders’ funds. Thus this ratio isconsidered as affective indicator of the company’s profitability because it reflects

the success of management in the efficient utilization of the owner’s investment.

ROI=. Net Profit after Tax X 100

Shareholders fund

INTERPRETATION:

The above table reveals that there is decrease in the return on investment from 28.59% in theyear 2009 to 21.41% in the year 2010 but fell down to 20.45% in the year 2011 .Further in the

year 2012 there was a drastic raise to 29.53% but fluctuated to 36.52% in the year 2013.

. This ratio is used to measure the overall efficiency of a concern, the higher the ratio the better

the results will be as this ratio reveals how well the resources of a concern are being used.

0

10

20

30

40

2009-10 2010-11 2011-12 2012-13 2013-14

ROI

RATIO

YEAR SALES CURRENT ASSETS RATIO

2009-10 3,488.24 1,720.27 28.592010-11 4,935.86 2,161.57 21.41

2011-12 5,859.15 2,735.93 20.45

2012-13 6,606.58 3,133.61 29.53

2013-14 10,237.74 5,599.88 36.2



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IV. Activity Ratios:

Funds are invested in various assets in business to make sales & earn

profit. The efficiency with which assets are managed directly affects the volume

of sales. The better the management of assets, the larger is the amount of sales &

the profit. Activity ratio measures the efficiency or effectiveness with which a firm

manages its resources or assets. These ratios are also called turnover ratio

because they indicate the speed with which assets are converted or turned over

into sales.

The various activity ratios are:

a. Inventory Turnover Ratio:

Inventory turnover ratio indicates the number of times stock has been

turned over during the period & evaluates efficiency with which a firm is able

manage inventory.

The ratio is calculated by dividing the net sales divided by average

inventory at cost.

ITR= ___Net Sales_______ .

Average Inventory at Cost

Average inventory should be taken for calculating stock turnover ratio. Adding thestock in the beginning & at the end of period & dividing it by 2 to calculate

average inventory.

YEAR SALES AVERAGE INVENTORY ITR RATIO

2009-10 3,488.24 87.0 53.73

2010-11 4,935.86 12.04 1,31.13

2011-12 5,859.15 124.97 54.37

2012-13 6,606.58 99.99 89.08

2013-14 10,237.74 81.84 152.95



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5 3 . 7 3

1 3 1 . 1 3

5 4 . 3 7

8 9 . 0 8

1 5 2 . 9 5

2 0 0 9 - 1 0 2 0 1 0 - 1 1 2 0 1 1 - 1 2 2 0 1 2 - 1 3 2 0 1 3 - 1 4

ITRATIO

RATIO

INTERPR

ETA

TIO

N:

The

tabl

e

shows

the

increase in the inventory turnover ratio from 53.73 to 131.13 in the year 2009 and

2010 .In the year 2011 there was a fluctuation to 54.37 and further to 89.08 in the

year 2012,but in the year 2013 there was a drastic increase to 152.95.

Inventory turnover ratio signifies the liquidity of the inventory. A high ratio

implies good inventory management, a low ratio results in blocking of funds in

inventory. The reference value of this ratio 9 and the maximum conversion period

is 388.

b. Assets Turnover Ratio:

Assets are used to generate sales. Therefore a firm should manage its

assets efficiency to maximum sales. Assets turnover ratio shows relationship

between sales & assets. The various assets turnover ratio are:]]

i. Fixed Assets Turnover Ratio:

This ratio establishes the relationship between the costs of goods sold and fixed

assets. It can be calculated by,



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Fixed Assets Turnover Ratio = _ Sales__

Fixed Assets

INTRPRETATION:

The table reveals that there is decline in fixed asset turnover ratio from 3.38 inthe year 2009 to 2.88 in the year 10 but decreased to 2.73 in the year 2011 and

drastic fluctuation to 2.56 in the year 2012 and raise in the year to 2.73 in the

year 2013.

0

0.5

1

1.5

2

2.5

3

3.5

4

2009-10 2010-11 2011-12 2012-13 2013-14

RATIO

RATIO

YEAR SALES NET FIXED ASSETS RATIO

2009-10 3,488.24 3,861.38 3.38

2010-11 4,935.86 2,282.21 2.88

2011-12 5,859.15 1,860.97 2.73

2012-13 6,606.58 1,750.46 2.56

2013-14 10,237.74 1,817.97 2.73



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The company had 23.47% decrease in net sales and increase in fixed assets by

0.23% in the year 2008 and further in the year 2009 it had increase net sales by

62.36% and increase by 0.18% in fixed assets.

One of the cautions to be kept in mind that when fixed assets are old and

substantially depreciated the ratio tenders to be high, because the denominator

of the ratio will be low.

ii. Current Assets Turnover Ratio:

This ratio is indicates how many net sales are made for every rupee of investment

in current assets.

Current Assets Turnover Ratio = Sales____

Current Assets

YEAR SALES CURRENT ASSETS RATIO

2009-10 3,488.24 1,720.27 1.29

2010-11 4,935.86 2,161.57 0.98

2011-12 5,859.15 2,735.93 1.04

2012-13 6,606.58 3,133.61 1.27

2013-14 10,237.74 5,599.88 1.38



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1.29

0.98 1.04

1.271.38

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

2009-10 2010-11 2011-12 2012-13 2013-14

RATIO

RATIO



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INTERPRETATION:

The table reveals that the current ratio has drastic decrease from 1.29 the year

2009 to 0.98 in the year 2010 but again there was a increase to 1.04 in the year

2010 and 1.27 in the year 2011. But there was a drastically increased of ratio to

1.38 in the year 2012.

The company had decrease of 23.47% in net sales and increase in current assets

by 24.20%. In the year 2009 there was increase in net sales by 62.36% and 16.38%

increase in currents assets.

d. Working Capital turnover Ratio:

A firm may also related net current assets to sales. Working capital turnover ratio

indicates the velocity of the utilization of net working capital.

Working Capital Turnover Ratio= Sales____

Net Current Assets

3.79

2.843.63

4.885.32

0

2

4

6

2009-10 2010-11 2011-12 2012-13 2013-14

RATIO

RATIO

YEAR SALES NET CURRENT ASSETS RATIO

2009-10 3,488.24 2,164.68 3.79

2010-11 4,935.86 2,679.02 2.84

2011-12 5,859.15 2,238.65 3.632012-13 6,606.58 1,844.24 4.88

2013-14 10,237.74 4,354.81 5.32



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SUGGESTION

1. The company may improve its current ratio by decreasing the current

liabilities because in the year 2011-12 current assets are decreased and it mayalso improve its quick ratio.

2. The company may decrease its total debt as there is increase in total debt

the year 2012-13. The company may increase its investment in current assets.

3. Long terms solvency of the company has to be improved by limiting amount

invested by outsiders to the amount invested by the owner of the company. This

can be achieved by purchasing the shares gradually.

4. The proper management of the inventory can improve liquidity positionand efficiency of the company.



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CONCLUSION

Study of ratio analysis of Hindustan Computers Limited. Reveals the performance

of the company in terms of financial aspects. It is found that there is increase in

sales gross profit during 2009 to 2013. The cash balance is also increased for the

above said years this is due to company’s revised policy in debt collection. It is

also observed that the current ratio is satisfactory which creates interest in the

current assets in the form of sundry debtors and inventory.



REFERENCES

1.

http://www.moneycontrol.com/financials/hcltechnologies/ratios/HCL02

#HCL02

2.

http://www.hcltech.com/about-us/about-hcl-technologies 3.

Khan M and P.K. Jain “Financial management”

http://www.moneycontrol.com/financials/hcltechnologies/ratios/HCL02#HCL02





http://www.hcltech.com/about-us/about-hcl-technologies





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HCL Ratio Analysis