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Analysis & Its Need

Analysis is the process of breaking a complex topic or substance into smaller parts to gain a

better understanding of it. The technique has been applied in the study of mathematics and logic.

There are mainly two types of analysis that are technical analysis & fundamental analysis.

Technical analysis is related to companys past data, trend, industrys trend, sectors and activities

that effect company, where fundamental analysis is related to financials of a company. I will do

fundamental analysis.

Ratio Analysis

Ratio is a relationship between two figures expressed mathematically. Financial ratios provide

numerical relationship between two relevant financial data. Financial ratios are calculated from

the balance sheet and profit and loss account. The relationship can be either expressed as a

percent or as a quotient. Ratios summarize the data for easy understanding, comparison and

interpretations. So, I will do ratio analysis of Muthoot Finance on the basis of its past years

ratio, ratios ofGruhFinance and ratios of this industry. The importance of making analysis of

Financial Statement may be better understood from this fact that Financial Statement, though

itself reflects the net results for a particular period and state of affairs of the company till now by

using current scenario statements. So, ratio analysis is arithmetic relationship of various items.

Company Overview of Muthoot Finance & Gruh Finance

Muthoot Finance Ltd is the largest gold company in India. The company provides personal and

business loans secured by gold jewellery, or Gold Loans, primarily to individuals who possess

gold jewellery but could not access formal credit within a reasonable time, or to whom credit

may not be available at all, to meet unanticipated or other short-term liquidity requirements. As

of March 31, 2012, the Company had 3,678 branches across 21 states.

Gruh Finance Ltd (formerly known as Gujarat Rural Housing Finance Corporation) was

incorporated in 1986 to provide financial services mainly for rural housing, construction/up

gradation of dwelling units, and to developers. The company received a rating of "MA+" (1999-

2000) for its fixed deposit programme from Investment Information & Credit Rating Agency of

India.

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Financial Ratio Analysis

Firstly, I will calculate some ratios ofMuthoot Finance Ltd, Gruh Finance Ltd and industry

ratios. For industry analysis I have chosen Money Matters financial services, Microsec

Financial Services, JM Financial companies. These companies are chosen because these aretop competitor companies of IIFL and are listed in both NSE & BSE. I will analysis by

calculating following ratios:

Current Ratio Gross profit Ratio Net Profit Ratio Return on Asset Return on Investment

Earnings per share Dividend Per Share Dividend payout ratio Price Earnings Ratio Debt to Equity ratio

1. Current Ratio: -It is an indication of a company's ability to meet short-term debt

obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current

assets divided by current liabilities. If the current assets of a company are more than twice thecurrent liabilities, then that company is generally considered to have good short-

term financial strength. If current liabilities exceed current assets, then the company may have

problems meeting its short-term obligations.

Current ratio=current assets/current liabilities

Current Ratio

YEARS Mar'09 Mar'10 Mar'11 Mar'12

Muthoot Finance 1.54 1.41 1.08 1.02

GRUH Finance 35.06 32.34 12.59 34.91

Industry 8.31 7 14.25 12.17

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INTERPRETATION :- In current ratio we can see that muthoot Finance current ratio is

decreased consistently from 2009-12. It means that companys liquidity is very less. To compete

it has to increase its liquidity. On the other hand GRUH Finance has very good liquidity position

in CR as compare to industry also,but in 2011 GRUHs CR gone down to 12.59 & it recovered

from the crisis & maintain the level as the previous years. Muthoots CR is very much less than

GRUH as well as industries . So in matter of liquidity company really has to work upon it for

better performance in future although it has not a bad period in this matter.

2. Gross Profit Ratio: - Gross profit ratio is what remains from sales aftera company pays out the cost of goods sold. To obtain gross profit margin, divide gross

profit by sales. Gross profit margin is expressed as a percentage.

Gross profit ratio= Gross profit/Net sales*100

Gross profit Ratio


Muthoot Finance 74.52 75.50 77.61 81.30

GRUH Finance 91.67 88.79 90.63 93.14

Industry 63.75 74.08 64.32 46.17

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Mar'09 Mar'10 Mar'11 Mar'12

Muthoot Finance

GRUH Finance

Industry

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INTERPRETATION :- From the above graph we can see that Muthoot Finance g.p ratio

contineously increased from 2009-12 i.e 74.52 to 81.30.On the other hand GRUH has maintain

its level in g.p ratio from 2009-2012. GRUH is very much up in this context. It has more gross

profit ratio even from industry.but if we look the industries g.p ratio its increased from 63.75 to

74.08 in the year 2009-10 but from the year 2010 it decreased contineously till 2012 i.e 74.08 to

46.17.

3. Net Profit Ratio: -Net profit ratio is calculated by subtracting a companys total indirect

expenses from total indirect income that shows what the company has earned or lost in a given

period of time. It is called net income or net earnings.

Net profit ratio= Net profit/Net sales*100

Net Profit Ratio


Muthoot Finance 15.75 20.89 21.33 19.60

GRUH Finance 17.08 22.37 25.49 23.68

Industry 33.31 48.79 36.1 81.56

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Muthoot FinanceGRUH Finance

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INTERPRETATION :- As Muthoot is performing good in gross profit, so it is also performing

good in net profit also. Muthoot & GRUHs net profit has contineously increased from 2009 -11

but in 2012 their net profit slightly decreased to 19.60 & 23.68 respectively.

4. Return on Asset:- ROA is computed as the product of the net profit margin and the total

asset turnover ratios. This ratio indicates the firm's strategic success. With a successful product

differentiation strategy, ROA will rise because of a rising profit margin.

ROA = (Net Profit/Total Assets)

Return on Asset


Muthoot Finance 73.96 19.41 41.67 78.71

GRUH Finance 63.74 76.21 90.43 109.22

Industry 42.94 48.37 88.10 101.87

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INTERPRETATION :- In return on asset Muthoot has 73.96 in the year 2009 then in the year

2010 it suddenly fall to 19.41 & its took 3 years i.e 2012 to maintain same level i.e to reach78.71.but in case of GRUH Finance it contineously increased from 63.74 to 109.22 over the year

from 2009-12 and the industries ROA growth rate also increased contineously from 2009-12.

From 2011 its growth rate suddenly increased from 48.37 to 88.10 & it continue till 2012 i.e

101.87.

5. Return on Investment:- ROI is the return on capital invested in business, i.e., if an

investment Rs 1 crore in men, machines, land and material is made to generate Rs. 25 lakhs of

net profit, then the ROI is 25%. The computation of return on investment is as follows:

Return on Investment (ROI) = (Net profit/Equity investments) x 100

Return on Investment


Muthoot Finance 1297.74 3034.26 6589.06 914.89

GRUH Finance 393.42 210.75 264.02 492.79

Industry 410.30 722.45 1396.34 301.31

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INTERPRETATION :- According the graph Muthoot ROI is very much higher than both

GRUH & industries i.e from1297.74 to 6589.06 but in 2012 suddenly its ROI fall to 914.89.As

the investors would like to invest only where the return is higher so Muthoot Finance would be

attractive for investment.

6. Earnings per share:- This ratio determines what the company is earning for every share.

For many investors, earnings are the most important tool. EPS is calculated by dividing the

earnings (net profit) by the total number of equity shares. The computation of EPS is as follows:

Earnings per share = Net profit/Number of shares outstanding

Earnings per share


Muthoot Finance 19.94 7.56 15.43 24.00

GRUH Finance 14.51 19.86 26.03 34.09

Industry 14.97 14.94 9.45 14.72

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INTERPRETATION :- In Earning per share Muthoot has 19.94 in the year 2009 then in the

year 2010 it suddenly fall to 7.56 & its took 3 years i.e 2012 to cross the level i.e to reach24.but in case of GRUH Finance it contineously increased from 14.51 to 34.09 over the year

from 2009-12 But in case of industries EPS growth rate its very much consistent in last 4 years

near 14 i.e 2009-12 except in the year 2011 its EPS decreased to 9.45.

7. Dividend per Share:- The extent of payment of dividend to the shareholders is measured

in the form of dividend per share. The dividend per share gives the amount of cash flow from the

company to the owners and is calculated as follows:

Dividend per share = Total dividend payment / Number of shares outstanding

Dividend per Share


Muthoot Finance 0 0 0 4.00

Gruh Finance

4.80 6.50 11.00 11.50

Industry 1 1.8 2.77 3.62

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Industry

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INTERPRETATION :- According to the graph Muthoot Finance has zero dividend per share

from 2009-11 & suddenly it rose to 4, but in case of GRUH finance it is very much up in this

context. It has more dividend per share even from industry. The industries DPS also contineouslyincreased from the year 2009-12 i.e from 1 to 3.62.

8. Dividend payout ratio:- From the profits of each company a cash flow called dividend is

distributed among its shareholders. This is the continuous stream of cash flow to the owners of

shares, apart from the price differentials (capital gains) in the market. The return to the

shareholders, in the form of dividend, out of the company's profit is measured through the payout

ratio. The payout ratio is computed as follows

Payout Ratio = (Dividend per share / Earnings per share) * 100

Dividend payout ratio


Muthoot Finance 0 0 0 16.66

GRUH Finance 33.08 32.72 42.25 33.73

Industry 42.98 23.39 105.33 39.08

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INTERPRETATION:-Dividend payout ratio is the percentage of earnings paid to shareholders

in dividends. As Muthoot finance has zero Dividend per share, so its Dividend payout ratio isalso zero from 2009-11 & as same in 2012 it rose to 16.66. In case of GRUH & Industries both

are fluctuated very much from 2009-12, except in the year 2011, when the industries Dividend

payout ratio suddenly increased to 105.33.

9. Price Earnings Ratio:- The P/E multiplier or the price earnings ratio relates the current

market price of the share to the earnings per share. This ratio is calculated to make an estimate of

appreciation in the value of a share of a company and is widely used by investors to decide

whether or not to buy shares in a particular company. This is computed as follows:

Price Earnings ratio = Current market price / Earnings per share

Price Earnings Ratio


Muthoot Finance 0 0 11.42 5.26

GRUH Finance 1.27 2.19 2.78 3.72

Industry 36.91 14.53 41.87 10.12

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INTERPRETATION:- According to the graph Muthoot Finance has zero price earning ratio in

the year 2009-10.& in the year 2011 its price earning ratio rose to 11.42, but in the next year its

again fall into 5.26. The PE ratio of GRUH has very less,but it contineously increased over the

year from 2009-12 i.e from 1.27 to 3.72. In case of industries the PE ratio of industry has very

much fluctuate.

10. Debt to Equity ratio:- Debt-Equity ratio is used to measure the claims of outsiders and

the owners against the firms assets. The debt-equity ratio is calculated to measure the extent to

which debt financing has been used in a business. It indicates the proportionate claims of ownersand the outsiders against the firms assets. This is computed as follows:

Debt-to-equity ratio = Outsiders Funds (total debt) / Shareholders Funds (total equity)

Debt to Equity ratio


Muthoot Finance 8.53 9.03 8.95 5.29

Gruh Finance 10.17 8.78 9.33 9.93

Industry 3.77 3.56 3.66 3.04

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INTERPRETATION:-According to the graph Muthoot Finance is not doing good in this ratio.

because its debt is very much than its equity. In 2012 it equity little increased then debt to 5.29.In

case of GRUH,it has also very poor position as compare to Muthoot Finance.But in case of

industries the debt equity ratio is good as compare to both Muthoot & GRUH.because i ts equity

is greater than its debt.

Conclusion:-

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