RATIO ANALYSIS

It refers to the systematic use of ratios to interpret the financial statements in terms of the operating performance and financial position of a firm. It involves comparison for a meaningful interpretation of the financial statements.

In view of the needs of various uses of ratios the ratios, which can be calculated from the accounting data are classified into the following broad categories

A. B. C. D.

Liquidity Ratio Turnover Ratio Solvency or Leverage ratios Profitability ratios

A LIQUIDITY RATIO It measures the ability of the firm to meet its short term obligations, that is capacity of the firm to pay its current liabilities as and when they fall due. Thus these ratios reflect the short term financial solvency of a firm. A firm should ensure that it does not suffer from lac! of liquidity. The failure to meet obligations on due time may result in bad credit image, loss of creditors confidence, and even in legal proceedings against the firm on the other hand very high degree of liquidity is also not desirable since it would imply that funds are idle and earn nothing. "o therefore it is necessary to stri!e a proper balance between liquidity and lac! of liquidity. The vario s ratios that e!"lains abo t the li# i$ity of the fir% are &. C rrent Ratio '. Aci$ Test Ratio ( # ic) ratio *. Absol te li# i$ ration ( cash ratio

#. $%RR&'T RATI(
The c rrent ratio %eas res the short+ter% solvency of the fir%. It establishes the relationshi" bet,een c rrent assets an$ c rrent liabilities. It is calc late$ by $ivi$ing c rrent assets by c rrent liabilities. C rrent Ratio - C rrent Asset C rrent Liabilities Current assets include cash and bank balances, marketable securities, inventory, and debtors, excluding provisions for bad debts and doubtful debtors, bills receivables and prepaid expenses. Current liabilities includes sundry creditors, bills payable, short- term loans, income-tax liability, accrued expenses and dividends payable.

). A$I* T&"T RATI( + ,%I$- RATI(

It has been an i%"ortant in$icator of the fir%.s li# i$ity "osition an$ is se$ as a co%"le%entary ratio to the c rrent ratio. It establishes the relationshi" bet,een # ic) assets an$ c rrent liabilities. It is calc late$ by $ivi$ing # ic) assets by the c rrent liabilities. Aci$ Test Ratio - Q ic) Assets C rrent liabilities Quick assets are those current assets, which can be converted into cash immediately or within reasonable short time without a loss of value. These include cash and bank balances, sundry debtors, bills receivables and shortterm marketable securities.

.. AB"(L%T& LI,%I* RATI(' + $A"/ RATI(

It sho,s the relationshi" bet,een absol te li# i$ or s "er # ic) c rrent assets an$ liabilities. Absol te li# i$ assets incl $e cash/ ban) balances/ an$ %ar)etable sec rities. Absol te li# i$ ratio - Absol te li# i$ assets C rrent liabilities

0 TUR1O23R RATIO T rnover ratios are also )no,n as activity ratios or efficiency ratios ,ith ,hich a fir% %anages its c rrent assets. The follo,ing t rnover ratios can be calc late$

to 4 $ge the effectiveness of asset se. &. '. *. 5. Inventory T rnover Ratio Debtor T rnover Ratio Cre$itor T rnover Ratio Assets T rnover Ratio

#. I'0&'T(R1 T%R'(0&R RATI(

This ratio in$icates the n %ber of ti%es the inventory has been converte$ into sales $ ring the "erio$. Th s it eval ates the efficiency of the fir% in %anaging its inventory. It is calc late$ by $ivi$ing the cost of goo$s sol$ by average inventory. Inventory T rnover Ratio - Cost of goo$s sol$ Average Inventory The average inventory is simple average of the opening and closing balances of inventory. !pening " Closing balances # $%. &n certain circumstances opening balance of the inventory may not be known then closing balance of inventory may be considered as average inventory

). *&BT(R T%R'(0&R RATI(

This in$icates the n %ber of ti%es average $ebtors have been converte$ into cash $ ring a year. It is $eter%ine$ by $ivi$ing the net cre$it sales by average $ebtors. Debtor T rnover Ratio - 1et Cre$it Sales Average Tra$e Debtors 'et credit sales consist of gross credit sales minus sales return. Trade debtor includes sundry debtors and bills receivables. (verage trade debtors !pening " Closing balances # $% 6hen the infor%ation abo t cre$it sales/ o"ening an$ closing balances of tra$e $ebtors is not available then the ratio can be calc late$ by $ivi$ing total sales by closing balances of tra$e $ebtor Debtor T rnover Ratio - Total Sales Tra$e Debtors

.. $R&*IT(R T%R'(0&R RATI(

It in$icates the n %ber of ti%es s n$ry cre$itors have been "ai$ $ ring a year. It is calc late$ to 4 $ge the re# ire%ents of cash for "aying s n$ry cre$itors. It is calc late$ by $ivi$ing the net cre$it " rchases by average cre$itors. Cre$itor T rnover Ratio - 1et Cre$it P rchases Average Tra$e Cre$itor

'et credit purchases consist of gross credit purchases minus purchase return 6hen the infor%ation abo t cre$it " rchases/ o"ening an$ closing balances of tra$e cre$itors is not available then the ratio is calc late$ by $ivi$ing total " rchases by the closing balance of tra$e cre$itors. Cre$itor T rnover Ratio - Total " rchases Total Tra$e Cre$itors

2. A""&T" T%R'(0&R RATI(

The relationshi" bet,een assets an$ sales is )no,n as assets t rnover ratio. Several assets t rnover ratios can be calc late$ $e"en$ing "on the gro "s of assets/ ,hich are relate$ to sales. a7 b7 c7 $7 e7 Total asset t rnover. 1et asset t rnover 8i!e$ asset t rnover C rrent asset t rnover 1et ,or)ing ca"ital t rnover ratio

a. TOTAL ASSET TURNOVER This ratio sho,s the fir%s ability to generate sales fro% all financial reso rces co%%itte$ to total assets. It is calc late$ by $ivi$ing sales by total assets. Total asset t rnover - Total Sales Total Assets
b. '&T A""&T T%R'(0&R

This is calc late$ by $ivi$ing sales by net assets. 1et asset t rnover - Total Sales 1et Assets 1et assets re"resent total assets %in s c rrent liabilities. Intangible an$ fictitio s assets li)e goo$,ill/ "atents/ acc % late$ losses/ $eferre$ e!"en$it re %ay be e!cl $e$ for calc lating the net asset t rnover. c. FIXED ASSET TURNOVER This ratio is calc late$ by $ivi$ing sales by net fi!e$ assets. 8i!e$ asset t rnover - Total Sales 1et 8i!e$ Assets 'et fixed assets represent the cost of fixed assets minus depreciation.

d. CURRENT ASSET TURNOVER It is $ivi$e$ by calc lating sales by c rrent assets C rrent asset t rnover - Total Sales C rrent Assets e. NET WORKING CAPITAL TURNOVER RATIO A higher ratio is an in$icator of better tili9ation of c rrent assets an$ ,or)ing ca"ital an$ vice+versa :a lo,er ratio is an in$icator of "oor tili9ation of c rrent assets an$ ,or)ing ca"ital7. It is calc late$ by $ivi$ing sales by ,or)ing ca"ital. 1et ,or)ing ca"ital t rnover ratio - Total Sales 3or!ing $apital )orking capital is represented by the difference between current assets and current liabilities. C. SOLVENCY OR LEVERAGE RATIOS The solvency or leverage ratios thro,s light on the long ter% solvency of a fir% reflecting it.s ability to ass re the long ter% cre$itors ,ith regar$ to "erio$ic "ay%ent of interest $ ring the "erio$ an$ loan re"ay%ent of "rinci"al on %at rity or in "re$eter%ine$ instal%ents at $ e $ates. There are th s t,o as"ects of the long+ter% solvency of a fir%. a. Ability to re"ay the "rinci"al a%o nt ,hen $ e b. Reg lar "ay%ent of the interest. The ratio is base$ on the relationshi" bet,een borro,e$ f n$s an$ o,ner.s ca"ital it is co%" te$ fro% the balance sheet/ the secon$ ty"e are calc late$ fro% the "rofit an$ loss a(c. The vario s solvency ratios are &. '. *. 5. ;. 6. Debt e# ity ratio Debt to total ca"ital ratio Pro"rietary :3# ity7 ratio 8i!e$ assets to net ,orth ratio 8i!e$ assets to long ter% f n$s ratio Debt service :Interest coverage7 ratio

1. DEBT EQUITY RATIO Debt e# ity ratio sho,s the relative clai%s of cre$itors :O tsi$ers7 an$ o,ners :Interest7 against the assets of the fir%. Th s this ratio in$icates the relative "ro"ortions of $ebt an$ e# ity in financing the fir%.s assets. It can be calc late$ by $ivi$ing o tsi$er f n$s :Debt7 by sharehol$er f n$s :3# ity7 Debt e# ity ratio - O tsi$er 8 n$s :Total Debts7 Sharehol$er 8 n$s or 3# ity The outsider fund includes long-term debts as well as current liabilities. The shareholder funds include equity share capital, preference share capital, reserves and surplus including accumulated profits. However fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds. The shareholder funds so calculated are known as net worth of the business. 2. DEBT TO TOTAL CAPITAL RATIO Debt to total ca"ital ratio - Total Debts Total Assets 3. PROPRIETARY EQUITY! RATIO This ratio in$icates the "ro"ortion of total assets finance$ by o,ners. calc late$ by $ivi$ing "ro"rietor :Sharehol$er7 f n$s by total assets. Pro"rietary :e# ity7 ratio - Sharehol$er f n$s Total assets ". FIXED ASSETS TO NET WORT# RATIO This ratio establishes the relationshi" bet,een fi!e$ assets an$ sharehol$er f n$s. It is calc late$ by $ivi$ing fi!e$ assets by sharehol$er f n$s. 8i!e$ assets to net ,orth ratio - 8i!e$ Assets < &== 1et 6orth The shareholder funds include e*uity share capital, preference share capital, reserves and surplus including accumulated profits. +owever fictitious assets like accumulated deferred expenses etc should be deducted from the total of these items to shareholder funds. The shareholder funds so calculated are known as net worth of the business. It is

$. FIXED ASSETS TO LONG TER% FUNDS RATIO 8i!e$ assets to long ter% f n$s ratio establishes the relationshi" bet,een fi!e$ assets an$ long+ter% f n$s an$ is calc late$ by $ivi$ing fi!e$ assets by long ter% f n$s. 8i!e$ assets to long ter% f n$s ratio - 8i!e$ Assets < &== Long+ter% 8 n$s &. DEBT SERVICE INTEREST COVERAGE! RATIO This sho,s the n %ber of ti%es the earnings of the fir%s are able to cover the fi!e$ interest liability of the fir%. This ratio therefore is also )no,n as Interest coverage or ti%e interest earne$ ratio. It is calc late$ by $ivi$ing the earnings before interest an$ ta! :30IT7 by interest charges on loans. Debt Service Ratio - 3arnings before interest an$ ta! :30IT7 Interest Charges PRO I!"#I$I!% R"!IO& The "rofitability ratio of the fir% can be %eas re$ by calc lating vario s "rofitability ratios. >eneral t,o gro "s of "rofitability ratios are calc late$. a. Profitability in relation to sales. b. Profitability in relation to invest%ents.

4rofitability in relation to sales

&. '. *. 5. ;. >ross "rofit %argin or ratio 1et "rofit %argin or ratio O"erating "rofit %argin or ratio O"erating Ratio 3!"enses Ratio

1. GROSS PROFIT %ARGIN OR RATIO It %eas res the relationshi" bet,een gross "rofit an$ sales. It is calc late$ by $ivi$ing gross "rofit by sales. >ross "rofit %argin or ratio - >ross "rofit < &== 1et sales ,ross profit is the difference between sales and cost of goods sold.

2. NET PROFIT %ARGIN OR RATIO It %eas res the relationshi" bet,een net "rofit an$ sales of a fir%. It in$icates %anage%ent.s efficiency in %an fact ring/ a$%inistrating/ an$ selling the "ro$ cts. It is calc late$ by $ivi$ing net "rofit after ta! by sales. 1et "rofit %argin or ratio - 3arning after ta! < &== 1et Sales 3. OPERATING PROFIT %ARGIN OR RATIO It establishes the relationshi" bet,een total o"erating e!"enses an$ net sales. It is calc late$ by $ivi$ing o"erating e!"enses by the net sales. O"erating "rofit %argin or ratio - O"erating e!"enses < &== 1et sales O"erating e!"enses incl $es cost of goo$s "ro$ ce$(sol$/ general an$ a$%inistrative e!"enses/ selling an$ $istrib tive e!"enses. ". EXPENSES RATIO 6hile so%e of the e!"enses %ay be increasing an$ other %ay be $eclining to )no, the behavior of s"ecific ite%s of e!"enses the ratio of each in$ivi$ al o"erating e!"enses to net sales sho l$ be calc late$. The vario s variants of e!"enses are Cost of goo$s sol$ - Cost of goo$s sol$ < &== 1et Sales A$%inistrative 3!"enses Ratio - A$%inistrative 3!"enses < &== 1et sales Selling an$ $istrib tion e!"enses ratio - Selling an$ $istrib tion e!"enses < &== 1et sales

5. (4&RATI'6 4R(7IT 8AR6I' (R RATI(

O"erating "rofit %argin or ratio establishes the relationshi" bet,een o"erating "rofit an$ net sales. It is calc late$ by $ivi$ing o"erating "rofit by sales. O"erating "rofit %argin or ratio - O"erating Profit < &== 1et sales !perating profit is the difference between net sales and total operating expenses. !perating profit - 'et sales . cost of goods sold . administrative expenses . selling and distribution expenses.%

4R(7ITABILIT1 I' R&LATI(' T( I'0&"T8&'T"

&. '. *. 5. Ret rn on gross invest%ent or gross ca"ital e%"loye$ Ret rn on net invest%ent or net ca"ital e%"loye$ Ret rn on sharehol$er.s invest%ent or sharehol$er.s ca"ital e%"loye$. Ret rn on e# ity sharehol$er invest%ent or e# ity sharehol$er ca"ital e%"loye$.

1. RETURN ON GROSS CAPITAL E%PLOYED This ratio establishes the relationshi" bet,een net "rofit an$ the gross ca"ital e%"loye$. The ter% gross ca"ital e%"loye$ refers to the total invest%ent %a$e in b siness. The conventional a""roach is to $ivi$e 3arnings After Ta! :3AT7 by gross ca"ital e%"loye$. Ret rn on gross ca"ital e%"loye$ - 3arnings After Ta! :3AT7 < &== >ross ca"ital e%"loye$

). R&T%R' (' '&T $A4ITAL &84L(1&*

It is calc late$ by $ivi$ing 3arnings 0efore Interest ? Ta! :30IT7 by the net ca"ital e%"loye$. The ter% net ca"ital e%"loye$ in the gross ca"ital in the b siness %in s c rrent liabilities. Th s it re"resents the long+ter% f n$s s ""lie$ by cre$itors an$ o,ners of the fir%. Ret rn on net ca"ital e%"loye$ - 3arnings 0efore Interest ? Ta! :30IT7 < &== 1et ca"ital e%"loye$

.. R&T%R' (' "/AR& $A4ITAL &84L(1&*

This ratio establishes the relationshi" bet,een earnings after ta!es an$ the sharehol$er invest%ent in the b siness. This ratio reveals ho, "rofitability the o,ners. f n$s have been tili9e$ by the fir%. It is calc late$ by $ivi$ing 3arnings after ta! :3AT7 by sharehol$er ca"ital e%"loye$. Ret rn on share ca"ital e%"loye$ - 3arnings after ta! :3AT7 < &== Sharehol$er ca"ital e%"loye$ ". RETURN ON EQUITY S#ARE CAPITAL E%PLOYED 3# ity sharehol$ers are entitle$ to all the "rofits re%aining after the all o tsi$e clai%s incl $ing $ivi$en$s on "reference share ca"ital are "ai$ in f ll. The earnings %ay be $istrib te$ to the% or retaine$ in the b siness. Ret rn on e# ity share ca"ital invest%ents or ca"ital e%"loye$ establishes the relationshi" bet,een earnings after ta! an$ "reference $ivi$en$ an$ e# ity sharehol$er invest%ent or ca"ital e%"loye$ or net ,orth. It is calc late$ by $ivi$ing earnings after ta! an$ "reference $ivi$en$ by e# ity sharehol$er.s ca"ital e%"loye$.

Ret rn on e# ity share ca"ital e%"loye$ - 3arnings after ta! :3AT7/ "reference $ivi$en$s < &== 3# ity share ca"ital e%"loye$ '"R(I()& P'R &H"R' IT %eas re the "rofit available to the e# ity sharehol$ers on a "er share basis. It is co%" te$ by $ivi$ing earnings available to the e# ity sharehol$ers by the total n %ber of e# ity share o tstan$ing 3arnings "er share - 3arnings after ta! @ Preferre$ $ivi$en$s :if any7 3# ity shares o tstan$ing

*I0I*&'* 4&R "/AR&

The $ivi$en$s "ai$ to the sharehol$ers on a "er share basis in $ivi$en$ "er share. Th s $ivi$en$ "er share is the earnings $istrib te$ to the or$inary sharehol$ers $ivi$e$ by the n %ber of or$inary shares o tstan$ing. Divi$en$ "er share - 3arnings "ai$ to the or$inary sharehol$ers 1 %ber of or$inary shares o tstan$ing DIVIDENDS PAY OUT RATIO PAY OUT RATIO! It %eas res the relationshi" bet,een the earnings belonging to the e# ity sharehol$ers an$ the $ivi$en$s "ai$ to the%. It sho,s ,hat "ercentage shares of the earnings are available for the or$inary sharehol$ers are "ai$ o t as $ivi$en$ to the or$inary sharehol$ers. It can be calc late$ by $ivi$ing the total $ivi$en$ "ai$ to the e# ity sharehol$ers by the total earnings available to the% or alternatively by $ivi$ing $ivi$en$ "er share by earnings "er share.
Divi$en$ "ay o r ratio :Pay o r ratio7 - Total $ivi$en$ "ai$ to e# ity share hol$ers Total earnings available to e# ity share hol$ers

Or D'('de)d *e+ ,-a+e 3arnings "er share *I+I*'(* "(* '"R(I()& %I'$* 6hile the earnings "er share an$ $ivi$en$ "er share are base$ on the boo) val e "er share/ the yiel$ is e!"resse$ in ter%s of %ar)et val e "er share. The $ivi$en$ yiel$ %ay be $efine$ as the relation of $ivi$en$ "er share to the %ar)et val e "er or$inary share an$ the earning ratio as the ratio of earnings "er share to the %ar)et val e of or$inary share.

Divi$en$ Yiel$ -

Divi$en$ Per share Aar)et val e of or$inary share

3arnings yiel$ -

3arnings "er share Aar)et val e of or$inary share

PRI,' '"R(I() R"!IO The reci"rocal of the earnings yiel$ is calle$ "rice earnings ratio. It is calc late$ by $ivi$ing the %ar)et "rice of the share by the earnings "er share. Price earnings :P(37 ratio - Aar)et "rice of share 3arnings "er share

4rofit 9 loss account :or; revenue statement ratios< These ratios dealwith the relationship between two profit 9 loss account items, e.g. theratio of gross profit to sales etc., = $omposite :or; inter statement ratios< These ratios e>hibit the relation between a profit 9 loss account or income statement item and 7unctional $lassification These include liquidity ratios, long term solvency and leverageratios, activity ratios and profitability ratios. balance sheet items, e.g. stoc! turnover ratio, or the ratio of totalassets to sales. ). 7unctional $lassification These include liquidity ratios, long term solvency and leverageratios, activity ratios and profitability ratios. .. "ignificance ratios "ome ratios are important than others and the firm may classifythem as primary and secondary ratios. The primary ratio is one, which is of the prime importance to a concern. The other ratios that support the primaryratio are called secondary ratios Liquidity refers to the ability of a concern to meet its currentobligations as 9 when there becomes due. The short term obligations of afirm can be met only when there are sufficient liquid assets. The short termobligations are met by reali?ing amounts from current, floating :or;circulating assets The current assets should either be calculated liquid :or;near liquidity. They should be convertible into cash for paying obligations of short term nature. The sufficiency :or; insufficiency of current assets should be assessed by comparing them with short term current liabilities. If currentassets can pay off current liabilities, then liquidity position will besatisfactory.To measure the liquidity of a firm the following ratios can becalculated = $urrent ratio = ,uic! :or; Acid test :or; Liquid ratio =

Absolute liquid ratio :or; $ash position ratio ; $%RR&'T RATI(< $urrent ratio may be defined as the relationship betweencurrent assets and current liabilities. This ratio also !nown as 3or!ingcapital ratio is a measure of general liquidity and is most widely used toma!e the analysis of a short term financial position :or; liquidity of a firm :b; ,%I$- RATI( ,uic! ratio is a test of liquidity than the current ratio. The termliquidity refers to the ability of a firm to pay its short term obligations as 9when they become due. ,uic! ratio may be defined as the relationship between quic! or liquid assets and current liabilities. An asset is said to beliquid if it is converted into cash with in a short period without loss of value. ,uic! or liquid assets,uic! ratio @$urrent liabilities AA "%88AR1 #;After the analysis of 7inancial "tatements, the company status is better, because the 'et wor!ing capital of the company is doubledfrom the last yearBs position.);The company profits are huge in the current yearC it is better to declarethe dividend to shareholders..;The company is utilising the fi>ed assets, which maDorly help to thegrowth of the organisation. The company should maintain that perfectly.2;The company fi>ed deposits are raised from the inception, it gives theother income i.e., Interest on fi>ed deposits. $('$L%"I(' The companyBs overall position is at a good position.4articularly the current yearBs position is well due to raise in the profit levelfrom the last year position. It is better for the organi?ation to diversify thefunds to different sectors in the present mar!et scenario 7und Ratio Interpretation This is the ratio between net profits and shareholders funds. Theratio is generally calculated as percentage multiplying with #EE.The net profit is increased due to the increase in the incomefrom services ant the shareholders funds are increased because of reserve 9surplus. "o, the ratio is increased in the current year. RATI( A'AL1"I" 8eaning and definition of ratio analysis< Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statements so that the strength and wea!nesses of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two variables. "ignificance or Importance of ratio analysis< = It helps in evaluating the firms performance< 3ith the help of ratio analysis conclusion can be drawn regarding several aspects such as financial health, profitability and operational efficiency of the underta!ing. Ratio points

out the operating efficiency of the firm i.e. whether the management has utili?ed the firmFs assets correctly, to increase the investorFs wealth. It ensures a fair return to its owners and secures optimum utili?ation of firms assets =It helps in inter firm comparison< Ratio analysis helps in inter firm comparison by providing necessary data. An interfirm comparison indicates relative position.It provides the relevant data for the comparison of the performance of different departments. If comparison shows a variance, the possible reasons of variations may be identified and if results are negative, the action may be intiated immediately to bring them in line. =It simplifies financial statement< The information given in the basic financial statements serves no useful 4urpose unless it s interrupted and analy?ed in some comparable terms. The ratio analysis is one of the tools in the hands of those who want to !now something more from the financial statements in the simplified manner. (BG&$TI0&" #. To provide basic amenities for the rural poor. ). To save arts of historical relevance which are on the verge of e>tinction. .. To develop integrated programmes for the differently abled. 2. To encourage fresh talent in the area of sports. 5. To ta!e up other humanitarian activities. H. the substantial part of the power requirement. ,%ALIT1 4(LI$1 3e are committed to continually improve the quality of our performance through the application of our ,uality policy. #. %tili?ing $ommercial, &ngineering and /uman Resources, to 8inimi?e Ris!s to 4ersonnel, 4lant 9 &quipment and 8a>imi?e plant Availability for 6eneration of 4ower. ). 4roviding the best policies level of commercial performance for the benefit of all "ta!e /olders.

.. Implementing prudent utility practices and providing /ealthy and &>cellent 3or!ing &nvironment in all *isciplines of &ngineering and Business as documented in the ,uality "ystem. 2. Treating all staff 9 families fairly and with respect while encouraging personnel growth. )) $(84A'1 /I6/ LI6/T" #. .HA.#22 83 combined cycle power plant under build I operate I own arrangement with the state government. ). The single largest investment in Andhra 4radesh, by any Andhra 4radesh based group. .. 4ower purchase agreement firmed with A4 TRA'"$( for #5 years. 2. &co I friendly, adhering to highest standards of safety and conversion of natural resources. 5. The first proDect cleared by $entral &lectricity Authority :$&A; under the international competitive Bidding :I$B; route for power proDects in India. H. The first of the I$B power proDects in India to achieve financial closure and complete construction in shortest possible time. J. (ne of the lowest evacuations costs to A4 TRA'"$(. A. The first private sector power proDect to receive disbursement of finance from 4ower 7inance $orporation limited, India. K. The shortest construction time in the private sector #E. Location advantages include<

a; 4ro>imity to 'ational and state /ighway b; Gust #.5 !m from fuel storage facility of /industan 4etroleum $orporation limited. c; $lose to the river -rishna and up stream of the 4ra!asam Barrage ensuring perennial water supply. d; AdDacent to ))E !3h "ubstation of A4 TRA'"$(. 1. RETURN ON GROSS CAPITAL E%PLOYED This ratio establishes the relationshi" bet,een net "rofit an$ the gross ca"ital e%"loye$. The ter% gross ca"ital e%"loye$ refers to the total invest%ent %a$e in b siness. The conventional a""roach is to $ivi$e 3arnings After Ta! :3AT7 by gross ca"ital e%"loye$. Ret rn on gross ca"ital e%"loye$ - 3arnings After Ta! :3AT7 < &== >ross ca"ital e%"loye$

). R&T%R' (' '&T $A4ITAL &84L(1&*

It is calc late$ by $ivi$ing 3arnings 0efore Interest ? Ta! :30IT7 by the net ca"ital e%"loye$. The ter% net ca"ital e%"loye$ in the gross ca"ital in the b siness %in s c rrent liabilities. Th s it re"resents the long+ter% f n$s s ""lie$ by cre$itors an$ o,ners of the fir%. Ret rn on net ca"ital e%"loye$ - 3arnings 0efore Interest ? Ta! :30IT7 < &== 1et ca"ital e%"loye$

.. R&T%R' (' "/AR& $A4ITAL &84L(1&*

This ratio establishes the relationshi" bet,een earnings after ta!es an$ the sharehol$er invest%ent in the b siness. This ratio reveals ho, "rofitability the o,ners. f n$s have been tili9e$ by the fir%. It is calc late$ by $ivi$ing 3arnings after ta! :3AT7 by sharehol$er ca"ital e%"loye$. Ret rn on share ca"ital e%"loye$ - 3arnings after ta! :3AT7 < &== Sharehol$er ca"ital e%"loye$ ". RETURN ON EQUITY S#ARE CAPITAL E%PLOYED 3# ity sharehol$ers are entitle$ to all the "rofits re%aining after the all o tsi$e clai%s incl $ing $ivi$en$s on "reference share ca"ital are "ai$ in f ll. The earnings %ay be $istrib te$ to the% or retaine$ in the b siness. Ret rn on e# ity share ca"ital invest%ents or ca"ital e%"loye$ establishes the relationshi"

bet,een earnings after ta! an$ "reference $ivi$en$ an$ e# ity sharehol$er invest%ent or ca"ital e%"loye$ or net ,orth. It is calc late$ by $ivi$ing earnings after ta! an$ "reference $ivi$en$ by e# ity sharehol$er.s ca"ital e%"loye$. Ret rn on e# ity share ca"ital e%"loye$ - 3arnings after ta! :3AT7/ "reference $ivi$en$s < &== 3# ity share ca"ital e%"loye$ '"R(I()& P'R &H"R' IT %eas re the "rofit available to the e# ity sharehol$ers on a "er share basis. It is co%" te$ by $ivi$ing earnings available to the e# ity sharehol$ers by the total n %ber of e# ity share o tstan$ing 3arnings "er share - 3arnings after ta! @ Preferre$ $ivi$en$s :if any7 3# ity shares o tstan$ing

*I0I*&'* 4&R "/AR&

The $ivi$en$s "ai$ to the sharehol$ers on a "er share basis in $ivi$en$ "er share. Th s $ivi$en$ "er share is the earnings $istrib te$ to the or$inary sharehol$ers $ivi$e$ by the n %ber of or$inary shares o tstan$ing. Divi$en$ "er share - 3arnings "ai$ to the or$inary sharehol$ers 1 %ber of or$inary shares o tstan$ing DIVIDENDS PAY OUT RATIO PAY OUT RATIO! It %eas res the relationshi" bet,een the earnings belonging to the e# ity sharehol$ers an$ the $ivi$en$s "ai$ to the%. It sho,s ,hat "ercentage shares of the earnings are available for the or$inary sharehol$ers are "ai$ o t as $ivi$en$ to the or$inary sharehol$ers. It can be calc late$ by $ivi$ing the total $ivi$en$ "ai$ to the e# ity sharehol$ers by the total earnings available to the% or alternatively by $ivi$ing $ivi$en$ "er share by earnings "er share.
Divi$en$ "ay o r ratio :Pay o r ratio7 - Total $ivi$en$ "ai$ to e# ity share hol$ers Total earnings available to e# ity share hol$ers

Or D'('de)d *e+ ,-a+e 3arnings "er share *I+I*'(* "(* '"R(I()& %I'$* 6hile the earnings "er share an$ $ivi$en$ "er share are base$ on the boo)

val e "er share/ the yiel$ is e!"resse$ in ter%s of %ar)et val e "er share. The $ivi$en$ yiel$ %ay be $efine$ as the relation of $ivi$en$ "er share to the %ar)et val e "er or$inary share an$ the earning ratio as the ratio of earnings "er share to the %ar)et val e of or$inary share. Divi$en$ Yiel$ Divi$en$ Per share Aar)et val e of or$inary share

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