Short term Analysis

Working capital ratio Sept 07 1,649.90 6,242.30 3.783441 Sept 08 1,735.90 6,115.00 3.522668 Sept 09 1,415.10 6,145.20 4.342591 Dec 10 2,583.40 6,595.80 2.553147 Dec 11 2,308.40 8,118.60 3.516981 Dec 12 1,891.70 8,352.40 4.415288

Current liabilities & provisions Current assets working capital ratio

Working Capital = Current Assets Current Liabilities Current assets are assets that are expected to be realized in a year or within one operating cycle. Current liabilities are obligations that are required to be paid within a year or within one operating cycle. Working capital ratio = current assets / current liabilities From 2007 to 2012 the company has a sustainable working capital ratio. This indicates that the company has good amount of liquidity.

Net working capital interpretation The net working capital from a position of rs.459 cr in Sep 2007, has increased to 646cr in Dec 20012, which is on account of slow collection. One of the contributing factors has been slow progress in collections. The debtors have hovered around 250 cr for all the six years. Additionally, the inventory has increased from 333 cr in Sep 2007 to 566 cr in Dec 2012. These increasing trends in inventory and constant level of debtors indicate inefficient operations of the company. It is further observed that only in two occasions the net working capital of the financial year has declined compared to previous year, i.e. in Sep. 2008 to Dec 2012.All in all, the companys working capital has been mismanaged with very high inventory and ever increasing creditors apart from slow collections.

Current ratio: It is a liquidity ratio that measures a company's ability to pay short-term obligations. The Current Ratio formula is: Current ratio = Current Assets CurrentLiabilities

Also known as "liquidity ratio", "cash asset ratio" and "cash ratio". The ratio is mainly used to give an idea of the company's ability to pay back its current liabilities with its current assets. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. A current ratio between 1 and 1.5 is considered standard. If a company's current assets are in this range, then it is generally considered to have good short-term financial strength. The higher the current ratio, the more capable the company is of paying its obligations. When you see debtors turnover ratio for the first three years it has more or less been the same. But when you see the year 2010 it has raised which means the flow of cash in the company has increased. This would result in the low current ratio as you amount on current asset will reduce in the debtors. When you see the purchase of raw material it has increased from 2009 to 2010 which led to rise in operating expenses, this also effects the current ratio. Operating cash flow ratio: Cash flow is an indication of how money moves into and out of the company and how you pay your bills. Operating cash flow relates to cash flows that a company accrues from operations to its current debt. It measures how liquid a firm is in the short run since it relates to current debt and cash flows from operations. Formula: Operating cash flow ratio = Cash flow from operations Current liabilities If the Operating Cash Flow Ratio for a company is less than 1.0, the company is not generating enough cash to pay off its short-term debt which is a serious situation. It is possible that the firm may not be able to continue to operate.

The company is not generating enough cash to pay off its short-term debt which is a serious situation. It is possible that the firm may not be able to continue to operate. In 2009 the OCF ratio is more than 1.0 i.e. 1.04. The company generated cash this was because the creditors paid the cash early that is 50 days instead of 53 days. In 2010 the OCF ratio is less than 1.0 i.e. 0.77. This is because operating expense is more because the raw materials have been purchased. Also the creditors turnover ratio has increased & credit period has decreased which means now the company has to pay in 44 days instead of 50 days. In 2012 the OCF ratio is less than 1.0 i.e. 0.52 The company is not generating enough cash to pay off its short-term debt which is a serious situation. It is possible that the firm may not be able to continue to operate.

Inventory turnover ratio:

Inventory turnover is the ratio of cost of goods sold by a business to its average inventory during a given accounting period. Generally calculated as: = Sales Inventory It can also be calculated as: = Cost of goods sold Sales Average Inventory

Minimizing inventory holdings reduces overhead costs and, hence, improves the profitability performance of the enterprise.

Sept 2007 Sept 2008 Sept 2009 Dec 2010 Dec 2011 Dec 2012 Inventory turnover ratio Sales Inventories Purchases of RM 4.02 13401.2 3332.8 10706.4 3.73 12863.7 3452.9 10314.5 3.40 12357.3 3629.6 9988.2 4.63 17546.2 3788.3 14402.1 2.55 13793.1 5413 6312.8 2.20 12480.9 5665.8 5100.9

In the years 2007 2008 -2009 the purchases have decreased, the inventories have risen and the sales too have decreased. It means that the company is holding up inventory and sales is not being pushed enough so you inventory turnover has reduced. When you see the year 2010 we can see that the inventory has increased a little, purchases and sales have considerably increased. So that means the inventory is being converted to sales and hence the turnover has risen from 3.40 to 4.63 again. Debtors turnover ratio: Debtors turnover ratio measures company's efficiency in collecting its sales on credit and collection policies. Sept 2007 Debtors ratio Debtors Sales turnover 4.836 2771 13401.2 5.038 2553.1 12863.7 5.114 2416.6 12357.3 6.583 2665.4 17546.2 5.334 2585.9 13793.1 4.862 2567 12480.9 Sept 2008 Sept 2009 Dec 2010 Dec 2011 Dec 2012

The debtors turnover ratio in Dec 2010 saw a rise because the company must have changed its credit polices this has made the company more efficient. Also since 2007 India faced recession this made money flow very slow which impacted on the operating cycle. The sales in the 2010 have increased from 12,357.30 in 2009 to 17.546.20 in 2010. Increase in sales has resulted in increasing debtors turnover ratio. The sales in 2011 had decreased to 13,793.10 from 17,546.20 in 2010 due to the following reasons Rising prices (due to rise in raw material and rise in dollar value against rupees) Costlier loans Higher cost of living.

LONG TERM DEBT Times interest earned ratio It shows how many times the interest expenses are covered by the net operating income (income before interest and tax) of the company. It is a long-term solvency ratio that measures the ability of a company to pay its interest charges as they become due. It is computed by dividing the income before interest and tax by interest expenses. Analysis Loans and borrowings are cheap source of finance primarily because the interest cost is usually tax deductible, unlike dividend payments. However, interest costs are necessary payments unlike dividends which are optional to management's intent. Therefore, the level of debt financing must be at an acceptable level and should not exceed the point which exposes an organization to unacceptably high financial risk. Interest cover of lower than 1.5 times may suggest that fluctuations in the profitability could potentially make an organization vulnerable to delays in interest payments. That is why times interest earned ratio is of special importance to creditors. They can compare the debt repayment ability of similar companies using this ratio. Although profitability is not absolutely essential to maintain liquidity in the short term, profitability of operations is crucial to enable an organization to meet its debt servicing obligations in the long run. Management may also use interest cover ratio to determine whether further debt financing can be undertaken without taking unacceptably high financial risk.

Interpretation Times interest earned in Sept-2007 Times interest earned in Sept-2008 Times interest earned in Sept-2009 Times interest earned in Dec-2010 1.58 1.22 1.12 1.25

The ratio is showing a declining pattern from 1.58 to 1.22 to 1.12.

Net earnings continuously going down. Interest payments have continuously increased. Debentures & bonds are redeemed and hence the rising interest. Reserves are being utilized in redeeming the debentures.

The year 2012 show a loss of 851 mn with interest obligations shooting high to 970 mn. Since the mandatory interest obligation has to be fulfilled even if the company is incurring loss, the times interest earned ratio is less than 1, i.e. 0.12 (2012).

Fixed charge coverage ratio Fixed charge coverage is a ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. Higher value of fixed charge coverage means a greater ability of a business to repay its interest and leases. There is a declining trend in the fixed charge coverage which is interrupted by a substantial fall from September 2007 and then the declining trend continues till 2012. When we observe the components of the formula i.e. EBIT, interest paid and leases, we see that the EBIT and lease payment figures demonstrate an decreasing trend till sep 2009 and then increase in dec 2010 and again fall till 2012 whereas interest paid shows a increasing trend till Dec 2010; after which there is a gradual fall from 2011 but 2012 increase to 970.4. Thus we can conclude that it is the EBIT that concludes the most to the fluctuation in fixed charge coverage. Apart from that, the growth trend in intreast paid is proportionately greater than lease payments which explains the gradual decrease in the fixed charge coverage over the years.

Debt ratio Is a ratio of total liabilities of a business to its total assets. It is a solvency ratio and it measures the portion of the assets of a business which are financed through debt. The debt ratio in all the six years is less than 1 which means that the company has more assets than debts. The lower the company depends on debt for assets formation, the less risky the company is. The ratio indicates that the company is in a position of paying its debts. Excessive debts results in very heavy interest and principle repayment burden. There is instability in the debt ratio % from 2008 to 2012, the % is increasing. This is not a good sign as the more the debt ratio the higher the companys risk increases. The borrowings from bank and foreign investors has reduced in 2012, whereas the other borrowings have increased this has impacted the debt ratio. The liabilities have reduced. Reserves and funds have reduced from 4214.40 in 2011 to 3568.00 in 2012. I.e. 15 % reduction. This shows that the reserves are paid, means that that the liabilities are paid.

The other borrowings have roused from 2250.00 in 2011 to 5016.00 in 2012 i.e. 123% rise that has increased the liabilities of the company. They must have borrowed these funds for operations but there is no rise in sales revenues in 2012. Borrowing has increased the debt ratio. When analyzing the balance sheet, it is seen that there is a rise in the intangible assets in March 2012 it has gone up to 15.7 which was 0 in 2011. This explains that this rise has contributed in assets, but at the same time ( see the above table) investments have gone down in 2012 , inventories have gone up in 2012 and deferred tax assets have increased drastically from 7.4 to 240.9 in 2012 this has impacted the debt ratio to increase.

Debt Equity Ratio:

Trends of Debt : Equity Ratio Period Fin Year Sept'07 Sept'08 Sept'09 Dec'10 Dec'11 Dec'12 Total Liabilities (Rs.Crs) 1546 1383 1518 1637 1878 1756 Long Term Debts Value % to Total (Rs.Crs) Liabilities 281 18% 385 490 479 537 612 28% 32% 29% 29% 35% Debt : Shareholders Eqity Equity (Rs.Crs) Ratio 35.5 8 41.1 40.4 39.8 39.2 39.2 9 12 12 14 16

Definition: 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.

1)

The debt equity ratio of 8 to 16 is a very high ratio, which indicates that the company is using a very high level to finance its operations. 2) Very high level of debts is not acceptable because of the high interest burden it creates for the company and its earnings. High interest burden reduces the earnings of the company. However in the case of Videocon, the component of long term debt as a percentage of total liabilities has been as low as 18% in sep 2007 & as high as 35% in the year ending December 2012. Such a low percentage of long term debts dos not affect the earnings of the company. All in all the debt equity ratio depicts being high is not going to impact th earnings of the company.

CASHFLOW:
Operating Cash flow ratio A measure of how well current liabilities are covered by the cash flow generated from a company's operations. Formula:

Operating cash flow Current liabilities & provisions Operating cash flow ratio

Sep-07 Sep-08 Sep-09 Dec-10 Dec-11 Dec-12 12 mths 12 mths 12 mths 15 mths 12 mths 12 mths 1,540.30 1,501.00 1,467.30 1,978.00 1,478.40 977.2 1,649.90 1,735.90 1,415.10 2,583.40 2,308.40 1,891.70 0.93 0.86 1.04 0.77 0.64 0.52

Interpretation the operating cash flow /current maturities of long term debt and current notes payable is a ratio that indicates a firms ability to meet its maturities of debt. The higher the ratio the better the firms ability to meet its current maturities of debt .the higher the ratio, the better is the firms liquidity The firms ability to meet the debt is reducing from 2007 to 2012 from 0.93 its reduced to 0.52, this shows that its liquidity in short term is low.

Videocons Operating cash flow ratio is less than 1.0, that means the company is not generating enough cash to pay off its short-term debt which is a serious situation. It is possible that the firm may not be able to continue to operate.

Operating cash flow ratio/total debt ratio

Operating cash flow Total liabilities Operating cash flow/ total debt

Sep-07 Sep-08 Sep-09 Dec-10 Dec-11 Dec-12 12 mths 12 mths 12 mths 15 mths 12 mths 12 mths 1,540.30 1,501.00 1,467.30 1,978.00 1,478.40 977.2 13,832.0 15,185.1 16,373.3 18,779.8 15,457.80 0 0 0 0 17,560.10 0.10 0.11 0.10 0.12 0.08 0.06

The operating cash flow/ total debt ratio indicates a firms ability to cover total debt with the yearly operating cash flow. The higher the ratio, the better the firms ability to carry its total debt. The debt ratio is decreasing from 2007 to 2012.