EXECUTIVE SUMMURY

I had undertaken a project titled “A STUDY ON RATIO ANALYSIS OF INDIA INFOLIE

LIMITED”

This project work consists of the Analysis of financial position with the help of rario analysis. In
my study I have tried to make out a clear picture of INDIA INFOLINE LTD. performance with
the help of Ratio analysis and Comparative Balance sheet.

The methodology that was adopted for framing the project was primary and secondary data.

The project was studied with the help of brochure, magazine and internet.Even a dialogue was
carried with the executive so that it can help me to shape my project and get the exact idea
where the position of company lies and its status.

They were interviewed and their opinion was taken into consideration so that I can correlate my
information with the theory part.

Since employees were rigid they didn’t reveal the exact information about the company .Even
keeping in mind the duration of the project there were certain limitations for it. As people were
not ready to spare some time and discuss the product or answer to the query raised by me.

So, I have to drawn some of the conclusion on the basis of the brochures and material of the
company being provided.
 OBJECTIVES OF THE STUDY:
1. To analyze financial statements of IIFL.
2. To know the financial position of the company.
3. To study the profitability of company.
4. To calculate liquidity of the company.
5. To know various sources of finance for IIFl:.
6. To know the financial growth of the company.
7. To know the future long term requirement of the funds for various activities of
IIFL
8. To determine if there has been an improvement or deterioration or no change over time.
9. To know how ratio analysis helps an analyst to make an informed business or investment decision.To
will reveal the trend of costs, sales, profits and other important facts.

SCOPE OF THE STUDY

It become quite difficult rather impossible to make judgment about the position of any business
by way of analyzing the financial statements of one year.
To get a view about the business happiness, the past data of some year relating to the problem
are studied and trend is determined. The present study covers a period of years from 2007 –
2010. A large period may prove inconvenient while a short period would not give desired results.
A period of four to six years is to be considered to be the optimum one.
The present study has been undertaken to analyze the Ratio analysis is being managed in
the company and how far it contributes to the overall objective of maximization of
shareholders wealth and the organization wealth.
 RESEARCH METHODOLOGY:
Sources of Data Collection :
Data for this project is collected through two sources
a. Primary Sources.
b. Secondary Sources

-: Primary Sources:-
This data is generated specifically for the purpose of working out the project. This data means
the first hand information, which is collected through various sources

➢ Information relating to the project was collected during formal and informal discussions
with the branch Manager (IIFL).

➢ Queries arising in due course of the project brought into the notice of concerned authority
and necessary explanation and solutions are adapted.

➢ In this case, I have made discussion with the company guide and senior colleagues to
gather the information related to my project work.
-: Secondary Sources:-

During my project not only the primary data helped me but I have to take help of the secondary
data.

➢ For the analysis purpose annual reports are studied.

➢ 2. Secondary data for the theoretical purpose is referred from financial text books written
by various authors. And as far as IIFL.s data is concerned I have collected it through E-
brochure of IIFL, Branch manager of the company etc.
 ➢ 3. For calculating the ratios I have referred IIFL.s financial data such as balance sheets of
every year.
.

India Infoline originally incorporated on October 18, 1995 as PROBITY RESEARCH AND
SERVICES PVT LTD. at Mumbai under the Companies Act, 1956 with Registration No.
1193797.and became a public limited company on April 28, 2000.

The name of the Company was changed to India Infoline.com Limited on May 23, 2000 and later
to India Infoline Limited on March 23, 2001. It is the first Company in India to foray into the
online distribution of Mutual Funds.

It is a one-stop financial services shop, most respected for quality of its advice, personalized
service and cutting-edge technology. The No.1Corporate agent for ICICI Prudential Life
Insurance Company. Research acknowledged by Forbes as “Must Read for investor in South
Asia”

Listed on Bombay and National Stock Exchange with a net worth of INR 200 crore and a market
cap of over INR 1970 crore.

The company has a network of 976 business locations (branches and sub-brokers) spread across
365 cities and towns. It has more than 800,000 customers.

It is registered with NSDL as well as CDSL as a depository participant. Providing a one-step

solution for clients trading in the equities market.
 VISION

➢ Our vision is to be the most respected company in the financial services space.

➢ Uphold Quality at every stage and maintain consistency to win the Trust of Valued Customers.

➢ To Remain as Innovation Leader.

MISSION
➢ “To become a full-fledged financial services company known for its quality of advice,
personalized services and cutting edge technology”

➢ Exceed customer’s expectations.

➢ Trust, respect and integrity in all of our relationships.

 ➢ Continuous improvements, innovations and embrace change.

➢ Team work and open communication.

Key Executives

S.No Name Designation

1

Mr. Nirmal Jain Chairman and Managing director

Mr. R Venkataraman Executive Director

Mr. Nilesh Vikamsey Independent Director

4 Mr. Sat Pal Khattar Non Executive Director

5

Mr Kranti Sinha Independent Director

Mr Arun K. Purvar Independent Director

Equities
Indiainfoline provided the prospect of researched investing to its clients, which was hitherto
restricted only to the institutions. Research for the retail investor did not exist prior to
Indiainfoline. Indiainfoline leveraged technology to bring the convenience of trading to the
investor’s location of preference (residence or office) through computerized access. Indiainfoline
made it possible for clients to view transaction costs and ledger updates in real time.

PMS
Portfolio Management Service is a product wherein an equity investment portfolio is created to
suit the investment objectives of a client. Indiainfoline invest the resources of the investors into
stocks from different sectors, depending on one’s risk-return profile. This service is particularly
advisable for investors who cannot afford to give time or don't have that expertise for day-to-day
management of their equity portfolio.

Research
Sound investment decisions depend upon reliable fundamental data and stock selection
techniques. Indiainfoline Equity Research is proud of its reputation for, and wants to find the
facts that the investors need. Equity investment professionals routinely use the research and
models as integral tools in their investments strategy.

Commodities
Indiainfoline extension into commodities trading reconciles its strategic intent to emerge as a
onestop solutions financial intermediary. Its experience in securities broking has empowered it
with requisite skills and technologies. The Company was among the first to offer the facility of
commodities trading in India’s young commodities market.

Mortgages
Indiainfoline acquired a 75% stake in Money tree Consultancy Services to mark its foray into the
business of mortgages and other loan products distribution. The business is still in the investing
phase and at the time of the acquisition was present only in the cities of Mumbai and Pune.
Indiainfoline now has plans to roll the business out across its pan-Indian network to provide it
with a truly national scale in operations.

Insurance
An entry into this segment helped complete the client’s product basket; concurrently, it
graduated the Company into a one-stop retail financial solutions provider. To ensure maximum
reach to customers across India, IIL have employed a multi pronged approach and reach out to
customers via its Network, Direct and Affiliate channels. Following the opening of the sector in
1999-2000, a number of private sector insurance service providers commenced operations
aggressively and helped grow the market.

Wealth Management Service

IIL is leading wealth Management Company that sits down to understand the needs and goals.
IIL offers a dedicated group for giving the most personal attention at every level.

Newsletters
The Daily Market Strategy is a morning dose on the health of the markets. Five intra-day ideas,
unless the markets are really choppy coupled with a brief on the global markets and any other
cues, which could impact the market. Occasionally an investment idea from the research team
and a crisp round up of the previous day's top stories. The Indiainfoline Weekly Newsletter is a
flashback for the week gone by. A weekly outlook coupled with the best of the web stories from
Indiainfoline and links to important investment ideas, Leader Speak and features is delivered in
investor’s inbox every Friday evening.
FINANCIAL HIGHLIGHTS

NET SALES

The increasing sales each year for

IIFL can be seen as a reflection of
the growing trends in the financial
services industry as a whole.
PROFIT AFTER TAX

The graph shows an increasing

trend till 2008 and there is a sharp
increase in 2008. But in 2009 it
shows an decrease, this is due to
decrease in sales resulted in an
Decrease in profit.
NET WORTH

With an increasing trend net

worth has increased and its
reason is increase in net
sales and increase in
reserves and surplus of the
company.
 RATIO ANALYSIS

The Balance Sheet and the Statement of Income are essential, but they are only the starting point
for successful financial management. Apply Ratio Analysis to Financial Statements to analyze
the success, failure, and progress of your business.

Ratio Analysis enables the business owner/manager to spot trends in a business and to compare
its performance and condition with the average performance of similar businesses in the same
industry. To do this compare your ratios with the average of businesses similar to yours and
compare your own ratios for several successive years, watching especially for any unfavorable
trends that may be starting. Ratio analysis may provide the all-important early warning
indications that allow you to solve your business problems before your business is destroyed by
them.

USEFULLNESS:

Ratio Analysis is used to evaluate financial condition of the firm and to:

 Determine firm’s ability to meet its short term and long term obligations

 Determine firm’s ability to generate profits

 To know firm’s liquidity position to meet its current obligations when they become due.

 It helps in accessing solvency position with the help of leverage and profitability ratios in
a long run.

 It helps in planning, controlling and forecasting.

 Throw light on degree of efficiency in management and utilization of its assets

 Draw conclusions regarding financial requirement and the capabilities of business limits.

 It serves as a medium for inter-firm comparisons.

Investors To help them determine whether they should buy shares in the business,
hold on to the shares they already own or sell the shares they already own.
They also want to assess the ability of the business to pay dividends.

Lenders To determine whether their loans and interest will be paid when due

Managers Might need segmental and total information to see how they fit into the
overall picture

Employees Information about the stability and profitability of their employers to

assess the ability of the business to provide remuneration, retirement
benefits and employment opportunities

Suppliers and other Businesses supplying goods and materials to other businesses will read
trade creditors their accounts to see that they don't have problems: after all, any supplier
wants to know if his customers are going to pay their bills!

Customers The continuance of a business, especially when they have a long term
involvement with, or are dependent on, the business

Governments and The allocation of resources and, therefore, the activities of business. To
their agencies regulate the activities of business, determine taxation policies and as the
basis for national income and similar statistics

Local community Financial statements may assist the public by providing information about
the trends and recent developments in the prosperity of the business and
the range of its activities as they affect their area

Financial analysts They need to know, for example, the accounting concepts employed for
inventories, depreciation, bad debts and so on

Environmental Many organizations now publish reports specifically aimed at informing

groups us about how they are working to keep their environment clean.

Researchers Researchers' demands cover a very wide range of lines of enquiry ranging
from detailed statistical analysis of the income statement and balance sheet
data extending over many years to the qualitative analysis of the wording
of the statements

PURPOSE OF RATIOS FOR DIFFERENT

Which ratios will each of these groups be interested in?

Interest Group Ratios to watch

Investors Return on Capital Employed
Lenders Financial leverage ratios
Managers Profitability ratios
Employees Return on Capital Employed
Suppliers and other trade creditors Liquidity
Customers Profitability
Governments and their agencies Profitability
Local Community This could be a long and
interesting list
Financial analysts Possibly all ratios
Environmental groups Expenditure on anti-pollution
measures
Researchers Depends on the nature of their
study
Limitations of ratios

1. The company may change the accounting policies which may result into distortion in
comparisons of different company figures.

2. The business may apply creative accounting in typing to show the better financial
position or performance which may mislead users of financial accounting.

3. Ratios need to be interpreted carefully. Ratios are not definitive measures as it requires
some quantitative information for an informed analysis to be made.

4. Outdated information in financial statement may give wrong indications.

5. Where Historical cost convention is used, asset valuations in the balance sheet could be
misleading

6. Ratios are based on the summarized year end information which may not be a true
reflection of the over all year’s results.

7. Change in prices (inflation) may create difference between calculated ratios and current
market prices which may lead to wrong interpretations.

8. Change in accounting standards may affect the reporting of an enterprise and its
comparisons of results over a number of years.

9. There may be impact of seasons on trading i.e. businesses which are affected by the
seasons can choose the best time to produce financial statement so as to show better
results.

10. Comparing ratios to compare one company with another could provide misleading
information. Business may be within same industry but may have different financial and
business risks.
A. 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

1. CURRENT RATIO

The current ratio is calculated by dividing current assets by liabilities with the help of following
formula:

Current ratio = Current Assets

Current Liabilities
 This ratio is an indicator of the firm’s commitment to meet its short-term liabilities.
Current assets means assets that will either be used up or converted into cash within a years’ time
or norms, operating cycle or the business, whichever is longer. Current liabilities means
liabilities payable within a year or during the operating cycle of business, whichever is longer,
out of existing current assets or by creation of other current liabilities.

2. QUICK RATIO: (Acid Test Ratio or Liquid Ratio)

This ratio establishes a relationship between quick or liquid assets and current liabilities.
Quick Ratio = Quick Assets

Quick Liabilities

Quick Assets = Current Assets – Inventories (i.e. stock) – prepaid expenses

An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss
of value. Cash is (the most liquid asset).

Generally, a quick ratio is (1:1) is considered to represent a satisfactory current financial

condition. A quick ratio of (1:1) or more does not necessarily imply sound liquidity position of
dead stock is fairly low.
A. LEVERAGE RATIO (Test of long term solvency)

Solvency of a business means its ability to meet its long – term liabilities debenture holder;
mortgagors and other long – term depositors are primarily interested in ascertaining whether the
company is having adequate profit to pay its interest obligation regularly. They would very much
like to study the financial structure, the contribution of long-term depositors, vie a vie the owner
to the total capital employed.

1. DEBT – EQUITY RATIO

The ratio is also called ‘External Internal Equity Ratio’. It indicates the comparative claims of
outsiders and owner in the concern’s total equities the claim of depositors, mortgagors,
bondholders, suppliers, and other creditors are matched with those of owner, i.e. shareholders or
proprietors. The management has to keep healthy balance between the two equities: external and
internal.

Debt Equity Ratio = Total Debt

Net worth

2. EQUITY RATIO / PROPRIETORY RATIO

It is variant of debt – equity ratio. It is an important test to judge the long-term solvency of a
concern. It establishes relationship between the proprietor or shareholder’s funds and the total
assets. It may be expressed as:

Equity ratio = Proprietor’s funds

Total Assets

Proprietor’s fund or Net worth = Equity Share Capital + Reserve and Surplus + Preference Share
Capital.

Total Assets = Total Equities or Total Resources of the concern.

3. DEBT SERVICE RATIO / INTEREST COVERAGE RATIO:

Debit ratio discussed earlier is static in nature, and fails to indicate the firm’s ability to meet
interest obligations. Debt-service means regular and timely permanent interest due on loans and
debentures. Since interest is paid out of the earning), he more the earning available, (he less is
the risk as to the payment of interest. The interest coverage ratio is computed by dividing
earnings before interest and taxes (EBIT) by interest changed:

Interest Coverage = EBIT

Interest
A. ACTIVITY RATIOS (Efficiency Ratio):
Funds of creditors and owners are invested in various assets to generate sales and profits.
The better the management of assets, the larger the amount of sales. Activity ratios are employed
to evaluate the efficiency with which the firm manages and utilizes its assets. These ratios are
also called turnover ratios because they indicate the speed with which assets are being converted
or turned over into sales and assets.

1. DEBTORS TURNOVER / RECEIVABLE TURNOVER RATIO:

A firm sells goods for cash and credit. Credit is used as a marketing tool by a number of
companies. When the firm extends credits to its customers, book debts are expressed to be
converted into cash over a short period acid, therefore, are included in current assets. The
liquidity position to the firm depends upon the quality of debtors to a great extent.
Debtors Turnover Ratio = Credit Sales
Average debtors

Account Receivable = Sundry Debtors + Bills Receivable

The higher the ratio, the better it is, since it would indicate that debts are being collected more
promptly. For measuring the efficiency, it is necessary to set up a standard figure; ratio lower
than the standard will indicate inefficiency.
2. COLLECTION PERIOD / AVERAGE AGE OF DEBTORS VELOCITY:
Debtor’s collection period represents the time segment, which is generally required to recover
the debts due from customers and amount realizable on bills.
Debtor Collection Period = 365 days
Debtors Turnover Ratio

Debtor collection period measures the quality of debtors since it measures the rapidly or
slowness with which money is collected from then. A shorter collection period implies prompt
payment by debtors. It reduces the chances of bad debts. A longer collection period implies
neither too liberal nor too restrictive. A restrictive policy results in lower sales, which will reduce
profits.
In general, the amount of the receivable should not exceed 3-4 month’s credit sales.

3. TOTAL ASSETS TURNOVER RATIO:

Some analysis like to compute the total assets turnover. This ratio shows the firm’s ability in
generating sales from all financial resources committed to total assets.
Total Assets Turnover Ratio = Sales
Total Assets
A. PROFITABILITY
These ratios help measure the profitability of a firm. A firm, which generates a substantial
amount of profits per rupee of sales, can comfortably meet its operating expenses and provide
more returns to its shareholders. The relationship between profit and sales is measured by
profitability ratios. There are two types of profitability ratios: Gross Profit Margin and Net Profit
Margin.

1. GROSS PROFIT RATIO:-

This ratio measures the relationship between gross profit and sales. It is defined as the excess of
the net sales over cost of goods sold or excess of revenue over cost. This ratio shows the profit
that remains after the manufacturing costs have been met. It measures the efficiency of
production as well as pricing. This ratio helps to judge how efficient the concern is I managing
its production, purchase, selling & inventory, how good its control is over the direct cost, how
productive the concern , how much amount is left to meet other expenses & earn net profit.

Gross profit
Gross profit ratio = * 100
 Net sales

2. NET PROFIT RATIO:-

Net Profit ratio indicates the relationship between the net profit & the sales it is usually
expressed in the form of a percentage.

NPAT

Net profit ratio = * 100

Net sales

This ratio shows the net earnings (to be distributed to both equity and preference shareholders) as
a percentage of net sales. It measures the overall efficiency of production, administration, selling,
financing, pricing and tax management. Jointly considered, the gross and net profit margin ratios
provide an understanding of the cost and profit structure of a firm.

3. RETURN ON CAPITAL EMPLOYED:-

The profitability of the firm can also be analyzed from the point of view of the total funds
employed in the firm. The term fund employed or the capital employed refers to the total long-
term source of funds. It means that the capital employed comprises of shareholder funds plus
long-term debts. Alternatively it can also be defined as fixed assets plus net working capital.

Capital employed refers to the long-term funds invested by the creditors and the owners of a
firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the efficiency with
which the long-term funds of a firm are utilized.

NPAT
Return on capital employed = *100
Capital employed
A. INVESTMENT / SHAREHOLDER

1. EARNING PER SAHRE:-

Earnings per Share are calculated to find out overall profitability of the organization. An
earnings per Share represents earning of the company whether or not dividends are declared. If
there is only one class of shares, the earning per share are determined by dividing net profit by
the number of equity shares.
EPS measures the profits available to the equity shareholders on each share held.

NPAT
Earning per share =
Number of equity share

The higher EPS will attract more investors to acquire shares in the company as it indicates that
the business is more profitable enough to pay the dividends in time. But remember not all profit
earned is going to be distributed as dividends the company also retains some profits for the
business
2. DIVIDEND PER SHARE:-

DPS shows how much is paid as dividend to the shareholders on each share held.

Dividend Paid to Ordinary Shareholders

Dividend per Share =

Number of Ordinary Shares

3. DIVIDEND PAYOUT RATIO:-

Dividend Pay-out Ratio shows the relationship between the dividend paid to equity shareholders
out of the profit available to the equity shareholders.

Dividend per share

Dividend Pay out ratio = *100
Earning per share

D/P ratio shows the percentage share of net profits after taxes and after preference dividend has
been paid to the preference equity holders
DATA ANALYSIS AND INTERPRETATION
 A. LIQUIDITY RATIOS:

1. CURRENT RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio 1.16 1.11 1.11 1.36

Interpretation:

The current ratio of the company is increasing in all the years, with the highest increase in the
year 2010. This is due to increase in the current assets of the company namely sundry debtors
and cash and bank balance by the company.
 2. LIQUID RATIO

2006-07 2007-08 2008-09 2009-10

Year
1.51 1.29 1.1 1.31
Ratio

Interpretation:

Sundry debtors and loan and advances also affect the quick ratio of the company. The increase in
these sundry debtors and the loans and advances may decrease the profitability of the company.
Usually, a high acid test ratio / quick ratio is an indication that the firm is liquid and has the
ability to meet its current liabilities in time. As a rule of thumb is 1:1 is considered satisfactory.
In 2010 company quick ratio increase it means that ability to cover its short-term obligations is
increase.
 A. EFFICIENCY RATIOS

1. DEBTORS TURNOVER RATIO

2006-07 2007-08 2008-09 2009-10
Year
4 2.6 2.43 1.96
Ratio

Interpretation:

The Debtors turnover ratio, which shows that the number of times the debtors are turned over
during a year. But the debtor of the company is reducing which shows that the company is not
properly managing its debtors. There is no rule of thumb, which may be used as a norm to
interpret the ratio, as it may be different from firm to firm depending upon the nature of the
business. The higher the value of debtors turnover the more efficient is the management of
debtors or more liquid the debtors are. Similarly, low debtors turnover ratio implies inefficient
management of debtors or less liquid debtors. For india infoline ltd debtors turnover ratio is
decreasing from 2007 to 2010 from 4 to 1.96. it indicates the inefficient of management.
 2. AVERAGE COLLECTION PERIOD

Year 2006-07 2007-08 2008-09 2009-10

Ratio 91.25 140.38 150.2 186.22

Interpretation:

This ratio represents the average number of days for which it has to wait for its receivables are
converted into cash. In this firm the ratio of average collection period is increasing which is not a
good sign for the company’s profitability position.
 3. Total Assets Turnover Ratio

Year 2006-07 2007-08 2008-09 2009-10

Ratio 0.74 0.53 0.52 0.52

Interpretation:

Asset turnover is the relationship between sales and assets The firm should manage its assets
efficiently to maximize sales. The total asset turnover indicates the efficiency with which the
firm uses all its assets to generate sales. It is calculated by dividing the firm’s sales by its total
assets. Generally, the higher the firm’s total asset turnover, the more efficiently its assets have
been utilized. In 2009-10 company’s assets turn over ratio is lower than previous year it is shows
that company’s assets is generating less sales than previous year.
 A. SOLVENCY RATIOS

1. DEBT-EQUITY RATIO
2006-07 2007-08 2008-09 2009-10
Year
0.28 0.13 0.1 0.45
Ratio

Interpretation:

Several debt ratios may be used to analyze the long-term solvency of the firm. The firm may be
interested in knowing the proportion of the interested bearing debt in the capital structure. It
may, therefore compute debt ratio by dividing debt funds by equity funds. Debt fund will
include short and long term borrowing from financial intuitions, debenture, bonds, defers
payments, arrangements from buying capital equipment and bank borrowing, public deposits and
any other interest-bearing loan. Debt equity ratio is calculated to measure the extent to which the
debt financing has been used in the business. A ratio of 1:1 may be usually considered to be
satisfactory ratio although there cannot be any rule of thumb for all types of business.
 2. INTEREST COVERAGE RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio 13.76 12.26 20.73 23.77

Interpretation:

This ratio also known as time interest earned ratio. It indicates the firms ability to meet interest
obligation, Earning before tax an interest are used in the numerator of this ratio because the
ability to pay interest is not affected by tax burden as interest on debt funds is deductible
expenses. A high coverage ratio means that enterprises can easily meets its interest obligation.
This ratio is five or seven time high of interest then the firm growing good position. On the basis
of above table in 2007 ratio is 13.76 time good position. Last year 2010 ratio is 23.77 times. Its
mean company pay the interest easily to the investors.

A. PROFITABILITY RATIO

1. GROSS PROFIT RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio 32.75 32.97 24.57 31.73
Interpretation:

Gross profit is the difference between sales and the manufacturing cost of sold goods. A number
of companies in India define gross profit differently. They define it as earnings before
depreciation interest and taxes etc.On the above table ratio is 31.73% in financial year it means
company paid the direct expenses easily? This ratio is varying its means company is good
position.

2. NET PROFIT RATIO

2006-07 2007-08 2008-09 2009-10

Year
18.17 23.45 18.51 21.77
Ratio

Interpretation:

Net profit ratio of the company is increasing which is a healthy sign for the company. This ratio
is increased due to the liberal credit policy of the company and increase in the sales of the
company. net profit margin of the company increased from 2007 to 2010 from 18.17 to 21.77. In
2008 net profit is at peak because there is good amount of demand of financial services.
 3. OPERATING MARGIN RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio 31.49 36.12 29.29 36.51

Interpretation:
A ratio used to measure a company's pricing strategy and operating efficiency. Operating
margin is a measurement of what proportion of a company's revenue is left over after
paying for variable costs of production such as wages, raw materials, etc. A healthy
operating margin is required for a company to be able to pay for its fixed costs, such as
interest on debt. The higher the margin, the better. In 2010 company has an operating
margin of 36% this means that it makes Rs.0.36 (before interest and taxes) for every Rs.
of sales. Often, nonrecurring cash flows, such as cash paid out in a lawsuit settlement, are
excluded from the operating margin calculation because they don't represent a company's
true operating performance.

4. RETURN ON INVESTMENT

2006-07 2007-08 2008-09 2009-10

Year
23.11 18.85 15.12 15.14
Ratio
Interpretation:

This ratio is one of the most important ratios used for measuring the overall efficiency of the
firm. As compared to the previous years this ratio is on an average but it is better to compare
with the other similar firms for better results.
 5. RETURN ON CAPITAL EMPLOYED

Year 2006-07 2007-08 2008-09 2009-10

Ratio 23.73 21.98 15.49 15.16

Interpretation:

A ratio that indicates the efficiency and profitability of a company's capital investments. ROCE
should always be higher than the rate at which the company borrows, otherwise any increase in
borrowing will reduce shareholders' earnings. The term capital employed comprises the total
assets used less current liabilities. This ratio decrease almost 8.5% from 2007 to 2010. This
ratio is decreasing which is the good sign for the company.
 6. Return on Net worth (RONW)

Year 2006-07 2007-08 2008-09 2009-10

Ratio 18.26 15.93 10.2 13.72

Interpretation:

This ratio shows the profit attributable to the amount invested by the owners of the business.
It also shows potential investors into the business what they might hope to receive as a
return. The stockholders’ equity includes share capital, share premium, distributable and non-
distributable reserves. Again, the profitability to ordinary shareholders is week and showing
an downward trend till 2009. Note that the return in 2009 as in all the years is after tax and
the shareholders should not be in extremely comfortable with these returns. But In 2010
company has give good sign of recovery.
 7. EARNING PER SHARE RATIO

2006-07 2007-08 2008-09 2009-10

Year
10.39 27.62 3.73 5.33
Ratio

Interpretation:

Earning per share is good measure of profitability in this company. This ratio is increasing every
year in this company, which shows the earning capacity of the invertors. As far as EPS
concerned after 2008 there is sharp decline due to split of the shares of the company. Company
had split share from face value of Rs. 10 to Rs. 2.
 A. Market Value Ratios

1. DIVIDENT COVER RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio 3.46 4.60 1.33 2.67

Interpretation:

This ratio measures the extent of earnings that are being paid out in the form of dividends, i.e.
how many times the dividends paid are covered by earnings (similar to times interest earned ratio
discussed above).A higher cover would indicate that a larger percentage of earnings are being
retained and re-invested in the business while a lower dividend cover would indicate the
converse.

2. DIVIDEND PAYOUT RATIO

2006-07 2007-08 2008-09 2009-10

Year
32.73 25.41 87.83 65.57
Ratio
Interpretation:

This ratio is calculated to know the relationship between dividend per share paid and the market
value of the share. In the company this ratio is fluctuating year by year. In 2009 and 2010
company had paid good amount of dividend from the net profit. And made less retained earnings
during this year. This happen because of very low debt during this period of 2009 to 2010.
 3. PRICE – EARNING RATIO ( P/E Ratio)

Year 2006-07 2007-08 2008-09 2009-10

Ratio 32.24 31.2 16.3 21.42

Interpretation:

P/E ratio is a useful indicator of what premium or discount investors are prepared to pay or
receive for the investment. The higher the price in relation to earnings, the higher the P/E ratio
which indicates the higher the premium an investor is prepared to pay for the share. This occurs
because the investor is extremely confident of the potential growth and earnings of the share.

High P/E generally reflects lower risk and/or higher growth prospects for earnings. The above
ratio shows that the shares were traded at a much higher premium in 2007 than were in 2010. P/E
Ratio has decreased sharply from 32.24 to 21.42 due to steep increase in EPS.

4. Return on Net worth (RONW)

Year 2006-07 2007-08 2008-09 2009-10

Ratio 18.26 15.93 10.2 13.72
Interpretation:

This ratio shows the profit attributable to the amount invested by the owners of the business.
It also shows potential investors into the business what they might hope to receive as a
return. The stockholders’ equity includes share capital, share premium, distributable and non-
distributable reserves. Again, the profitability to ordinary shareholders is week and showing
an downward trend till 2009. Note that the return in 2009 as in all the years is after tax and
the shareholders should not be in extremely comfortable with these returns. But In 2010
company has give good sign of recovery.

5. Earning Retention Ratio

Year 2006-07 2007-08 2008-09 2009-10

Ratio 67.27 74.68 10.31 36.1

Interpretation:

The Earning retention ratio indicates the Earning that company is employing in the business in
the form of reserves and surplus.In 2007 and 2008 company takes major part of profit into
business. So that shareholders got less dividend in these year. But In 2009 and 2010 company
has paid more dividend and make less retained earnings due to sufficient surplus
 6. Fixed Assets Turnover Ratio

Year 2006-07 2007-08 2008-09 2009-10

Ratio 32.24 31.2 16.3 21.42
 ANALYSIS

The corporate management of IIFL. Would be interested in examining all the aspects of
the company’s financial position, viz. liquidity, solvency, profitability and market value
ratios. In the absence of industry average figures, my appraisal is based only upon
standard norms of these ratios, working capital, profit and loss account, balance sheet etc.

PROFITABILITY

Profit Before Tax of the company has increased from 153.71 Cr. to229.34 Cr. about
29%, which shows its increased strength Asset Management.

Management’s assets turnover ratio also proves also same which has increased from 4.01
to 6.12.

Gross Profit has gone up from 24.57 to 31.73% and Net Profit ratio has gone up from
18.51% to 21.77%. the sales have shown an increasing trend. The reason for higher
profitability is
➢ increased sales
➢ Increase in other income
➢ Increase in depreciation so that tax exemption

In spite of increase in debtors bad debts written off are lesser in comparison to last year
which shows efficient management of collection.
The major part for increase in profit is decrease in lease rent in company to last year
which is 75%. The financial charges for lease assets are also 50%. This shows company
is relying more on own assets rather than leased.
In spite of good results company has reduced its activities in sale and purchase of
investments which has resulted in lesser dividend received.
LIQUIDITY

The emerging liquidity position of the company appears to be satisfactory. The current
ratio has increased from 1.11% in year 2009 to 1.36% in the year 2010. The acid test ratio
has also increased from 1.10 to 1.31, it near by to the standard.
The company is unlikely to encounter ant serious difficulty in paying the short-term
obligations as and when they become due for payment.

However, the management should realise that the policy relating to collection of debt is
not sound as reflected in the declining trend of receivables turnover from2.43in year 2009
to 1.96 in the year 2010. There is less carelessness either (1) in collecting the payments
from debtors, or (2) in extending credit sales to customers leading to an increase in bed
debts and there by an increase in the expenses ratio. The excessive investment in current
assets seem to be affecting the rate of return.

The delay in collection of receivables would mean that, apart from the interest involved
in maintaining a higher level of debtors, the liquidity position of the firm would be
adversely affected.

The stable dividend policy of the company is commendable and is likely to have a
salutary effect on the market price of its shares.

POSITION FROM THE INVESTORS POINT OF VIEW

An investor is primarily concerned with three things

➢ Earning per share

➢ Dividend per share
➢ Prospects of growth in the market value of the share.
The analysis of the financial data of IIFL. indicates upward trend in all these respects.
The EPS has gone up from Rs. 3.73 in year 2009 to Rs. 5.73 in year 2010. The dividend
cover has also goes up from Rs. 1.33 to 2.67 during the same period. The rate of return on
investment has gone up from 15.12 to 15.14.
The company has splited its shares of Rs. 10 to Rs. 2 of five. Though the EPS of the
company has decreased because of the spilt of shares which has increased no. of shares
five times.

The same thing applies in DPS also .Every investor is earning the same dividend as
He/She was in last year. Another view can be that company has sufficient working
capital with in. But this is not true company is depending more on debt which can be
seen from its debt to equity ratio High debt to equity ratio have the benefit of leverage
for equity investors.

Dividend yield ratio of company has reduced from 87.83 in year 2009 to 65.57 in the
year 2010. This is merely because of increasing the number of shares. Because of split in
spite of reducing the face value of shares from Rs. 10 to Rs.2 the market value of share
has gone up. If we don’t take in to account the split in this year market value has been
five times in comparison to last year which shows the investors have faith in company’s
policies.
 CONCLUSION & SUGGESTIONS

The conclusion derived from the study of financial analysis of India Infoline Ltd. shows
that the overall financial strength of the company is extremely good. Because the current
assets exceeds the current liabilities in all the financial years of the company. But current
assets of the company are heavily increased during the year 2010 which boosted the
current ratio of the company. The working capital position of the company is better in the
financial year 2010 as compared to the previous years. The overall profitability of the
company is good.

Suggestions:

1. Liquidity Ratios:
Liquidity refers to the ability of the concern to meet its current obligations as and when
these become due. The short-term obligations are met by realizing amounts from current
floating or circulating assets. The liquidity position of the company is better as compared
to the previous years. The ratios such as current ratio, liquid ratio and has been increased
as compared to the previous year 2007,2008,2009. This increases due to the sundry
debtors, loan and advances and heavy cash and bank balances maintained by the
company. Although company is heaving better liquidity position, but there is still a scope
to improve it.

2. Solvency Ratios:
The term solvency refers to the ability of a concern to meet its long-term obligations. Due
to the heavy liquidity position maintained by the company. But the long-term position is
not much better. So the company is recommended to make the balance between liquidity
and solvency position of the company.
3. Profitability Ratios:
The primary objective of the business undertaking is to earn profits. Profit earning is
considered essential for the survival of the business. The net profits of the company is
increased as compared to the previous years but this is due to the increase in the credit
sales of the company which shows that the company is adopting liberal credit policy to
increase its profits but the company is also suffered from the increase in average days of
collection so the company should maintain its credit policy to make a balance between
the cash and credit sales and take some measures its average days of collection. For
improving its collections, the company may adopt the services of the factors (factoring).

4. Efficient utilization of resources:

The company is having better short-term financial position. It has more current assets as
compared to the current liabilities, which will effect the overall profitability position of
the company so the company should manage its current assets properly.

5. Management of debtors:
The increase in the current assets is due to the increase in the debtors of the company. So
the company is recommended to manage its debtors properly. Increase in debtors may
create certain problems in the long-term run of the company.
 SOME GENERAL SUGGESTIONS FOR THE SUCCESS OF THE
COMPANY:

1. Increasing the market area or developing the new market:

The company is having better financial strength. So by efficiently using these resources
company can increase the area of operation or develop new markets by adopting
international standards.

2. Quality control:
By providing good and the cost control measure with the objectives to attain the desired
level of the sales volume.

3. Locational advantage:
India is a nation of more rural areas. So company should target this areas for covr the
market share in the industry.

It is hoped that by adopting these suggestions IIFL can achieve its desired place in the
financial sevices industry of the India as well as in the World.
 LIMITATIONS

The main limitations of the project undertaken are as under :-

➢ Time : The time of around six weeks was too short to study as wide subject like
Financial Analysis.
➢ Confidential information : The executives were hesitant to reveal complete information
since it was confidential.
➢ Busy Schedule of Concerned Executives : The concerned executives were not having
very busy schedule because of which they were reluctant to give appointment.
➢ Unawareness : Executives were unaware of many terms related to Financial Analysis
while asking to them.
 APPENDIX

Balance sheet of India Infoline ltd. as on 31st March 2010

in Rs. Cr.

Particulus 2008-09 2009-10

Sources of
funds

Share capital 56.68 57.04

Reserve & surplus 980.13 1050.67

Equity share 11.37 0.40

warrants

Net worth 1048.18 1108.11

Loan funds

Secured loan 1.70 1.17

Unsecured loan 00.10 496.58

Total Liability 1049.98 1605.86

Application
funds

Fixed
asset(including
intangibles)

Gross block 143.67 108.83

Less: 44.94 60.63

accumulated
depreciation and
amortization

Net block 98.73 48.20

Capital work in 4.51 1.75
progress

103.24 49.95

Investment 869.31 1104.22

Currents asset
loan and
advance

Sundry debtors 103.53 577.50

Cash & bank 264.10 561.84

balance

Stock on hand 166.72 53.76

Loan & advance 244.41 516.71

778.75 1709.81

Less: current
liabilities &
provision

Current liabilities 552.68 1025.81

Provisions 148.64 232.31

Total 701.32 1258.12

Net current 77.43 451.69

assets

Total of Assets 1049.99 1605.86

Profit & Loss account of India Infoline ltd. as on 31st March 2010

in Rs. Cr.

Particulus 2008-09 2009-10

 INCOME

Sales Turnover 542.27 665.99

Excise Duty 0.00 0.00

Net Sales 542.27 665.99

Other Income 29.34 32.20

Stock Adjustments 0.00 0.00

Total Income 571.61 698.19

EXPENDITURE

Raw Materials 0.00 0.00

Power & fuel Cost 0.00 0.00

Employee Cost 136.91 164.15

Other Manufacturing Expenses 93.32 146.40

Selling & Admin Expense 112.16 0.00

Miscellaneous Expense 41.03 112.23

Preoperative Exp. Capitalists 0.00 0.00

Total Expenses 383.42 422.78

OPERATING PROFIT 158.85 243.21

PBDIT 188.19 275.41

Interest 11.15 10.25

PBDT 177.04 265.16

Depreciation 25.56 31.86

Other Written Off 0.00 0.00

Profit Before Tax 151.48 233.30

Extra Ordinary Items 2.23 -3.96

PBT(post extra-ord items) 153.71 229.34

 Tax 47.88 77.34

Reported Net Profit 105.83 152.02

Total value Addition 383.42 422.77

Preferred Dividend 0.00 0.00

Equity Dividend 79.45 85.20

Corporate Dividend Tax 13.50 14.48

Per Share Data

Share in Issue(in Lakhs) 2,834.00 2852.15

Earning Par Share(Rs) 3.73 5.33

Equity Dividend (%) 140.00 150.00

Book Value(Rs) 36.58 38.84

 BIBLIOGRAPHY

➢ Financial management by prasanna Chandra

➢ Accounting for managers by Ambrish Gupta
➢ All the staff of the company.
➢ www.indiainfoline.com
➢ www.wikipidea.com
➢ Financial express news paper