CAPÍTULO I. PLANTEAMIENTO GENERAL DEL PROBLEMA DE INVESTIGACIÓN
1. MARCO CONCEPTUAL
1.7. FUNDAMENTOS TÁCTICOS
1.7.1. La acción táctica de juego
Profitability Ratios
(i) Operating Ratio (ii) Net Profit Ratio (iv) ROI (Return on investment)
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(i) Operating Ratio
Operating Costs X 100 Net Sales
For 2005 = 198,467 = 0.0158 12,483,090
For 2006 = 357,966,291 = 0.4582 781,143,954
For 2007 = 1,842,446,409 = 0.5902 3,121,564,463
Opertaing Ratio
0.0158
0.4582
0.5902
0 0.2 0.4 0.6 0.8
2005 2006 2007
Years
Ratios
Interpretation: The operating ratio indicates the operational efficiency of the business. The operating cost ratio is showing an upward trend over the years, which is not a positive sign. In the years 2005-06 operating costs became 1804 times the 2004-05 figure, while increase in sales was mere 62.57 times. In the year 2006-07, the an increase of 51.22 times was seen in operating cost resulting in an increase of 3.996 times in sales. Increase is operating cost is more steep during the year 2005-06 as compared to year 2006-07.This huge increase in operating costs can be attributed to initial investments required to be made in business.
(ii) Net Profit Ratio: It can be calculated as:
Net Profit after tax x100 Net sales
Calculation:
For year 2004-05 = 14,179,477 = 1.1358
12,483,090
For year 2005-06 = 281,077,091= 0.3598 781,143,954
For year 2006-07 = 797,914,368 = 0.2556 3,121,564,463
Net Profit Ratio
0.3598 0.2556
1.1358
0 0.5 1 1.5
2005 2006 2007
Years
Ratios
Interpretation: Net profit ratio is reflecting the increasing trend of operating cost. As operating costs are increasing, net profit figure is decreasing resulting in a decrease in Net profit ratio, which is also not a positive sign for the organisation. Sales increased 62.57 times in year 2005-06 while increase in profit was less than proportionate i.e.
19.82 times. While in year 2006-07, sales increase to 3.996 times, making net profits increase to 2.84 times, which was very near to proportionate. But increase is sales was lesser than the last year. The net profit ratio is required to increase in the coming years, as decreasing ratio is reflecting inefficiencies in business operations.
(iii) ROI (Return on investment): It is calculated as:
Net profit before Interest & Taxes Total Capital Employed
Capital Employed = Share capital + Reserves and surplus + Long term liabilities (Non-Business Assets +Fictitious Assets)
Calculation:
For 2004-05
=
22,339,445 = 0.0168 1,327,914,84356
For 2006-07 = 425,490,819 = 0.0902 4,716,634,402
For 2006-07 = 1,270,764,665 = 0.1737 7,315,454,695
Interpretation: Return on Investment indicates the Net profit earned on the total capital employed. Return on capital employed is showing an increasing trend over the years. In year 2005-06 increase in capital employed was 3.55 times which resulted in more than proportionate increase in net profit before interest & taxes i.e. 19.07 times.
In year 2006-07, Capital employed increased to 1.55 times of previous year, while sales increased to 2.98 times. The increase has been steeper in year 2005-06 as compared to year 2006-07. It is good indicator for the organisation because in spite of increasing operating costs, it is able to give increasing returns on capital employed.
II. Turnover Ratios
(i) Fixed Assets Turnover Ratio: The ratio is calculated as follows:
For 2005-06 = 781,143,954 = 18.18 42,949,828
For 2006-07 = 3,121,564,463 = 15.675 199,133,425
Fixed Assets Turnover Ratio
15.675 18.18
14 15 16 17 18 19
2006 2007
Years
Ratios
Interpretation: It indicates the efficiency of utilizing fixed assets to attain the sales/revenues, hence higher the ratio better the position is. The available financial information shows that the company didn’t own any fixed assets in the year of its inception. The fixed asset ratio decreased in the year 2006-07 as fixed assets increased by 4.64 times as compared to 2005-06 while increase in sales is slightly less than proportionate i.e. 3.996, keeping the fixed assets ratio low. It can be because of investment in fixed assets, which could not bring immediate increase in the sales.
(ii) Current Assets Turnover Ratio: It is calculated as follows: -
Net Sales Current Assets
Calculation:
For 2004-05 = 12,483,090 = 0.00934 1,336,200,011
For 2005-06 = 781,143,954 = 0.1559 5,009,014,889
For 2006-07 = 3,121,564,463 = 0.3693 8,450,405,011
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Current Assets Turnover Ratio
0.00934
0.1559
0.3693
0 0.1 0.2 0.3 0.4
2005 2006 2007
Years
Ratios
Interpretation: It indicates the efficiency in utilizing the current assets to achieve the sales/ revenue. The current assets turnover ratio is showing an increasing trend, showing that company is improving in utilizing its current assets. In year 2005-06, the current assets had increased by 3.75 times while the increase in sales was more than proportionate i.e. 62.57 times. In year 2006-07, an increase of 1.69 times sin current assets bought about 3.996 times increase in sales. It can be concluded that the company in improving upon the current asset utilization & managing them in efficient manner.
(iii) Working Capital Turnover Ratio: This ratio is calculated as follows:
Net Sales Working Capital
Calculation:
For 2004-05 = 12,483,090 = 0.0094 1,327,849,811
For 2005-06 = 781,143,954 = 0.1637 4,770,479,328
For 2006-07 = 3,121,564,463 = 0.5148 6,062,813,229
Working Capital Turnover Ratio
0.0094
0.1637
0.5148
0 0.2 0.4 0.6
2005 2006 2007
Years
Ratios
Interpretation: Working capital Turnover ratio indicates the efficiency in utilizing the working capital in increasing sales/ revenues. This ratio is also showing an increasing trend, which is again a positive sign for the organisation. An increase of 3.5 times in working capital had brought about an increase of 62.57 times in sales, in year 2005-06. While the increase in working capital turnover ratio is steeper in year 2006-07 than in year 2005-06.In year 2006-2006-07, 1.27 times increase in working capital resulted in3.996 times increase in working capital.
(iv) Capital Turnover ratio: It is calculated as:
Sales
Capital Employed Calculation:
For 2004-05 = 12,483,090 = 0.0094
1,327,914,843
For 2005-06 = 781,143,954 = 0.1656 4,716,634,402
For 2006-07 = 3,121,564,463 = 0.4267 7,315,454,695
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Capital Turnover Ratio
0.0094
0.1656
0.4267
0 0.1 0.2 0.3 0.4 0.5
2005 2006 2007
Years
Ratio
Interpretation: Capital turnover ratio indicates the amount of capital turned over to achieve the sales/ revenues. In year 2005-06 capital employed increased to 3.552 times, which resulted in more than proportionate increase in sales i.e. 62.57 times.
While in year 2006-07 capital employed increased by 1.55 times while sales increase by 3.996 times resulting in approx 2.5 times increase in Capital turnover ratio. It indicates the efficiency of organisation in utilizing the capital resources. Capital employed ratio is increasing over the years, indicating the improving situation, as higher the ratio better will be the position.