24-11-2012, 05:11 PM
FINANCIAL RATIO ANALYSIS
GMR Ratio Analysis...docx (Size: 251.04 KB / Downloads: 46)
Introduction
The aim of this project is to analyze the performance of GMR Infrastructure Limited using financial ratio analysis and comparing it with other peer companies. The financial health of the company has been compared based on some of the financial ratios. The companies that have been considered for obtaining the industry standard are peer group companies
1. Jaypee Infrastructure Limited
2. Unitech
Methodology
Data required to analyze the financial health of the company has been collected from the each company’s annual report in the form of Balance sheet and Profit and loss Statement. Using these, various financial ratios, that would be useful for analysis, are calculated.
Activity Ratio
Activity ratio measures a firm's ability to convert different accounts within their balance sheets into cash or sales. Companies will typically try to turn their production into cash or sales as fast as possible because this will generally lead to higher revenues
Such ratios are frequently used when performing fundamental analysis on different companies and are known as Activity Ratios.
Total Asset Turnover
This ratio is a rough measure of the productivity of a company's fixed asset (property, plant and equipment or PP&E) with respect to generating sales. For most companies, their investment in fixed assets represents the single largest component of their total assets. This annual turnover ratio is designed to reflect a company's efficiency in managing these significant assets. Simply put, the higher the yearly turnover rate, the better.
Profitability Ratios
These ratios, much like the operational performance ratios, give users a good understanding of how well the company utilized its resources in generating profit and shareholder value.
The long-term profitability of a company is vital for both the survivability of the company as well as the benefit received by shareholders. It is these ratios that can give insight into the all-important "profit".
Net Profit Margin
Often referred to simply as a company's profit margin, the so-called bottom line is the most often mentioned when discussing a company's profitability? While undeniably an important number, investors can easily see from a complete profit margin analysis that there are several income and expense operating elements in an income statement that determine a net profit margin. It behooves investors to take a comprehensive look at a company's profit margins on a systematic basis.
Gross Profit Margin
By subtracting selling, general and administrative (SG&A), or operating, expenses from a company's gross profit number, we get operating income. Management has much more control over operating expenses than its cost of sales outlays. Thus, investors need to scrutinize the operating profit margin carefully. Positive and negative trends in this ratio are, for the most part, directly attributable to management decisions.
A company's operating income figure is often the preferred metric (deemed to be more reliable) of investment analysts, versus its net income figure, for making inter-company comparisons and financial projections.
Conclusion
The financial analysis presents a mixed picture of the performance of the Infrastructure Conglomerates. The downturn in the year 2008-2009 has affected the top line of all the major players. GMR however has been able to carve out growth in its profit margins. It has maintained a bigger profit amount than its peers. GMR has shown sustained growth in Gross Revenue, Gross Assets, EBITDA and profit after tax over the years. Projects for up gradation, operation and maintenance for several major airports including the Delhi, Mumbai, Hyderabad and Bangalore airports are already in process of being executed or have been executed. GMR is working on two of these airports. This has resulted in sustained growth in business for the company and is evident in the high profitability ratios for GMR as compared to its peers. The current ratio of GMR is higher than the industry benchmark showing high current assets and liquidity. Low debt to equity ratio is indicative of the ability of the company to be able to repay debts. High Receivable Turnover ratio compared to peer indicates that the company has a lower average collection period as compared to the peer group companies.