INTRODUCTION:

Bata (also known as Bata Shoes Organisation) is a family-owned global footwear and fashion accessory manufacturer and retailer with acting headquarters located in Lausanne, Switzerland. Organised into three business units: Bata Europe, based in Italy; Bata Emerging Market (Asia, Pacific, Africa and Latin America), based in Singapore, and Bata Protective (worldwide B2B operations), based in the Netherlands, the organisation has a retail presence in over 70 countries and production facilities in 26 countries. Bata estimates that it serves more than 1 million customers per day, employing over 30,000 people, operates more than 5,000 retail stores, and manages 27 production facilities and a retail presence in over 90 countries. The company operates in two segments, namely footwear & accessories, and investments in joint venture for surplus property development. Their Footwear &Accessories segment is engaged in the business of manufacturing and trading of footwear and accessories items through their retail and wholesale network. Their Investment in joint venture for surplus property development segment is involved in development of real estate at Batanagar. Their products include leather footwear, rubber/canvas footwear and plastic footwear. The net sales of the company grew 11.2% at Rs. 2591.5 million as against net sales of Rs. 2330.3 million in the same period last year.

FINANCIAL STATEMENT ANALYSIS

Financial statement analysis is the collective name for the tools and techniques that are intended to provide relevant information to decision-makers. The primary objective of financial reporting is to provide information to present and potential investors, creditors, and others in making rational investment, credit and other decisions. Effective decision-making requires evaluation of the past performance of companies and assessment of their future prospects.

Purpose of financial statement analysis: The purpose of this analysis is to assess a companys financial health and performance. Financial statement analysis consists of comparisons for the same company over periods of time and for different companies in the same industry or different industries. Financial statement analysis enables investors and creditors to Evaluate past performance and financial position; and Predict future performance.

Standards of comparison: Financial analysts look for pertinent standards of comparisons to determine whether the results of their financial statement analysis are favourable or unfavourable. For this purpose, comparisons are made with the following: General rule-of-thumb indicators Past performance of the company Internal standards Industry standards

TECHNIQUES OF FINANCIAL STATEMENT ANALYSIS The most commonly used analytical techniques are: 1. Horizontal analysis 2. Trend analysis 3. Vertical analysis 4. Ratio analysis

RATIO ANALYSIS
Ratio analysis involves establishing a relevant financial relationship between components of financial statements. Two companies may have earned the same amount of profit in a year, but unless the profit is related to sales or total assets, it is not possible to conclude which of them is more profitable. Ratio analysis helps in identifying significant relationship between financial statement items for further investigation. If used with understanding of industry factors and general economic conditions, it can be a powerful tool for recognizing a companys strengths as well as its potential trouble spots. Commonly used financial ratios are as follows:

PROFITABILITY RATIO

LIABILITY RATIO

SOLVENCY RATIO

CAPITAL RATIO

Profit margin Asset turnover Return on assets Return on equity Earnings per share

Current ratio Quick ratio Debtors turnover

Debt on equity Liability to equity Interest coverage

Price earnings Dividend yield Price to book ratio

Thus financial ratios are used to evaluate profitability, liquidity, solvency, and capital market strength.

PROFITABILITY RATIO

Profitability ratios measure the degree of operating success of a company. Investors are keen to learn about the ability of the company to earn revenues in excess of its expenses. They will not be interested in a company that does not earn a sufficient margin on its sales. Failure to earn an adequate rate of profit over a period will also drain the companys cash and impair its liquidity. The commonly used rations to evaluate profitability are: 1. Profit margin 2. Asset turnover 3. Return on assets 4. Return on equity 5. Earnings per share

1. PROFIT MARGIN
EXPLANATION: This ratio is also known as return on sales (ROS). It measures the amount of net profit earned by each rupee of revenue. Profit margin = Profit after tax / sales * 100 SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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2. ASSET TURNOVER
EXPLANATION: This is a measure of a firms efficiency in utilizing its assets. It indicates how many times the assets were turned over in a period in order to generate sales. If the asset turnover is high, we can infer that the enterprise is managing its assets efficiently. A low asset turnover implies the presence of more assets than a business needs for its operations. Asset turnover = sales / average total assets Average total assets = opening assets + closing assets / 2 SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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3. RETURN ON ASSETS
EXPLANATION: It is also known return on investment. This is a measure of profitability from a given level of investment. It is an excellent indicator of a companys overall performance. Return on assets = Profit after Tax/Average Total Assets *100 SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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4. RETURN ON EQUITY
This is a measure of profitability from shareholders standpoint. It measures the efficiency in the use of shareholders funds. Return on equity = Profit after Tax / Average Shareholders Equity*100 SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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5. EARNING PER SHARE

Financial analysts regard the earning per share (EPS) as an important measure of profitability. EPS is useful in comparison over time. Earnings per share =Profit after Tax / No. of shares SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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LIQUIDITY RATIOS
Liquidity is the ability of a business to meet its short-term obligations when they fall due. An enterprise should have enough liquid and other current assets which can be converted into cash so that it can pay its suppliers and lenders on time. The commonly used ratios to evaluate liquidity are: 1. Current ratio 2. Quick ratio 3. Debtor turnover 4. Inventory turnover

1. CURRENT RATIO
This is the ratio of current assets to current liabilities. It is a widely used indicator of a companys ability to pay its debts in the short-term, and shows the amount of current assets a company has per rupee of current liabilities. A current ratio of more than one means that a business has more current assets per rupee of current liabilities, implying that it may be able to pays its current liabilities using its current5 assets. In other words, its operations will not be disrupted. Current ratio is expected to be at least 2:1. Current ratio = Current Assets / Current Liabilities SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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2. QUICK RATIO
All current assets are not equally liquid. While cash is readily available to make payments to suppliers and debtors can be converted into cash with some effort, inventories are two steps away from cash. Thus a large current ratio by itself is not a satisfactory measure of liquidity when inventories constitute a major part of the current assets .Therefore, the quick ratio or acid test ratio is computed as a supplement to the current ratio. This ratio relates relatively more liquid current assets less inventories, to current liabilities. Quick ratio is expected to be 1:1 Quick ratio = Quick Assets / Current Liabilities SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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3. DEBTOR TURNOVER RATIO

A companys ability to collect from its customers in a prompt manner enhances its liquidity. The debtor turnover ratio measures the efficacy of a firms credit policy and collection mechanism and shows the number of times each year the debtor turn in to cash. It provides some indication of the quality of a firms debtors and collection effort .High debtor turnover indicates that debtors are being converted rapidly into cash and the quality of the companys portfolio is good. Debtors turnover ratio = Sales / Average Debtors It is common to express debtors turnover in AVERAGE DEBT COLLECTION PERIOD, in order to calculate relative to the companys credit period. Average debt collection period = 360 / Debtors Turnover SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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4. INVENTORY TURNOVER RATIO

This ratio shows the number of times a companys inventory is turned to sales. Investment in inventory represents idle cash .The lesser the inventory, the greater the cash available for meeting operating needs. High inventory turnover is a sign of efficient inventory management. Inventory turnover management = Cost of Goods Sold / Average Inventory SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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SOLVENCY RATIO
Long term solvency of a business is affected by extent of debt used to finance the assets of the company. The presence of heavy debt in company capital structure is thought to reduce company solvency because debt is more risky than equity. The debt to equity ratio and the interest coverage ratio are important indicator of solvency. The commonly used ratio to measure solvency are as follows: 1. Debt on equity ratio 2. Liability to equity ratio 3. Interest coverage ratio

1. DEBT EQUITY RATIO

A wise mix of debt and equity can increase the returns on equity : a) Debt is generally cheaper than equity b) Interest payments are tax deductible expenses. However, excessive use of debt financing is risky. A company has a legal obligation to make interest and principle payments at a due date .if a company takes on so much debts that it becomes unable to make the required interest and principle disbursements on time, the creditors may force liquidation of the company. The ratio indicates the extent of use of financial leverage .A high debt equity ratio indicates aggressive use of leverage. A low ratio suggests that the company has a small degree of leverage is too conservative. Debt to equity ratio = secured loans +unsecured loans / shareholders equity SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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2. LIABILITY TO EQUITY RATIO

A variant of the debt to equity ratio is the liabilities to equity ratio. It is especially useful in the case of firms that keep rolling over short term obligations Liability to equity ratio = total liabilities / shareholders equity SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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3. INTREST COVERAGE RATIO

This is a measure of the protection available to creditors for payment of interest charges by the companies. The ratio shows whether the company has sufficient income to cover its interest requirement by a wide margin. A high ratio implies adequate safety for payment of interest even if there was to be a drop in the companys earnings. Interest coverage ratio = Profit before interest and tax / Interest expenses SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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CAPITAL MARKET RATIO

It relates the market price of a companys share to the companys earnings and dividend. The most commonly ratios that aid investors and analysts in understanding the strength of the company in the capital market are as follows: 1 Price earnings ratio 2 Dividend yield 3 Price to book ratio

1. PRICE EARNING RATIO

It measures extensively used in investment analysis. It is considered as an indicator of firms growth prospectus. Profit earnings ratio = Average Stock Price / Earnings Per Share SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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2. DIVIDEND YIELD RATIO

It represents the current cash return to shareholders. It is the ratio of dividend per share to current market price. The increase in the dividend yield indicates that the cash returns on share went up. Dividend yield ratio = Dividend per Share / Average Stock Price SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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3. PRICE TO BOOK RATIO

This measure compares a companys stock price with the book value .Book value per share is the amount of shareholder equity dividend by the number of shares. A low P/B ratio is often seen as an indication of under-pricing of the stock. A price to book ratio of more than one means that the market expects the stock to earn at a rate higher than the required rate. Price to book ratio = average market price per share / book value per share Book value per share = shareholders equity / no. of equity shares SOLUTION: 2009-2010 BATA LIBERTY 2010-2011 2011-2012

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