Financial Analysis of Paint Industry

financial c e reallywhereage psychoanalysis Paint diligence ( Asiatic Paints) Financial reporting Analysis of Paint effort (Asian Paints) CONTENTS lucrativeness symmetrys .. 3 direct gain ground borderline 3 industriousness comparison .. earn Profit Margin .. 4 persistence Comparison .. 4 exculpate Profit Margin 5 Industry Comparison .. Earnings per share . 6 Industry Comparison .. 6 PERFORMANCE RATIO . 7 hurt/Earnings ratio . Industry Comparison .. 7 Return on Capital Employed .. 8 Industry Comparison .. 8 DEBT insurance c everywhereage RATIO .. . Interest Coverage Ratio .. 9 Industry Comparison .. 9 LIQUIDITY AND SOLVENCY RATIO 10 Current Ratio . 0 Industry Comparison 10 supple Ratio .. 11 Industry Comparison 11 ACTIVITY RATIO . 2 record turnover rate Ratio .. 12 Industry Comparison 12 3 criterion Du Pont Analysis 13 Asian Paints . 3 Berger Paints .. 13 Kansai Nerolac .. 14 Akzo Nobel 15 CONCLUSION .. 15 pageboy 2Financial Reporting Analysis of Paint Industry (Asian Paints) PROFITABILITY RATIOS OPERATING PROFIT MARGIN operate permissiveness is a measurement of what proportion of a fedeproportionns tax revenue is left over aft(prenominal) paying for vari competent costs of production such as wages, black materials, etc. When looking at operating margin to determine the choice of a union, we look at the change in operating margin over time to compare the federations social classly or quarterly figures to those of its competitors. If a comp eithers margin is increasing, it is earning to a great extent per dollar of changes. The spiriteder the margin, the better is the performance of the company. in operation(p) Margin = in operation(p) Income/Net Sales intentness COMPARISON 2011-12 2010-11 2009-10 2008-09 2007-08 Asian Paints 16. 81 17. 57 19. 24 13. 16 15. 83 Berger Paints 10. 61 10. 21 10. 45 8. 43 10. 08 Kansai Nerolac 12. 3 12. 88 14. 55 10. 7 14. 24 Akzo Nobel 6. 65 11. 00 12. 33 11. 89 10. 60 25 20 2011-12 15 2010-11 2009-10 10 2008-09 2007-08 5 0 Asian Paints Berger Paints Kansai Nerolac Akzo Nobel The graphs show a higher esteem for Asian Paints as compared to its competitors. The reason for this is the high income earned for every sale concluded. However, the ratio for all the companies is dropping over the eld.Akzo Nobel has shown a sharper decay than all the others, which implies lesser income. The profit margin of the company has declined and hence OM has to a fault declined. Page 3 Financial Reporting Analysis of Paint Industry (Asian Paints) GROSS PROFIT MARGIN A companys total sales revenue minus its cost of advantageouslys sold, divided by the total sales revenue, express as a percentage. The egregious margin represents the percentage of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and run sold by a company.The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations. Gross Margin (%)= (Revenue-Cost of Sales) / Revenue attention COMPARISON Asian Paints 15. 61 16. 14 18. 11 11. 90 14. 62 Berger Paints 9. 19 8. 77 8. 88 7. 08 8. 69 Kansai Nerolac 10. 24 10. 70 12. 11 8. 16 11. 23 Akzo Nobel 4. 77 9. 21 10. 29 9. 53 8. 18 2011-12 2010-11 2009-10 2008-09 2007-08 20 18 16 14 12 10 8 6 4 2 0 14. 62 11. 9 18. 11 16. 14 15. 61 Percentage (%) 12. 11 10. 7 10. 24 11. 23 7. 08 8. 88 8. 77 9. 19 8. 16 8. 18 9. 53 10. 29 9. 21 Akzo Nobel 8. 69 Asian Paints Kansai NerolacBerger Paints 2008 2009 2010 2011 2012 ? The gross profit margin percentages (GPMs) are almost constant over the years for all the four companies. Asian Paints has greater GPM than others as, being the largest company twain in terms of the balance sheet and the merchandise share it enjoys wide economies of scale. This guarantees minusculeer costs as compared to the competitors. ? Akzo Nobels GPM has dipped drastically from FY11 to FY12 and that is because of sum up in the expenses. These expenses were mainly on account of hiring (employee expenses) that the company did during the financial year 2012. 4. 77 Page 4Financial Reporting Analysis of Paint Industry (Asian Paints) bring in PROFIT MARGIN The ratio of net profits to revenues for a company or business segment typically expressed as a percentage that shows how much of each dollar earned by the company is translated into profits. Net margins can generally be calculated as Net Margins = Net Profit/Revenue Where Net Profit = Revenue-COGS- in operation(p) Expenses Interest and Taxes INDUSTRY COMPARISON Asian Paints 2011-12 2010-11 2009-10 2008-09 2007-08 11. 38 11. 61 14. 29 7. 97 10. 28 Berger (%) 6. 61 6. 99 7. 02 5. 79 6. 79 Paints Kansai Nerolac 7. 86 9. 03 9. 04 6. 58 9. 00 Akzo Nobel 9. 60 14. 8 15. 00 31. 6 6. 30 35 30 25 20 15 10 5 0 Asian Paints Berger Paints Kansai Nerolac Akzo Nobel 2011-12 2010-11 2009-10 2008-09 2007-08 ? Net margins leave vary from company to compan y, and certain ranges can be expected from sedulousness to pains, as similar business constraints exist in each plain industry. ? Here, the values are falling for all the companies, and all of them arrest more or less similar values. This implies that the NPM is similar for all companies. Page 5 Financial Reporting Analysis of Paint Industry (Asian Paints) EARNINGS PER moroseice The portion of a companys profit allocated to each capital share of popular stock.Earnings per share serve as an exponent of a companys profitability. When calculating, it is more faultless to use a weighted average issuance of shares outstanding over the reporting term, because the number of shares outstanding can change over time. EPS= (Net Income Dividends on Preferred Stock) /Average Outstanding Shares INDUSTRY COMPARISON Asian Paints 2011-12 2010-11 2009-10 2008-09 2007-08 99. 92 80. 81 80. 74 37. 78 39. 12 Berger RS 5. 12 4. 29 3. 47 2. 78 2. 89 Paints Kansai Nerolac 40. 06 38. 22 61. 42 3 6. 59 44. 46 Akzo Nobel 54. 79 47. 94 43. 25 77. 38 15. 69 120 100 80 60 40 20 0 39. 12 37. 78 80. 74 80. 81 99. 92 44. 46 36. 9 61. 42 38. 22 40. 06 Asian Paints Kansai Nerolac 2. 89 Berger Paints 2. 78 3. 47 4. 29 5. 12 2008 2009 2010 15. 69 Akzo Nobel 2011 ? The shares of Berger paints make up a Face Value of Rs. 2, hence it has a larger number of shares. On the other hand, Asian Paints has Face Value of Rs. 10 thence it has smaller number of shares. This implies that the EPS of Berger Paints is less than Asian Paints. ? Asian Paints has the best figures in spite of adjustment of EPS. A better comparison of the EPS can be done with adjusted EPS, as it gives realistic numbers. Hence for comparing, we can cipher the EPS of Berger Paints by 5 and then compare.Also Berger paints has been the most consistent competitor passim 5 year with steady enlarge in EPS. 77. 38 43. 25 47. 94 54. 79 2012 Page 6 Financial Reporting Analysis of Paint Industry (Asian Paints) PERFORMANCE RATIOS PRICE/EARNINGS RATIO The worth by dough ratio is a valuation ratio of a companys up-to-the-minute share terms compared to its per-share earnings. A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. Price Earnings ratio = (Market Value per Share) / (Earnings per Share) INDUSTRY COMPARISON 2011-12 2010-11 2009-10 2008-09 2007-08Asian Paints 31. 91 31. 35 25. 59 20. 96 30. 06 Berger Paints 20. 09 19. 86 16. 83 12. 59 12. 58 Kansai Nerolac 22. 52 21. 3 9. 92 5. 58 8. 03 Akzo Nobel 14. 64 16. 31 13. 85 5. 39 39. 74 45. 00 40. 00 35. 00 30. 00 25. 00 20. 00 15. 00 10. 00 5. 00 0. 00 Asian Paints Kansai Nerolac Berger Paints 8. 03 5. 58 9. 92 30. 06 20. 96 25. 59 31. 35 31. 91 21. 30 22. 52 12. 59 16. 83 19. 86 20. 90 39. 74 12. 58 Akzo Nobel 2008 2009 2010 2011 5. 39 ? A high P/E value implies future expectation of the markets from the shares of the company is high. Very high PE(price to Earning) implies an ove rpriced share in the market. High ROCE(Return on Capital Employed) with low PE implies that company is doing well and the price of shares ordain leap in future. Berger Paints in this regard stands out because it has efficiently managed the input new(a) material fluctuations very well. ? Asian Paints has the highest ROCE in the industry for FY12, as it is the market leader as well. Page 7 13. 85 16. 31 14. 64 2012 Financial Reporting Analysis of Paint Industry (Asian Paints) RETURN ON CAPITAL EMPLOYED A ratio which indicates the capacity and profitability of the detonating device investments by a company.ROCE should always be higher than the rate at which the company borrows otherwise any development in borrowing will reduce shareholders earnings. ROCE = EBIT / (Total assets Current Liabilities) INDUSTRY COMPARISON 2011-12 2010-11 2009-10 2008-09 2007-08 Asian Paints 52. 24 55. 73 62. 84 49. 35 57. 32 Berger Paints 25. 88 26. 2 26. 64 18. 48 22. 9 Kansai Nerolac 27. 02 27. 3 26. 8 25. 4 28. 1 Akzo Nobel 17,36 14. 17 12. 94 11. 57 13. 04 70 60 50 40 30 20 10 0 57. 32 49. 35 62. 94 55. 73 52. 24 22. 9 18. 48 26. 64 26. 2 25. 88 25. 43 26. 78 27. 36 27. 02 28. 01 Asian Paints Kansai Nerolac Berger Paints 008 2009 2010 ? If (Return on Capital Employed) ROCE is high and Price to Earning is low (i. e. , it is share is available cheaply), the share is recommended. This is because the company is utilizing its capital well and the price is lower as compared to the earnings. ? Asian Paints has had a phenomenal growth in this regard. It has been very efficiently utilizing the capital employed. This factor has been one of the distinguishing factors clearly fashioning it market Leader. 13. 04 11. 57 12. 94 14. 17 17. 36 Akzo Nobel 2011 2012 Page 8 Financial Reporting Analysis of Paint Industry (Asian Paints)DEBT COVERAGE RATIOS affaire COVERAGE RATIO A ratio utilize to determine how tardily a company can pay stakes on outstanding debt. The interest coverage r atio is calculated by dividing a companys earnings before interest and taxes (EBIT) of one period by the companys interest expenses of the akin period. INDUSTRY COMPARISON 2011-12 2010-11 2009-10 2008-09 2007-08 Asian Paints 50. 66 74. 05 74. 27 55. 04 69. 73 Berger Paints 15. 14 17. 99 36. 62 8. 33 10. 28 Kansai Nerolac 340. 78 310. 54 196. 02 75. 24 112. 68 Akzo Nobel 64. 18 103. 00 116. 55 38. 29 33. 68 400 350 112. 68 75. 24 196. 02 300 250 200 69. 73 55. 4 74. 27 74. 05 50. 66 150 100 50 0 Asian Paints Products 310. 54 340. 7 Kansai Nerolac Berger Paints 8. 33 36. 62 17. 99 15. 14 10. 28 2008 2009 2010 33. 68 38. 29 Akzo Nobel 2011 ? For Kansai Nerolac, the debt has drastically reduced from 1. 23 to 0. 09Cr in FY11-12. Therefore a very drastic drop in Interest coverage Ratio is seen for FY12. though Akzo Nobel has no long term debt, it the piteous liabilities are the reason which leads to the interest expenses. ? Also, Berger Paints has seen its interest expenses increase by 50% and debt coverage ratio high indicating that it has higher interest payables.This implies that it has taken bulky debts, the reason for which might be for expansion, as the other ratios for the company do non point to any problems in its earnings capability Page 9 116. 55 103 64. 18 2012 Financial Reporting Analysis of Paint Industry (Asian Paints) LIQUIDITY AND SOLVENCY RATIOS authorized RATIO The current ratio, overly k straightwayn as liquidity ratio, is used to give an idea of the companys ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, scrutinise, receivables). The higher the current ratio, the more capable the company is of paying its obligations.A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go insolvent as there are many ways to access fina ncial backing but it is definitely not a good sign. Current Ratio = Current pluss/ Current Liabilities INDUSTRY COMPARISON 2011-12 2010-11 2009-10 2008-09 2007-08 Asian Paints 1. 07 0. 93 0. 89 1. 13 0. 99 Berger Paints 1. 44 1. 43 1. 57 1. 34 1. 15 Kansai Nerolac 1. 67 1. 518 1. 44 1. 47 1. 866 Akzo Nobel 1. 09 0. 85 0. 73 0. 79 0. 81 . 52 1. 66 2 1. 8 1. 6 0. 99 1. 13 0. 89 0. 93 1. 07 1. 4 1. 2 1 0. 8 0. 6 0. 4 0. 2 0 Asian Paints 1. 88 1. 3 1. 15 1. 34 1. 57 1. 43 1. 44 1. 53 Kansai Nerolac Berger Paints 2008 2009 2010 ? Paint industry player have typically very healthy CR ranging amidst 1 and 2. There are very few chances of their facing an insolvency problem. ? Asian Paints current assets have seen an increase of about 50% and Current liabilities increase by about 25%, thus leading to a greater increase in its CR from FY11 to FY12. Major increase was due to increase in cash and inventory levels compared to Asian Paints ?Akzo Nobel has experienced a Brobdingnagian increase in inventory production improvement and hence its figures have improved. Page 10 0. 81 0. 79 0. 73 0. 85 1. 09 Akzo Nobel 2011 2012 Financial Reporting Analysis of Paint Industry (Asian Paints) QUICK RATIO An indicator of a companys short-term liquidity. The quick ratio measures a companys ability to gibe its shortterm obligations with its most liquid assets. It is more conservative than the current ratio, as the current ratio often overestimates the companys ability to repay its short term obligations. The higher the quick ratio better is the position of company.It is also k at presentn as the acid-test ratio or the quick assets ratio. Quick Ratio = (Current additions Inventories Prepaid Expenses)/Current Liabilities INDUSTRY COMPARISON Asian Paints 0. 57 0. 34 0. 38 0. 59 0. 47 Berger Paints 1. 10 0. 99 0. 88 1. 10 1. 08 Kansai Nerolac . 84 . 74 . 79 . 99 1. 16 Akzo Nobel 0. 65 0. 48 0. 44 0. 48 0. 45 2011-12 2010-11 2009-10 2008-09 2007-08 1. 16 1. 4 1. 2 1 0. 59 0. 38 0. 34 0. 57 0. 8 1. 08 0. 79 0. 74 0. 84 1. 1 0. 88 0. 99 1. 1 0. 99 0. 6 0. 4 0. 2 0 Asian Paints Kansai Nerolac Berger Paints Akzo Nobel 2008 2009 2010 2011 ? The growth of QR has not been in line with the current ratio.The large variation for different companies is because of the huge levels of inventory (huge portion of CA). ? As compared to FY11, Asian paints inventory has increased by 20% in FY12. ? Berger paints and Kansai Nerolac figures are good, others might have issues in solvency as they have very low values of QR. 0. 48 0. 44 0. 48 0. 65 0. 47 0. 45 2012 Page 11 Financial Reporting Analysis of Paint Industry (Asian Paints) ACTIVITY RATIO INVENTORY turnover RATIO Shows how many times a companys inventory is sold and replaced over a period. Number of days in Inventory holding i. e. (365/ Inventory Turnover Ratio), which is also directly proportional to the cost of handling inventory and should be as low as possible. Inventory Turnover Ratio = COGS / Closing Inventory INDUSTRY COMPARISON Asian Paints 7. 56 7. 08 7. 95 9. 8 8. 03 Berger Paints 5. 80 5. 87 6. 37 6. 64 5. 92 2011-12 2010-11 2009-10 2008-09 2007-08 Kansai Nerolac 6. 76 7. 17 8. 17 10. 08 9. 11 Akzo Nobel 6. 35 8. 73 11. 60 10. 20 8. 72 10 8 6 4 2 0 8. 03 9. 8 7. 95 7. 08 7. 56 12 9. 11 10. 08 8. 17 7. 17 6. 76 6. 64 6. 37 5. 87 5. 8 8. 72 10. 2 11. 6 8. 73 5. 92 Berger Paints Akzo Nobel 14 Asian Paints Kansai Nerolac 008 2009 2010 2011 2012 ? Berger paints is best in the industry, next comes Akzo Nobel and then Asian Paint. ? Sales of Akzo Nobel have increased by 70%, proportionately COGS and inventory has increased by 100%, and therefrom we can observe a sharp dip in its ratio. 6. 35 Page 12 Financial Reporting Analysis of Paint Industry (Asian Paints) 3 STEP DU PONT ANALYSIS ? ROE = Operating skill * Asset Usage capacity * Financial Leverage ? ROE broken good deal into three components Operating efficiency = Net Income / Sales Asset hire efficiency = Sales / Assets Financial Lever age = Assets / Net worthASIAN PAINTS 16 14 12 10 8 6 4 2 0 2007. 5 2008 2008. 5 2009 2009. 5 2010 2010. 5 2011 2011. 5 2012 2012. 5 Operating Efficiency Asset Usage Efficiency Financial leverage ? Operating efficiency has increased from 10. 28 in 2008 to 11. 38 in FY12. out-of-pocket to higher input costs, this parameter has dipped slightly compared to last year. ? Asset Use efficiency has been improving because more and more assets are now productive that were procured in earlier years ? Financial Leverage has been level throughout 5 years, meaning the company has largely relied on money or Equity rather than Debt to function.BERGER PAINTS 8 7 6 5 4 3 2 1 0 2007 2008 Operating Efficiency 2009 2010 2011 2012 2013 Asset Usage Efficiency Financial Leverage Page 13 Financial Reporting Analysis of Paint Industry (Asian Paints) ? Operating efficiency has been varying from 6. 79 2008 to 6. 61 in FY12. Company has not been able to manage the profitability due to varying Crude oil price s. ? Asset Use efficiency has been improving because more and more assets are now productive that were procured in earlier years ? Financial Leverage has been declining throughout 5 years, which is beneficial to the company.KANSAI NEROLAC 10 9 8 7 6 5 4 3 2 1 0 2007 2008 2009 2010 2011 2012 2013 Operating efficiency Asset Usage Efficiency Financial Leverage ? Operating efficiency has been very volatile varying between from 9 in 2008 to 7. 86 in FY12. Company has not been able to manage the profitability due to varying Crude oil prices. ? Asset Use efficiency has the lowest amongst the peers that have been compared because company has not been investing in PPE Page 14 Financial Reporting Analysis of Paint Industry (Asian Paints) AKZO NOBEL 35 30 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013