Analysis of financial statement reliance industries

Analysis and interpretation of the financial statements of a company. The financial statement of Reliance Industries is interpreted here.

1. Analysis and interpretation of financial statements Financial Accounting

2. Introduction to Analysis of Financial Statements Financial Statement A nalysis The process of understanding the risk and profitability of a firm, business, sub-business, or project through analysis of reported financial information particularly annual and quarterly reports. It’s the selection, evaluation and interpretation of financial data along with other pertinent information to assist in investment and financial decision making.

3. Continuation.. Financial Statement Analysis may be used to evaluate issues which may be internal or external Using Internally to evaluate issues such as: E mployee performance E fficiency of operations and credit policies Using e xternally to evaluate : P otential investments C redit worthiness of borrowers among other things

4. By Financial Statement we mean three statements :- (a) Profit and Loss account or Income statement. (b) Balance sheet or Position statements. (c) Cash Flow Statement

5. COMPARATIVE INCOME STATEMENT AND COMPATIVE BALANCE SHEET

6. COMPARATIVE BALANCE SHEET Comparative balance sheet shows the different assets and liabilities of the firm on different years to make comparison of balances from one year to another. The comparative balance sheet has two columns for the data of original balance sheets. Third column is used to show changes increase or decrease in figures. The fourth column maybe added for giving percentages of increase or decrease. While interpretive comparative balance sheet, the interpreter is expected to study the following aspects: Current financial position and liquidity position - For studying current financial position or liquidity position of a concern one should examine the working capital in both the years (Working capital = Current assets – Current liabilities ) Long-term financial position – For studying the long-term financial position of the concern one should examine the changes in the fixed assets , long-term liabilities and capital. Profitability of the concern- The study of increase or decrease in profit will help the interpreter to observe whether the profitability has improved or not.

7. No. of MThs Year Ending 12 Mar-18* 12 Mar-19* % Change Net worth Rs m 2,935,060 3,871,120 31.9   Current Liabilities Rs m 3,138,520 3,140,230 0.1 Long-term Debt Rs m 1,441,750 2,075,060 43.9 Total Liabilities Rs m 8,163,480 10,024,060 22.8   Current assets Rs m 1,837,860 2,260,880 23.0 Fixed Assets Rs m 5,909,070 5,778,370 -2.2 Total Assets Rs m 8,163,480 10,024,060 22.8 COMPARATIVE BALANCE SHEET OF RELIANCE INDUSTRIES LTD FOR THE YEAR ENDED ON MARCH 2018 & MARCH 2019

8. INTERPRETATION OF COMPARATIVE BALANCE SHEET The company's current liabilities during FY19 stood at Rs 3,140 billion as compared to Rs 3,139 billion in FY18, thereby witnessing an increase of 0.1%. Long-term debt stood at Rs 2,075 billion as compared to Rs 1,442 billion during FY18, a growth of 43.9%. Current assets rose 23% and stood at Rs 2,261 billion, while fixed assets fell 2.2% and stood at Rs 5,778 billion in FY19. Overall, the total assets and liabilities for FY19 stood at Rs 10,024 billion as against Rs 8,163 billion during FY18, thereby witnessing a growth of 23%.

9. COMPARATIVE INCOME STATEMENT Income statement provides the results of the operations of a business. The statement is traditionally known as trading and profit and loss account . Important components of income statements are :- (a) Net sales (b) Cost of goods sold (c) Selling expense (d) office expenses etc. The figures of the above components are matched with their corresponding figures of individually and changes are noted. The comparative income statement gives an idea about the progress of a business over a period of time . The changes in money value and percentage can be determined to analyze the profitability of the business .

10. Continuation…

11. No. of MThs Year Ending 12 Mar-18 12 Mar-19* % Change Net Sales Rs m 3,945,170 5,716,550 44.9% Other income Rs m 196,260 372,690 89.9% Total Revenues Rs m 4,141,430 6,089,240 47.0% Gross profit Rs m 544,990 552,840 1.4% Depreciation Rs m 167,060 209,340 25.3% Interest Rs m 80,520 164,950 104.9% Profit before tax Rs m 493,670 551,240 11.7% Tax Rs m 133,460 153,900 15.3% Profit after tax Rs m 360,800 398,370 10.4% Gross profit margin % 13.8 9.7 Effective tax rate % 27.0 27.9 Net profit margin % 8.7 6.5 COMPARATIVE INCOME STATEMENT OF RELIANCE INDUSTRIES LIMITED FOR THE YEAR ENDED ON MARCH 2018 & MARCH 2019

12. INTERPRATION OF COMPARATIVE INCOME STATEMENT Operating income during the year rose 44.9% on a year-on-year (YoY) basis. The company's operating profit increased by 1.4% YoY during the fiscal. Operating profit margins witnessed a fall and stood at 9.7% in FY19 as against 13.8% in FY18. Depreciation charges increased by 25.3% and finance costs increased by 104.9% YoY, respectively. Other income grew by 89.9% YoY. Net profit for the year grew by 10.4% YoY. Net profit margins during the year declined from 8.7% in FY18 to 6.5% in FY19.

13. Ratio Analysis No. of MThs Year Ending 12 Mar-18* 12 Mar-19* Current ratio x 0.6 0.7 Interest coverage x 7.1 4.3 Debt to equity ratio x 0.5 0.5 Return on assets % 5.4 5.6 Return on equity % 12.3 10.3 Return on capital employed % 13.1 12.1

14. RATIO ANALYSIS FOR RELIANCE INDUSTRIES LTD Solvency Ratios Current Ratio:  The company's current ratio improved and stood at 0.7x during FY19, from 0.6x during FY18. The current ratio measures the company's ability to pay short-term and long-term obligations. Interest Coverage Ratio:  The company's interest coverage ratio deteriorated and stood at 4.3x during FY19, from 7.1x during FY18. The interest coverage ratio of a company states how easily a company can pay its interest expense on outstanding debt. A higher ratio is preferable.

15. Profitability Ratios Return on Equity (ROE) :  The ROE for the company declined and down at 10.3% during FY19, from 12.3% during FY19. The ROE measures the ability of a firm to generate profits from its shareholders capital in the company. Return on Capital Employed (ROCE):  The ROCE for the company declined and down at 12.1% during FY19, from 13.1% during FY18. The ROCE measures the ability of a firm to generate profits from its total capital (shareholder capital plus debt capital) employed in the company. Return on Assets (ROA) :  The ROA of the company improved and stood at 5.6% during FY19, from 5.4% during FY18. The ROA measures how efficiently the company uses its assets to generate earnings.

16. SHARE PRICE PERFORMANCE OF RELIANCE INDUSTRIES LIMITED Over the last one year,   share price of Reliance Industries Ltd  has moved up from Rs 1,114.1 to Rs 1,254.1, registering a gain of Rs 140.1 or around 12.6%.