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Ratio Analysis Of A.O.Smith

1814 words - 8 pages

Profitability Ratio:

Profitability ratios measure the overall performance of the firm by determining the effectiveness of the firm in generating profit, and are calculated by establishing relationship between profit figures on the one hand, and sales and assets on the other.
Return on Total Assets:
This is measure of profitability from a given level of investments. It is an excellent indicator of overall performance of a company. It is also called return on capital employed or return on investment. It measures how efficiently the capital is employed. Return on Total Assets = Net Income after Tax / Average Total Assets *100
Return on Equity:
It measures the profitability of equity ...view middle of the document...

The company is not using its assets optimally.

Analysis
This RETURN OF ASSET ratio is used to measure a company’s success in using its assets to earn income for owners andcreditors, those who are financing the business. There is a steep fall in the year 2006, after that thereis a satisfactory utilization of the assets as the graph shows

Analysis
The ROE of the company is 42.46% in the 2004/05 which has been decreased to 17.60% in the2006/07 and then slightly increased to 23.21% in the 2008/07.Also one point here to be noted is thatROE of the company is higher than the ROA, which may be due to the concept called trading onequity

Analysis
This INVENTORY TURNOVER ratio is used to measure how quickly a company is selling its inventory. This ratio tells how manytimes each year a firm’s inventory is turned over. The inventory turnover of the company over theperiod of four years has remained stable more or less

CASH FLOW STATEMENT ANALYSIS

Figures in the brackets represent outflow. Interest paid is exclusive of purchases of investments is5831.43 millions. Cash and cash equivalents after the adjustment of cash credits balances related tounclaimed dividend is Rs 4491.75 millions.The statement of cash flow reveals a net cash outflow from operations of Rs. 10705.26 millionswhereas the company shows a net profit of Rs 6381.50 million. There is a sharp decrease in theinventories of the company. I.e. Rs 1535.93 million and debtors have increased Rs 1426.87 million.Further compensation under voluntary retirement scheme is Rs 48.41 million. And a net profit on thesale of investment is Rs 474.95 million. Profit on disposal of fixed assets would be Rs 375.86 millionfor the year 2008.The conversion of Foreign Currency Convertible Notes into equity shares has not been considered inthe above statement.Cash flows from Investing activities includes acquisition of 100% shares in Albonair GmbH (cost Rs.1.59 million) and Defiance Testing & Engineering Services (cost Rs. 141.05 million) and disposal of 60% (Rs. 0.95 million) and 51% (Rs. 71.94 million) shares respectively therein.The company has used more cash in operations than all of the cash it received from its investing andfinancing activities resulting into a net increase in cash

Figures in the brackets represent outflow. Interest paid is exclusive of purchases of investments is5340.51 millions. Cash and cash equivalents after the adjustment of cash credits balances related tounclaimed dividend is Rs 1953.31 million

The statement of cash flow reveals a net cash outflow from operations of Rs. 4999.51 millionswhereas the company shows a net profit of Rs 6045.06 million. There is a sharp decrease in theinventories of the company. I.e. Rs 1677.60 million and debtors have decreased Rs 1005.76 million.Further compensation under voluntary retirement scheme is Rs 330.37 million. Loss on disposal of fixed assets would be Rs 323.15 million for the year 2008.
The conversion of Foreign Currency...

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