FRA Report:

GMR Infrastructure

Submitted to:

Submitted By:

Professor: Ashish Kumar

Executive Summary

Content
1. Profitability Ratio
2. Solvency Ratio
3. Coverage Ratio
4. Activity Ratio
5. Common Size Statement
6. Reference

1. Profitability Ratios:
These ratios compare income statement accounts and categories to show a company's ability to
generate profits from its operations. Profitability ratios focus on a company's return on
investment in inventory and other assets. These ratios basically show how well companies can
achieve profits from their operations.
Investors and creditors can use profitability ratios to judge a company's return on investment
based on its relative level of resources and assets. In other words, profitability ratios can be used
to judge whether companies are making enough operational profit from their assets.
300
200
100
0
-100

2015.0 2014.0 2013.0 2012.0 2011.0

Operating Profit
Margin(%)
Gross Profit Margin(%)

-200

Net Profit Margin(%)

-300

Profit Before Interest

And Tax Margin(%)

-400
-500
-600

Graph:

Some of the key profitability ratios are:

1.1.

Gross Margin Ratio:

The gross margin ratio is calculated by subtracting cost of goods sold from total sales in a given
period and then dividing by net sales. It is also known as Gross Profit Margin Ratio.
It tells us how good a company is, in selling its inventory in the market for a specific period. It is
an important profitability ratio as it shows how the company is doing.

Analysis:

Gross profit margin is maximum in the year 2015.

1.2.

Operating Profit Margin Ratio:

It is defined as the amount of net income earned on each dollar of sales generated by the
company. It is calculated by comparing net income by net sales. This ratio is often used by the
company to set its future goals.

Analysis:
From the graph operating profit margin is maximum for the year 2015.
Operating profit margin has increased significantly in the year 2015.
1.3.

Profit-before interest And Tax margin:

It is defined as the companys earnings before tax as a percentage of total sales or revenues and
calculated by dividing earning before tax by total revenue. It indicates the way of companys
profitability is headed.
Pretax Margin indicates of how effectively the company controlling costs to maximize profits.

Analysis:

According to graph EBIT is less than operating profit margin and gross profit margin.

Net profit margin:

A ratio of profitability calculated as net income divided by revenues, or net profits divided by
sales. It measures how much out of every dollar of sales a company actually keeps in earnings.
Net Profit Margin= Net Income / Total revenue
Profit margin is very useful when comparing companies in similar industries as in our case. A
higher profit margin indicates a more profitable company that has better control over its costs
compared to its competitor.

Analysis:
Negative profit margin showing that company is spending more than it earns during
2015.
For the year 2014,13,12,11 company was not spending more than its earning.

2. Solvency ratios
Graph
400
350
300
250
Current Ratio

200

Quick Ratio
Debt Equity Ratio

150
100
50
0
2015.0

2014.0

2013.0

2012.0

2011.0

2.1.

Current ratio: The current ratio is a solvency ratio that measures a companys ability to
pay short-term and long-term obligations.To gauge this ability, the current ratio considers the
total assts of company relative to that companys total liablities.

Analysis:

From graph companies current ratio is fairly increased in the year 2015 as comapred to
previous years.
This shows company has now more capable to payoff the obigations.

2.2.

Quick Ratio: An indicator of a companys short-term liquidity.The quick ratop measures

a compnays ability to meet its short term obligations with its most liquid assets.For this
reason, the ratio excludes inventories from current assets, and is caluclated as follows:
Quick ratio=(current assets-inventories)/current liablities

Analysis:
From the graph company has ~$5 for the year 2015 of liquid assets available to cover
each $1 of current liablities.
Copmany has the highest quick ratio for the year 2011, higher the quick ratio, the better
the companys liquidity position.
Also known as acid-test ratio

2.3.

Debt to Equity ratio:

A high debt to equity ratio implies that the company has been aggressively financing its activities
through debt and therefore must pay interest on this financing. If the company's assets generate a
greater return than the interest payments, then the company can generate greater earnings than it
would without the debt. If not, however, and the company's debt outweighs the return from its
assets, then the debt cost may outweigh the return on assets. Over the long-term, this would lead
to bankruptcy. Investors should take this into consideration when investing in a company with a
high debt to equity ratio, especially in times of rising interest rates.
Debt to Equity ratio= Total liabilities/Share holders equity
If the Debt to equity ratio high and the profit percentage is higher than the debt borrowed than
the company will be able to pay the interest on the debt and will be able to liable to borrow more
money market to increase the profits.
Analysis:
The companies has very little change in debt to euity ratio.
This ratio is important to a lender when considering a candidate for a loan.
A company with high Debt to Equity ratio has higher amount of debt relative to their
available equity .

2.4.Long-term Debt Equity Ratio: In risk analysis, a way to determine a companys

leverage.The ratio is calculated by taking the companys long term debt and dividing it by the
total value of its preferred and common stock.
Analysis:

The greater a companys leverage ,the higher the ratio.

The companies has very little change in this ratio over the five years.
Higer ratio thought to be more risky because it has more laibaities and less equity.

3. Coverage ratio

7
6
5
Interest Cover

4
3

Total Debt to Owners

Fund

Financial Charges
Coverage Ratio

1
0
-1

3.1.

2015.0 2014.0 2013.0 2012.0 2011.0

Interest Coverage Ratio (ICR):

Interest coverage ratio determines the ease with which the company can payback the interest on
its debts. It is calculated by dividing the companys earnings before interest and taxes (EBIT) of
a period by the interest expenses that the company bears for the same period.
Interest coverage ratio = EBIT / Interest Expense
Higher the value of ICR better is the companys position to repay its interest expenses. If ever the
companys ICR dips below 1.5, the ability to pay back interest becomes questionable. If it is less
than 1, then it sends out a signal that the company is not making enough money to satisfy interest
expenses.

Analysis:

Short term financial health is good as it is less than 2.5 for all the years.
6

Although it has increased in 2015 to 0.84

Total debt to owners fund: An indicator that measures the total amount of
debt in a companys capital structure.

3.2.

Analysis:
Lower debt to owners fund may be preferrable to keep the debt burden within easily
managable levels.
In the year 2015 comaonies has 0.56 which is less than 0.71

3.3.

Financial charge coverage ratio: A ratio that indicates a firm's ability to satisfy fixed
financing expenses, such as interest and leases.

4. Activity Ratio: Accounting ratios that measure a firm's ability to convert different accounts
within its balance sheets into cash or sales. Activity ratios are used to measure the relative
efficiency of a firm based on its use of its assets, leverage or other such balance sheet items.
These ratios are important in determining whether a company's management is doing a good
enough job of generating revenues, cash, etc. from its resources.

4.1.Inventory turnover ratio: A ratio showing how many times a company's inventory is sold
and replaced over a period. The days in the period can then be divided by the inventory turnover
formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days."
Analysis:

Company has very high turnover in 2015 is a good sign because the sales of products
has increased significantly large as compared to previous years.

4.2.Debtors turnover ratio: Debtor turnover ratio is the relationship between net sales and
average debtors.

Debtors Turnover Ratio

25
20
15

Debtors Turnover Ratio

10
5
0
2015.0 2014.0 2013.0 2012.0 2011.0

Analysis:

Higher debtor turnover ratio is good because more higher debtor turnover ratio
means, more fastly, company is collecting money.
In the year 2015 this ratio has fallen down which means money from the debtors are not

5. Common Size Statement:

Common size statements can be used to analyze the companys financial statements over the
years. It can also be used to compare two companies of different size as everything in common
size statement is written in percentage form. In Income statement the values are written as a
percentage of revenue and for the balance sheet it is written as a percentage of the total
assets/liabilities.
The common size statements for GMR Infrastructure can be found in the Excel sheet that is send
with the report.

References:
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http://www.myaccountingcourse.com/financial-ratios/
http://www.investopedia.com/
http://www.accountingtools.com/
https://in.finance.yahoo.com/
http://www.nasdaq.com/
http://www.moneycontrol.com/