Financial Statement Analysis

for the

Financial Year
2004-05

of

Vedanta Resources plc

(Holding Company of Sterlite Industries Limited)
Liquidity Ratio
It measures the liquidity of the firm which implies the firm’s ability to pay off its short term
debts.

2005 2004

Liquidity Ratios
Current Ratio Current Assets 2248.1 1686.6
2.388 1.913
Current Liabilities 941.6 881.8

The Current Ratio has increased from 1.91 to 2.388 which is considered to very healthy
as the ideal current ratio is 2:1

Quick Ratio Quick Assets 1911.8 1486.7

2.030 1.686
Current Liabilities 941.6 881.8

Quick Ratio has increased from 1.68 to 2.03 but we can’t predict anything as the Industry
average ratio is not given, but as the ratio has increased the company’s liquidity (quick)
has increased over the period of one years

Bank Finance to Short Term Bank 218.6 295.3

Working Borrowing
0.167 0.367
Working Capital 1306.5 805
Capital Gap Ratio Gap

The ratio has decreased from 0.36 to 0.167 hence the company’s reliance on short term
borrowings to fund its working capital gap has decreased which is good financial signal

Account Receivable Net Credit Sales 1884.2 1289.5

Turnover Ratio Avg. Accounts 349.85 5.386 245.5 5.253
Receivables

Account receivable turnover ratio has increased thus the liquidity of the company has
also been better to that respect

Average Collection 360 360 360

Period
66.914 68.571
Avg. accounts 5.38 5.25
receivable
Inventory Turnover Cost of Goods 1414.8 973.9
Ratio Sold 4.201 4.872
Average Inventory 336.8 199.9

Inventory management has detoriated in 2005 as compared to that of 2004, thus

inventory turnover ratio has decreased

Profits or Efficiency Ratio

2005 2004
Profit or Efficiency
Ratios
Gross Profit Margin Gross Profit 469.4 315.6
Ratio
0.249 0.245
Net Sales 1884. 1289.
2 5

The industry margin is not available and hence we cannot predict its significance

Net Profit Margin Ratio Net Profit 120 72.3

Net Sales 1884. 0.064 1289. 0.056
2 5

It shows that the profit margin for the company has improved but we cannot generalize if
the company is operating on a better margin as we don’t have the industry ratio.

Sales 1884. 1289.

Asset Turnover Ratio 2 5
0.419 0.431
Average Assets 4498. 2988.
6 8

Here the ratio shows that the company with asset base of one unit could produce 0.431
units of sales in 2003-04 and 0.419 in 2004-05

Earning Power PBIT 328.7 237.7

7.953
Avg. Assets 4498. 7.307% 2988.
%
6 8

We have to have the industry standards to predict the efficiency of the company as far as
earning power is concerned, but the E.P. has decreased slightly from previous year.

Return on Equity Net Income 120 11.460 72.3 7.296

Average Equity 1047. % 990.9 %
 1

Returns to equity share holders is 11.4% in 04-05 and 7.2% in 03-04, thus the company
has been able to increase the shareholders return

Ownership Ratio
2005 2004
Ownership
Ratios
Earning Per Share Net Income (PAT) 120 72.3
41.899 25.280
Outstanding Share 286.4 286
% %
(nos.)

EPS has grown by 65% over the last year, shows that company is in right track of
profiteering and increase in shareholders wealth

Price-Earning Market Price of 471 286

Ratio Share
11.241 3.956
EPS 41.89 72.3
9

Increase in price earning shows that the company is on a stable growth.

EPS 41.89 286

Capitalization Rate 9
0.089 3.956
Market Price of 471 72.3
Share

Capital Structure Ratio

2004 2005
Capital
Structure Ratios
Debt 1521. 818.9
Debt-Equity Ratio 9
1.453 0.826
Equity 1047. 990.9
1

The company’s debt liability has increased at higher proportion than its equity over the
previous year.
 Debt 1521. 818.9
Debt-Asset Ratio 9
0.338 0.274
Asset 4498. 2988.
6 8

Coverage Ratios
Interest Ratios EBIT 328.7 234.7
5.128 5.588
Interest Expense 64.1 42