[Music] [Music] welcome students so we are in the process of ratio analysis and with the help of ratio analysis we are trying to analyze the financial statements and so far we have discussed different types of the ratios different sets of the ratios and the we talked about say ROI ratios we talked about solvency ratios we talked about the liquidity ratios we talked about turnover issues that is a resource efficiency then we talked about the profitability ratios DuPont ratios and in this discussion in this lecture will be talking about the capital market ratios or the valuation ratios because capital market is a very mis capital market position of the form is very very important whatever the book value of the form is if that is not reflected in the capital market then it is really very difficult for the firm to generate funds for expansion and growth and to have a better image in the market so for that reason the capital market ratios are very very important in my previous lecture I discussed with you that what are the important capital market ratios and we had we identified that there are the six ratios which can be considered as a capital market or the valuation ratios these ratios were earning per share then we had other five ratios earning per share we have already calculated and we know that how to calculate the earning per share then we had another ratio that is a price-earning ratio we talked about that how to calculate that price-earning ratio and that for that we need the closing market price that is a market price on the last day of the accounting period and then we have the say other you can call call it as other IRC ratios that is another issue is nabbed net asset value which we have already calculated and we have now the next ratio that is a market price to NAB we have to calculate compare the market price with the NAB then we have the market capitalisation ratio and finally the yield to investors yield to investor we discussed in my previous lecture also that we consider in two ways one is the dividend and second is the appreciation in the market price so normally there is an appreciation or depreciation in the market price so if somebody buys the shear because in the secondary market it's not on the basis of say the performance of the company maybe it's directly or indirectly linked to the performance but people on the people's perceptions people investors behavior is more important and relevant there that if they feel that the company's overall reputation is good and if you buy the share today because of the improved financial position or the better financial position of the company if somebody can buy this share from you or from somebody else tomorrow at the higher price so maybe within a month or two somebody can earn a good investment return or the return on his investment so there the return and means the gain and loss is normally on the perceptional values on the processional prices not on the book value not on the physical value but you see that perceptional value is also to a larger extent is affected by the book value know for example there is a very good perception about the reliance industries and it's a dream share for anybody that if airline's industry shares are available any company in their alliance group if their shares are available people are all out to buy the shares even if it's the IPO then people are ready to buy this those shares at say at a very high premium maybe sometimes the 10 rupees sure can be sold for 1000 rupees so you see that how much premium people are ready to pay they are not expecting that they'll be getting the dividend on that share and they are waiting for the dividend nobody is waiting till the dividend is declared by the company right from the beginning of the year until the end of the year when the profit and loss and income statements are prepared and the dividend is declared in between that said twelve months period of time share changes number of hands so people are only earning by on the basis off but see that market value is also based upon the actual value of the company and notice is 10 rupees 1000 but you see still the company is very good and their investment is safe and that investment is growing because company itself is growing similarly we talk about the enforces industries if you get the in force today there is no issue that nobody will be buying it from you and buddy can buy it from you buy it today and tomorrow you sell it off in the market you can earn a good return because Infosys overall financial position is good so these are the companies who have been able to raise the funds not in India but globally in the say US markets also these companies are listed and they are raising the funds there so it's not the perception of the people in India only is the perception of the people globally that these companies are the best performers and they're both the values are closely linked one side it is a book value other side it is the market value and by looking at both the values then both the things go hand in hand if there is a growth in the physical process there is a growth in the market process if there is a growth in the physical profit section profits of the company there is a growth in the market share of the company same share price of the company in the market so it is directly linked so we will see that what is rough is book value of the company and what is the market value of the company now there is a 1 ratio will be calculating and if we calculate that ratio that is called as the capitalization ratio market capitalization ratio so market capitalization ratio is basically how we calculate we take the market price of the share that is a closing market price of the share and in this case if we talk about the year 2007 closing market price is 2009 t1 and 25 paisa and number of shares are nine point one seven corrodes in this case in the grocery industry so if you multiply you will find the market capitalisation of companies somewhere around nineteen thousand crores and if you look at the book value of the company if you look at the total exercise of the company then the total icer size of the company is how much nine thousand seven hundred and sixty four point one five crores so it means that is more than double market capitalisation is so the market value of the form is more than double so it means one price companies say fetch for their physical growth other price they fetch for the goodwill in the market so goodwill price is very very high in the market and that is reflected in the share price in the market and you can see that ten rupee share of the Grasim industries he was selling in 2007 for two thousand rupees and some in January it had gone up to two thousand seven hundred and seventy eight point six so this is the perceptional value but linked directly or indirectly with the physical value so now we'll be calculating these six ratios and then we'll analyze that how the Grasim industries marker performance is how people perceive this form in the market and how we can say that what is the market rating of the form so if we talk about the EPS if you talk about the EPS we have already calculated the earning per share and the unning per share of the company is already there with us we have already calculated and for the year two thousand six and seven and then it is the year two thousand five and six so army per share here it is one sixty four point eight five rupees and then we have the earning per share is ninety three rupees ninety three point eight four rupees so missus in two thousand five and six earning per share was ninety three point eight four rupees which has grown up to one sixty four point eight five rupees per share it means it's a good amount of earning per share the company's earning that is really good so it is already calculated it is with us and now we calculate the p/e ratio we calculate the p/e ratio and if you calculate the p/e ratio we have to calculate it how the closing market price and earning per share so closing market price closing mark price is how much if you look at the closing market price of the company it is given here two thousand ninety one point two five two thousand rupees two thousand ninety one point two five and earning per share that is a price earning price to earnings ratio so price is two thousand nine T one point two five and earning is 164 0. 85 that is rupees one sixty four point eight five so if you calculate the ratio this ratio works out as it is a twelve this is equal to twelve point six nine times twelve point six nine times and in this case you who calculate the ratio this works out as twenty one point nine three times so though the price-earning ratio has come down if you look at the absolute growth in the price it has gone up in 2006 it was two thousand fifty seven and in 2007 it has become two thousand ninety one there is a growth but if you compare the army per share it is more in the year two thousand six and seven so it means in that case because of the increased profitability the price earning ratio in the year 2007 is down that is the Newman denominator has improved significantly earning per share has improved significantly but the market price of the share has not improved so this is some you can call it as misnomer that when the earning is increasing earning per share is increasing that is from 93 to 164 rupees but the price is not increasing so it means we will discuss that how it can be possible and what is the effect of it but and what could be the possible reasons for not growing that but ironing ratio then we have the next ratio is marker price to my marker price to NAB market price to NAB that is the market price to net asset value market price to nitrosyl value is a closing market price that is again two thousand ninety one two thousand ninety one point two five and NAB is six seventy nine point three nine this is the NAB value and if you calculate this ratio NAB market price to nap this works out as three point two zero eight times three point zero eight times this is NAB market price to NAB value 3. 0 it times this is NAB and then we have the for this so the price is two thousand fifty seven point nine five and five forty three point three zero so it is how much it is three point seven nine times three point seven nine times is the market price to nab forget there is a decline in this ratio also so both the ratios that is price earning and the market price to net asset values declining so what is the meaning of this decline what is a say ultimate means the reflection of this decline what could be the reason we'll discuss it later on let's calculate first all their issues and then we have the market capitalization look at the market capitalization but is a closing market price 2091 into 25 into 9.
17 and how much it is it works out as rupees 19,000 177 corrodes and in this case if you calculate it is two thousand fifty seven point nine five into again nine point one seven so the market capitalization here is rupees rupees eighteen thousand eight hundred and seventy one corrodes so you can make out the market capitalization of the form and finally we have the ratio that is a yield to investors yield to investors and in case of the yield to investors you have to kind of the things one is dividend and second is the appreciation in the market price now what is a dividend let's check the dividend value we will have to check that dividend value how much dividend is being paid by this form and if you look at the dividend being paid per share so we'll have to see that how much dividend is being paid will have to calculate this dividend so let's see how much is the amount of dividend paid in this year so if you look at the amount of the dividend being declared by the company it is the first you have to take into account that number one is an interim dividend let's calculate it enter him dividend how much is entering dividend period this year let's check the interim dividend payment yes interim dividend is two hundred and fifty two point one zero corrodes that is the interim dividend paid during the air dividend paid during the air point one zero cores plus what is a closing dividend which was declared previous here but paid this year that dividend we will have to calculate Amissah look for so let's check the dividend here all short-term debts will present working capital long-term debt is this much other incomes include this much and closing market price is this much and this is the case now is there any other information relating to dividend we'll have to look for secured loans unsecured short-term debt working capital will let us check the a final dividend here what was the final dividend paid now say when we talk about the currently a dividend which will be paired this year there is no final dividend proposed dividend that's only the entire unit obedient hasn't appeared that is two fifty two point one zero corrodes but propose dividend here is yes 183 point one five that is that is a dividend proposed in the previous head which will be appeared in this year so it will be considered as the dividend for the current here so it is one eighty three point one five 183 point 0. 15 so this becomes totally off this becomes how much this total dividend becomes two fifty two point one zero corrodes plus 180 3. 35 corrodes so this is the closing dividend and if you look at this dividend total amount of this is that is rupees total works out as how much for thirty five 0.
45 corrodes and if you divide it by how much number of shares one point nine point one seven corrodes shears this works out as the dividend income is in the current air dividend income is forty seven point five zero rupees per share so which I had written here already forty seven point five zero two peas plus what is the appreciation in the market price the market price has gone up if you look at the market price of 2005 was fifty-seven 0. 95 and it is ninety one point two five so there is the appreciation in the price it is ninety one point two five and it is fifty seven point nine five fifty seven point nine five you take this 0 then it is a three then it is a ten minus seven is three and it is 8 minus 5 is 3 so 33 point three is the appreciation in the market price thirty-three point three is the appreciation in the market price these are the two changes in na ma sa true source of the ield to investment and initial investment is how much people are buying the share previous here this much to fifty seven point two thousand fifty seven two thousand fifty seven pi it how much it is - fifty thousand fifty 7. 95 so it means what is a little investors in this year that is finally it is three point nine three percent and this cannot be calculated for this year because it is we don't have the interim dividend we don't have the final dividend position here so from the previous year two thousand five what was the position that is not given to us so that cannot be calculated so yield to investors in the previous year cannot be calculated however the yield for the current year is three point nine three percent so these are the six ratios it is nil or not calculated or we can call it as not available so if you look at now the capital market ratios and you draw the should analyze these ratios I want to draw some meaningful conclusion about it so let's start talking about the ratios one by one and if you talk over the Ray these ratios one by one we will see that two thousand six seven and two thousand five six if you talk about the re per share it has yes seriously significantly improved from the 93 94 rupees to 165 so it means there is a increase of six and then it is 571 rupees so this army per share has improved seriously significantly by 71 rupees but the market price has not changed - in that proportion or or to that extent now what could be the reason market price has only changed from how much that is that 33 rupees increase in the market price 2005-2006 and what was the price and what is the price in 2007 if you compare these two prices then you see that the change in the market price is not much now there could be different reasons maybe there is some wrong news about Grasim industries in the market is at that time that the company is passing through a very difficult phase company is going to be taken over a company is not performing well company's financial position or the operating position is not good so because of any reasons because of henny you can call it as the misnomers or the miss perceptions in the market prices get affected because finally what is the share price it is the perceptional value it's only the perceptional value nothing else so when the perception of the people changes then actually it is affecting the share price so you see physically companies doing very well when we started analyzing their issues they will be help of this company or in case of this company aggressive industries we found it that this company even without going for any kind of analysis reflects you solve balance sheet and profit and loss account reflects that this company is a wonderful organization very nicely properly managed firm but and that that situation we have really found in the ratios also but if you look at the market price then it is not a big change and that's the only reason that you're now in this case price to earnings ratio if you talk about earning is improving and in a big way and the price is not improving that's why the p/e ratio is declining so it means p/e ratio which was a ninety twenty one point nine three times about 22 times previous here this year it has come down to thirteen times almost twelve point six nine times it means there is a decline because market price has not improved but you see market prices you can't say that the market price is not improved at all market price has improved in generally if look at this there is it in generally the market price of the company share was two seven seven eight point six so we'll compare here and you compare here there is a difference of about seven hundred rupees in the market price at the end of the 2007 had this mean German price would be been the closing price this ratio would have been much more as compared to what it was in the previous year so if in the January nourish the the share price can become about two thousand seven hundred rupees but it has come down in March it means there is something perception early wrong not actually physically wrong perception early there was something wrong and which was taken in a wrong since by the people or the by the by the potential investors and that's why the price has not changed so there is nothing wrong with the company EPS is good and price earning ratio in this case is is misguiding if people look at the price earning ratio then they would be wondering that if the army is increasing why the price is not increasing and it is only because the perception of the people is moving in the different direction then you talk about the this ratio that is marker price to NAB net asset value now this is an interesting ratio as a financial analyst you must be knowing that this is a comparison typical comparison of the two things one is the market value of the firm that is a market price and NAB is the book value of the firm net asset value is what it is the book value of the firm so when you calculate the NAB net asset value of the firm and you try to compare it with the say market value of the firm it means in that case we are going to find out that comparison of the market value to the book value or the market value to the book value this is the book value NAB is the book value of the firm this is a physical value of the firm you can easily check it up net asset value is you can easily find it out that this is the physical value book value of the firm physically it can be if the form is sold in the market we can get this much of the price but actual market price is this much which is professional and if you talk about the market price of the firm as compared to the net asset value it is 3.
0 at times which has also come down from the three point seven nine times to the three point zero eight times because overall this year as compared to 2006 in 2007 overall company's market performance is not good you can say but that's the only perceptional difference you can call intelligence of the financial analyst he can easily find out that what a layman is looking at the company like you should not look at the country like this because you know that what is here in these financial statements and if it is here in the financial statements if you are a clever financial analyst if you are intelligent financial analyst you must be a either buying the shears yourself or must be say advising your valve issues that you could you go and buy the shares of this company and I can guarantee that your share will have a better return so because market and LSE is showing that this company's performance is declining what was in 2006 and what is in 2007 it's really declining but it should not taken be taken like that and here what he talked about that the market price and the net present value is 3.
