Analysis of CEAT Ltd.
CRISIL RATING:-- A- /STABLE
Profitability of Firm (ROTA)
1) From the analysis of assets and PBIT records we have found that PBIT has decreased from 311 to 133 and as a result of that the Return on assets decreased from 24.26 to 8.00. The reason for declining of ROTA is increase in total assets of the company. ( company took loan and purchased land, building and machinery as fixed assets)
1) The company has made investment of Rs 625.14 Crs in purchasing plants, machinery and building in the year 2011, as a result the fixed asset ratio turnover declined from 2.76 to ...view middle of the document...
The supply demand mismatch has led to a steep rise in the prices of natural rubber, and because of this there was a decrease in PBIT and in ROTA.
2) The raw material to sales ratio has increased from 65.81 to 74.52 because of steep rise in the price of natural rubber.
1) Company has took secure loan (term loan) of Rs 300 Crs from bank in 2011 as result of that the interest liability and interest coverage ratio of company has declined to 1.26 in 2011 which is below to the lower limit of coverage ratio i.e. 1.5. The company can encounter difficulties in payment of interest in near future.
2) Leverage risk of company has increased from 1.04 to 1.57 because company has purchased fixed assets (plant & machinery) by taking secured loan.
3) Debt to total capital ratio has increased from 50.97 to 61.02 because of increase in total loan (secured loan of Rs 300 Crs.)
4) Return on net worth has declined from 38.01 to 5.12 reason is due to decrease in PBT (profit before tax) from Rs 238 Crs to Rs 33.24 Crs.
1) The current ratio of the company in 2011 is 1.11 which is below the standard ratio i.e. 2, the reason behind it is credit sales of company has been increased by Rs 315 Crs (sundry creditors, other creditors)
2) The inventory and the current liabilities of company has increased as a result of that the quick ratio of company has decreased from .79 to .59.