Financial Research and Corporate Governance assignment of Atul ltd

1. FINANCIAL REPORTING & CORPORATE
GOVERNANCE
Assignment
Financial Performance
Of
Atul Limited
Submitted By:
Sounak Bhadra
17202131 (A)
MBA 17-19

2. ANALYSIS
Return on Investment (ROI) is a profitability ratio that measures the amount of return on a
particular investment, relative to the investment’s cost. Though the returns are not steady
or have uniform growth and even the last few years saw a fall in returns in respect to its
investment. Still the trendline of ROI for Atul Ltd. is upward sloping which depicts that the
company will provide higher returns in the upcoming years.
Return on Net Worth (RONW) is a measure of profitability of a company expressed in
percentage. It is calculated by dividing the net income of the firm in question by
shareholders’ equity. Similar to ROI graph. The last few years saw fall in returns but the
trendline suggest more returns in the upcoming years.
15.36%
1.23%
8.99%
30.42%
9.88%
8.45% 8.26%
11.72%
15.87%
13.73%
17.92%
22.60% 21.40%
17.24%
14.85%
12.31%
0%
5%
10%
15%
20%
25%
30%
35%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
ROI(%)
Years
Return on Investment
13.85
0.85
0.4
28.32
7.6
5.81
11.03
10
18.57
16.95
21.03
27.85
23.17
23.4
19.55
16.06
0
5
10
15
20
25
30
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
RONW(%)
Years
Return on net worth

3. Return on capital employed or ROCE is a profitability ratio that measures how efficiently a
company can generate profits from its capital employed by comparing net operating profit
to the amount of capital used. Returns of Atul Ltd. Is very high which suggests that the
company is performing well. The trendline is upward sloping which suggests more returns in
the upcoming years.
Return on assets (ROA) is an indicator of how profitable a company is relative to its total
assets. Return on assets for Atul Ltd. Over the years grew a lot suggesting efficient
management of assets to generate earnings and in turn more profits. Moreover, the
trendline is upward sloping which means that ROA will grow in future if the management
utilises its assets efficiently and effectively as it has maintained over the past 16 years.
5.97
0.39
0.16
11.1
3.32
2.52
5.02
5.21
10.62
9.88
12.97
18.9
17.28
18.71
16.86
15.35
0
2
4
6
8
10
12
14
16
18
20
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
ROCE(%)
Years
Return on capital employed
4.49
0.29
0.11
8.03
2.41
1.83
3.67
3.63
6.92
6.58
9
13.32 12.43
13.59
12.17
10.76
0
2
4
6
8
10
12
14
16
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
ROA(%)
Years
Return on Assets

4. Operating profit margin is a cash flow ratio which measures cash from operating activities as
a percentage of sales revenue in a given period. Atul Ltd. is maintaining good profitability,
efficiency and earnings quality over the past 16 years. We can see that from 2007 its cash
profit margin is increasing steadily and the trendline suggest growth in the upcoming years.
Interest coverage ratio is a measure of a company's ability to honour its debt payments. The
interest coverage over the 16 years saw a steady growth until recent years where the
interest coverage increased to 47 times which suggests that the company is growing at a
huge rate and its ability to repay interest to its debt holders 47 times.
10.46
6.09 6.35
11.5
5.6 5.51
6.14
7.6
7.6
6.49
8.5
10.68
10.53
13.61
14.25
12.53
0
2
4
6
8
10
12
14
16
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
CashProfitMargin(%)
Years
Cash Profit Margin
1.45
0.36 0.90
2.84
1.12 1.30 1.21 3.33
5.67 4.16 7.02
9.97
13.61
17.89
20.68
47.33
-10.00
0.00
10.00
20.00
30.00
40.00
50.00
60.00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
InterestCoverage(Times)
Years
Interest Coverage

5. The debt-to-equity ratio is a financial ratio indicating the relative proportion of
shareholders' equity and debt used to finance a company's assets. Over the last 16 years
Atul Limited’s debt-to-equity ratio have a decreasing trend and in 2018 it touched to 0 times
suggesting Atul Ltd. has transformed its financing strategy from using both debt and equity
to only equity or zero debt firm. Which is not a good sign because the company is letting go
its financing for growth, leverage of capital structure as well as tax saving options.
The current ratio is a liquidity ratio that measures whether or not a firm has enough
resources to meet its short-term obligations. It compares a firm's current assets to its
current liabilities. Atul Ltd. has always maintained its current ratio above 1 time and the
average is touching 1.5 times over the period of 16 years which is a good sign. And for 2018
it was almost 2 times suggesting that the company has enough resources to meet its short-
term obligations.
1.13
1.24
1.88
1.32
1.26
1.35
1.06
0.79
0.72
0.72
0.54
0.42
0.28
0.23
0.1
0
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
DebtToEquity(Times)
Years
Debt to equity ratio (times)
1.51
1.37
1.49
1.58 1.56
1.42
1.64
1.18 1.2
1.2
1.31
1.46 1.49
1.22
1.64
1.99
0
0.5
1
1.5
2
2.5
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
CurrentRatio(Times)
Years
Current Ratio

6. The operating cycle is the average period of time required for a business to make an initial outlay of
cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods. If
we see the graph for operating cycle of Atul Ltd. we can blatantly say that the company is improving
itself in terms of operating cycle. The downward sloping trendline suggest that the company might
be able to lower its operating cycle in the upcoming years by operating more efficiently and
effectively.
EV/EBITDA is a popular valuation multiple used in the finance industry to measure the value
of a company. The EV/EBITDA for Atul Ltd. has increased a lot in the recent years and for the
year 2018 it was 15 times, which suggest that the company might be overvalued in
comparison to its returns. The trendline is upward sloping which suggest more growth.
Typically, EV/EBITDA values below 10 are seen as healthy. However, the comparison of
relative values among companies within the same industry is the best way to determine
companies with the healthiest EV/EBITDA within a specific sector.
151.83
152.03
135.4
127.59
124.1 120.32
105.03
101.01
85.93 84.81 84.06
82.74
83.38
86.06 83.15
88.12
0
20
40
60
80
100
120
140
160
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
OperatingCycle(Days)
Years
Operating Cycle
2.82
5.96
5.99
4.52
3.39
4.82
2.44
2.77
3.67
3.92
5.37
4.01
9.1
9.88
13.87
15.13
0
2
4
6
8
10
12
14
16
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
EV/EBITDA(Times)
Years
Enterprise Value / EBITDA

7. The price/earnings ratio is the ratio of a company's share price to the company's earnings
per share. The ratio is used for valuing companies and to find out whether they are
overvalued or undervalued. Similar to EV/EBITDA ratio the P/E is rapidly growing in the last
few years and in 2018 it was 33 times which means investors expect higher earnings. On the
company’s perspective it is good but might not be good from an investor’s perspective as
high P/E ratio can indicate that the stock is being overvalued. If an investor invests in an
overvalued stock, he run the risk of losing money if it doesn't meet his high earnings
expectations.
The price to book value ratio compares the market and book value of shares of the
company. The higher the P/BV ratio depicts higher the market price of shares compared to
book value of shares. As of 2018 Atul Ltd.’s shares were 3.71 times costlier, suggesting
investors paid 3.7 times premium to purchase its share or the demand for Atul Ltd.’s shares
are exceptionally high. Therefore, we can say that the company is performing well if the
data is not adultered.
2.63
6.57
26.51
6.67
20.4
9.58
3.55
7.14 6.69
8.33 6.69
6.2
15.63
16.76
25.36
33.88
0
5
10
15
20
25
30
35
40
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
P/ERatio(Times)
Years
Price/Earnings Ratio
0.3 0.35
1.18
1.63
0.88
0.53
0.38
0.69
1.13
1.1
1.37
1.53
3.31
2.86
3.69 3.71
0
0.5
1
1.5
2
2.5
3
3.5
4
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
P/BRatio(Times)
Years
Price/Book Value Ratio

8. CONCLUSION
So, to summarize about Atul Ltd. after analysing the data and the graphs the company is
performing well and is a growing firm. The graphs related to returns and profitability show
that the firm garnered huge profits in previous years and also forecasts growth in the
upcoming years. The company has well maintained cash profit margin and interest coverage
ratio suggesting liquidity of the firm. But its debt to equity ratio is zero which means that the
company has zero debt and by doing that the company is letting go its financing for growth,
leverage of capital structure as well as tax saving options. The company has enough
resources to meet its short-term obligations as we can see from its current ratio. Over the
period the company has reduced its operating cycle suggesting less inventory and debtors
turnover period, which is definitely a good sign for the company. Atul Ltd. shares are in huge
demand which suggests that the investors think that the company is a growing massively.
Since its inception the company has seen massive growth in sales which proves higher
profitability ratios and that the firm is growing. Moreover, the company has a diversified
portfolio of working in various industries which gives them advantage of leveraging. The
firm’s EPS and dividend payout ratio is ever growing because of that the firm’s shares are
traded at high premium. The companies 14-year share price Compounded Annual Growth
Rate stood at 38% as of 2018, for an instance if a shareholder invested ₹10000 on 2000 the
value of it has become ₹32 lakhs in 2018. Because of this the company’s share are so
valuable for investors and for that the EV/EBITDA, P/E and P/BV ratios are so high. The
company have huge potential for growth as it has forayed into new projects which are to be
implemented in near future. The company has many unrealised capex in different segments
of its portfolio which in turn will provide potential for higher sales.
So, Atul Ltd. is definitely a huge growing company and will grow in near future too and there
is no doubt that it is one of the best companies to invest in.