Submitted By:

Assignment:
Financial Ratios
Section A- Group 9

1. Gautam kumar- 140201049

2. Vatsal Gupta - 140201050
3. Harshit Dalmia- 140201051
4. Himanshu Mittal- 140201052
5. Himanshu Singh 140201053
6. Imad Ahmad khan - 140201054

Question No.1:
 a) Reasons for difference between the PAT and Cash Profit: The major difference
between PAT and Cash Profit is the number of items that are taken into account while
preparing the P&L and Cash Flow. In P&L statement, the outflow of cash due to changes
in working capital are not taken into account. Further, various non cash expenses such as
depreciation and amortization are deducted as an expense, and Finance costs are also
taken as a direct expenditure. Therefore, there is a difference in Cash Profit and
Accounting Profit. In the question given here, the Accounting Profit (PAT) comes to Rs.
770 Crores, whereas the Cash Profit comes to Rs. 580 Crores. The reduced value of the
Cash Profit as compared to the PAT is due to the outflow of cash in working capital items
such as Trade Payables and an increase in Inventory. Also, sources of other income are
excluded from the Cash Profit, which leads to a reduced figure as compared to PAT.
b) Assets Expansion by the company: The company has financed its asset growth by
taking long term loans, which is reflected in the increase in loans from Rs. 800 Crores to
Rs. 1550 Crores. This number comes to Rs. 750 Crores, which has been used to finance
an increase in Fixed Assets to the tune of Rs. 800 Crore excluding depreciation. The
shortfall of Rs. 50 crores is met through issue of fresh shares and share capital premium,
amounting to a total of Rs. 200 Crores. Thus, the company is able to finance its asset
growth and expansion via this method.

Note- The calculation and data are as attached below in Annexure 1

Question 2:

Cash flow of Dabur India Limited: The Profit after Tax (PAT) of the company at 31.03.2014
comes to Rs. 672 Croress, whereas the Cash Profit comes to Rs. 715 Croress. This Profit after
Tax has increased by a margin of nearly 20%, from Rs. 590 Crores to Rs. 672 Crores. This is
reflected in the Cash Profit, which has increased from Rs. 702 Crores to Rs. 715 Crores. The
Trade Receivables have also increased by a margin of 30% to Rs. 323 Crores from Rs. 255
Crores in 2013. However, this has been covered by the increase in PAT, and has led to a net Cash
Profit from the operations of the Company. This has been due to the expansion of the company
and increased sales, which has resulted in leftover Trade Receivables. The company has perhaps
revised its credit terms to its customers, and increased the number of days in which payment may
be made. Due to this, these Trade Receivables have not been collected from the customers yet.
The Company can afford to do this, as it is cash rich and with this revised policy, can further
retain customers.

Annexure 1: Question 1: Cash Flow statement and Ratio calculation:

 Cash Flow from
Operating Activities (Rs. Crores)
Other Income -100
Finance Costs 40
Depreciation &
Amortisation 100
Tax Payable 240
Profit after Tax 770
1050
Working Capital
Adjustments
Decrease in Trade
Payable -120
Decrease in Trade
Receivable 20
Increase in
Inventories -150
Provisions 10
-240

Cash generted from

Operations 810
Less Advance Tax -230
Net Cash from
Operating
Activities 580

Cash Flow from

Investing activities( Rs. Crores)
Purchase of
Investments -385
Purchase of Fixed
Assets -800
Other Incomes 100
Increase in Current
Investment -25
Investment in
Working Capital -400
Net Cash provided
for Investments -1510

Cash Flow from

Financing (Rs. Crores)
Issue of Shares 200
Finance Costs -40
Raising long term 750
Borrowing
Net Cash from
Financing 910

Net Cash -20

Cash Debt Service

coverage ratio 2.64
Cash Profit 580
Interest +
Installment 220
Installment 200

PAT Debt
coverage ratio 3.38
PAT + Finance cost 810
Finance costs +
Installments 240

% of Internal
financing 38.41
Cash flow from
operating activities 580
Cash flows for
Investment Activities 1510