Total Management by Ratios: An Analytic Approach to Management Control and Stock Market Valuations

394 Pages·2007·1.33 MB·English

by  Hrishikes Bhattacharya

Total Management
by Ratios
2/TOTAL MANAGEMENT BY RATIOS
Total Management
by Ratios
An Analytic Approach to
Management Control and Stock
Market Valuations
Second Edition
Hrishikes Bhattacharya
Los Angeles London New Delhi Singapore
Copyright © Gouri Bhattacharya, 1995, 2007
All rights reserved. No part of this book may be reproduced or utilised in any form
or by any means, electronic or mechanical, including photocopying, recording
or by any information storage or retrieval system, without permission in writing
from the publisher.
First published in 1995
This Second edition published in 2007 by
Sage Publications India Pvt Ltd
B1/I1, Mohan Cooperative Industrial Area
Mathura Road, New Delhi 110 044
www.sagepub.in
Sage Publications Inc
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Sage Publications Ltd
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Sage Publications Asia-Pacifi c Pte Ltd
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Singapore 048763
Published by Vivek Mehra for Sage Publications India Pvt Ltd, typeset in
10/12 pt Times by Star Compugraphics Private Limited, Delhi and printed at
Chaman Enterprises, New Delhi.
Library of Congress Cataloging-in-Publication Data
Bhattacharya, Hrishikes.
Total management by ratios: an analytic approach to management control
and stock market valuations/Hrishikes Bhattacharya.—2nd ed.
p.cm.
Includes bibliographical references and index.
1. Ratio analysis. 2. Management—Statistical methods. I. Title.
HF5681.R25B48 658.4'033—dc22 2007 2007031383
ISBN: 978-0-7619-3621-3 (PB) 978-81-7829-785-9 (India-PB)
The Sage Team: Sugata Ghosh and Koel Mishra
For
Orphi and Saraswat
6/TOTAL MANAGEMENT BY RATIOS
Introduction/7
Contents
List of Tables 8
List of Figures 10
Introduction 11
1. Advent, Development and Use of Ratios 17
2. Ratio Analysis: An Integrated Approach 48
3. Financial Aspects of Manufacturing Management 59
4. Ratios for Financial Control of Manufacturing
Management 78
5. Ratios for Operational Control of Manufacturing
Management 98
6. Ratios for Financial and Operational Control of Marketing
and Sales Management 118
7. Ratios for Corporate Control of Operational Management 130
8. Ratios for Working Capital Management 153
9. Ratios for Debt Service Management 180
10. Ratios for Corporate Control of Financial Management 191
11. Measurement and Monitoring of Managerial Effi ciency:
A Ratio-Analytic Approach 212
12. Financial Strategies of Growth Oriented Companies:
A Ratio-Analytic Framework 237
13. Towards a Financial Theory of Corporate Bankruptcy:
A Ratio-Analytic Approach 270
14. Valuation and Stock Market Ratios 317
References and Select Bibliography 373
Index 384
About the Author 393
8/TOTAL MANAGEMENT BY RATIOS
List of Tables
2.1 Manoeuvrability of Ratios 55
3.1 Universal Electricals Limited—Income Statement 61
3.2 Universal Electricals Limited—Balance Sheet 63
3.3 Universal Electricals Limited—Annexure to Financial
Statements 65
5.1 Weekly Performance Control Chart 105
5.2 Priority Control Chart as on 1st January 109
5.3 Priority Control Action Design 109
5.4 COQ Monitoring Table 115
5.5 COQ Summary Table 115
5.6 Vendor Quality Rating Table 117
6.1 Turnover of Stock at Different Stages 126
7.1 Operating Assets of UEL 134
7.2 Value Addition in UEL 138
7.3 Summary of Financial Accounting Ratios 146
7.4 Summary of Management Accounting Ratios 148
7.5 Summary of Financial Accounting Ratios (Marketing
and Sales Function) 150
7.6 Summary of Management Accounting Ratios (Marketing
and Sales Function) 150
7.7 Summary of Ratios for Operating Management 151
8.1 Analysis of Current Assets and Current Liabilities of UEL 156
8.2 Current Account Balance Sheet 165
9.1 Net Cash Flow Statement of UEL 186
10.1 Net Worth (Equity) of UEL 194
10.2 Long Term Debt of UEL 195
10.3 Capital Structure Ratios of UEL 203
10.4 Summary of Ratios for Working Capital Management 207
10.5 Summary of Ratios for Debt Service Management 209
10.6 Summary of Ratios for Corporate Financial Management 210
11.1 Cost Indices for UEL 214
11.2 Indices of Working Capital Items for UEL 218
11.3 Optimal Capital Structure 222
11.4 Equilibrium Factors for Different Capital Sources 224
12.1 Number of Sample Companies in Various Industry Groups 249
12.2 Reporting Companies 249
List of Tables/9
12.3 Textile Company (growing at 7% p.a.) 250
12.4 Textile Company (growing at 12.5% p.a.) 250
12.5 Textile Company (growing at 13% p.a.) 250
12.6 Chemical Company (growing at 22% p.a.) 251
12.7 Chemical Company (growing at 28% p.a.) 251
12.8 Metal Products Company (growing at 9% p.a.) 251
12.9 Metal Products Company (growing at 13% p.a.) 252
12.10 Metal Products Company (growing at 17% p.a.) 252
12.11 Automobile Company (growing at 40% p.a.) 253
12.12 Automobile Company (growing at 60% p.a.) 253
12.13 Automobile Company (growing at 80% p.a.) 254
12.14 Case I—Sales growing at 21.95% p.a. 265
12.15 Case II—Sales growing at 25% p.a. 265
12.16 Growth Parameters 267
13.1 Classifi cation Error Rates for Predicting Future
Bankruptcy 275
13.2 Financial Ratios for the Four Subcomponent Ratings
of the Credit Rating Based on the Bank’s Financial
Analysis of an Applicant’s Financial Statement 280
13.3 Funds and Cash Flow Statement 298
13.4 Balance Sheet Extract 298
13.5 Funds Flow Statement, Cash Flow Statement and
Balance Sheet Extract of an Illustrative Firm-I 298
13.6 Funds Flow Statement, Cash Flow Statement and
Balance Sheet Extract of an Illustrative Firm-II 299
13.7 Movements of Funds Turnover Ratio 301
13.8 Summary of Stages of Growth of a Business Enterprise 315
14.1 Contents of Annual Reports and their Usages 324
14.2 Balance Sheets of MNO Limited 329
14.3 Profi t and Loss Accounts of MNO Limited 332
14.4 Performance of Major Business Segments 343
14.5 Implications of Different Values of Risk Performance Ratio 360
14.6 Calculation of Variables for Risk-return Ratio-I 363
14.7 Calculation of Variables for Risk-return Ratio-II 364
14.8 Expense Ratios for Selected Mutual Funds 368
14.9 Summary of Ratios 369