57 views

Uploaded by Siddhant Saxena

- CAT Valuation
- Financial Analysis and Industrial Financing
- pak suzuki co.taimoor tk
- Financial Analysis of Habib Bank Limited
- unit 1.9.doc
- Vishal Mega
- Security Analysis PPT - Value Investing
- Fsav - Final
- Oracle Revenue ion Problems PDF
- Ratio Analysis of Square Pharmaceuticals Ltd
- Mba Full Project
- Citatah Report
- 5 - Ankit - Bata India
- 20.pdf
- Ratio Analysis
- ratio analysis.docx
- Ratio Analysis
- Ratio Analysis
- Introduction 150401115749 Conversion Gate01
- first entrepreneurship participating event presentation felix, albert

You are on page 1of 9

This ratio defines the relationship between current assets and liabilities of the

company. The long run assets and liabilities are not considered in this case. It is

also called the Working Capital Ratio.

Current Ratio = Current Assets

Current Liabilities

Mar13 Mar12 Mar11 Mar10 Mar09

0.98 1.81 1.14 1.23 0.98

The thumb rule: The current assets should be twice that of the current liabilities,

only then realization from current assets will be adequate to pay for the current

liabilities in time.

INTERPRETATION -: The current ratio has deteriorated over the previous

year. Since it has reduced to 0.98 it is reasonable enough to say that the

company cant meet its short term liabilities using its current assets on time.

LIQUID RATIO/ ACID TEST RATIO/ QUICK RATIO:

Quick ratio may be defined as a relationship between quick/ liquid assets and

current liabilities. This is computed to assess the short term liquidity of the

enterprise.

Liquidity Ratio = Liquid Assets*

Current Liabilities

*Liquid Assets: Current Assets Stock Prepaid Expenses

Mar13 Mar12 Mar11 Mar10 Mar09

0.89 .74 1.26 1.28 0.78

The thumb rule: 1:1 is an accepted standard, since for every rupee of current

liabilities, there is a rupee of quick assets.

INTERPRETATION:- The quick ratio has increased from .74 to .89. The ideal

ratio is 1:1, increase in quick ratio means that the company is using quick funds

(liquid assets) in hand to meet its current obligations.

STOCK TURNOVER RATIO:

Also called Inventory Turnover Ratio it establishes the relationship between

the cost of goods sold i.e. Cost Of Revenue from Operations and the average

amount of Inventory carried during that period.

Inventory Turnover Ratio = Cost of goods sold

Average inventory

Inventory Conversion Period = 365/ Inventory Turnover Ratio

Mar13 Mar12 Mar11 Mar10 Mar09

0.99 .90 1.56 1.72 1.62

NOTE : In the absence of information inventory turnover ratio can be calculated

as:-

Inventory Turnover Ratio = Sales / Inventory

Thumb Rule : A high ratio represents that more sales are being produced by a

rupee of investment in inventories

Analysis- Inventory Turnover Ratio is .99 which indicates better liquidity because

stock gets converted into sales quickly. However the ratio should have been higher

as it was between 2009- 2011.

DEBTOR TURNOVER RATIO

It is also called the Trade Receivables Turnover Ratio .It establishes the relation

between net credit sales and average trade receivables i.e. debtors and bills

receivable of the year.

Debtor Turnover Ratio = Net Credit Sales

Average Debtors

Trade Debtors include: Debtors +B/R +account receivables

Average Collection Period/ Debtor days= 365 / DTR

Average Debtors= (Opening+ Closing Debtors and Trade Receivables)/2

Average collection period= 365/DTR

Mar13 Mar12 Mar11 Mar10 Mar09

4.43 7.45 5.32 3.98 5.98

NOTE: Debtor should always be taken at gross value i.e. no provision for Bad

& Doubtful debts are deducted from them.

Thumb Rule: A lower ratio shows inefficiency in collection and more

investment in debtors than required.

Analysis- Debtor turnover ratio is very low (1.87 times) which indicates

inefficient management of debtors or less liquid debtors. The average collection

period is 195 days. It means the company should reassess its credit policies in

order to ensure timely collection of sales (cash from debtors) and reduce the

risk of bad debts.

TOTAL ASSET TURNOVER RATIO

It can be defined by the following formula:

Total Asset Turnover Ratio = Net Sales

Total Assets

Mar13 Mar12 Mar11 Mar10 Mar09

.49 .45 .51 .50 .61

Thumb Rule / Interpretation: If a company can generate more sales with fewer

assets it has a higher turnover ratio which tells it is a good company because it is

using its assets efficiently. A lower turnover ratio tells that the company is not

using its assets optimally.

Analysis- The total assets turnover ratio has increased from the previous year, this

means that the firm is utilizing its assets (especially fixed assets)- its asset base

efficiently to generate revenue, it is good for the company.

DEBT EQUITY RATIO

It is defined as the measure of a company's financial leverage calculated by

dividing its total liabilities by stockholders' equity. It indicates what proportion of

equity and debt the company is using to finance its assets.

Debt Equity ratio = Debt / Equity

Debt: All external long term liabilities

Equity: Share Capital + Reserves and Surplus- Accumulated Losses

Mar13 Mar12 Mar11 Mar10 Mar09

1.03 .97 1.08 1.07 1.16

OPERATING RATIO

This is the ratio depicting the relationship between the Operating Profit and the Net

Sales.

Operating Ratio: Operating Costs * 100

Net Sales

NOTE : Operating costs = Cost of goods sold + Operating expenses

Operating Expenses are: Administrative and office expenses + Selling and

distribution expenses

= (47952.40+2091.08)/60873.26

= 0.82

For year 2012-2013= 0.82

For year 2011-2012= 0.81

Analysis- The operating ratio has marginally increased, even though the selling,

distribution expenses have decreased, but COGS has increased hence increase in

the ratio. Increase in operating ratio is not good for the company. Smaller the ratio,

the greater the organizations ability to generate profit if revenues decrease. But the

increase is marginal so there isnt much a matter of concern, but the firm should

keep a check on its operating costs.

RETURN ON CAPITAL EMPLOYED (ROCE)

It is the financial ratio that measures a company's profitability and the efficiency

with which its capital is employed. Return on Capital Employed (ROCE) is

calculated as:

Return on Capital Employed= Profit before interest & tax * 100

Capital Employed

NOTE: Capital employed = (Equity Share Capital + Preference Share Capital +

Reserves and Surplus + long Loans + debentures) fictitious Assets like

preliminary expenses

Profits before tax = 6711.15

Interest paid = 856.39

Share capital = 123.08

Reserves and surplus = 29019.64

Long term borrowings =7271.03

Therefore ROCE = 6711.15+856.39/123.08+29019.64+7271.03*100 = 20% ( For

2012-2013)

Thumb Rule / Interpretation: A higher ROCE shows efficient use of capital. ROCE

should be higher than the companys capital cost else it shows that the company is

not employing its capital effectively and is not generating shareholder value.

INTEREST COVERAGE RATIO

This is defined as the ratio used to determine how easily a company can pay

interest on outstanding debt. The interest coverage ratio is calculated by dividing a

company's earnings before interest and taxes (EBIT) of one period by the

company's interest expenses of the same period:

Interest Coverage ratio = Net profit (before interest, dep and tax)

Interest

= 6711.15 +916.30/916.30

=8.32

For year 2012-2013 = 8.32

For year 2011-2012 = 11.44

- CAT ValuationUploaded byMichael Cheung
- Financial Analysis and Industrial FinancingUploaded bySM Friend
- pak suzuki co.taimoor tkUploaded bymuhammadtaimoorkhan
- Financial Analysis of Habib Bank LimitedUploaded byRabab Ali
- unit 1.9.docUploaded bynikita2802
- Vishal MegaUploaded byHush Pupie
- Security Analysis PPT - Value InvestingUploaded byAbhijeet Dash
- Fsav - FinalUploaded byShovon Mustary
- Oracle Revenue ion Problems PDFUploaded byMike Jones
- Ratio Analysis of Square Pharmaceuticals LtdUploaded bymd_waleeda
- Mba Full ProjectUploaded byARUNRAJRAJARAM
- Citatah ReportUploaded byYuannita Sari
- 5 - Ankit - Bata IndiaUploaded byrajat_singla
- 20.pdfUploaded byPra
- Ratio AnalysisUploaded bysan_look
- ratio analysis.docxUploaded byJoshua Griffin
- Ratio AnalysisUploaded bykumarankishor
- Ratio AnalysisUploaded byAnubhav Singhal
- Introduction 150401115749 Conversion Gate01Uploaded byYougal Malik
- first entrepreneurship participating event presentation felix, albertUploaded byapi-286968754
- Controller or Accountant or ManagerUploaded byapi-78171234
- RalsUploaded byulffah juliand
- INDF.pdfUploaded byNguurah Gottama
- valuationofbanks-121110051525-phpapp02.pptxUploaded byRonak Choudhary
- 19Uploaded byRawan Abuzaid
- Economic IncomeUploaded byTosin Yusuf
- Forecast Ets ExampleUploaded byAbhinav Prakash
- 36 - Vaibhav Raj Dixit - Ambuja CementsUploaded byrajat_singla
- Ratio FormulaUploaded byshamarjit
- 49. Dissertation_Credit Risk Management System in a CB in the UKUploaded byVU ThuyDung

- New Microsoft Word DocumentUploaded byprudhvibodepudi
- AVI Letter to Chair of PSHUploaded byZerohedge
- WACC Case StudyUploaded byMuhammad Adeel
- Project FIN7210 Fall 2017 DSUploaded byAmjad khan
- chapter 05 Net Present Value and Other Investment Rules.pdfUploaded byWan Maulana Akbar
- Self Study - Financial Accounting Chapter 1 to chapter 4Uploaded byAna Saggio
- Morgan Wilshire Securities, Inc.Uploaded byMorganWilshire
- CFA Level 1 Corporate Finance E book - Part 1.pdfUploaded byZacharia Vincent
- FIN 286 - Valuation - G TwiteUploaded byVasile
- ACC_PRJ_AMUploaded bySandip Ghosh
- AARM CAIA Benchmarks-1Uploaded byalainvalois
- FRM-2-esatUploaded byChuck Yint
- Importance of Cost of CapitalUploaded bymounica
- 12 631 Kay Review of Equity Markets Interim ReportUploaded byWu Xiaodan Cherry
- GoodwillUploaded byShreyaGolchha
- MANAGEMENT ACCOUNTING & CONTROL 306 ele paper IIIUploaded bytadepalli patanjali
- DTIRMUploaded byRajashekhar Pujari
- Fundamentals 02Uploaded by2imedia
- Variance Swaps PrimerUploaded bychibondking
- FMDQ Codified Rule Book Treasury BillsUploaded byOladipupo Mayowa Paul
- Shrenuj PrimeUploaded bynarsi76
- U.S. Oil Company Stock Returns and Currency FluctuationsUploaded bySaracindy Sacin
- chapter 10.pptUploaded byphuphong777
- Synopsis of financial analysis of indian overseas bankUploaded byAmit Mishra
- Microequities Deep Value Microcap Fund IMUploaded byMicroequities Pty Ltd
- Chp02 Futures MarketsUploaded byAmsalu Walelign
- Krispy Kreme - PaperUploaded byLitz466
- Fin 124 SyllabusUploaded byTram Do
- Final Question - Nov 2008Uploaded byThashna Reddy
- 7891FinalGr1paper2ManagementAccountingandFinancilAnalys.pdfUploaded byPrasanna Sharma