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1.

Current ratio: - current ratio may be defined as the relationship


between the current asset and current liabilities. This ratio is also known as
working capital ratio, and is used to measure the liquidity and is most
widely used to make the analysis of short term financial position of the
liquidity of the firm.
This ratio is calculated by dividing the total of current asset by total of
current liabilities.

Current assets
Current ratio =
Current liabilities
(in crores)
Seria computation results
l no
1. 1013.49/2052.82 0.49:1

Interpretation: - A relatively high current ratio is an indication that


the firm is liquid and has the ability to pay its current obligation in time as
and when they become due.
As per the prescribed standard given by the financial experts the ratio of
current asset to current liabilities should be 2:1, but in this case the ratio
stands as 0.49:1, which gives an indication that the liquidity position of the
firm is not good, and is in a vulnerable position to meet it’s short term
obligation, following a very aggressive working capital policy.
2. Liquid ratio:- The term liquid ratio is a more rigorous test of
liquidity than the current ratio. The term liquidity refers to the ability of a
firm to pay it’s short-term obligations and when they become due. These
ratios are also termed as quick ratio or acid-test ratio
Liquid ratio may be defined as the relation-ship between liquid assets
(current asset –stock) and current liabilities on the notion that inventory
should be excluded from the current asset because they cannot be converted
into cash immediately without sufficient loss in value.

Liquid asset
Liquid asset =
Current liabilities
(in crores)
Seria computation results
l no
1. 696.39/2052.82 0.34:1

Interpretation:- a high liquid ratio indicates that the firm is liquid


and has the ability to meet current liabilities in time.
As per the prescribed standard given by the financial experts the ratio of
current asset to current liabilities should be 1:1, but in this case the ratio
stands as 0.34:1, which gives an indication that the liquidity position is very
poor as inventories are absolutely non-liquid and reveals that the liquidity
position of the firm has deteriorated.
3. Stock turn-over ratio:-stock or inventory turn-over ratio is
normally calculated as net sales divided by average inventory, which
indicates that the inventory has been efficiently utilized by the firm or not.
The purpose is to see weather only the required minimum funds have been
locked up in the inventory. Stock/inventory turn-over ratio indicates the
number of times the stock has been turned over during the period and
evaluates the efficiency with which a firm is able to manage it’s inventory.

Cost of goods sold


Stock turn-over ratio =
Average Inventory

(in crores)
Seria computation results
l no
1. 9783.80/321.96 30.38

Interpretation: - stock turn-over ration measures the velocity of


conversion of stock into sales. a high turn-over gives the indicates efficient
management of stock ,because more frequently the stocks are sold, the lesser
amount of money is required to finance the stock.
There is no prescribed standard given by the financial expert, but in this
case the stocks are turned 30.38 times in a year, which is very high and may
endanger the firm and may result in stock-out and thus may interrupt
smooth flow of the production process.
4. Debtor’s turn-over ratio:- debtors turn-over ratio indicates
the velocity of debt-collection of the firm. in simple words, it indicates the
number of times average debtors are turned over during a year.

Net credit sales


Debtor’s turn-over ratio =
Average debtors

(Where total sales has been assumed as credit sales and average debtors is
equal to opening debtor + closing debtor /2)

(in crores)
Seria computation results
l no
1. 12319.12/223.69 55.07

Interpretation: - the higher debtor turn-over ratio indicates the


maximum number of times the debtors are turned during that year, which in-
turns gives the impression of efficient management of debtor’s.
There is no prescribed standards given by the financial experts but the turn-
over is high, gives an indication that the cash is realized from the debtor’s
at regular intervals with minimum collection period.
5. Average collection period: - the average collection
period represents number of days for which a firm has to wait before
receivable are converted to cash.

Trade debtors *360


Average collection period =
Net sales

(assuming that sales are made through-out the year, and the year consists of
360 days)

(in crores)
Seria computation results
l no
1. (149.94/12319.12)*360 4.38 days

Interpretation:- the average collection period ratio represents the


average number of days for which a firm has to wait before it’s receivable
are converted into cash.
There is no ‘thumb-rule’ or prescribed standards in interpreting this ratio,
but as the computation reveals very high recovery of receivable into cash
removing the burden of having excess employment of capital in business.
6. Creditors turn-over ratio:- in the business firm , the
creditors is naturally interested in finding –out how much time the firm is
likely to take in repaying it’s trade creditors.
If the information about credit purchases is not available, the figure of total
purchase may be taken as numerator and average trade creditors.

Net credit annual purchases


Creditors turn-over ratio =
Average trade creditors

(Where total purchases has been assumed as credit purchases and average
creditors is equal to opening creditor + closing creditor /2)

(in crores)
Seria computation results
l no
1. 9793.50/729.55 13.42 times

Interpretation: - the average payment period ratio represents the


average number of days taken by the firm to pay its creditors. Generally,
lower the better is the liquidity position of the firm and higher the ratio, less
liquid is the position of the firm.
As per the situation the average collection payment period of the company is
very good revealing a sound credit-worthiness of the firm.
7. Working capital turn-over ratio: - working capital of
concern is directly related to sales .working capital turn-over ratio indicates
the velocity of the utilization of net-working capital. This ratio indicates the
number of times the working capital is turned over in the course of a year.
This ratio measures the efficiency with which the working capital is being
used by a firm.

Net sales
Working capital turn-over ratio =
Net working capital

(in crores)
Seria computation Results
l no
1. 12319.12/(1039.43) (11.85)

Interpretation: - this ratio measures the velocity of utilization of


working capital, and there is no prescribed standard given by financial
experts, since the net working capital is negative, the company follows a
very aggressive working capital policy and meets its operating through it’s
different reserves. There is minimum inventory and any kind of miss-
happenings my lead to interruption in the production process.
8. Debt-equity ratio: - It is also known as external-internal equity
ratio, and is calculated to measure the relative claims of outsiders (i.e.
share-holders), against the firm’s assets. This ratio indicates the
relationship between the external equities or the outsiders fund and the
internal equities or the shareholders fund.

Debt capital
Debt-equity ratio =
Equity capital
(in crores)
Seria computation Results
l no
1. 78.49/3800.75 0.02:1

Interpretation: - the debt-equity ratio is calculated to measure the


extent to which debt financing has been used in a business. This ratio
indicates the proportionate claims of owners and the outsiders against the
firm’s assets.
As per the prescribed standards given by the financial experts the debt-
equity ratio is 2:1,but the debt-equity mix in this case is very low, indicating
the firms inability of utilizing low-cost outsider’s fund to magnify their
earnings.
Moreover, the firm is not getting and leverage benefit, which in-turns
reduces profitability.
9. Fixed asset to net-worth:- the ratio establishes the
relationship between fixed asset and shareholders fund.

Net fixed assets


Fixed asset to net-worth =
Shareholder’s fund

(in crores)
Seria computation results
l no
1. (1694.25/3800.75)*100 45%

Interpretation :- the ratio of fixed asset to net-worth indicates the


extent to which shareholder’s fund are sunk into fixed asset.genarally the
purchase of fixed asset should be financed by shareholders equity including
reserves, surpluses and retained earnings.
There is no prescribed standards for this ratio, but 65-70% is considered
satisfactory as per the industry standards, whereas in this case it is just
45%,reflecting that the owner’s fund are more than total fixed and provided
to finance as a part of working capital.
10. Current asset to equity fund: - this ratio is calculated
by dividing the total of current asset by the amount of shareholder’s fund

Current asset
Current asset to equity fund =
Shareholder’s fund

(in crores)
Seria computation results
l no
1. (1013.49/3800.75)*100 27%

Interpretation: - the ratio indicates the extents to which


proprietor’s fund are invested in current asset.
There is no prescribed standard for this ratio. Since only 27% of the current
assets is financed by the equity fund, giving the impression very low
investment in working capital by the company.
11. Gross profit ratio:-gross profit ratio measures the
relationship of gross profit to net sales and is usually represented as a
percentage. This ratio indicates the profit earned directly from
manufacturing process, without any further indirect expenditure.

Gross profit *100


Gross profit ratio =
Net sales

(in crores)
Seria Computation results
l no
1. (1781.46/3800.75)*100 47%

Interpretation: - the gross profit indicates the extent to which


selling prices of goods per unit may decline without resulting in losses on
operation of the firm.
There is no prescribed standard given by any financial expert ,but the rate
35-45% is normally considered satisfactory return, since the return is
47%,therefore we can conclude that the earning capacity of the firm is very
good and the firm should try and maintain this rate.
12. Net-profit ratio: - net profit establishes a relationship
between net profit and sales, and indicates the efficiency of the management
in manufacturing, selling, administration and other activities of the firm.
The two basic element of the ratio are net profit and sales.

Net profit after tax *100


Net profit ratio =
Net sales

(in crores)
Seria Computation results
l no
1. (1281.76/12319.12)*100 10.4%

Interpretation :- the net-profit are obtained after deducting income-


tax and indicates the firms capacity to face adverse economic conditions
such as price ,competition, low-demand ,etc .the higher the ratio, the better
is the profitability.
As per the prescribed standard by the experts the net-profit should range
between 11-15%,so in this case the company earns favorable amount of net-
profit, but there is a drastic decrease in the profitability because of the
increase in the indirect expenditure of the company, so the company should
try to minimize the cost.
13. Return on share holder investment/return on
investment: - this ratio shows the relationship between net-profit and
the proprietor’s fund, the two basic components of this ratio are net-profit
and shareholder’s fund

Net profit after tax


Return on investment =
Shareholder’s fund

(in crores)
Seria Computation results
l no
1. (1281.76/3800.75)*100 33.75%

Interpretation: - this ratio is one of the most important ratios


measuring the overall efficiency of a firm. As the primary objective of the
business is to maximize its earnings, it also indicates the extent to which the
primary objectives are achieved.
There is no prescribed standards given by any expert, but in this case the
firm has a considerable rate of return from the business, shows better
results of the firm.
14. Return on equity capital :- this ratio shows the relation
ship between profits of the company and its equity capital, the ordinary
shareholders are more interested in the profitability of a company and the
performance of the company is judged on the basis of return on equity
capital.

Net profit after tax – preference dividend


Return on equity capital =
Equity share capital (paid-up)

(in crores)
Seria Computation results
l no
1. (1281.76-0/39.94) 32.09

Interpretation :- ,As there is no prescribed standard given by any


expert and since the firm is dependent more on the equity capital for its
operations so the organization return on its equity capital is considerably
satisfactorily.
15. Operating ratio: - operating ratio establishes the relation
between cost of goods sold and other operating expenses on the one hand
and the sales on the other. In other words, it measures the cost of operation
per rupee of sales.

(Cost of goods sold + operating expenses) * 100


Operating ratio =
Net sales

(where operating expenses includes selling & distribution and


administrative expenses.)

(in crores)
Seria Computation results
l no
1. (10770.93/12319.12) *100 87%

Interpretation: - operating ratio indicates the percentage of net


sales that is consumed by operating cost, a high operating ratio, is less
favorable because it would have a small margin to cover interest, income-
tax, dividends and reserves.
Since there is no ‘thumb rule’, given by any expert, but the 75-85% may be
considered to be good in case of manufacturing undertaking, and in this
case the company maintains it business is good.
16. Earning per share: - earning per share is a small variation
on return of equity capital and is calculated by dividing the net-profit after
tax by the total number of equity shares.

Net profit after tax – preference dividened


Earning per share =
Number of equity shares

(in crores)
Seria Computation results
l no
1. 12817600000/199687500 Rs.63.15

Interpretation: - this ratio is a good indicator of measuring the


profitability of the firm and comparing it with previous years.
The earning per share is very high comparing to the value of shares at par,
giving the indication that company is providing adequate return to their
shareholders.
17. Return on capital employed:-it establishes the relation
ship between the profit after tax and the total capital employed in the
business by the firm. it is a primary ratio and is most widely used to
measure the overall profitability and efficiency of a business.
The term capital employed refers to the total of investment made in the
business by the firm including all tangible assets and excluding all
intangible asset.

Profit after tax * 100


Return on capital employed =
Net capital employed

(net capital employed=fixed asset + investment + current asset )

(in crores)
Seria Computation results
l no
1. 1281.76/4390.89 0.29:1

Interpretation: - this ratio is particularly used in appraising the


divisional and department performance of the firm and in determining the
selling price so as to earn the desired percentage on return.
As there is no prescribed standards by the financial experts, whereas in this
case the return on capital is quite satisfactory as the company is earning
fair return on there capital they are employing in the business.
18. Price earning ratio:- price earning ratio is the ratio
between market price per share and earning per share. The ratio is
calculated to make an estimate of appreciation in the value of shares of a
company and is widely used by the investor to decide or not to buy shares in
a particular company.

Market price per equity share


Price earning ratio =
Earning per share

(in crores)
Seria Computation results
l no
1. 1625.35/63.15 25.73

Interpretation: - the greater the price earning ratio of the company


the greater is the position of the firm in the market in terms of market
capitalization of the firm.
Since, in this case the price-earning ratio of the firm is very good the market
capitalization rate of the company is growing at a very fast rate.
Recommendation

1. Liquidity position: - these are the ratios which measures the short-
term solvency or financial position of a firm. These ratios are
calculated to comment upon the short-term paying capacity of a
concern or the firm’s ability to meet its current obligations.
The various liquidity ratios are current ratio & liquid ratio.
These ratio shows that the short-term repaying capacity of the firm is
very poor, hence the organization should employ more fund in
working capital to have uninterrupted flow of production process and
try to follow the moderate working capacity in order to have a
balance between liquidity and profitability. Moreover this may also
affect the solvency position of the firm if the keep on following policy.

2. Long-term solvency and leverage position:- long-term solvency


position ratio conveys a firm ability to meet the interest cost and
repayment schedule of it’s long term obligation.
Since the company does not have adequate mixture of debt capital in
their capital structure, so the company does not obtain any leverage
benefit. moreover in order to finance the operational activity they are
dependent on their equity capital, since the company does not bear
the burden to repaying interest to its financial institutions, bears a
good credit-worthiness and a sound financial background.

3. Activity benefit: - Activity ratios are calculated to measure the


efficiency with which the resources of the firm have been employed.
These ratios are called turn-over ratio, as per the position of the firm
the firm earns high profit from production process, but the net profit
gradually decreases.
The turn-over of stock, debtor’s creditors are very healthy showing a
high turn-over of sales and frequent conversion of credit sales into
cash. Since the rate of conversion is very high the company gets a
very high return on their capital employed and thus the return on
investment is increased.