Quick Ratio

This Ratio establishes a relationship between quick assets and quick liabilities. The objective of computing
this ratio is to measure the ability of the firm to meet its short-term obligation as and when due without relying
upon the realization of stock. Quick Assets: Current assets which can be converted into cash immediately or
at a short notice without a loss of value. Quick Liabilities: Quick liabilities refer to those liabilities which are
expected to be matured normally within a year. This ratio is computed by dividing the quick assets and quick
liabilities. This ratio is usually express as a pure ratio e.g. 2:1. In the form of a formula, this ratio may be
express as follows:

Quick Ratio = Quick Assets

Quick Liabilities
This ratio indicates rupees of quick assets available for each rupee of current liability. Traditionally, a quick
ratio of 1:1 is considered to be a satisfactory ratio. However, this traditional rule should not be used blindly
since a firm having a quick ratio of more than 1(one), may not be meeting its short term obligations in time if
its current assets consist of doubtful and slow paying debtors while a firm having quick ratio of less than
1(one), may be meeting is short term obligation in time because of its very efficiency inventory management.

Series 1
1.2

0.8

0.6
1.13
0.94 0.98 0.93
0.4 0.86

0.2

0
2014-15 2015-16 2016-17 2017-18 2018-19

 ASIAN PAINTS

Table 4.5.1and Graph 4.5.1(E) reveals that the current ratio of study period was below than the norms i.e.
1.122.

During the study period of this industry the highest ratio was 1.13, in the year 2016- 2017 and the lowest ratio
was 0.86, in the year 2014-2015. It is so believed that liquidity of company is higher if the ratio is higher. The
ideal ratio is 2:1 it means that if the current assets are twice the current liabilities, the liquid position of a
company is said to be satisfactory. In the year 2014-2015 the ratio was increased it was 0.86, and after than
the increase in 2015-2016, 2016-2017 year the ratio was 0.94,1.13 it is lowest ratio of the study period in this
industry and after than again increased in the year 2016-2017 the ratio was 1.88 and after than again decreased
in the year 2017-2018 the ratios was 1.64 and increase in 2018-2019 the ratio was 1.90 . A weak condition
current ratio compares with ideal ratio 2:1. But normally good condition of this industry compared with other
industries. This ratio is measure working capital position and useful to creditors and short-term money-lenders.
With the help of this ratio, one can judge whether or not the company is able to pay back the debt within a
short period.

Working Capital Ratio -

The working capital ratio, also called the current ratio, is a liquidity ratio that measures a firm’s ability to pay
off its current liabilities with current assets. The working capital ratio is important to creditors because it shows
the liquidity of the company. Current liabilities are best paid with current assets like cash, cash equivalents,
and marketable securities because these assets can be converted into cash much quicker than fixed assets. The
faster the assets can be converted into cash, the more likely the company will have the cash in time to pay its
debts. The reason this ratio is called the working capital ratio comes from the working capital calculation.
When current assets exceed current liabilities, the firm has enough capital to run its day-to-day operations. In
other words, it has enough capital to work. The working capital ratio transforms the working capital calculation
into a comparison between current assets and current liabilities. In the form of a formula, this ratio may be
express as follows:

Working Capital Ratio = Current Assets

Current Liabilities

Series 1
2 1.89

1.8
1.62 1.63
1.6 1.51 1.47
1.4

1.2

0.8

0.6

0.4

0.2

0
2014-15 2015-16 2016-17 2017-18 2018-19

Table 4.5.1and Graph 4.5.1(E) reveals that the current ratio of study period was below than the norms i.e.
1.122.
During the study period of this industry the highest ratio was 1.89, in the year 2016- 2017 and the lowest ratio
was 1.47, in the year 2015-2016. It is so believed that liquidity of company is higher if the ratio is higher. The
ideal ratio is 2:1 it means that if the current assets are twice the current liabilities, the liquid position of a
company is said to be satisfactory. In the year 2014-2015 the ratio was increased it was 1.51, and after than
the decreased in 2015-2016 year the ratio was 1.47, it is lowest ratio of the study period in the industry and
increase in 2016-2017 year the ratio was 1.89 and after than again decreased in the year 2017-2018 the ratio
was 1.62 and after than again increased in the year 2018-2019 the ratios was 1.63. A weak condition current
ratio compares with ideal ratio 2:1. But normally good condition of this industry compared with other
industries. This ratio is measure working capital position and useful to creditors and short-term money-lenders.
With the help of this ratio, one can judge whether or not the company is able to pay back the debt within a
short period.

Gross Profit Margin Ratio -

This Ratio measure the relationship between gross profit and net sales. The gross profit margin is often
expressed as a percentage of sales and may be called the gross margin ratio. This ratio is computed by dividing
the gross profit by the net sales. It is express as percentage. The Formula for Gross Profit Margin is-

Gross Profit Margin = Gross Profit Margin

Net Sales
This ratio indicates. An average gross margin earned on a sale of Rs.100. The limit beyond which the fall in
sales prices will defiantly result in loses and what portion of sales is left to cover operating expenses and non-
operating expenses, to pay dividend and to create reserve. Higher the ratio, the more efficient the production
and purchase management. This ratio may increase due to one of the following, Higher sales price with
constant cost of goods sold. Lover cost of goods sold with constant sale prices. A combination of aforesaid
two factors. An enterprise should have a satisfactory ratio. to judge whether the ratio is satisfactory or not, it
should be compared with its own past ratio or with the ratio of similar firms in the same industry or with the
industry average.

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RETURN ON ASSETS -

Return on assets is a profitability ratio that provides how much profit a company is able to generate from its
assets. In other words, return on assets (ROA) measures how efficient a company's management is in
generating earnings from their economic resources or assets on their balance sheet. ROA is shown as a
percentage, and the higher the number, the more efficient a company's management is at managing its balance
sheet to generate profits.

The formula for ROA is:

ROA= Average Total Assets

Net Income

The profit percentage of assets varies by industry, but in general, the higher the ROA the better. For this reason,
it is often more effective to compare a company's ROA to that of other companies in the same industry or
against its own ROA figures from previous periods. Falling ROA is almost always a problem, but investors
and analysts should bear in mind that the ROA does not account for outstanding liabilities and may indicate a
higher profit level than actually derived.

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RETURN ON EQUITY –

(ROE) is a ratio that provides investors with insight into how efficiently a company (or more specifically, its
management team) is handling the money that shareholders have contributed to it. In other words, it measures
the profitability of a corporation in relation to stockholders’ equity. The higher the ROE, the more efficient a
company's management is at generating income and growth from its equity financing. ROE is often used to
compare a company to its competitors and the overall market. The formula is especially beneficial when
comparing firms of the same industry since it tends to give accurate indications of which companies are
operating with greater financial efficiency and for the evaluation of nearly any company with primarily
tangible rather than intangible assets. This is the basic formula for calculating ROE is:

ROE = Net Income

Shareholder Equity

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Inventory turnover ratio -
Inventory turnover is the number of times a company sells and replaces its stock of goods during a period.
Inventory turnover provides insight as to how the company manages costs and how effective their sales efforts
have been. The higher the inventory turnover, the better since a high inventory turnover typically means a
company is selling goods very quickly and that demand for their product exists. Low inventory turnover, on
the other hand, would likely indicate weaker sales and declining demand for a company’s products. Inventory
turnover provides insight as to whether a company is managing its stock properly. The company may have
overestimated demand for their products and purchased too many goods as shown by low turnover.
Conversely, if inventory turnover is very high, they might not be buying enough inventory and may be missing
out on sales opportunities. Inventory turnover also shows whether a company’s sales and purchasing
departments are in sync. Ideally, inventory should match sales. It can be quite costly for companies to hold
onto inventory that isn’t selling, which is why inventory turnover can be an important indicator of sales
effectiveness but also for managing operating costs. Alternatively, for a given amount of sales, using less
inventory to do so will improve inventory turnover.
Inventory Turnover = Cost of Goods Sold / Average Inventory for the Period

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