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RATIO ANALYSIS Ratio analysis is a process of determining and interpreting relationships between the items of
financial statements to provide a meaningful understanding of the performance and financial position of an
enterprise. Thus it is a technique of analyzing the financial statements by computing ratios. 1. Liquidity Ratios-
liquidity ratios demonstrate a company’s ability to pay its current obligations. In other words, they relate to the
availability of cash and other assets to cover account payables, short-term debt and other liabilities. Common
liquidity ratio includes the following: Current Ratio: - Current ratio is a relationship of current assets and current
liabilities and is computed to assess the short term financial position of the enterprise i.e. company’s ability to meet
its short financial obligation. Ideal current is 2:1. Table 1 YEAR MARCH,15 MARCH,16 MARCH,17 MARCH,18 MARCH,19
CURRENT RATIO 2.22 2.3 2.35 2.37 2.67 Chart 1 2.22 2.3 2.35 2.37 2.67 MARCH,15 MARCH,16 MARCH,17 MARCH,18
MARCH,19 CURRENT RATIO CURRENT RATIO 23 Interpretation: - Company’s current ratio is increasing year over year
and it stood at 2.67 in FY2019 and showing good shine. The number should be above 1, and it’s usually a sign of
strength if it exceeds 2. Increasing current ratio shows company’s better capacity to meet its current obligation. This
ratio shows short term financial soundness of company. Quick ratio: - The acid test ratio is a more severe and
stringent test of a firm’s ability to pay its short term obligations as and when they become due. Quick ratio is a
relationship of liquid assets with current liabilities and is computed to assess the short term liquidity of enterprise. It
is also known as acid test ratio or liquidity ratio. Ideal quick ratio is 1:1. Table 2 YEAR MARCH,15 MARCH,16 MARCH,17
MARCH,18 MARCH,19 QUICK RATIO 2.2 2.28 2.33 2.35 2.65 Chart 2 2.2 2.28 2.33 2.35 2.65 0 0.5 1 1.5 2 2.5 3 MARCH,15
MARCH,16 MARCH,17 MARCH,18 MARCH,19 QUICK RATIO QUICK RATIO 24 Interpretation: - Company’s quick ratio is
increasing year over year and stood at 2.65 in FY2019. It is more than its standard ratio every year. It means
company’s liquid assets is more than current liabilities for all the five years and firm is in position to meet its
immediate obligation in all years. It assesses the short term solvency of company. This ratio is an indicator of short
term debt paying capacity of company. 2. Efficiency Ratios- Efficiency ratios are also known as activity financial ratios,
are used to measure how well a company utilizing its assets and resources. Efficiency ratios may be also termed as
turnover ratios or activity ratios. Common efficiency ratios include: Asset turnover ratio: - The asset turnover ratio is
an efficiency ratio that measures a company’s ability to generate sales from its assets by comparing net sales with
average total assets. In other words, this ratio shows how efficiently a company can use its assets to generate sales.
Table 3 YEAR MARCH,15 MARCH,16 MARCH,17 MARCH,18 MARCH,19 ASSET TURNOVER RATIO 80.42 71.15 70.2 71.98
71.17 Chart 3 80.42 71.15 70.2 71.98 71.17 64 66 68 70 72 74 76 78 80 82 MARCH,15 MARCH,16 MARCH,17 MARCH,18
MARCH,19 ASSET TURNOVER RATIO (%) ASSET TURNOVER RATIO (%) 25 Interpretation: - After observing the figures,
Asset turnover ratio is fluctuating. It is highest during FY15 as 80.42 and then it declines and stood at 70.2 during
FY17 and then it slightly increases in FY18 and again slightly declines in FY19 and stood 71.17. It is very obvious that
higher turnover ratio is preferred to reflect a better state of affairs at the company. Inventory turnover ratio: -
Inventory turnover ratio establishes relationship between cost of revenue from operations, i.e., cost of goods sold
and average inventory carried during that period. It measures how many times an enterprise sells and replaces its
inventory, i.e., how many times inventory was converted into sales during the period. Table 4 YEAR MARCH,15
MARCH,16 MARCH,17 MARCH,18 MARCH,19 INVENTORY TURNOVER RATIO 96.83 95.07 141.63 161.68 149.38 Chart 4
96.83 95.07 141.63 161.68 149.38 0 20 40 60 80 100 120 140 160 180 MARCH,15 MARCH,16 MARCH,17 MARCH,18
MARCH,19 INVENTORY TURNOVER RATIO INVENTORY TURNOVER RATIO 26 Interpretation: - In FY15 ITR was 96.83 and
in FY16 it slightly decreases and then it increasing in next two financial years and stood at 161.68. it is highest in FY18
because percent change in sales is 1.74 and percent change in inventory is 13.92. it is deteriorated in FY19 up to
149.38 as compared to FY18. 3. Leverage Ratio- Leverage ratio measures the amount of capital that comes from debt.
In other words, leverage financial ratios are used to evaluate a company’ debt levels. It indicates whether a
company’s cash flow is sufficient to meet its short and long term liability. Common leverage ratios include the
following: Interest coverage ratio: - The interest coverage ratio is a debt ratio used to measure of company’s ability to
meet its interest payments on its outstanding debts. The ratio establishes the relationship between net profit before
interest and tax and interest on long term debts. Table 5 YEAR MARCH,15 MARCH,16 MARCH,17 MARCH,18 MARCH,19
INTEREST COVERAGE RATIO 33.08 21.59 19.58 18.57 16.66 Chart 5 33.08 21.59 19.58 18.57 16.66 0 5 10 15 20 25 30 35
MARCH,15 MARCH,16 MARCH,17 MARCH,18 MARCH,19 INTEREST COVERAGE RATIO(%) INTEREST COVERAGE RATIO(%)
27 Interpretation: - After observing the figures, it shows that company’s interest coverage ratio is declining year on
year. It is highest during FY15 as 33.08 and after that deteriorated and stood at 16.66 during FY19. As the figure shows
interest coverage ratio is decline. It means company may be unable to pay its debts. Higher interest coverage ratio is
considered better for the lenders as it means higher safety of margin. Debt to equity ratio: - Debt to equity ratio is
computed to assess long term financial soundness of the enterprise. The ratio expresses the relationship between
external equities, i.e., external debts and internal equities, i.e., shareholder funds of the enterprise. External equities
or external debts are liabilities of the enterprise to outsiders. Table 6 YEAR MARCH,15 MARCH,16 MARCH,17
MARCH,18 MARCH,19 DEBT TO EQUITY 0.21 0.26 0.26 0.26 0.17 Chart 6 Interpretation: - The ratio suggests the claims of
creditors and owners over the assets of the company. Debt to equity ratio was 0.21 in the FY15 after that it increases
and remains constant for next three years. In FY19, it declines and stood at 01.7. 0 0.05 0.1 0.15 0.2 0.25 0.3 MARCH,15
MARCH,16 MARCH,17 MARCH,18 MARCH,19 0.21 0.26 0.26 0.26 0.17 DEBT TO EQUITY DEBT TO EQUITY 28 4. Profitability
Ratios- Profitability ratios measure a company’s ability to generate income relative to revenue, balance sheet assets,
operating costs and equity. Common profitability ratios include the following: I. Profitability ratios related to sales II.
Profitability ratios related to overall return on investments III. Profitability ratios related to analysis from owner’s
point of view IV. Profitability ratios related to valuation Profitability ratios related to sales Gross profit ratio: - Gross
profit ratio establishes the relationship of gross profit and revenue from operations, i.e., net sales of an enterprise.
This ratio is computed by dividing gross profit by the revenue from operations, i.e., net sales and multiplied by 100.
Any fluctuation in gross profit is the result of a change either in revenue from operations or cost of revenue from
operations or cost of goods sold or both. Thus, this ratio shows the average margin on good sold. Table 7 YEAR
MARCH,15 MARCH,16 MARCH,17 MARCH,18 MARCH,19 GROSS PROFIT MARGIN (%) 27.15 26.43 25.14 23.74 24.11 Chart 7
27.15 26.43 25.14 23.74 24.11 22 23 24 25 26 27 28 MARCH,15 MARCH,16 MARCH,17 MARCH,18 MARCH,19 GROSS PROFIT
MARGIN (%) GROSS PROFIT MARGIN (%) 29 Interpretation: - Gross profit margin was 27.15 in FY15 and thereafter it
starts decline and stood at 23.74 in FY18. The reason of declining margin may be the higher cost of goods sold. After
FY18 it is slightly increased. This ratio indicates the relationship between gross profit and net sales. Higher the ratio,
lower the cost of goods sold. Operating ratio: - Operating ratio is computed to establish relationship between
operating costs and revenue from operations, i.e., net sales. It shows the proportion of cost of revenue from
operation or cost of goods sold and operating expenses (operating cost) to revenue from operations, i.e., net sales.
Table 8 YEAR MARCH,15 MARCH,16 MARCH,17 MARCH,18 MARCH,19 OPERATING MARGIN (%) 24.65 23.51 20.98 19.86
20.81 Chart 8 Interpretation: - Operating margin slightly declines every year from FY15 to FY18 and then it starts
increasing in FY19. A decline in the operating ratio, is better because it means higher margin, and thus, more profit.
This ratio is calculated to assess the operational efficiency of business. 0 5 10 15 20 25 MARCH,15 MARCH,16
MARCH,17 MARCH,18 MARCH,19 24.65 23.51 20.98 19.86 20.81 OPERATING MARGIN (%) OPERATING MARGIN (%) 30 Net
profit ratio: - Net profit ratio is also termed as sales margin ratio or profit margin ratio or net profit to sales ratio. This
ratio reveals the firm’s overall efficiency in operating the business. Net profit ratio establishes the relationship
between net profit and revenue from operations, i.e., net sales. It shows the percentage of net profit earned on
revenue from operations. Table 9 YEAR MARCH,15 MARCH,16 MARCH,17 MARCH,18 MARCH,19 NET PROFIT MARGIN
(%) 18.55 17.47 15.36 14.68 15.28 Chart 9 Interpretation: - Shareholders look at net profit margin closely because it
shows how good a company is at converting revenue into profits available for shareholders. Net profit ratio
continuously declines and stood at 14.68 in FY18 and after that in FY19 it starts increasing. Declining ratio indicates
low efficiency of business. Higher the net profit ratio, better the business. It indicates overall efficiency of company.
18.55 17.47 15.36 14.68 15.28 0 2 4 6 8 10 12 14 16 18 20 MARCH,15 MARCH,16 MARCH,17 MARCH,18 MARCH,19 NET
PROFIT MARGIN (%) NET PROFIT MARGIN (%) 31 Profitability ratios related to overall return on investments Return on
Net worth: - Return on net worth is a ratio developed from the perspective of the investor and not the company. By
looking at this, the investor sees if the entire net profit was passed on to him, how much return he would be getting.
It explains the efficiency of the stakeholders’ capital to generate profit. Table 10 YEARS MARCH,15 MARCH,16
MARCH,17 MARCH,18 MARCH,19 RETURN ON NETWORTH/EQUITY(%) 23.34 19.3 16.43 16.69 15.95 Chart 10
Interpretation: -ROE is declining year over year from FY15 to 19. It is declining may be because of increasing in share
capital. Declining ROE indicates the company is becoming less efficient at increasing shareholders value. Return on
capital employed: - Return on capital employed ratio measures a relationship between profit and capital employed.
This ratio is also called as Return on Investment ratio. The term return means profit or net profits. The term capital
employed means total investments made in the business. 0 5 10 15 20 25 MARCH,15 MARCH,16 MARCH,17 MARCH,18
MARCH,19 23.34 19.3 16.43 16.69 15.95 RETURN ON NETWORTH/EQUITY(%) 32 Table 11 YEARS MARCH,15 MARCH,16
MARCH,17 MARCH,18 MARCH,19 RETURN ON CAPITAL EMPLOYED (%) 22.24 17.75 20.76 19.91 19.97 Chart 11
Interpretation: -It assess the overall performance of company. From the above observation it can be seen that ratio is
fluctuating. In FY15 the ratio was highest as 22.24 and in FY16 it was declined and stood at 17.75 because company’s
total assets increased 23% compared to sales. After that in FY17 it starts increasing and in next two years i.e., FY18
and 19 it is declined. Return on Assets: - Return on assets (ROA) is an indicator of how profitable a company is
relative to its total assets. ROA gives a manager, investor or analysts an idea as to how efficient a company’s
management is at using its assets to generate earnings. Higher ROA indicates more asset efficiency. Return on
assets is di

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twitter.docx - Aliya Yesdauletova ITM-141 Financial Ratios ...

In other words, they relate to the availability of cash and other assets to cover accounts paya 25%
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1. Liquidity Ratio(short- term solvency) by melvita pinto on ...

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Chapter 9 ratio analysis - SlideShare

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The market price of a firms stock represents the assessment of all ...
B) Liquid Ratio Liquidity Ratio is a relationship of liquid assets with current liabilities and is com 7%
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Givia Pty Limited and Bangarie Investments Pty limited Craig ...
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Asset Turnover Ratio-effeciancy ratio - Course Hero

Asset Turnover Ratio The asset turnover ratio is an efficiency ratio that measures a company' 5%
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Asset Turnover Ratio | Analysis | Formula | Example

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Current Assets Turnover Ratio Inventory Turnover Ratio Inventory turnover ratio establishes r 4%
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Study 33 Terms | Financial Ratios Flashcards | Quizlet

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Profitability Ratio: Meaning, Formulas, and Types with ... - Toppr

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Current Assets. Current Liabilities. Quick Assets or Liquid ...

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Formulae of ratios with their brief interpretations - SRCC GBO

This ratio is calculated to assess the liquidity position of the firm. How fast can the firm pay its 2%
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(Profitability Ratios): © The Institute of Chartered Accountants ...
Oct 4, 2019 - (Profitability Ratios related to Overall Return on investments). (a) (Return on Invest 2%
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245453476-Ratio-analysis-Comments.doc | Dividend | Debt

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ii Return on assets Return on assets ROA is an indicator of ...

ii Return on assets Return on assets ROA is an indicator of how profitable a from MANUFACTUR 2%
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