RATIO ANALYSIS

SPECIFIC PROJECT 1
ACCOUNTANCY

RESEARCH
PRESENTATION
 APPROACH

1 3 5

What Is Ratio About Wipro Computation and

Analysis? Analysis Of Ratios

Types Of Ratios Financial Statements Acknowledgement

2 4 6
 WHAT IS RATIO ANALYSIS?

“Ratio analysis is a quantitative method

of gaining insight into a company's
liquidity, operational efficiency, and
profitability by studying its financial
statements such as the balance sheet
and income statement. Ratio analysis is
a cornerstone of fundamental equity
analysis.”
 TYPES OF RATIOS
LIQUIDITY RATIOS
Liquidity ratios measure a company's
ability to pay off its short-term debts as
they become due, using the company's
current or quick assets. Liquidity ratios
include the current ratio, quick ratio, and
working capital ratio.
SOLVENCY RATIOS
Also called financial leverage ratios, solvency
ratios compare a company's debt levels with its
assets, equity, and earnings, to evaluate the
likelihood of a company staying afloat over the long
haul, by paying off its long-term debt as well as the
interest on its debt. Examples of solvency ratios
include: debt-equity ratios, debt-assets ratios, and
interest coverage ratios.
 TYPES OF RATIOS
PROFITABILITY RATIOS
These ratios convey how well a company can
generate profits from its operations. Profit
margin, return on assets, return on equity,
return on capital employed, and gross
margin ratios are all examples of profitability
ratios.
EFFICIENCY RATIOS
Also called activity ratios, efficiency
ratios evaluate how efficiently a company
uses its assets and liabilities to generate
sales and maximize profits. Key efficiency
ratios include: turnover ratio, inventory
turnover, and days' sales in inventory.
FINANCIAL
STATEMENTS
 COMPUTATION AND
ANALYSIS OF LIQUIDITY
RATIOS
 CURRENT RATIO
Current ratio measures the ability of a
Rs. in crore firm to pay its short-term obligations i.e.
FY 2018-19 FY 2019-20 current liabilities.

CURRENT ASSETS 477304 457133 The standard CR is 2:1, and since it is

CURRENT LIABILITIES 161446 164438 more than that in case of Wipro for
both fiscal years we can conclude that
the firm is adequately liquid and shall
be able to meet its short-term liabilities
whenever required.
CURRENT RATIO = Current Assets /Current Liability

FY 2018-19 FY 2019-20
477304/161446 ≈2.99:1 457133/164438≈ 2.77 :1
 QUICK RATIO
The Quick Ratio, also known as the Acid-
Rs. in crore test or Liquidity ratio, measures the ability
FY 2018-19 FY 2019-20 of a business to pay its short-term
liabilities by having assets that are readily
CURRENT ASSETS 477304 457133 convertible into cash.
CURRENT LIABILITIES 161446 164438
The standard QR is 1:1, and since it is
INVENTORIES 3403 1741 more than that in case of Wipro for both
fiscal years we can conclude that the firm
is adequately liquid and shall be able to
QUICK RATIO = Current Assets –Inventories – Prepaid meet its short-term liabilities immediately.
Expenses/Current Liability
FY 2018-19 FY 2019-20
473901/161446 ≈2.93:1 455392/164438 ≈ 2.76 :1
 COMPUTATION AND
ANALYSIS OF SOLVENCY
RATIOS
 DEBT – EQUITY RATIO
Debt – Equity Ratio measures long
term financial soundness by examining
Rs. in crore relation between long term external
FY 2018-19 FY 2019-20 equities and internal equities.

SHARE CAPITAL 493920 464537 Ideal debt equity ratio is 2:1. A lower
PROVISIONS 1196 2133 debt ratio would indicate that the firm
does not finance its increased
LONG TERM BORROWINGS 220 251 operations through borrowings at all,
which limits the total return that can
be realized and passed on to
shareholders.
DEBT- EQUITY RATIO = Long Term Borrowings
+Provisions/ Share Capital + Reserves And Surplus And thus investors would rarely want
FY 2018-19 FY 2019-20 to invest in the stocks of such a firm.

(220+1196)/493920≈0.002:1 (251+2133)/464537≈0.005:1
DEBT - ASSET RATIO
Rs. in crore The Debt To Asset Ratio, Or Total Debt To
Total Assets, measures a company's assets
FY 2018-19 FY 2019-20 that are financed by liabilities, or debts,
rather than its equity. This ratio can be
TOTAL ASSETS 669981 653064
used to measure a company's growth
LONG TERM BORROWINGS 220 251 through its acquired assets over time.
PROVISIONS 1196 2133
A debt to asset ratio that is less than one,
for instance, 0.002, can indicate that a
considerable portion of your business'
DEBT- ASSET RATIO = Long Term Debt(long term assets are funded by equity, and that the
risk for default or even bankruptcy is low.
provisions+ long term borrowings)/ Total Assets
FY 2018-19 FY 2019-20
(1196+220)/669981≈ 0.002:1 (2133+251)/653064≈0.004:1
 PROPRIETARY RATIO
The proprietary ratio shows the contribution of
stockholders’ in total capital of the company.

Rs. in crore A high proprietary ratio, therefore, indicates a

strong financial position of the company. A low
FY 2018-19 FY 2019-20 ratio indicates that the company is already
SHARE CAPITAL 11427 12068 heavily depending on debts for its operations.
However , having a very high proprietary ratio
RESERVES 481852 453110 does not always mean that the company has an
669981 653064 ideal capital structure. A company with a very
TOTAL ASSETS high proprietary ratio may not be taking full
advantage of debt financing for its operations
that is also not a good sign for the stockholders.

PROPRIETARY RATIO = Shareholders Funds(share Wipro’s PR remains on the higher end through the
capital+ reserves and surplus)/ Total Assets two fiscal years , which is favorable as it implies
adequate safety for lenders and creditors.
FY 2018-19 FY 2019-20
(11427+481852)/669981≈0.73:1 (12068+453110)/653064≈0.71:1
 INTEREST COVERAGE RATIO
PBIT
INTEREST ON LONG TERM DEBTS
INTEREST COVERAGE RATIO = PBIT /Interest On Long
Term Debts
FY 2018-19
(98705+5249)/5249≈19.80 times
The Interest Coverage Ratio is used to
determine how easily a company can
pay their interest expenses on
outstanding debt.
Rs. in crore
A higher ratio is more preferable as the
FY 2018-19 FY 2019-20 lender becomes more secure of the
regular payment of interest.
98705 110077
5249 5352 In case of Wipro we see that the ICR
significantly increases over the fiscal
years and this is a positive indicator. It
means that the company is making more
than enough money to pay its interest
obligations with some extra earnings
left over to make the principle
payments.
FY 2019-20
(110077+5352)/5352≈21.56 times
GRAPHICAL
REPRESENTATION
 LIQUIDITY RATIOS
3.05
3
2.95
FY 2018-19
2.9
FY 2019-20
2.85
2.8
2.75
2.7
2.65
2.6
CURRENT RATIO QUICK RATIO
 DEBT EQUITY RATIO DEBT ASSET RATIO
22
22

21.5
21.5

21
21

RATIO
20.5
RATIO

20.5

20
20

19.5
19.5

19 19

18.5 18.5
FY 2018-19 FY 2019-20 FY 2018-19 FY 2019-20
 PROPRIETARY RATIO INTEREST COVERAGE RATIO
22
22

21.5 21.5

21 21

TIMES
20.5 20.5
RATIO

20 20

19.5 19.5

19 19

18.5 18.5
FY 2018-19 FY 2019-20 FY 2018-19 FY 2019-20
 ACKNOWLWDGEMENT

I express my heartfelt gratitude towards my commerce teacher for

providing her constant support without which the completion of this
project would be a difficult task.

I would also like to acknowledge the support of the CBSE board and most
importantly my school who came up with such an intriguing project
which enriched our young , impressionable minds.
 Thank you
PRESENTED BY – SATAKSHI JALAN (XII - C)