FINANCIAL RATIO ANAYLYSIS OF ASIAN

Name: Sumit
Kumar Sahoo
Roll No: E-55
PRN: PAINTS LTD FOR THE YEAR
19020441280
2017-2018
Ratio analysis is indispensable part of interpretation of results revealed by the financial statements. It provides users
with crucial financial information and points out the areas which require investigation. Ratio analysis is a technique
which involves regrouping of data by application of arithmetical relationships, though its interpretation is a complex
matter.

Profitability ratios: The profitability or financial performance is mainly summarised in the statement of profit and
loss. Profitability ratios are calculated to analyse the earning capacity of the business which is the outcome of
utilisation of resources employed in the business. There is a close relationship between the profit and the efficiency
with which the resources employed in the business are utilised

 Net Profit Ratio: Net profit ratio is based on all inclusive concept of profit. It relates revenue from
operations to net profit after operational as well as non-operational expenses and incomes. It is calculated as
under: Net Profit Ratio = Net profit/Revenue from Operations × 100 Generally, net profit refers to profit after
tax (PAT).
= (Profit After Tax (PAT)/Net Sales)*100

= (1,894.80/ 14,329.17)*100

= 13.22%
Significance: It reflects the overall efficiency of the business, assumes great significance from the point of
view of investors.
 Operating Profit Ratio: It is calculated to reveal operating margin. It may be computed directly or as a
residual of operating ratio.
= (EBT/Net Sales)*100 = ((EBITDA-DA)/Net Sales)*100
= (3177/14329.17)*100
= 22.171%

Significance: Operating ratio is computed to express cost of operations excluding financial charges in relation to
revenue from operations. A corollary of it is ‘Operating Profit Ratio’. It helps to analyse the performance of business
and throws light on the operational efficiency of the business. It is very useful for inter-firm as well as intra-firm
comparisons. Lower operating ratio is a very healthy sign.

Leverage Ratios: Leverage ratio is used to determine how much amount a company can borrow to increase its
profitability. These ratios are meant to evaluate a company's debt levels.

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  Interest Coverage Ratio: The interest coverage ratio is used to determine how easily a company can pay
their interest expenses on the outstanding debt.
= (EBIT/Interest) =3219.06/21.06
= 152.85 times.
The company can afford to pay roughly 152 times the interest instalment for the outstanding debt.
 Financial Leverage Ratio: Financial leverage ratios measure the overall debt load of a company and compare
it with the assets or equity. This shows how much of the company assets belong to the shareholders rather
than creditors.
= (EBIT/EBT)
= (3219.06/3198)
= 1.0065

Liquidity Ratios: A liquidity ratio is a financial ratio that indicates whether a company's current assets will be
sufficient to meet its obligations when they become due.

 Current Ratio: The current ratio is a liquidity ratio that measures whether a firm has enough resources to
meet its short-term obligations. It compares a firm's current assets to its current liabilities.

= (Current Assets/ Current Liabilities)

= (5501.09/3398.96)
= 1.6184:1
The company has a good current ratio.

Activity Ratios: It shows how efficiently the assets of the company are being used by the management to generate
maximum possible revenue. This ratio indicates how much sales have taken place in comparison to various
categories of assets.

 Raw Material Turnover Ratio: It measures the rate at which a company's inventory of raw materials is used
or sold and replaced (i.e., "turned") over a given period of time.
= (Raw Material Consumption/Average Raw Material Consumption)
= (7100.16/((570.26+516.78)/2)
= 13.07
 Fixed Asset Turnover Ratio: The fixed asset turnover ratio is a ratio that measures how efficiently a company
is generating net sales from its fixed-asset investments.
= (Net Sales/Average Fixed Assets)
= 13924.17/2477.44
= 5.62
It is 3.73 suggesting turnover 5.62 times that of fixed assets. A higher turnover ratio is indicative of greater
efficiency in managing fixed-asset investments.

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