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One of the liquidity ratios is current ratio. Current ratio explains relationship between
firm’s current assets, and current liabilities.
Current assets means. Which can be converted into cash within a year. Current liabilities
mean those obligations maturing within a year. Ideal value of current ratio is 2:1. It means every
one rupee of current assess less then Rs.2, it shows inefficiency to manage current assets.
Current assets
Current ratio =
Current liabilities
Table No 3.1
Statement showing Current Ratio
(in Rs)
Year Current Assets Current Liabilities Ratio (time)
180000000
160000000
140000000
120000000
100000000
Axis Title
80000000
60000000
40000000
20000000
0
2012 – 2013 2013 – 2014 2014– 2015 2015 – 2016 2016 – 2017
INTERPRETATION
Table 3.1 shows that the current ratio of the firm is satisfactory during the years 2012-13
to 2016-17. For all the periods taken for study shows that the current assets are more than current
liabilities and hence the organization’s ability to meet current obligations is increased, resulting
in excellent short term solvency position an also greater safety of funds to short term investors.
Though there is marginal decrease in the year 2016-17 comparing with 2013-14.
RECEIVABLE RATIO
Table No 3.2
Statement showing Debtors Turnover Ratio
(in Rs)
Year Sales Debtors Ratio (time)
300000000
250000000
200000000
100000000
50000000
0
2012 – 2013 2013 – 2014 2014– 2015 2015 – 2016 2016 – 2017
INTERPRETATION
Table 3.2 clear that debtors turnover ratio during 2015– 16 there was a higher value of
debtors turnover i.e., 3times indicates the efficient management, but the company make an low
credit sale in this period. In all the remaining years debtors turnover ratio ranges from 1.50 to
4.49 times, implies inefficient management of debtors and less liquid debtors.
3.3 Average Collection period Ratio
The Average Collection period represents the average number of days for which a firm
has to wait before its receivables are converted into cash. It measures the quality of debtors.
Debtors
Collection Period Ratio = x No of working days
Sales
Table No 3.3
Statement showing Average collection period Ratio
(in Rs)
Year Debtors Sales Ratio (time)
300000000
250000000
200000000
150000000
100000000
Axis Title
50000000
0
13 14 15 16 17 ta
0 0 0 0 0 da
–2 –2 –2 –2 –2 r y
12 13 14 15 16 nda
20 20 20 20 20 o
ec
e:S
u rc
So
INTERPRETATION
Table 3.3 clear that the average collection period during 2015 – 16, 2014 -15 and 2016-
17, have minimum number of days, so there is a quick payment by the debtors. 2012 -13 and
2013 – 14 implies the inefficient collection performance.
PAYABLE RATIO
This ratio indicates the velocity with which the creditors are turned over in relation to
purchases. The analysis of creditors turnover ratio is basically is the same as the debtors turnover
ratio except that in place of trade debtors, trade creditors is taken as one of the components of the
ratio and in place of sales, purchases where taken.
Total Purchases
Creditors Turnover Ratio =
Creditors
Table No 3.4
Statement showing Creditors Turnover Ratio
(in Rs)
Year Total purchases Creditors Ratio (time)
80000000
70000000
60000000
50000000
30000000
20000000
10000000
0
2012 – 2013 2013 – 2014 2014– 2015 2015 – 2016 2016 – 2017
INTERPRETATION
Table 3.4 clear that Creditors turnover ratio ranges from 0.73 to 2.18 times during the
study period. During 2016 – 17 there was a favorable result and 2012 – 13 to 2016- 17 was
lower creditor’s velocity, are less favorable.
3.5 Average Payment Period Ratio
The Average payment period represents the average number of days taken by a firm
to pay its creditors. Generally lower the ratio, the better is the liquidity position of the firm
and higher the ratio, less liquidity is the position of the firm.
Creditors
Average payment period = × No of working days
Purchases
Table No 3.5
Statement showing Average payment period Ratio
(in Rs)
Year Creditors Total purchases Days
80000000
70000000
60000000
50000000
30000000
20000000
10000000
0
2012 – 2013 2013 – 2014 2014– 2015 2015 – 2016 2016 – 2017
INTERPRETATION
Table 3.5 clear that Average payment period ratio during 2012-13, 2014-15 and 2016-17
implies greater credit period enjoyed by the company, but during 2013-14 to 2015-16 company
has better liquidity position.
3.6 Fixed Asset turnover Ratio
This ratio indicates the extent to which the investment in fixed assets contributes towards
sales. It indicates whether the investment in fixed assets has been judicious or not.
Net Sales
Fixed Asset Turnover Ratio =
Fixed assets
Table No 3.6
Statement showing Fixed asset turnover Ratio
(in Rs)
Year Net Sales Fixed Asset Ratio (time)
300000000
250000000
200000000
100000000
50000000
0
2012 – 2013 2013 – 2014 2014– 2015 2015 – 2016 2016 – 2017
INTERPRETATION
Table 3.6 clear that the fixed assets turnover ratio is increased from a low of 18.12 in
2012 – 13 to 22.39 in 2013 – 14. Almost same level has been maintained in the years 2014-15.
Then the fixed asset turnover ratio is increased from 2013-14 to 2015-16. And the ratio is in
decreased since 2016-17.
3.7 Net Capital Turnover Ratio
To understand the relationship between net profit and sales, the net profit is being
calculated which indicate the efficiency of the management in manufacturing, administering and
selling the products. This ratio measures the overall of the overall ability of the firm to turn each
rupee of sales into net profit. The net profit is measured by dividing net profit by sales.
Net Capital Turnover Ratio is the relationship between cost of sales (or) sales and Capital
Employed in the business. This ratio is calculated to measure the efficiency or effectiveness with
which a firm utilizes its resources or the capital employed.
Net Sales
Net capital Turnover Ratio =
Net Working Capital
Table No 3.7
Statement showing Net capital turnover Ratio
(in Rs)
Year Net Sales Net working capital Ratio (time)
300000000
250000000
200000000
150000000
Axis Title
100000000
50000000
0
0 13 0 14 0 15 0 16 0 17
-50000000 2 –2 –2 –2 –2 –2
1 13 14 15 16
20 20 20 20 20
INTERPRETATION
Table 3.7 clear that Net capital turnover ratio ranges from -11.06 to 13.03% during the
study period. Net capital turnover ratio shows, there final was constant increase of decrease in
ratio.
3.8 Current Asset to Sales Ratio
Table No 3.8
Statement showing Current Asset to Sales Ratio
(in Rs)
Year Net Sales Current Assets Ratio (time)
300000000
250000000
200000000
100000000
50000000
0
2012 – 2013 2013 – 2014 2014– 2015 2015 – 2016 2016 – 2017
INTERPRETATION
Table 3.8 clear that Current asset to sales ratio ranges from 0.02 to 4.79 times during the
study period. During the 2014 – 15 periods there was a minimum level of 0.02. Current asset to
sales ratio is maintain average level of periods in 2012-13 and 2013-14. During the year of 2015-
16 and 2016-17 it increased the current asset to ales ratio.
3.9 Proprietary Ratio
The proprietary Ratio, which is also known as the equity ratio, shows the relationship
between shareholders, funds and total assets is financed by shareholders funds. It is an indicator
of solvency.
Shareholders funds
Proprietary Ratio =
Total Assets
Proprietary ratio shows the general soundness of the company. This ratio shows the long
term or future solvency of the business. The ratio of owner’s equity to total assets is a measure of
the financial strength (or) weakness of the enterprise. It is very important to creditors of the
company as it helps them to ascertain the shareholder’s funds in the total assets of the business.
The acceptable norms of this ratio are 1:3. A high ratio indicates safety to the creditors
and a low ratio shows greater risk to the creditors. The shareholders funds are equity share
capital, preference share capital, undistributed profits, reserves and surplus. Out of this amount,
accumulated losses should be deduced. The total assets on the other hand denote total resources
of the concern.
A ratio below 0.5 is alarming for the creditors since they have to lose heavily in the
event of company’s liquidation as it indicates more of creditor’s funds and less of shareholder’s
funds in the total assets of the company.
Tabl
e No 3.9
Statement showing Proprietary Ratio
(in Rs)
Year Shareholders’ funds Total Assets Ratio (time)
350000000
300000000
250000000
200000000
Axis Title
150000000
100000000
50000000
0
2012 – 2013 2013 – 2014 2014– 2015 2015 – 2016 2016 – 2017
INTERPRETATION
Table 3.9 shows that the proprietary ratio a higher proprietary ratio in the year of 2014-
15 is 0.14 and the lower proprietary ratio is 0.08 in the year 2015-16. During the 2012-13,
2013-14 and 2015-16 are maintain the Average level of the proprietary ratio.
3.10 Debtors to Assets Ratio
Total Debtors
Debtors Assets Ratio =
Total Assets
Table No 3.10
Statement showing Debtors Asset Ratio
(in Rs)
Year Debtors Total Assets Ratio (time)
350000000
300000000
250000000
200000000
Axis Title
150000000
100000000
50000000
0
2012 – 2013 2013 – 2014 2014– 2015 2015 – 2016 2016 – 2017
INTERPRETATION
Table 3.10 shows Debtors assets ratio 2013-14 highest ratio of 0.67. During the period of2012-
13 minimum rate of debtors assets ratio. Debtor’s assets ratio is decreased to during the year of
2014-15 to 2016-17.