A report by Rituraj Ranjan

on the liquidity and profitability ratios of Pidilite Industries

Liquidity and profitability ratios:

Liquidity ratios are financial metrics that measure a company's ability to meet its short-term obligations,
i.e., its ability to convert its current assets into cash or cash equivalents to cover its current liabilities. These
ratios provide insights into a company's liquidity position, which is its ability to generate sufficient cash flow
to meet its financial obligations in a timely manner.
The commonly used liquidity ratios are:
Current Ratio: It is calculated by dividing current assets by current liabilities. It indicates the company's
ability to cover its current liabilities with its current assets. A higher current ratio generally indicates better
liquidity, as it means the company has more current assets to cover its current liabilities.
Quick Ratio (also known as Acid-Test Ratio): It is calculated by subtracting inventories from current assets
and then dividing by current liabilities. It is a more stringent measure of liquidity compared to the current
ratio, as it excludes inventory, which may not be as easily converted to cash as other current assets. A
higher quick ratio indicates a company's ability to cover its current liabilities without relying on inventory.
Liquidity ratios are important for assessing a company's short-term financial health, as they provide insights
into its ability to meet its obligations on time. However, it's important to interpret liquidity ratios in
conjunction with other financial ratios and industry benchmarks to get a comprehensive understanding of a
company's overall financial position and risk profile.

According to the financial data of Pidilite Industries, the ratios are as follows.
The liquidity ratios can be calculated using the following formulas:
Current Ratio = Current Assets / Current Liabilities
Quick Ratio (also known as Acid-Test Ratio) = (Current Assets - Inventories) / Current Liabilities
Let's calculate the liquidity ratios for each year based on the given data:
For 2018:
Current Ratio = 2,663.54 / 888.54 = 2.996
Quick Ratio = (2,663.54 - 630.94) / 888.54 = 1.880
For 2019:
Current Ratio = 2,929.35 / 969.76 = 3.018
Quick Ratio = (2,929.35 - 734.30) / 969.76 = 2.174
For 2020:
Current Ratio = 3,026.06 / 1,178.82 = 2.566
Quick Ratio = (3,026.06 - 730.49) / 1,178.82 = 1.827
For 2021:
Current Ratio = 2,420.77 / 1,878.89 = 1.289
Quick Ratio = (2,420.77 - 975.94) / 1,878.89 = 0.679
For 2022:
Current Ratio = 2,994.98 / 1,797.88 = 1.669
Quick Ratio = (2,994.98 - 1,372.70) / 1,797.88 = 0.883
These are the liquidity ratios for each year based on the given data. Liquidity ratios are important measures
of a company's ability to meet its short-term obligations and provide insights into its financial health and
liquidity position. A higher liquidity ratio indicates better liquidity position and lower risk of default, while a
lower liquidity ratio may indicate potential liquidity issues and higher risk. It's important to analyze liquidity
ratios in conjunction with other financial metrics and industry benchmarks for a comprehensive assessment
of a company's financial performance.
Profitability Ratio
Some commonly used profitability ratios:
Gross Profit Margin:
Gross Profit Margin = (Revenue from Operations [Net] - Cost of Materials Consumed - Purchase of Stock-in-
Trade - Changes in Inventories of FG, WIP, and Stock-in-Trade) / Revenue from Operations [Net]
Operating Profit Margin:
Operating Profit Margin = Profit/Loss Before Exceptional, Extraordinary Items, and Tax / Revenue from
Operations [Net]
Net Profit Margin:
Net Profit Margin = Profit/Loss After Tax and Before Extraordinary Items / Revenue from Operations [Net]
Return on Equity (ROE):
ROE = Profit/Loss After Tax and Before Extraordinary Items / Shareholders' Equity
Return on Assets (ROA):
ROA = Profit/Loss After Tax and Before Extraordinary Items / Total Assets
The profitability ratios on the given data are:
Gross Profit Margin (GPM):
Gross Profit Margin = (Gross Profit / Revenue) x 100
Where,
Gross Profit = Revenue - Expenditure
Revenue = 8,340.17 (in Cr.) for 2022
Expenditure = -6,767.93 (in Cr.) for 2022
GPM for 2022 = ((8,340.17 - (-6,767.93)) / 8,340.17) x 100 = 100.85%
Operating Profit Margin (OPM):
Operating Profit Margin = (Operating Profit / Revenue) x 100
Where,
Operating Profit = PBDT (Profit Before Depreciation and Tax) - Depreciation
PBDT = 1,802.61 (in Cr.) for 2022
Depreciation = -175.12 (in Cr.) for 2022
OPM for 2022 = ((1,802.61 - (-175.12)) / 8,340.17) x 100 = 24.26%
Net Profit Margin (NPM):
Net Profit Margin = (Net Profit / Revenue) x 100
Where,
Net Profit = Net Profit for the year
Net Profit for 2022 = 1,268.62 (in Cr.) for 2022
NPM for 2022 = (1,268.62 / 8,340.17) x 100 = 15.21%
Return on Equity (ROE):
ROE = (PAT / Total Shareholders' Funds) x 100
For 2022:
ROE = (1,268.62 / 6,416.95) x 100 = 19.78%
Return on Assets (ROA):
ROA = (PAT / Total Assets) x 100
ROA = (1,081.46 / 7,623.41) x 100 = 14.18%
For 2022:
ROA = (1,268.62 / 8,423.91) x 100 = 15.05%

Data through which the ratios are calculated.