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# FINANCIAL ANALYSIS 0F

RATIO ANALYSIS
Ratio analysis is the powerIul tool oI Iinancial statements analysis. A ratio is deIined as
the indicated quotient oI two mathematical expressions and as the relationship between
two or more things. The absolute Iigures reported in the Iinancial statement do not
provide meaningIul understanding oI the perIormance and Iinancial position oI the Iirm.
Ratio helps to summaries large quantities oI Iinancial data and to make qualitative
judgment oI the Iirm`s Iinancial perIormance.
Ratio analysis helps to appraise the Iirms in the term oI their proIitability and eIIiciency
oI perIormance, either individually or in relation to other Iirms in same industry. Ratio
analysis is one oI the best possible techniques available to management to impart the
basic Iunctions like planning and control. As Iuture is closely related to the immediately
past, ratio calculated on the basis historical Iinancial data may be oI good assistance to
predict the Iuture. E.g. On the basis oI inventory turnover ratio or debtor s turnover ratio
in the past, the level oI inventory and debtors can be easily ascertained Ior any given
amount oI sales. Similarly, the ratio analysis may be able to locate the point out the
various areas which need the management attention in order to improve the situation. E.g.
Current ratio which shows a constant decline trend may be indicate the need Ior Iurther
introduction oI long term Iinance in order to increase the liquidity position. As the ratio
analysis is concerned with all the aspect oI the Iirm`s Iinancial analysis liquidity,
solvency, activity, proIitability and overall perIormance, it enables the interested persons
to know the Iinancial and operational characteristics oI an organization and take suitable
decision.

Current Ratio:
Current Ratio is the indicator oI the Iirm`s commitment to meet its short-term liability.
Current Assets mean assets that will either be used up or converted into cash within a
year`s time. Current liabilities mean liabilities payable within a year or during the
operating cycle, whichever is longer.

Current assets
Current ratio÷
Current liabilities

Interpretation:
From the above table, last three consecutive years Irom 2008-2010 Marico shows a
positive note with good Iinancial health. But in 2011 It has gone worst to a decrease in
0.1° Irom the standard Iixed Ior a company. It is inIerred that in the current year 2011
the result is negative below 1, and is unable to meet to pay oII its obligations iI they come
due at this point. . While this shows the company is not in good Iinancial health, it does
not necessarily mean that it will go bankrupt - as there are many ways to access Iinancing
but it is deIinitely not a good sign.

Year Ratio (times)
2007 0.90
2008 1.33
2009 1.28
2010 1.35
2011 0.99
"uick Ratio:
The Quick ratio is also termed as 'Acid-Test Ratio¨. This ratio is ascertained by
comparing the liquid assets (i.e., assets which are immediately convertible in to cash
without much loss) to current liabilities. Prepaid expenses and stock are not taken as
liquid assets. This may be expressed as:

Quick Assets
Quick Ratio ÷
Current Liabilities

Interpretation:
From the above table Ior the last 4 years Irom 2008-2011 the Iinancial strength oI the
company is very much accepted. As the ratio shows the strength oI a company to pay
short term obligations. Since we subtracted current inventory, it means that Ior every
Rupees oI current liabilities there are 1.70 oI easily convertible assets are holded. In
general, a quick ratio oI 1 or more is accepted by most creditors; however, quick ratios
vary greatly Irom industry to industry.

Year Ratio (times)
2007 0.55
2008 1.07
2009 1.25
2010 1.23
2011 1.70
ebtor Turnover Ratio:
ebtors constitute an important constituent oI current assets and thereIore the quality oI
debtors to a great extent determines a Iirm`s liquidity. ebt collection period indicates the
extent to which the debts have been collected in time. It gives the average debt collection
period.

Sales
ebtor Turnover Ratio ÷ --------------------------------
Average ebtors

Interpretation:
The higher the value oI debtor`s turnover the more eIIicient is the management oI debtors
or more liquid the debtors are. Similarly, low debtors turnover ratio implies ineIIicient
management oI debtors or less liquid debtors. From the above table Irom the past it can
be inIerred that in 2008 the ratio is higher (37.99).Higher turnover signiIies speedy and
eIIective collection. But in 2011 the ratio is going down to 21.99. Lower turnover
indicates sluggish and ineIIicient collection leading to the doubts that receivables might
contain signiIicant doubtIul debts. Present condition in receivables collection
management is ineIIicient.

Year Ratio (times)
2007 30.24
2008 37.99
2009 37.42
2010 25.73
2011 21.99
Inventory Turnover Ratio:
This ratio is also known as stock turnover ratio establishes the relation between the cost
oI goods sold during the year and average inventory held during the year. It calculates as
Iollows:

Cost oI goods sold
Inventory Turnover Ratio ÷ -------------------------------
Average Inventory

Interpretation:
From the table it can be inIerred that, the largest component oI a company`s working
capital, so iI inventory is not being used up by operations at a reasonable pace, then a
company has invested a large part oI its cash in an asset that may be diIIicult to liquidate
in short order. Within the 5 years oI comparison it is seemed that this ratio is going down
without correspondent peaks. In 2011 Irom the peak to current 2.5° oI decrease can be
seen. It implies that a company has either over-purchased goods or that sales have
declined since the goods were purchased. II sales have declined since the goods were
purchased, then there is a signiIicant risk that the company will not be able to sell the
entire inventory, and so will eventually record a charge Ior obsolete inventory.
Year Ratio (times)
2007 8.39
2008 8.48
2009 8.22
2010 6.36
2011 5.98
ebt Equity Ratio:
The ebt Equity Ratio is determined to ascertain the soundness oI the long term Iinancial
policies oI the company. It is also known as 'External Internal¨ Equity Ratio. It may be
calculated as Iollows:

External Equity
ebt Equity Ratio ÷ -------------------------------
Shareholders Fund

Interpretation:
As this ratio is used to Iind the relative proportion oI equity and debt used to Iinance a
company`s assets.The ratio provides an indication oI the relationship between the capital
contributed by creditors and that contributed by shareholders. Comparing the past 5 years
only one time Marico went Ior the debt mode oI Iinancing in 2008,and the rest all the
years its pure equity based Iunding. This is taken into consideration by the shareholders
to reach in to the credible conclusion it also helps them in Iinding whether equity can
IulIill the company`s obligations to creditors iI liquidated.

Year Ratio (times)
2007 0.91
2008 1.09
2009 0.84
2010 0.66
2011 0.63
!rofit Margin Ratio:
This ratio helps in determining the eIIiciency with which aIIairs oI the business are being
managed. An increase in ratio over previous period indicates improvement in the
operational eIIiciency oI the business provided the gross proIit ratio is constant.

ProIit aIter tax
ProIit Margin Ratio ÷ --------------------------------- X 100
Net Sales

Interpretation:
From the above table it can be inIerred that this ratio is constantly increasing, the ratio
helps in Iinding out eIIiciency in capturing the amount oI surplus generated per unit oI
the product or service sold. In 2011 it has increased 1.64° shows Marico generated a
sizeable proIit margin, and the company is eIIiciently enough to recover not only the
costs oI the product or service sold, operating expenses, and the costs oI debt, but also to
provide compensation Ior its owners in exchange Ior their acceptance oI risk.
.

Year Percentage
2007 8.39
2008 9.06
2009 7.35
2010 11.65
2011 13.29
Earnings per Share:
The proIitability oI the Iirm Irom the point oI view oI ordinary shareholders can be
measured in terms oI number oI equity shares. This is known as Earnings per Share. It is
calculated as Iollows:

Net ProIit aIter Tax
Earnings per Share ÷ -----------------------------------------------
No. oI Equity Shares outstanding

Interpretation:
The above table shows the very important ratio oI a company which tells the share price
also price to earnings. As it has increased in the consecutive years, in the last year with
1.64° increase. Marico is eIIicient at using its capital to generate income and, all other
things being equal, would be a "better" company than its peers. Earnings are nothing
more than a company`s proIit and a reIlection oI how much money a company made
during a certain period. And while it is normal to look Ior a positive earnings statement, it
is not necessarily true that a small or rapidly growing company with negative earnings
should be ignored.

Year Earnings Per Share (Amount in
Rs)
2007 8.39
2008 9.06
2009 7.35
2010 11.65
2011 13.29
ixed Assets Turnover Ratio:
A high Iixed assets turnover ratio indicates eIIicient utilization oI Iixed assets in
generating sales. A Iirm whose plant and machinery are old may show higher Iixed assets
turnover ratio than the Iirm which has purchased them recently.

Sales
Fixed Assets Turnover Ratio ÷ --------------------------------
Net Fixed Asset

Interpretation:
From the above table oI ratios oI consecutive 5 years oI one oI the return ratio, in the
current year 1.78° has decreased Irom the previous year .As the Iixed asset turnover
ratio is low as compared to the industry or past years oI data Ior the Iirm, it means that
sales are low or the investment in plant and equipment is too much. This may not be a
serious problem iI the company has just made an investment in Iixed asset to modernize.
It is especially important Ior a manuIacturing Iirm that uses a lot oI plant and equipment
in its operations to calculate its Iixed asset turnover ratio.
Year Ratio (times)
2007 7.68
2008 8.17
2009 8.58
2010 7.88
2011 6.18