ASSET EFFICIENCY RATIO

1) Total Assets Turnover Ratio=Net Sales/Total Assets  1998-99 1999-2000 2000-01 2001-02 2002-03Net Sales       3410 4483 4526 5282 9351Total Assets 2855 8357 6922 9674 11709Ratio         1.19 0.54 0.65 0.55 0.80                   

INDICATION:This ratio shows the firm’s ability to generating sales from all financial

resources committed to total assets. A total asset includes fixed assets, current assets & investment. This ratio suggests manager’s ability to fully utilize all total assets to generate more sales out of available resources.

This ratio is computed by dividing net sales to total assets.

INTERPRETATION:A firm’s ability to produce a large volume of sales for a

given amount of its operating performance. The ratios of CADILA HEALTH CARE LTD. were 1.19,0.54,0.65,0.55,0.80 in year 1999,2000,2001,2002,2003 respectively. The highest ratio was in year 1998-99 which was 1.19, which implies that the company is producing Rs 1.19 of sales for rupee 1 capital employed in net asset. But the ratio was decreased substantially over last four years, which shows inefficient use of total assets.

2) Fixed Assets Turnover Ratio=Net Sales/Fixed Assets      

  1998-99 1999-2000 2000-01 2001-02 2002-03Net Sales       3410 4483 4526 5282 9351Fixed Assets 1421 2548 2633 3826 6829Ratio         2.40 1.76 1.72 1.38 1.37                   

INDICATION:To ascertain the efficiency and profitability of business, the total fixed

assets are compared to sales. The more the sales in relation to the amount invested in fixed assets, the more efficiency is the compared to investment in fixed assets, it means that fixed assets are not adequately utilized in business. Of course, excessive sale is an indication of over trading and is dangerous.

INTERPRETATION:This ratio is highest in year 1998-99, which shows the fixed assets

are being used effectively to earn profit in the business. This is happening because that

the fixed assets shown in the denominator in their written down value and hence this ratio

for a company using old assets will have low value in denominator and, therefore this

ratio will be high. Fixed assets ratio is lowest in year 2002-03, i.e. 1.37 indicates that

investment in fixed assets is more than what is necessary and must be reduced.

3) Working capital turnover ratio=Net Sales/net working capital  

  1998-99 1999-2000 2000-01 2001-022002-

03Net Sales       3410 4483 4526 5282 9351Net Working Capital 748 4575 1556 2865 2007Ratio         4.56 0.98 2.91 1.84 4.66          0.2194 1.02052 0.3438 0.5424 0.2146

INDICATION:A firm may also like to relate net current assets (or net working capital

gap) to sales. It may thus compute net working capital turnover ratio by dividing net sales by net working capital.

INTERPRETATION:The reciprocal of the ratio is 0.21,1.02,0.34,0.54 and 0.21 during

last five years. This ratio indicates the hoe many rupees of net current assets are needed for one rupee of sales. Ratio of the company was highest in year 2002-03 because of increase in sale of year 2002-03 without increase in net current assets.