ratios of comp

8/8/2019 RATIOS OF COMP.

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NAME: ABHISHEK V SHARMA

ROLL NO: P1045

COLLEGE: NRIBM (GLS)

SUBJECT: MANAGEMENT ACCOUNTING

FACULTY: DHARMESH SIR

COURSE: PGDBM (MBA)


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Name: Net working capital

Meaning: The amount of current assets that is in excess of current liabilities. Working capital is

frequently used to measure a firm's ability to meet current obligations. It is also known as net current

assets.

Formula: Total current assets Total current liabilities

Table:

Particulars 2007-08 (Rs.) 2008-09 (Rs.) 2009-10 (Rs.)

Current assets 441295033 432721995 648023268

Current liabilities 84600442 72301247 116656285

Net working capital 356694591 360420748 531366983

Chart:

Interpretation:

In this case company is showing good net working capital compared to previous years which is a goodsign for every company but the actual fact is that the inventory of the company has increased up to a very

higher extent on the other side current liabilities have also been increased compared to its previous years

and debtors have also been increased which means company is unable to collect its money on time. Thus

because of this three reasons company is showing high amount of working capital which is not so in the

real sense.

2007-08 (Rs.)

356694591

29%

2008-09

Rs.,360420748,

29%

2009-10 (Rs.)

531366983

42%

2007-08 (Rs.)

2008-09 (Rs.)

2009-10 (Rs.)


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Name: Current Ratio

Meaning: It is the ratio of total current assets to total current liabilities. It is calculated by dividing

current assets by current liabilities.

Formula: Current assets / Current liabilities

Table:


Current assets 441295033 432721995 648023268


Current ratio (times) 5.216226093 5.984986607 5.554979468

Chart:

Interpretation:

In this case if current ratio would have been high then it could consider as a very good sign for thecompany, but it is not so in this company because there was a huge hike in 2009-10 in the current

liabilities compared to current assets which results into low current ratio compared to previous year. Thus

we can say that in 2007-08, 2008-09 company did a good job but failed to maintain it.

2007-08 (Rs.)

5.216226093

31%

2008-09 (Rs.)

5.984986607

36%

2009-10 (Rs.)

5.554979468

33%

2007-08 (Rs.)

2008-09 (Rs.)

2009-10 (Rs.)


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Name: Acid-test ratio

Meaning: It is the ratio between quick current assets and current liabilities and is calculated by dividing

the quick assets by the current liabilities.

Formula: Acid test ratio= Quick assets / Current liabilities

Table:


Quick assets 150910017 178137470 203872411

Current liabilites 84600442 72301247 116656285

Acid test ratio 1.783797028 2.463822927 1.747633323

Chart:

Interpretation:

This ratio shows that what is the actual cash balance a company is having to pay its liabilities. In this case

Acid test ratio of the company is not satisfactory. It is lower compared to its other previous year because

current liabilities are much higher then expected which result into the same. Thus acid test ratio is not

showing the good picture.

2007-08 (Rs.)

1.783797028

30%

2008-09 (Rs.)

2.463822927

41%

2009-10 (Rs.)

1.747633323

29%2007-08 (Rs.)

2008-09 (Rs.)

2009-10 (Rs.)


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Name: Inventory turnover ratio

Meaning: It is computed bydividing the cost of goods sold by the average inventory.

Formula: Inventory turnover ratio= cost of goods sold / Average inventory

Table:


Cost of goods sold 1273461824 1373897357 1445709925

Average inventory 322358930.5 272484770.5 349367691

Inventory turnover

ratio3.950446858 5.042106957 4.138075621

Chart:

Interpretation:

This ratio indicates that how fast inventory is sold. A high ratio is good from the view point of liquidity

and vice versa. As data shows current inventory turnover ratio has decreased compared to previous year

even though it can be said it is a good sign as in the previous year gross loss was there because of which

cost of goods sold has increased which result into a hike in the ratio. So overall it can be said that

company has recovered from its gross loss & has increased the speed of inventory turnover.

2007-08 (Rs.)

3.95044685830%

2008-09 (Rs.)

5.042106957

38%

2009-10 (Rs.)

4.13807562132%


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Name: Debtors Turnover Ratio

Meaning: It is also known as accounts receivable turnover ratio. It indicates the velocity of

debt collection of a firm. In simple words it indicates the number of times average debtors

(receivable) are turned over during a year.

Formula: Debtors Turnover Ratio = Net credit sales / Average debtors

Table:


Net credit sales 1219178195 1408241158 1296671798

Average debtors 70812672 92497303.5 79324193

Debtors turnover ratio 17.21694946 15.22467255 16.34648584

Chart:

Interpretation:

The ratio measures how rapidly receivables are collected. A high ratio is indicative of shorter time-lag

between credit sales and cash collection. In this case company is having high ratio compared to its

previous year but in real sense its sales has reduced which is not a good sign for the company. So

company has to improve its sales to increase the profit.

2007-08 (Rs.)

17.2169494635%

2008-09 (Rs.)

15.22467255

31%

2009-10 (Rs.)

16.34648584

34%


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Name: Creditors Turnover Ratio

Meaning: It signifies the credit period enjoyed by the firm in paying creditors. Accounts

payable include both sundry creditors and bills payable. It can be calculated in two forms,

Creditors turnover ratio and average payment period.

Formula: Creditors turnover ratio = Net credit purchases / Average creditors

Table:


Net credit purchases 636735473 734088492 1060008394

Average creditors 58857014 49438609 57684071

Creditors turnover

ratio10.81834483 14.84848597 18.37610237

Chart:

Interpretation:

A high credit turnover ratio shows that accounts are to be settled rapidly. It is an important tool in the

analysis of company. Here company is showing a high ratio as of high increase in credit purchase which

means company is dealing in more credit. It can be assumed that company is not having enough cash on

hand to deal the cash purchases. Thus from the investors view point company should also deal some of

there purchases in cash so that less debt can be maintained.

2007-08 (Rs.)

10.81834483

24%

2008-09 (Rs.)

14.84848597

34%

2009-10 (Rs.)

18.37610237

42%


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Name: Gross profit margin

Meaning: It is also known as gross margin. It measures the percentage of each sales rupee remaining

after the firm has paid for its goods.

Formula: Gross profit margin = (Gross profit / sales) * 100

Table:


Gross profit 368746 -3414428 47560605

Sales 1219178195 1296671798 1408241158

Gross profit margin 0.030245456 -0.263322454 3.377305423

Chart:

Interpretation:

A relatively low gross margin is definitely a danger signal, warranting a careful & detailed analysis of the

factors responsible for it. Here company is showing good amount of gross profit margin which is a very

good sign for the company. It is because of increases in sales, even company has recovered from its gross

loss which is a good sign.

2007-08 (Rs.)

0.030245456

1%

2008-09 (Rs.)

-0.263322454

-7%

2009-10 (Rs.)

3.37730542392%


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Name: Net profit margin

Meaning: It measures the percentage of each sales rupee remaining after all costs and expenses including

interest and taxes have been deducted. It is also known as net margin.

Formula: Net profit margin = (Net profit / sales) * 100

Table:


Net profit -7598177 875320 38207475

Sales 1219178195 1296671798 1408241158

Net profit margin -0.623221202 0.067505131 2.713134379

Chart:

Interpretation:

A high net profit would ensure adequate return to the owners as well as enable a firm to withstand adverse

economic conditions. Here company is showing high net profit margin which is a very good sign for the

company. It is because of high increase in sales & even because of increase in net profit which has which

result into a very good net profit margin.

2007-08 (Rs.)

-0.623221202

-18%

2008-09 (Rs.)

0.067505131

2%

2009-10 (Rs.)

2.71313437980%


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Name: Cost of goods sold ratio

Meaning: It shows that percentage share of sales is consumed by cost of goods sold & it is available for

meeting expenses such as selling & general distribution expenses.

Formula: Cost of goods sold ratio = (Cost of goods sold / Net sales) * 100

Table:



Net Sales 1219178195 1296671798 1408241158

Cost of goods sold

ratio104.452477 105.9556751 102.6606783

Chart:

Interpretation:

Here cost of goods sold ratio has reduced compared to its previous year because of high increase in cost

of goods sold. It is not a good sign for the company as company is showing high cost of goods sold.

Company has to focus on its cost to recover from its variable cost.

2007-08 (Rs.)

104.452477

33%

2008-09 (Rs.)

105.9556751

34%

2009-10 (Rs.)

102.6606783

33%


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Name: Operating expenses ratio

Meaning: It is the ratio which considers the administrative & selling expenses into consideration & then

divides the summation with the net sales.

Formula: operating expenses ratio = (Administrative expenses + selling expenses / Net sales) * 100

Table:


Administrative +selling expenses

138981790 166151909 119520203

Net Sales 1219178195 1296671798 1408241158

Operating expensesratio

11.39962891 12.81372119 8.48719712

Chart:

Interpretation:

Generally a low operating expenses ratio is a very good sign for the company. Here also same is the case

company is showing less ratio compared to all of its previous year because of high increases in net sales

and even with the decrease in administrative & selling expenses. Thus we can say that with the bulk sales

company is able to reduce its expenses which help company to maintain a good operating ratio.

2007-08 (Rs.)

11.39962891

35%

2008-09 (Rs.)

12.81372119

39%

2009-10 (Rs.)

8.48719712

26%


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Name: Debt equity ratio

Meaning: It is the ratio which measures the ratio of long term or total debt to shareholders equity. This

ratio reflects the relative claims of creditors & shareholders against the assets of the firm.

Formula: Debt equity ratio = long term debts / shareholders equity

Table:


Long term debts 518174315 474352939 577341859

Shareholders equity 81296080 81296080 81296080

Debt equity ratio 6.373915138 5.834880833 7.101718299

Chart:

Interpretation:

A high ratio shows a large share of financing by the creditors of the firm. From the data we can see that

company has not increased its owner capital but had focused on increasing the borrowed capital which is

not a good sign from the investors view point. Investors always check that how strong company is and is

able to invest its own capital. Company has focused on borrowed capital as it less expensive compared to

owners funds as it is tax free. Thus company should also increase its owners funds.

2007-08 (Rs.)

6.373915138

33%

2008-09 (Rs.)5.834880833

30%

2009-10 (Rs.)

7.101718299

37%


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Name: Proprietary ratio

Meaning: Itis the ratio which indicates the extent to which assets are financed by owners funds. This

ratio indicates the proportion of total assets financed by owners.

Formula: Proprietary ratio = (Proprietors funds / Total assets) * 100

Table:


Proprietors funds 464723135 466172199 489202623

Total assets 1211459937 1151349666 1308725225

Proprietary ratio 0.383605863 0.404891939 0.373800866

Chart:

Interpretation:

This ratio shows that whether company wants to be strong from its assets view point or from owners

funds & reserves. Here we can see from the data that company has increased its assets also as well as its

reserves also. It means company is balancing both the sides. Thus we can conclude here that company is

well strong in assets as well as proprietors funds which is a very good sign for the investors.

2007-08 (Rs.)

0.383605863

33%

2008-09 (Rs.)

0.404891939

35%

2009-10 (Rs.)

0.373800866

32%


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Name: Interest coverage ratio

Meaning: It is also known as time interest earned ratio. It measures the firms ability to make contractual

interest payments. It is determined by dividing the operating profits or earnings before interest & taxes by

the fixed interest charges on loans.

Formula: Interest coverage ratio = EBIT / Interest

Table:


EBIT 368746 -3414428 47560605

Interest 29986534 25594698 29081567

Interest coverage ratio 0.012297053 -0.133403723 1.635420987

Chart:

Interpretation:

This ratio shows the ability of the company to pay the interest. Here company is showing a very good

sign company is able to earn enough money so that they can able to pay the interest. Company has made

loss in 2008-09 but they did a good job in the current year. Thus we can conclude that company is in a

strong position.

2007-08 (Rs.)

0.012297053

1% 2008-09 (Rs.)

-0.133403723

-7%

2009-10 (Rs.)

1.635420987

92%


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Name: Cash flow from operations ratio

Meaning: This ratio measures liquidity of a firm by comparing actual cash flows from operations with

current liability. It will be calculated by dividing cash flow from operations from current liabilities.

Formula: Cash flow from operations ratio = Cash flow from operations / Current liabilities

Table:


Cash flow fromoperations

362751869 340866058 542863931


Cash flow fromoperations ratio

4.287824749 4.714525297 4.653533507

Chart:

Interpretation:

In this ratio cash flow from operations ratio has decreased compared to previous year which is not a good

sign. The data shows data current liabilities has increased up to a large extent compared to inventory &

debtors. Thus company has to focus on current assets as it shows the liquidity of the company and with

the same has to reduce current liabilities also.

2007-08 (Rs.)

4.287824749

31%

2008-09 (Rs.)

4.714525297

35%

2009-10 (Rs.)

4.653533507

34%


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Name: Return on capital employed

Meaning: Here the profits are related to the total capital employed. The term capital employed refers to

long term funds supplied by the lenders & owners of the firm.

Formula: Return on capital employed = (EBIT / Avg. total capital employed) * 100

Table:


EBIT 368746 -3414428 47560605

Avg. total capitalemployed

982897450 940525138 1066544482

Return on capitalemployed

0.037516223 -0.36303421 4.459317525

Chart:

Interpretation:

The higher the ratio, the more efficient is the use of capital employed. Here also company is showing very

good return on capital employed. The company is able to earn 4% return on capital employed which is a

very good sign from the investors view point. Thus the test of profitability related to the sources of long

term funds shows a very good picture.

2007-08 (Rs.)

0.037516223

1%

2008-09 (Rs.)

-0.36303421

-7%

2009-10 (Rs.)

4.459317525

92%


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Name: Return on total shareholders equity

Meaning: In this ratio probability is measured by dividing the net profits after taxes by the average total

shareholders equity. Shareholders equity include equity and preference and also include reserves &

surplus.

Formula: Return on total shareholders equity = (Net profit / Avg. total shareholders equity) *100

Table:


Net profit -7598177 875320 38207475

Avg. total

shareholders equity472994045 472375381 493338077

Return on totalshareholders equity

-1.60640014 0.185301782 7.744683977

Chart:

Interpretation:

The ratio reveals how profitably the owners funds have been utilized by the firm. Here higher the ratio is

a very good sign for the company. Here company is showing high ratio because of high increase in net

profit compared to its previous year which result into a very good return on owners fund.

2007-08 (Rs.)

-1.60640014

-17%2008-09 (Rs.)

0.185301782

2%

2009-10 (Rs.)

7.744683977

81%


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Name: Working capital turnover ratio

Meaning: This ratio is very much important which can be calculated by dividing cost of goods sold with

the net working capital.

Formula: Working capital turnover ratio = Cost of goods sold / Net working capital

Table:



Net working capital 356694591 360420748 531366938

Working capital

turnover ratio3.570174194 3.811926379 2.720737445

Chart:

Interpretation:

This ratio does not show a good sign of the company. The working capital turnover ratio has reduced in

the current year compared to its previous year which is not a good sign. This has reduced because of high

amount of inventory which exists in the current assets which has influenced the figure of net working

capital. Thus company has to control on its inventory and has to improve the working capital turnover.

2007-08 (Rs.)

3.570174194

35%

2008-09 (Rs.)

3.811926379

38%

2009-10 (Rs.)

2.720737445

27%


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Name: Earning power

Meaning: It is the overall profitability of a firm. It is computed by multiplying net profit margin and

assets turnover.

Formula: Earning power = EAT / Total assets

Table:


EAT -7598177 875320 38207475

Total assets 1219730847 1157552848 1312860679

Earning power -0.006229388 0.000756181 0.02910246

Chart:

Interpretation:

This ratio implies that the performance of a firm can be improved either by generating more profit or by

increasing the total assets. Here company has increased its profits also and has also invested in the assets

which is a very good sign for the company. It shows that company is more flexible. Thus company should

stronger its position by making more investments in assets.

2007-08 (Rs.)

-0.006229388

-17%2008-09 (Rs.)

0.000756181

2%

2009-10 (Rs.)

0.0291024681%


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Name: Dividend pay out ratio

Meaning: This is the ratio which measures the proportion of dividends paid to earning available to

shareholders. It is also known as pay out ratio.

Formula: Dividend pay out ratio = (Total dividend paid to Equity holders / Total net profit)*100

Table:


Total dividend paid to

Equity holders

0 0 19021094

Total net profit -7598177 875320 38207475

Dividend pay out ratio 0 0 49.78369809

Chart:

Interpretation:

This is ratio which shows the percentage of dividend which include in net profit available to them. Here

for the last two years company havent declared dividend but in the current year company has declared it

& it is almost 50% of the net profit available to them which is a very good sign from the investors view

point.

2007-08 (Rs.)

0

0%

2008-09 (Rs.)

0

0%

2009-10 (Rs.)

0.497836981

100%


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Name: Capital gearing ratio

Meaning: This is the ratio which would be useful when the objective is to show the effect of the use of

fixed-interest / dividend source of funds on the earnings available to the equity shareholders.

Formula: Capital gearing ratio = Fixed Interest Bearing Capital / Equity Share Capital

Table:


Fixed Interest BearingCapital

518174315 474352939 577341859

Equity Share Capital 81296080 81296080 81296080

Capital gearing ratio 6.373915138 5.834880833 7.101718299

Chart:

Interpretation:

As the ratio shows the relationship between the owners funds & the borrowed funds here also company

is showing that how far company is depending more on the borrowed fund compared to the owners fund.It is not a good sign from the investors view point. We know that borrowed fund is very easy to get but to

fetch more shareholders it is necessary to increase owners fund also.

2007-08 (Rs.)

6.373915138

33%

2008-09 (Rs.)

5.834880833

30%

2009-10 (Rs.)

7.101718299

37%


23/25

Name: Return on Assets

Meaning: This is the ratio which is measured in terms of the relationship between net profits and assets.

It is also known as profit-to-asset ratio.

Formula: Return on Assets = (Net profit after taxes / Average total assets) *100

Table:


Net profit after taxes -7598177 875320 38207475

Average total assets 1212566138 1188641848 1235206764

Return on Assets -0.626619593 0.073640349 3.093204808

Chart:

Interpretation:

This ratio shows that what exactly the amount of return is on assets. Here the data clearly explains that

company has done a good job. Out of the average amount invested in the assets 3% has recovered as a

profit in the current year itself. Thus it is a very good sign for the company as well as investor and it is

because of heavy investment in assets.

2007-08 (Rs.)

-0.626619593

-18%

2008-09 (Rs.)

0.073640349

2%

2009-10 (Rs.)

3.093204808

82%


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Name: Return on Equity

Meaning: This ratio can be helpful in considering the effect of interest and tax payments. It is the most

important measure of financial performance from the point of view of Equity holders.

Formula: Return on Equity = (EAT / EBT) * (EBT / EBIT) * (EBIT / Sales) * (Sales / Assets) * (Assets

/ Equity)

Table:


EAT -7598177 875320 38207475

EBT 368746 -3414428 47560605

EBIT 30355280 22180270 18479038

Sales 1219178195 1296671798 1408241158

Assets 1219730847 1157552848 1312860679

Equity 472994045 472375381 493338077

Return On Equity -0.016064001 0.001853018 0.07744684

Chart:

Interpretation:

There are various factors involved in this ratio which affect the Return on Equity directly or indirectly.

From the data it is very clear that the return on equity has improved a lot year by year. There is a wide

scope in the same just required a interest. It is one of the main area through which more number of

stakeholders can be influence. Thus to conclude we can say that company should fetch more & more

amount through equity only.

2007-08 (Rs.)

-0.016064001

-17%

2008-09 (Rs.)

0.001853018

2%

2009-10 (Rs.)

0.07744684

81%


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