Você está na página 1de 4

8/3/2017 Useful ratios to know in the balance sheet of a company - The Economic Times

ET Home Wealth Invest Search for News, Stock Quotes & NAV's

04:05 PM | 02 AUG EOD 50 ( ) (/10 / CREATE - CHOOSE


LANGUAGE
PORTFOLIO
MARKET STATS 32,476 -98.43 10,081 -33.15 28,490.00 86.00 63.69 -0.39 KAN

Useful ratios to know in the balance sheet of a company


BY NARENDRA NATHAN, ET BUREAU | UPDATED: JUL 17, 2017, 05.20 PM IST Post a Comment

Most of you would have already received the balance sheets of companies you are
invested in.

ET Wealth explains how to compute a few useful ratios from the available data.

VALUATION

PBV RATIO
The formula: Share price/book value per share (or market cap net worth)

What does it mean? Account receivables turnover ratio indicates the


It compares the market value of a stock to its net worth, or assets minus liabilities. A low number of times the average account receivable is
collected in a year.
PB ratio means the stock is undervalued.

Useful for: All sectors, particularly for banking where assets (i.e. loans) are close to Big Change:
The end of Five-Year Plans: All you need to know

Recommended By Colombia

market value.

Firms with high PB ratios (PB (times))


Hindustan Unilever: 36.92
Bajaj Finserve Ltd: 23.73
Colgate Palmolive India: 23.04

EFFICIENCY

http://economictimes.indiatimes.com/wealth/invest/useful-ratios-to-know-in-the-balance-sheet-of-a-company/printarticle/59606017.cms 1/4
8/3/2017 Useful ratios to know in the balance sheet of a company - The Economic Times

Inventory Turnover ratio


The formula: Cost of goods sold/Average inventory

What does it mean?


Indicates how many times a company's inventory is sold and replaced in a years time (more the better). Since this ratio varies across
industries, compare it against company's previous values or with similar company.

Useful for: Most manufacturing sectors that have large supply chains.

Most auto companies are managing inventory well (Inventory turnover (times))
Hero MotoCorp: 46.41
Bajaj Auto: 31.90
Mahindra & Mahindra: 17.43

Account Receivables Turnover ratio


The formula: Total sales / Average accounts receivable (Total sales considered because total credit sales not available)

What does it mean?


Indicates the number of times the average account receivable is collected in a year. Since this ratio indicates the ability of a company to
collect funds from debtors in a timely manner, higher the ratio, the better. This ratio also varies across industries.

Useful for: Most manufacturing sectors that have large supply chains.

Figures should be compared with similar companies (Receivable turnovers (times))


Reliance Industries: 59.11
Colgate Palmolive India: 39.06
Bharti Infratel: 35.07

FINANCIAL STRENGTH

Current ratio
The formula: Current assets / Current liabilities

What does it mean?


Determines a companys ability to pay back short-term liabilities. A high ratio means the company is not utilising enough current
liabilities. Be careful if ratio is below 1.

Useful for: Sectors with large supply chains.

Ratio is high for cash-rich businesses (Current ratio (times))


Tata Consultancy Services: 6.41
Infosys: 4.05
Zee Entertainment Enterprises: 3.68

Quick ratio (Acid test ratio)


The formula: (Current assets - inventories) / Current liabilities

What does it mean?


Tests the companys ability to pay off current liabilities at short notice. Inventories are not considered as they take time to liquidate. Ratio
above 0.5 times is considered good.

Useful for: Most manufacturing sectors that have large supply chain on both sides.

Cash-rich businesses have high ratio (Quick ratio (times))


Tata Consultancy Services: 6.41

http://economictimes.indiatimes.com/wealth/invest/useful-ratios-to-know-in-the-balance-sheet-of-a-company/printarticle/59606017.cms 2/4
8/3/2017 Useful ratios to know in the balance sheet of a company - The Economic Times

Infosys: 4.05
Wipro: 3.50

Debt-Equity ratio
The formula: Long-term debt / Net worth (or shareholders equity)

What does it mean?


A high debt-equity ratio indicates that most assets are funded by debt. While zero debt companies are best, investors should be careful
if this ratio is above 2.

Useful for: Most sectors except financials.

Investors should be wary of ratio above 2 (Debt/equity (times))


Idea Cellular: 2.33
JSW Steel: 1.60
Piramal Enterprises: 0.71

PROFITABILITY

Return on equity (ROE)


The formula: Profit after tax / Net worth (or shareholders equity)

What does it mean?


It measures the returns the company is generating on shareholders equity. More the better. This ratio should be significantly higher than
the returns available in the market.

Useful for: Most sectors.

Concentrate on companies with very high ROE (ROE %)


Hindustan Unilever: 70.73%
Colgate-Palmolive (India): 50.48%
Hero MotoCorp: 35.66%

Return on capital employed (ROCE)


The formula: Profit before interest and tax / Total capital employed

What does it mean?


The comparison here is between operating profit and total capital employed, including debt. More useful than ROE to evaluate the
longevity of a company.

Useful for: Most sectors other than financials.

Companies should match your cost of capital (ROCE %)


Hindustan Unilever: 100.52%
Colgate-Palmolive (India): 73.88%
Hero MotoCorp: 49.24%

Return on assets (ROA)


The formula: Profit after tax / Total assets

What does it mean?


Measures the efficiency with which the management is utilising assets. Since this ratio varies across industries, one needs to compare it
against the companys previous values or ratio of a similar company.

Useful for: Banking sector.

http://economictimes.indiatimes.com/wealth/invest/useful-ratios-to-know-in-the-balance-sheet-of-a-company/printarticle/59606017.cms 3/4
8/3/2017 Useful ratios to know in the balance sheet of a company - The Economic Times

Bet on companies with high ROA (ROA %)


Hindustan Unilever: 31.68%
Tata Consultancy Services: 29.08%
Hero MotoCorp: 23.04%

Source: ETIG Database; Data based on BSE 100 companies whose balance sheet of 2016-17 available

Stay on top of business news with The Economic Times App. Download it Now!

Live Market Industry About Us


News Newsletters Create Your Own Ad
Portfolio Commodities Advertise with Us
Powered by Mobile Speed Terms of Use & Grievance Redressal
Live TV Blogs Privacy policy
Biz Listings RSS

Download it from Download it from Download it from


FOLLOW US APP STORE GOOGLE PLAY Windows Store

Other Times Group news sites Hot on the Web


| | Pune Mirror | Bangalore Mirror | Ahmedabad Mirror SBI Share Price | Income Tax Return | Aadhaar - PAN Card Linking | Bank Fixed
| ItsMyAscent | Education Times | Brand Capital | Mumbai Mirror | Times Now | Deposits Rates | NPS | Sensex Today | RBI Repo Rate | How to File ITR | Nifty |
Indiatimes | | | | Go Green | AdAge India | Sensex Live | Sensex | Monsoon Tips
Eisamay | IGN India | NavGujarat Samay | Times of India | Lifehacker | Gizmodo |
Samayam Tamil | Samayam Telugu | Miss Kyra | Bombay Times | Filmipop Services
Book print ads | Online shopping | Matrimonial | Astrology | Jobs | Tech Community |
Living and Entertainment Property | Buy car | Bikes in India | Free Classifieds | Send money to India | Used Cars
Timescity | iDiva | Entertainment | Zoom | Healthmeup | Luxpresso | Gadget Reviews | | Restaurants in Delhi | Remit to India | Buy Mobiles | Listen Songs | News |
Titanium & Platinum Credit Card | Online Songs | MensXP | Hotels | Travel TimesMobile | Real Estate Developers | Restaurant Deals in Delhi | Car Insurance |
Destinations | Cricbuzz | Recipes | Gaana | Happytrips | Getsmartapp Gadgets Now | Free Business Listings | CouponDunia | Remit2India | Techradar |
AliveAR | Getsmartapp App | ETMoney Finance App | Feedback
Interest Network
itimes

In Case You Missed It


Telecom price war started by Jio is in final stages, will end
soon: S&P

Copyright 2017 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service

http://economictimes.indiatimes.com/wealth/invest/useful-ratios-to-know-in-the-balance-sheet-of-a-company/printarticle/59606017.cms 4/4