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Gross Profit Ratio measures the relationship between gross profits & sales; it is
usually represented in percentage. Thus Gross profit margin highlights the
production efficiency at a concern.
Gross Profit Ratio indicate the extent to which selling price of goods per unit
may decline without resulting in losses on operations of firm. It reflect
efficiency with which firm produces the product.
GROSS PROFIT RATIO
Net
Revenue
34705.90 42612.6 42664.8 48605.50 56350.40
from
Operations
Cost of
Goods 28108.30 32559.00 31348.80 35007.10 38840.2
Sold
Gross
6597.60 10053.6 11316.00 13598.40 17510.2
Profit
Gross
Profit 5.26% 4.24% 3.77% 3.57% 3.22%
Ratio
ANALYSIS
From the above table, it is observed that the:
Gross profit has increased from Rs. 6597.60 Cr. to Rs. 17510.20 Cr. in
between the years 2012 – 2016.
Net revenue from operations has increased from Rs. 34705.90 Cr. to Rs.
56350.40 Cr. in between the years 2012 – 2016.
Gross profit ratio for the year 2012-2013 was 5.26%
Gross profit ratio for the year 2013-2014 was 4.24%
Gross profit ratio for the year 2014-2015 was 3.77%
Gross profit ratio for the year 2012-2013 was 3.57%
Gross profit ratio for the year 2012-2013 was 3.22%
INTERPRETATION
It is interpreted that Gross profit ratio is decreasing over the years.
This ratio indicates the degree to which the selling price of goods per unit may
decline without resulting in losses from operations to the firm.
From the above table we can see that the percentage of the Gross Profit ratio has
been decreasing from 5.26% to 3.22% over the 5 years 2012 – 2016. It indicates
that there is an increase in the cost of goods sold without corresponding increase
in the sales. Stock at the end may have been undervalued.
OPERATING PROFIT RATIO
The operating profit margin ratio indicates how much profit a company makes
after paying for variable costs of production such as wages, raw materials, etc. It
is expressed as a percentage of sales and shows the efficiency of a company
controlling the costs and expenses associated with business operations. Phrased
more simply, it is the return achieved from standard operations and does not
include unique or one time transactions. Terms used to describe
operating profit margin ratios this include operating margin, operating income
margin, operating profit margin or return on sales (ROS).
It is the relation between cost of goods sold & operating expenses on one hand
& the sales on the other hand. It measures the cost of operations per rupee of
sales.
OPERATING PROFIT RATIO
Years
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Cr.)
Net
revenue
34705.90 42612.6 42664.8 48605.50 56350.40
from
expenses
Operating 34255.2 41263.3 40723.4 45727.1 51651.9
expenses
Operating
450.7 1349.3 1941.4 2878.4 4698.5
Profit
Operating
Profit 1.2% 3.2% 4.6% 5.9% 8.3%
Ratio
Operating profit has increased from Rs. 450.7Cr. to Rs. 4698.5 Cr. in
between the years 2012 – 2016.
Net revenue from operations has increased from Rs. 34705.90 Cr. to Rs.
56350.40 Cr. in between the years 2012 – 2016.
Operating profit ratio for the year 2012-2013 was 1.2%
Operating profit ratio for the year 2013-2014 was 3.2%
Operating profit ratio for the year 2014-2015 was 4.6%
Operating profit ratio for the year 2012-2013 was 5.9%
Operating profit ratio for the year 2012-2013 was 8.3%
INTERPRETATION
This ratio is the best test for operational efficiency with which the business is
being carried. This operating ratio should be low enough to leave a portion of
sales to give a fair return to the investors.
From the above table we can see that the percentage of the Operating Profit ratio
has been increasing from 1.2% to 8.3% over the 5 years 2012 – 2016. The net
operating profit is showing an increasing trend as a percentage of net sales,
which indicates that the business turns a higher profit margin on its revenues. It
also indicates that the company is lowering its expenses to generate revenue to
the company.
PROFIT BEFORE TAX RATIO
Profit before tax provides investment analysts with useful information for
evaluating a company’s operating performance without regard to tax
implications. By removing the tax factor, profit before tax helps to minimize a
variable that may be unique from company to company, in order to focus the
analysis on operating profitability as a singular measure of performance.
Profit
2146.20 2991.00 3658.5 4868.2 6535.00
Before Tax
Net
revenue
34705.90 42612.6 42664.8 48605.50 56350.40
from
Operations
Profit
Before Tax 6.18 7.02 8.57 10.01 11.60
Ratio
Profit before Tax has increased from Rs. 2146.20 Cr. to Rs. 6535.00 Cr.
in between the years 2012 – 2016.
Net revenue from operations has increased from Rs. 34705.90 Cr. to Rs.
56350.40 Cr. in between the years 2012 – 2016.
Profit before tax ratio for the year 2012-2013 was 6.18%
Profit before tax ratio for the year 2013-2014 was 7.02%
Profit before tax ratio for the year 2014-2015 was 8.57%
Profit before tax ratio for the year 2012-2013 was 10.01%
Profit before tax ratio for the year 2012-2013 was 11.60%
INTERPRETATION
It is interpreted that Operating profit ratio is increasing over the years.
From the above table we can see that the percentage of the Gross Profit ratio
has been increasing from 1.2% to 8.3% over the 5 years 2012 – 2016 which
indicates that
RETURN ON CAPITAL EMPLOYED RATIO
Years
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Cr.)
Earnings
before
2146.20 2991.00 3658.50 4868.20 6535.00
Interest
and Tax
Capital 15284.00 19372.1 21667.00 23954.4 27129.5
Employed
ROCE 0.14 0.15 0.17 0.20 0.24
Convert ROCE to %.
ANALYSIS
From the above table, it is observed that the:
Earnings before Interest and Tax has increased from Rs. 2146.20 Cr. to
Rs. 6535.00 Cr. in between the years 2012 – 2016.
Capital Employed has increased from Rs. 15284.00 Cr. to Rs. 27129.5 Cr.
in between the years 2012 – 2016.
Return on capital employed ratio for the year 2012-2013 was 0.14
Return on capital employed ratio for the year 2013-2014 was 0.15
Return on capital employed ratio for the year 2014-2015 was 0.17
Return on capital employed ratio for the year 2012-2013 was 0.20
Return on capital employed ratio for the year 2012-2013 was 0.24
INTERPRETATION
It is interpreted that ROCE ratio is increasing over the years.
A higher ROCE indicates more efficient use of capital. ROCE should be higher
than the company’s capital cost; otherwise it indicates that the company is not
employing its capital effectively and is not generating shareholder value.
From the above table we can see that the percentage of the ROCE ratio has been
increasing from 0.14 to 0.24 over the 5 years 2012 – 2016 which indicates that
the company is creating a of its shareholders, which increases the credibility of
the company and maes shareholders remain invested in the company.
LIQUIDITY RATIOS
CURRENT RATIO
Current ratio may be defined as the relationship between quick or liquid asset
and current liabilities. This is a measure of general liquidity & is most widely
used to make analysis of short-turn financial position or liquidity of firm. It is
calculated by dividing the total current assets by total current liabilities.
CURRENT RATIO
Current
11079.00 10946.00 14171.70 8197.90 7149.50
Assets
Current 6547.6 6727.50 8074.10 8823.00 11290.00
Liabilities
Current
1.69 1.62 1.76 0.93 0.63
Ratio
CURRENT RATIO
1.69 1.76
1.8 1.62
1.6
CURRENT RATIO
1.4
1.2 0.93
1
0.8 0.63
0.6
0.4
0.2
0
2012 2013 2014 2015 2016
YEARS
ANALYSIS
From the above table, it is observed that the:
Current assets has decreased from Rs. 11079.00 Cr. to Rs. 7149.50 Cr. in
between the years 2012 – 2016.
Current Liabilities has increased from Rs. 6547.60 Cr. to Rs. 11290.00 Cr.
in between the years 2012 – 2016.
Current ratio for the year 2012-2013 was 1.69
Current ratio for the year 2013-2014 was 1.62
Current ratio for the year 2014-2015 was 1.76
Current ratio for the year 2012-2013 was 0.93
Current ratio for the year 2012-2013 was 0.63
INTERPRETATION
It is interpreted that Current ratio is fluctuating over the years.
Quick ratio establishes relationship between quick or liquid assets & current
liabilities. It is also known as acid test ratio. An asset is said to be liquid if it can
be converted into cash within short period of time without loss of value. The
prepaid expenses and stock were excluded.
Current
11079.00 10946.00 14171.70 8197.90 7149.50
Assets
Inventories 1796.50 1840.70 1705.90 2615.00 3132.10
Liquid
9282.50 9105.30 12465.80 5582.90 4017.40
Assets
Current
6547.60 6727.50 8074.10 8823.00 11290.00
Liabilities
Liquid
1.42 1.35 1.54 0.63 0.36
Ratio
ANALYSIS
From the above table, it is observed that the:
Liquid Assets has increased from Rs. 9282.50 Cr. to Rs. 4017.40 Cr. in
between the years 2012 – 2016.
Current Liabilities has increased from Rs. 6547.60 Cr. to Rs. 11290.00 Cr.
in between the years 2012 – 2016.
Liquid ratio for the year 2012-2013 was 1.42
Liquid ratio for the year 2013-2014 was 1.35
Liquid ratio for the year 2014-2015 was 1.54
Liquid ratio for the year 2012-2013 was 0.63
Liquid ratio for the year 2012-2013 was 0.36
INTERPRETATION
It is interpreted that quick ratio is decreasing over the years.
The ratio is also an indicator of short term solvency of the company. The
decreasing trend of the quick ratio indicates a more risky position since the
company doesn't have adequate current assets, without inventory, to cover near-
term debt. This also means the company heavily depends on efficient inventory
turnover to keep afloat in the short-term.
A higher ratio is safer than a lower one because the company has excess cash.
The drawback of maintaining a high quick ratio is that the company may not be
making effective use of cash to grow the business.
Cash ratio is the strongest measurement of liquidity. Since cash is the most
liquid assets, a financial analyst may examine cash ratio & its equivalent to
current liabilities. Trade investments or marketable securities are equivalent of
cash therefore they may be included in computation of cash ratio.
To calculate absolute quick ratio we consider cash in hand, cash at bank &
marketable securities.
Years
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Cr.)
Cash and
cash 2436.10 775.00 629.70 18.30 39.10
equivalents
Current
6547.6 6727.50 8074.10 8823.00 11290.00
Liabilities
Absolute
Liquid 0.37 0.12 0.078 0.0021 0.0035
Ratio
ANALYSIS
From the above table, it is observed that the:
Cash and cash equivalents has decreased from Rs. 2436.10 Cr. to Rs.
39.10 Cr. in between the years 2012 – 2016.
Current liabilities has increased from Rs. 6547.6 Cr. to Rs. 11290.00 Cr.
in between the years 2012 – 2016.
Absolute Liquid ratio for the year 2012-2013 was 0.37
Absolute Liquid ratio for the year 2013-2014 was 0.12
Absolute Liquid ratio for the year 2014-2015 was 0.078
Absolute Liquid ratio for the year 2012-2013 was 0.0021
Absolute Liquid ratio for the year 2012-2013 was 0.0035
INTERPRETATION
It is interpreted that Absolute quick ratio is decreasing over the years.
From the above table we can see that the percentage of the Absolute quick ratio
has been decreasing from 0.37 to 0.0035 over the 5 years 2012 – 2016. Absolute
quick ratio is below the standard ratio i.e. 0.5:1 which indicates that 50 paisa
worth of absolute liquid assets are to be maintained to meet one rupee worth of
current liabilities. In the years the ratio is seen a decreasing trend, which
indicates that there is no sufficient liquidity in the firm.
INVENTORY TURNOVER RATIO
Inventory turnover ratio indicates the number of times stock has been turned
over during the period & evaluates efficiency with which a firm is able to
manage inventory.
The ratio is calculated by dividing the net sales by average inventory at cost.
Average inventory should be taken for calculating stock turnover ratio. Adding
the stock in the beginning & at the end of period & dividing it by 2 to calculate
average inventory.
Cost of
28108.30 32559.00 31348.80 35007.10 38840.2
Goods sold
Average 1818.60 3546.6 2160.45 2873.55 3132.10
Inventory
Inventory
15.46 9.18 14.51 12.18 12.40
Ratio
ANALYSIS
From the above table, it is observed that the:
Cost of Goods sold has increased from Rs. 28108.30 Cr. to Rs. 38840.20
Cr. in between the years 2012 – 2016.
Average inventory has increased from Rs. 1818.60 Cr. to Rs. 3132.10 Cr.
in between the years 2012 – 2016.
Inventory turnover ratio for the year 2012-2013 was 15.46
Inventory turnover ratio for the year 2013-2014 was 9.18
Inventory turnover ratio for the year 2014-2015 was 14.51
Inventory turnover ratio for the year 2012-2013 was 12.18
Inventory turnover ratio for the year 2012-2013 was 12.40
INTERPRETATION
It is interpreted that inventory turnover ratio is fluctuating over the years.
A high inventory turnover ratio is better than a low ratio. A high ratio implies
good inventory management but is sometimes an indication of under investment.
It may adversely affect the ability of the firm to meet its customers demand. At
the same time, a higher ratio reflects efficient business activity.
In the year 2012-2013 inventory turnover ratio is high which indicates that there
might have been under investment in inventories, but a high ITR symbolizes
effective inventory management of company.
In the year 2013-2014 the inventory turnover ratio decreased due to over
investment in inventory. It may also be due to inferior quality of goods, stock of
unsaleable and absolute goods reflecting dull business.
The method for calculating receivables turnover ratio can be represented with
the following formula:
Net
Revenue
34705.90 42612.6 42664.8 48605.50 56350.40
from
Operations
Average
1203.75 1441.8 1241.75 1184.2 1298.60
Debtors
Debtors
turnover 28.83 29.56 34.36 41.05 43.39
Ratio
Analysis
From the above table, it is observed that the:
Net revenue from operations has increased from Rs. 34705.90 Cr. to Rs.
56350.40 Cr. in between the years 2012 – 2016.
Average Debtors has increased from Rs. 1203.75 Cr. to Rs. 1298.60 Cr. in
between the years 2012 – 2016.
Receivables turnover ratio for the year 2012-2013 was 28.83
Receivables turnover ratio for the year 2013-2014 was 29.56
Receivables turnover ratio for the year 2014-2015 was 34.46
Receivables turnover ratio for the year 2012-2013 was 41.05
Receivables turnover ratio for the year 2012-2013 was 43.39
Interpretation
It is interpreted that Receivables turnover ratio is increasing over the years.
From the above table we can see that the percentage of the Receivables turnover
ratio has been increasing from 28.83 to 43.39 over the 5 years 2012 – 2016. It
indicates that the company is efficient in managing its credit sales. Increasing
trend ratio indicates that the company has a faster collection period and which is
helping the company in having cash to pay off its creditors and thereby reducing
the working capital cycle for a better working capital management.
PAYABLES TURNOVER RATIO
Purchase
of Stock-In 1532.50 2186.40 2431.40 2665.20 3126.40
Trade
Average
3753.90 4527.70 5229.45 6278.35 7013.30
Payables
Payables
turnover 0.41 0.48 0.46 0.42 0.45
Ratio
Analysis
From the above table, it is observed that the:
Purchase of stock-in trade has increased from Rs. 1532.50 Cr. to Rs.
3126.40 Cr. in between the years 2012 – 2016.
Average Payables has increased from Rs. 3753.90 Cr. to Rs. 7013.30 Cr.
in between the years 2012 – 2016.
Payables turnover ratio for the year 2012-2013 was 0.41
Payables turnover ratio for the year 2013-2014 was 0.48
Payables turnover ratio for the year 2014-2015 was 0.46
Payables turnover ratio for the year 2012-2013 was 0.42
Payables turnover ratio for the year 2012-2013 was 0.45
Interpretation
It is interpreted that Receivables turnover ratio is increasing over the years.
From the above table we can see that the percentage of the Receivables turnover
ratio has been fluctuating from 0.41 to 0.48 over the 5 years 2012 – 2016.
Current
11079.00 10946.00 14171.70 8197.90 7149.50
Assets
Current 6547.6 6727.50 8074.10 8823.00 11290.00
Liabilities
Working
4531.4 4218.5 7444.20 -625.1 -4204.5
Capital
Cost of
Goods 28108.30 32559.00 31348.80 35007.10 38840.2
Sold
Average
Working 4374.95 5831.35 3409.55 -2414.8 -4204.5
capital
Working
capital 6.42 5.58 9.19 -14.50 -9.24
Ratio
Analysis
From the above table, it is observed that the:
Cost of goods sold has increased from Rs. 28108.30 Cr. to Rs. 38840.2
Cr. in between the years 2012 – 2016.
Average working capital has decreased from Rs. 4374.95 Cr. to Rs. -
4204.5 Cr. in between the years 2012 – 2016.
Working capital turnover ratio for the year 2012-2013 was 6.42
Working capital turnover ratio for the year 2013-2014 was 5.58
Working capital turnover ratio for the year 2014-2015 was 9.19
Working capital turnover ratio for the year 2012-2013 was -14.50
Working capital turnover ratio for the year 2012-2013 was -9.24
Interpretation
SOLVENCY RATIOS
Debt-Equity ratio shows the relative contribution of creditors and owners. Debt-
Equity also known as External-Internal equity ratio is calculated to measure the
relative claims of outsiders against firm assets.
2012-
Years 2013-2014 2014-2015 2015-2016 2016-2017
2013
Total Long
96.60 793.20 699.00 250.20 122.40
term debt
Shareholders’
15187.4 18578.9 20978.00 23704.20 27007.10
Funds
Debt Equity
0.006 0.043 0.033 0.011 0.005
Ratio
Analysis
From the above table, it is observed that the:
Long term debt has increased from Rs. 96.60 Cr. to Rs. 122.40 Cr. in
between the years 2012 – 2016.
Shareholders’ Funds has increased from Rs. 15187.4 Cr. to Rs. 27007.10
Cr. in between the years 2012 – 2016.
Debt - Equity ratio for the year 2012-2013 was 0.006
Debt - Equity ratio for the year 2013-2014 was 0.043
Debt - Equity ratio for the year 2014-2015 was 0.033
Debt - Equity ratio for the year 2012-2013 was 0.011
Debt - Equity ratio for the year 2012-2013 was 0.005
Interpretation
PROPRIETARY RATIO
2012-
Years 2013-2014 2014-2015 2015-2016 2016-2017
2013
Shareholders’
15187.4 18578.9 20978.00 23704.20 27007.10
Funds
Total assets. 22302.20 26734.20 30353.7 33551.00 39195.60
Proprietary
68% 69% 69% 71% 69%
Ratio
Analysis
From the above table, it is observed that the:
Shareholders’ Funds has increased from Rs. 15187.4 Cr. to Rs. 27007.10
Cr. in between the years 2012 – 2016.
Total Assets from operations has increased from Rs. 22302.20 Cr. to Rs.
39195.60 Cr. in between the years 2012 – 2016.
Proprietary ratio for the year 2012-2013 was 68%
Proprietary ratio for the year 2013-2014 was 69%
Proprietary ratio for the year 2014-2015 was 69%
Proprietary ratio for the year 2012-2013 was 71%
Proprietary ratio for the year 2012-2013 was 69%
Interpretation
From the above table we can see that the percentage of the Proprietary ratio has
been varying from 68% to 71% over the 5 years 2012 – 2016.
The proprietary ratios above is not a clear indicator because an excessively high
ratio means that management has not taken advantage of any debt financing, so
the company is using nothing but expensive equity to fund its operations.
EBIT has increased from Rs.2146.20 Cr. to Rs.6535.00 Cr. in between the
period 2012 – 2016.
Total capital employed has increased from Rs. 15284.00 to Rs.27129.5. in
between the period 2012 – 2016.
Capital Gearing ratio for the year 2012-2013 was 0.14
Capital Gearing ratio for the year 2013-2014 was 0.15
Capital Gearing ratio for the year 2014-2015 was 0.17
Capital Gearing ratio for the year 2012-2013 was 0.20
Capital Gearing ratio for the year 2012-2013 was 0.24
Interpretation
From the above table we can see that the percentage of the Capital Gearing ratio
has been varying from 0.14 to 0.24 over the 5 years 2012 – 2016 which indicates
that the company is highly geared i.e. lower proportion of equity as compared to
fixed cost bearing capital.
The fixed asset turnover ratio is an efficiency ratio that measures a company’s
return on their investment in property, plant, and equipment by comparing net
sales with fixed assets. In other words, it calculates how efficiently a company is
a producing sales with its machines and equipment.
Fixed
8132.10 11740.10 13411.80 14142.10 13774.70
assets
Long term 15284.00 19372.1 21667.00 23954.4 27129.5
Funds
Fixed
Asset 0.53 0.61 0.62 0.59 0.51
Ratio
Analysis
From the above table, it is observed that the:
Fixed Assets has increased from Rs. 8132.10 Cr. to Rs.13774.70 Cr. in
between the period 2012 – 2016.
Long term funds has increased from Rs. 15284.00 to Rs.27129.5. in
between the period 2012 – 2016.
Fixed Asset ratio for the year 2012-2013 was 0.53
Fixed Asset ratio for the year 2013-2014 was 0.61
Fixed Asset ratio for the year 2014-2015 was 0.62
Fixed Asset ratio for the year 2012-2013 was 0.59
Fixed Asset ratio for the year 2012-2013 was 0.51
Interpretation
From the above table we can see that the percentage of the fixed assets ratio has
been varying from 0.51 to 0.62 over the 5 years 2012 – 2016 which indicates
that assets are being utilized efficiently and large amount of sales are generated
using a small amount of assets. It is also an indicative of greater efficiency in
managing fixed-asset investments.
Creditors and investors use this computation to understand the profitability and
risk of a company. For instance, an investor is mainly concerned about seeing
his investment in the company increase in value. A large part of this
appreciation is based on profits and operational efficiencies. Thus, investors
want to see that their company can pay its bills on time without having to
sacrifice its operations and profits.
Earnings before interest and taxes is essentially net income with the interest and
tax expenses added back in. The reason we use EBIT instead of net income in
the calculation is because we want a true representation of how much the
company can afford to pay in interest. If we used net income, the calculation
would be screwed because interest expense would be counted twice and tax
expense would change based on the interest being deducted. To avoid this
problem, we just use the earnings or revenues before interest and taxes are paid.
INTEREST COVERAGE RATIO
Earnings
before
2146.20 2991.00 3658.50 4868.20 6535.00
Interest
and tax
Interest 55.20 189.80 175.90 206.00 81.50
charges
Interest
coverage 38.88 15.75 20.80 23.63 80.18
ratio
Analysis
From the above table, it is observed that the:
EBIT has increased from Rs.2146.20 Cr. to Rs. 6535.00 Cr. in between
the period 2012 – 2016.
Interest Charges has increased from Rs. 55.20 Cr. to Rs. 81.50 Cr. in
between the period 2012 – 2016.
Interest Coverage ratio for the year 2012-2013 was 38.88
Interest Coverage ratio for the year 2013-2014 was 15.75
Interest Coverage ratio for the year 2014-2015 was 20.80
Interest Coverage ratio for the year 2012-2013 was 23.63
Interest Coverage ratio for the year 2012-2013 was 80.18
Interpretation
From the above table we can see that the percentage of the Interest Coverage
ratio has been varying from 15.75 to 80.18 over the 5 years 2012 – 2016
which indicates that coverage measurement is above 1, it means that the
company is making more than enough money to pay its interest obligations
with some extra earnings left over to make the principle payments.