FINANCIAL RATIOS OF MARUTI SUZUKI (PAST 5 YRS) A. Profitability ratio 1.

Gross Profit Ratio:

Meaning:

It is expresses relationship between Gross Profit earned to net sales. It is a significant indicator of the profitability of business. It expresses in percent. For example, a ratio shows that for a sale of every Rs. 1000 a margin of 250 rupees is available from which operating expenses of business are recovered. The ratio shows whether the mark up obtained on cost of production is sufficient or not. There is no calibration against reasonability of gross profit ratio. However it must be enough to cover its operating expenses. In many industries, there are more or less recognized gross profit ratios and the business should strive to maintain this standard.

If this ratio is low, it indicates that the cost of sales is high or that the purchasing is inefficient. Alternatively, it may also mean that due to depression, the selling price is reduced but there are may be no corresponding reduction, the selling price is reduced but there may be no corresponding reduction in cost of sales. In such a case, the management must investigate the causes and try to bring up this ratio.
Implementation:

Gross profit is result of the relation between price, sales volume and costs. A change in the gross margin can be brought about by changes in any of these factors. The gross profit ratio can also be used in determining the extent of loss caused by theft, spoilage, damage and so on in the case of those firms which follow the policy of fixed gross profit margin in pricing their product. The gross margin represents the limit beyond which fall in sales price are outside the tolerance limit.

Formula:

(gross profit/sales) * 100

FOR GROSS PROFIT RATIO Particulars Gross Profit (EBDT) (In x10M Rs) Net Sales (In x10M Rs) Gross Profit Ratio 2010 2009 2008 2007 2006 3,063.10 2061.70 2,41

2417.30 4453.10 29317.70 15.18 20729.40 11.66

2,556.60 3063.10 2556.60 18066.80 16.95 14806.80 17.26

12197.90 16.91

Gross Profit Ratio

15.18

16.95 11.66

17.26

16.91

2010

2009

2008

2007

2006

INTERPRETATION:

Here from the table we can judge the financial position of Maruti Suzuki year wise. Here 5 consecutive years from 2006 to 2010 are taken into consideration. The changes in the gross profit ratio in percent are as follows. Here, negative sign indicates that the percent is decreased compare to immediate previous year, while positive sign indicates that the percent is decreased in the gross profit compare to immediate previous year. From the previous year the gross profit ratio is positive. It indicates better financial position of the company.

2. Net Profit Ratio:

Meaning:

Net profit ratio is valuable for the purpose of ascertaining the over-all profitability of business and shows the efficiency of operating the business.

The net profit ratio is indicative of managements ability to operate the business with sufficient success not only to recover from revenue of the period the cost of merchandise or services, the expenses of operating the business and the cost of the borrowed funds, but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. The ratio of net profit ratio to sales essentially expresses the cost price effectiveness of the operation. A high net profit margin would ensure adequate return to the owners as well as enable a firm to withstand adverse economic conditions when selling price is declaiming, cost of production raising and a low net profit margin has the opposite implication. It indicates the portion of sales
revenue is left to the proprietors after all operating expenses are paid.The higher the ratio, the better will be the profitability. In order to have a better idea of profitability, the gross profit ratio and net profit ratio may be simultaneously considered. If the gross profitability increases over the five years but net profit is declining, it indicates that administrative expenses are slowly rising.

Formula:

(net profit/sales) * 100

FOR NET PROFIT RATIO Particulars Net Profit (In x10M Rs) Net Sales (In x10M Rs) Net Profit Ratio 2010 2497.60 2009 1218.70 2008 1730.80 2007 1562.00 2006 1189.10

29317.70 8.34

20729.40 5.72

18066.80 9.34

14806.80 10.29

12197.90 9.53

Net Profit Ratio

8.34

5.72

9.34

10.29

9.53

2010

2009

2008

2007

2006

INTERPRETATION:

Higher the net profit ratio shows better financial position of the company.Due to various reasons this ratio goes down. If the administration department is not sufficient then net profit ratio goes down or the control mechanism is not efficient at all check points then also it affects net profit of the company. Net profit is the profit that is available to the proprietors of the firm after clearing all outstanding and expenses. Thus, higher the ratio yields higher profit.

3. Return on Equity share capital:

Meaning:

It is obtained by dividing net profit after tax deduction of performance dividing by his amount of ordinary share capital plus free reserve.

This is probably the single most important ratio to judge whether the firm has earned a satisfactory return for its equity holders or not.Its adequacy can be judge by: (1) comparing it with the past record of the same form, (2) comparisons with the overall industry average.

Formula ((net profit after tax preference dividend)/equity capital) * 100

FOR RETURN ON EQUITY SHARE CAPITAL Particulars Net Profit (In x10M Rs) Preference Dividend (In Rs) Share Capital (In x10M Rs) Return on Equity Share Capital (In Rs) 2010 2497.60 2009 1218.70 2008 1730.80 2007 1562.00 2006 1189.10

144.5

144.5

144.5

144.5

144.5

13.04 21.10

20.56

22.79

21.81

Return on Equity Share Capital (In Rs)

21.1

13.04

20.56

22.79

21.81

2010

2009

2008

2007

2006

INTERPRETATION:

The ratio indicates relationship between Net profits to share holders fund therefore higher the returns to shareholders. For the year 2004 05 it is 19.49 % that increase in the year 2005 06 up to 21.81 %.This ratio shows downward trend in the ratio in return on shareholders fund for this company.

For the financial year 2009-10 there is 85% increase in the ratio in return on shareholders fund. Here, year 2009-10 shows marked improvement that is why it is taken into consideration.

4. Earnings per share:

Meaning:

EPS measures the profit available to the equity shareholders on a per share basis, that is, the amount that they can get on every share head.This ratio shows the profitability of the firm from the owners point of view. By comparing EPS of the current year with past years the path of the trend of profitability can be ascertained.It is essential that EPS of the company should be compared with the other companies and also average of the company before giving final opinion.The limitation of EPS is that it does not show how much dividend is actually paid to shareholders and how much profit is retained in business. EPS s a measure of profitability

Formula ((profit after tax preference dividend))* 100

FOR RETURN ON EARNING PER SHARE Particulars Net Profit (In x10M Rs) No. of Equity Shares Preference Dividend (In Rs) Return on Investment ( In Rs) 2010 2497.60 2009 1218.70 2008 1730.80 2007 1562.00 2889100 60 0 2006 1189.10 2889100 60 0

28891006 2889100 2889100 0 60 60 0 0 0

86.45

42.18

59.91

54.07

41.16

Return on Investment ( In Rs) 86.45 42.18 59.91 54.07 41.16

2010

2009

2008

2007

2006

INTERPRETATION: This ratio indicates the earning per share for shareholders of company. In the year 2006 07 ratio is 41.16 % and 2007 08 it is 59.91 % and its increase on 2009-10 is 86.45 %. Therefore it is good for company as well as shareholders.

5. Price earnings ratio:

Meaning:

It is closely related to the earning yield leanings price ratio. It is actually the reciprocal of the latter. Thus ratio is computed by dividing the market price of the shares by the EPS. The price earning ratio reflects the price currently being paid by the market for each Rupee of currently reported EPS. In other words, the PIE ratio measures investors expectations and the market appraisal of the earnings. Therefore, only normally sustainable earning associated with the assets are taken into account.

Formula:

(market value / EPS)

FOR PRICE EARNING RATIO Particulars Market Value of Share (In Rs) Earning Per Share (In Rs) Price Earning Ratio 2010 1435.9 86.45 16.6 2009 788.76 42.18 18.7 2008 844.731 59.91 14.1 2007 832.678 54.07 15.4 2006 884.94 41.16 21.5

Price Earning Ratio

16.6

18.7

14.1

15.4

21.5

2010

2009

2008

2007

2006

INTERPRETATION:

This ratio indicates the earning per share for shareholders of company. In the year 2006 07 ratio is 21.5% and 2007 08 it is 15.4% and its decreasing.Therefore it is not good for company as well as shareholders.

B. Activity / Turnover Ratio: Overall turnover ratio:

Meaning:

The amount invested in business is invested in all capital employed and sales are affected through them to earn profits so in order to find relation between net sales to capital employed.
Implementation:

The usefulness of this analysis lies in the fact that it presents the overall picture of the performance of a firm as also enables the management to identify the factors which have a bearing on profitability.

Formula: net sales / capital employed

FOR OVERALL TURNOVER RATIO Particulars Net Sales (In x10M Rs) Capital Employed ( Share capital + Reserves and surplus) (In x10M Rs) OVERALL TURNOVER RATIO 2010 29317.7 2009 20729.4 2008 18066.80 2007 14806.80 2006 12197.90

9344.9 11835.1

8415.4

6853.9

5452.6

2.32

2.06

1.94

1.98

2.21

OVERALL TURNOVER RATIO

2.32 2.06 1.94 1.98

2.21

2010

2009

2008

2007

2006

INTERPRETATION:

This ratio indicates net sales to capital employed. In the year 2006 07 ratio is 2.21 and 2007 08 it is 1.98 and its decrease on 1.94 in the year 2008 09. Therefore it is bad for company.In the year 2008-09 the ratio is 1.94 while in the year 2007-08 the ratio is decreased to 1.98 which shows slowdown in the company.

7. Fixed assets Turnover ratio:

Meaning:

It is based on the relationship between the sales and assets of the firm. A reference to this was made while working out the overall profitability of a form as reflected in its earning power.

Implementation:

To ascertain efficiency and profitability of the business. The higher the turnover ratio, the more efficiency is the management and utilization of the assets while low turnover ratios are indicative of underutilization of available resources.

Formula: sales / Fixed assets

FOR FIXED ASSETS TURNOVER RATIO Particulars Net Sales (In x10M Rs) Total Fixed Asset (In x10M Rs) Fixed Asset Turnover Ratio 2010 29317.7 12656.5 2009 20729.4 10043.8 0 2.38 2008 18066.80 9315.60 2007 14806.80 7484.70 2006 12197.90 5524.30

2.82

2.48

6.32

6.59

Fixed Asset Turnover Ratio

6.32 2.82 2.38 2.48

6.59

2010

2009

2008

2007

2006

INTERPRETATION:

Fixed turnover ratio indicates the turnover of the company in one year.The ratios are decreasing tremendously which shows that the company is in bad shape.In the year 2008-09 there is decrease of 7% in the fixed turnover ratio compare to last year while during year 2007-08 there is very minor change in the ratio. Year 2007-08 and 2006-07 shows almost similar financial position of the company while year 2008-09 shows slight slowdown in the financial position of the company

C. LIQUIDITY RATIO Current Ratio:

Meaning:

The current ratio is the ratio of total current assets to total current liability. It is calculated by dividing current assets by current liability.It is also known as a working capital ratio, as it is measure of working capital available at a particular time. It is a measure of short term financial strength of the business and shows whether the business will be able to meet its current liabilities, as and when they mature.

Implementation:

The current ratio of a firm measures its short term solvency. That is a measure of margin of safety to the creditors. The fact that a firm can rarely count on such an even flow requires that the size of the C.A. should be sufficiently larger than C.L. so that the firm would be assured of being able to pay its current maturing debts as and when it becomes due.

Formula:CA/CL
FOR CURRENT RATIO Particulars Total Current Assets (In x10M Rs) Total Current Liabilities (In x10M Rs) Current Ratio 2010 2009 2008 2007 2006

3856

5570

3190.5

3956

3870.70

3631.60 3788.40 1.02 1.53

3088.40

2779.10

2184.80

1.03

1.4

1.77

Current Ratio 1.77

1.53 1.02 1.03

1.4

2010

2009

2008

2007

2006

INTERPRETATION:

Current ratio indicates current assets to current liability. In the year 2005 06 ratio is 1.77: 1 and 2006 07 it is 1.4: 1 and its decrease on 1.03: 1 in the year 2007 08. Therefore, it is good for company. For the year 2008-09 the ratio is 1.53:1. So for the year 2008-09 it is good as ideal is 2:1 and 1.53:1 is closer to ideal one. But at present its facing problem in maintaining the ratio.Mainly 2: 1 is good. It indicates, repaying condition of the company to the current liabilities. The standard current ratio must be 2:1.

Liquid Ratio/ Cash ratio:

Meaning:

It is obtained by dividing the liquid assets by liquid liabilities.It liquid ratio is designed to show the amount of cash available to meet immediate payments.If the liquid assets are equal to or more than liquid liabilities, the condition may be considered as satisfactory.

Implementation:

The importance of adequate liquidity in the sense of the ability of a firm to meet short term obligations when they become due for payment can hardly be overstressed.In fact liquidity is a prerequisite for the very survival of a firm. It measures ability of a firm to meet its short term obligations and reflect the short term finance strength of a firm.

Formula: Liquid Assets / liquid liabilities

FOR LIQUIDITY RATIO Particulars Total Current Assets (In x10M Rs) Inventories (In x10M Rs) Prepaid Expenses (In x10M Rs) Quick Asset (In x10M Rs) Total Current Liabilities (In x10M Rs) Bank Over Draff (In x10M Rs) Liquidity Ratio 2010 2009 2008 2007 2006

5570 3856 1208.80 902.3

3190.5

3956

3870.70

1038

713.20

881.2

2647.2

4667.7

2152.5

3242.8

2989.5

3788.40

3631.60

3088.40

2779.10

2184.80

0 0.68

0 1.26

0 0.66

0 1.13

0 1.31

Liquidity Ratio

1.26 0.68 0.66

1.13

1.31

2010

2009

2008

2007

2006

INTERPRETATION:

Liquid ratio indicates liquid assets to liquid liability. In the year 2005 06 it is 1.31: 1 and its decrease on 1.13: 1 in the year 2006 07. Therefore, it is good for company. How effectively the liability paid off. For the year 2009-10 the ratio is 1.26:1 which shows slight better condition compare to FY 2005-06.The standard liquidation must be 1:1.

Quick / acid test ratio:

Meaning:

The measure of absolute liquidity may be obtain by comparing only cash and bank balance as well as readily marketable securities with liquid liabilities.This is exacting standard of liquidity and it is satisfactory if the ratio is 0.5:1. Quick assets here do not include both stock and debtors, because payment from debtors would not generally be received immediately when liquid liabilities are to be paid.
Implementation:

This ratio is the most rigorous and conservative test of a firms liquidity position. Further, it is suggested that it would be useful for the management.

Formula: Quick Assets / Liquid liabilities

FOR QUICK ACID TEST RATIO Particulars Quick Assets (In x10M Rs) Current Liability (In x10M Rs) Quick Acid Test Ratio 2010 2647.2 3788.40 0.68 2009 4667.7 3631.60 1.26 2008 2152.5 3088.40 0.66 2007 3242.8 2779.10 1.13 2006 2989.5 2184.80 1.31

Quick Acid Test Ratio

1.26 0.68 0.66

1.13

1.31

2010

2009

2008

2007

2006

INTERPRETATION:

Quick acid test ratio is indicates quick assets and liquid liability. In the year 2005 06 ratio is 1.31: 1 and 2006 07 it is 1.13: 1 and its decrease on 0.66: 1 in the year 2009 10. Therefore, it is good for company.

D. LEVERAGE RATIO Proprietary ratio/Debt-ASSET ratio:

Meaning: The ratio shows the proportion of proprietors funds to the total assets employed in known in the proprietary ratio.

Proprietary ratio helps to known how many proprietary funds to total assets.The higher the ratio, the stronger the financial position of the enterprise, as it signifies that the proprietors have provided larger funds to purchase assets. This ratio cannot exceed 100%; it means that the business does not use any outside funds. There are no outside liabilities. Purchases are made for cash only and firm carries business entirely from own funs only. A very high ratio therefore is not desired as it shows insufficient use of out side fund is made. Generally it is said that proprietors fund should be enough to cover fixed assets. And also reasonable proportion must be maintained between owned funds and borrowed funds, so the benefit of trading on equity is obtained. Which insure increase the rate of equity dividend.

Formula: net worth / total asset

FOR PROPRIETARY RATIO Particulars Total Proprietary Funds or Net worth (In x10M Rs) Total Assets (In x10M Rs) Proprietary Ratio 2010 2009 2008 2007 2006

11835.10

9344.9

8415.4

6853.9

5452.6

12656.5 93.51005 412

10043.8 93.041478 32

9315.60 90.3366 3962

7484.70 91.57214 05

5524.3

98.702098

Proprietary Ratio 98.71 93.51 93.042 90.34 91.57

2010

2009

2008

2007

2006

INTERPRETATION: This ratio indicates the proprietary funds to total assets. For the year 2006 07 it is 91.57 % and 2007 08 is 90.33 % and increase in 2008 09 it is 93.04 %. This is a good for company.

Debt equity ratio:

Meaning:

The relationship between borrowed funds and owners capital is a popular measure of the long term financial solvency of a firm. This relationship is shown by the debt equity ratio.
This ratio reflects the relative claims of creditors and shareholders against the assets of the firm. Alternatively this ratio indicates the relative proportions of debts and equity in financing the assets of a firm.The D/E ratio is an important tool of financial analysis to appraise the financial structure of a firm. It has important implication from view point of the creditors, owners and the firm itself. A higher ratio means that outside creditors have a larger claim than the owners of business. The pressure from creditors would increase and their interference will also increase. The company with high debt position will have to accept strict conditions from the lenders, while borrowing money. A lower ratio is not profitable from the view point of equity share holders, as benefit of trading on equity is not availed of and the rate of equity dividend will be comparatively lower.

Formula :- Debt / equity

FOR DEBT EQUITY RATIO Particulars Long term Liabilities (In x10M Rs) Total Shareholders Funds (In x10M Rs) Debt-Equity Ratio 2010 2009 2008 2007 2006

828.457

841.041

841.54

411.234

218.104

11835.10

9344.9

8415.4

6853.9

5452.6

0.07

0.07

0.11

0.09

0.01

Debt-Equity Ratio

0.07

0.07

0.11

0.09 0.01

2010

2009

2008

2007

2006

INTERPRETATION:

This ratio indicates the debt to equity ratio. For the year 2006 07 it is 9 %and 2007 08 is 11 % and decrease in 2008 09 it is 7%.This is a bad for company as compare to 2005-06 year is more debt ratio which indicate the more realize on debt fund rather owned fund. The good impact is interest burden will be more indirectly.For the year 2008-09 and 2007-08 the debt equity ratio is 7% and 11% respectively. As the higher debt equity ratio it shows the weaker financial condition of the company. But, still it again varies for company to company.