Ratio Analysis

By: kaushik.V.T
Girish Naidu.J
Surovi S.G

Current ratio
The ratio between all current assets and all current liabilities; another way of expressing
liquidity.
It is a measure of the firms short-term solvency.
It indicates the availability of current assets in rupees for every one rupee of current
liability.
A ratio of greater than one means that the firm has more current assets than current
claims against them.
Current Assets
Sl.no

Current ratio = ----------------------------------------Current

Current
Current
Year
Liabilities
Assets Current
Liabilities
Ratio

1.

2006-07

1,612,642,49
7

638,958,266

2.52

Profitability Ratio

A company

should earn profits to survive and grow over a long period of time.

Profit

is the difference between revenues and expenses over a period of time.

Profit

is the ultimate 'output' of a company and it will have no future if it fails to make sufficient profits.

The

profitability ratios are calculated to measure the operating efficiency of company

Generally, two

major types of profitability ratios are calculated:

Profitability in relation to sales

Profitability in relation to investment
Profitability Ratios can be further divided into

Gross

profit ratio

Operating

Net

profit ratio

profit ratio

Profitability Ratio B/S

Gross Profit Ratio

First profitability ratio in relation to sales is the gross profit margin the gross profit margin reflects.
This ratio shows the margin left after meeting manufacturing costs. It measures the efficiency of production

as well as pricing. To analyze the factors underlying the variation in gross profit margin, the proportion of
various elements of cost (Labor, materials and manufacturing overheads) to sale may studied in detail.

Gross profit
Gross profit ratio =-------------------x 100
Net sales
S.NO

Year

GROSS
PROFIT

SALES

2,685,436,0
456,886,268
96
200607

G.P. RATIO (%)

17

Operating profit ratio

This ratio expresses the relationship between operating profit and sales. It is worked out by dividing operating profit by net
sales. With the help of this ratio, one can judge the managerial efficiency which may not be reflected in the net profit ratio.

Operating profit
Operating profit ratio = --------------------------Net sales

x 100

Operating profit ratio B/S

Net profit ratio

Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit.
This ratio also indicates the firm's capacity to withstand adverse economic conditions. A firm with a high net margin ratio

would be in an advantageous position to survive in the face of falling selling prices, rising costs of production or declining
demand for product
This ratio shows the earning left for share holders as a percentage of net sales.

Net Profit
Net Profit Ratio= --------------------------x 100
Net sales

S.NO

YEAR

PROFIT
AFTER

SALES

NET PROFIT

2006-07

86,900,563

2,685,436,0
96

3.2

Turnover ratio
Turnover ratios also referred to as activity ratios or asset management ratios, measure how efficiently the assets are

employed by a firm.
The improvement turnover ratios are inventory turnover, average collection period, receivable turn over, fixed assets

turnover and total assets turnover.

Activity ratios are divided into two types:
Fixed assets turnover ratio
Stock turnover ratio

TURNOVER RATIO

Fixed asset turnover ratio

The firm may which to know its efficiency of utilizing fixed assets and current assets separately. The use of depreciated

value of fixed assets in computing the fixed assets turnover may render comparison of firm's performance over period or
with other firms.
The ratio is supposed to measure the efficiency with which fixed assets employed a high ratio indicates a high degree of

efficiency in asset utilization and a low ratio reflects inefficient use of assets.

Net sales
Fixed asset turnover ratio = ------------------------- x 100
Fixed assets
S.N
o

YEAR

SALES

NET FIXED
ASSETS

F.A.T
RATIO

2006-07

2,685,436,096

948,631,374

2.83

Stock turnover ratio

Stock turnover ratio indicates the efficiency of firm in producing and selling its product. It is calculated by dividing the cost of goods sold by

the average stock.

It measures how fast the inventory is moving through the firm and generating sales.
The stock turnover ratio reflects the efficiency of inventory management. The higher the ratio, the more efficient the management of

inventories and vice versa .However, this may not always be true. A high inventory turnover may be caused by a low level of inventory which
may result if frequent stock outs and loss of sales and customer goodwill.

Cost of goods sold

Stock turnover ratio = -----------------------------Average stock

Opening stock + Closing stock

Average stock = -------------------------------------------2

Stock turnover ratio B/S

Debt
Ratio
If the firm may be Interested in knowing the proportion of the interest bearing debt in the capital
structure.

Total Debt
Debt ratio = ----------------------------------------Total Debt + Net Worth

S.No

YEAR

TOTAL
DEBT

TOTAL DEBT+NET
WORTH

DEBT RATIO

1.

2006-07

233,058,880

2,039,907,551

0.11

Creditors turnover ratio

The ratio obtained by dividing the annual credit purchases with average accounts payable
Purchases
Creditors = ----------------------------------Avg Creditors

S.No

YEAR

PURCHAS
ES

AVERAGE
CREDITORS

C.T. RATIO

200607

422,358,58
5

192,242,196

7.4

Operating expenses ratio

This ratio Explai ns the change in the profit margin ratio. A

higher operating expense is unfavourable since it will leave

a small amount of operating income to meet interest,
dividends.
operating expenses X 100
Operating expenses ratio =
_______________________
sales
OPERATING
EXPENSES

SALES

OPERATING
EXPENSES
RATIO

376,620,609

2,685,436,09 14.02
6

Return on equity share holders fund

The return on equity share holders fund explains about the return of

share holders with they get on their investment.

Net Profit
Return on equity share holders fund=
__________________
Equity Share holders fund
PROFIT AFTER NET WORTH
TAX

86,900,563

R.O.E
.RATIO(%)

1,806,848,67 4.8
1

Fixed Asset turnover ratio

The ratio is supposed to measure the efficiency with which

fixed assets are employed a high ratio indicates a high

degree of efficiency in asset uilization and low ratio reflects
inefficient use of assets.
Net Sales
Fixed Asset Turnover ratio= ______________
Net Fixed Asset

sales

Net fixed
assets

2,685,436,09 948,631,374
6

Fixed asset
turn over
ratio
2.83

Return on investment Ratio

The conventional approach of calculated ROI is to divide

PAT by investment.
EBIT
RETURN ON INVESTMENT
EMPLOYED

= _______________________
CAPITAL

EBIT

CAPITAL
EMPLOYED

RETURN ON
INVESTMENT

137,257,583

2,170,834,86 0.06
6