Ratio analysis of maruti suzuzki india ltd

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Information about Ratio analysis of maruti suzuzki india ltd

Published on November 6, 2016

Author: ravneetubs

Source: slideshare.net

1.  Return On investment (ROI)-Strategic aim of business is to earn a return on capital. If return is not satisfactory, the deficiency should be corrected or the activity be abandoned.  ROI=Profit after tax/Net worth  ROI=37,906/329,970= 11.5 %

2.  It helps in assessment of profitability of each proposal. It indicates how effectively operating assets are used in earning returns . In 2014-15,ROI is 11.5%.Thus it reveals that investment activities of the firm have more profitable returns.

3.  DEBT-EQUITY RATIO -This indicates the relationship between net worth of the company and loan funds. A debt equity ratio of 2:1 is accepted by financial institutions for financing projects.  Debt to equity = Total debt / Total equity  In 2014, Debt to equity ratio = 243/2,43,184 =0.01 Interpretation - A low debt equity ratio reflects more security. A high ratio, on the other hand, is considered risky as it may put the firm into difficulty in meeting its obligations to outsiders. However, from the perspective of the owners, greater use of debt (trading on equity) may help in ensuring higher returns for them if the rate of earnings on capital employed is higher than the rate of interest payable.

4.  FIXED ASSET RATIO -This ratio indicates the amount of long term funds deployed in fixed assets. Fixed assets represent the net assets. Long term funds include share capital, reserves and surplus and long term loans.  FIXED ASSET RATIO -Fixed Asset/Long term funds  =40708/100438  =0.40.  Interpretation-the ratio is higher so it shows that funds will be safer at the time of liquidation.

5.  INTEREST COVERAGE RATIO -The interest coverage ratio shows how many times interest charged is covered by funds that are available for payment of interest. It shows how many times company can cover its current interest payments out of current profits.  INTEREST COVERAGE RATIO = EBIT/Interest  =49,760/2098 = 23.71

6.  CURRENT RATIO -This ratio measures the solvency of the company in the short term. Current assets are those assets which can be converted into cash within a year. Current liabilities are those liabilities which can be paid off within a year. This ratio measures the short term solvency of the firm. It states the number of times a company's CL are covered by its CA. The satisfactory Current Ratio is 2:1.  Current ratio = Current assets / Current liabilities = 86,964/89,824 =.968

7.  QUICK RATIO - It is the ratio that Is used to Measure Company’s ability to meet its current obligations. A quick ratio of 1:1 indicates highly solvent position. This ratio serves as a supplement to current ratio in analysing liquidity.  Quick ratio = (Current assets – Inventories) / Current liabilities =60,220/89,824 = .67 INTERPRETATION-A company with low quick ratio may have fast moving inventories. The analyst, therefore, must have a hard look on the nature of individual assets.

8. •Inventory Turnover Ratio studies the frequency of conversion of inventory of finished goods into revenue from operations. It is also a measure of liquidity. It determines how many times inventory is purchased or replaced during a year. Low turnover of inventory may be due to bad buying, obsolete inventory, etc., and is a danger signal. High turnover is good but it must be carefully interpreted as it may be due to buying in small lots or selling quickly at low margin to realize cash. Thus, it throws light on utilization of inventory of goods

9.  The liquidity position of the firm depends upon the speed with which trade receivables are realized. This ratio indicates the number of times the receivables are turned over and converted into cash in an accounting period. Higher turnover means speedy collection from trade receivable.  TP Turnover RatioTP Treveals average payment period. Lower ratio means credit allowed by the supplier is for a long period or it may reflect delayed payment to suppliers which is not a very good policy as it may affect the reputation of the business

10.  GROSS PROFIT MARGIN - This ratio measures the gross profit margin on the total net sales made by the company. It represents the excess of sales proceeds during the year under observation over their cost, before taking into account administration, selling and distribution cost. It measures the efficiency of the firm’s operations.  GROSS PROFIT MARGIN=(Gross Profit * 100)/Revenue From Operations  =48,682 /4,86,055 = .1 The higher this Ratios is, the Better it is.

11.  NET PROFIT MARGIN - This ratio is designed to focus attention on the net profit margin arising from business operations before interest and tax is deducted. This ratio measures the efficiency of operations of the company.  NET PROFIT MARGIN =Profit After Tax/Sales =12187/203583 =5.98 Operating Ratio- It is computed to analyze cost of operation in relation to revenue from operations. Operating expenses include office expenses, administrative expenses, selling expenses, distribution expenses, depreciation and employee benefit expenses etc. Cost of operation is determined by excluding non-operating incomes and expenses such as loss on sale of assets, interest paid, dividend received, loss by fire, speculation gain and so on. Operating Ratio: [(Cost Of Operations + Operating Expenses) * 100 ] / Revenue From Operations = 92.91% Lower this Ratio, Better it is.

12.  Operating Profit Ratio: (Operating Profit * 100) / Revenue From Operations. It is calculated to reveal operating margin. It may be computed directly or as a residual of operating ratio. = 8.76%  It is very useful for inter-firm as well as intra- firm comparisons. Higher the Ratio, better it is.

13. A system of Management Control Designed by an American Company named DU Point Company is popularly called Du Point Control Chart. This system uses the ratio inter relationship to provide charts for managerial attention. The standard Ratios of the Company are Compared to present Ratios and Changes in performance are judged. We can see that as compared to the previous Ratios all the Ratios have shown a positive change.

14.  EARNING PER SHARE- The Earning per Share measures the overall profitability in terms of per equity share of capital contributed.  EPS= Earnings available /No of shares =Rs.92.13 This ratio is very important from equity shareholders point of view and also for the share price in the stock market. This also helps comparison with other to ascertain its reasonableness and capacity to pay dividend.

15.  Book Value Per Share: (Equity Shareholders Funds/ No. of Equity Shareholders) =694.45 It gives an idea about the value of their holding and affects market price of the shares. This ratio is again very important from equity shareholders point of view as it gives an idea about the value of their holding and affects market price of the shares.  Price Earning Ratio: (MPS/EPS) =21.40 It reflects investors expectation about the growth in the firm’s earnings and reasonableness of the market price of its shares. P/E Ratio vary from industry to industry and company to company in the same industry depending upon investors perception of their future.

16. 1. Equity Shareholder -An Equity shareholder would like to keep his money in the company if the Price to Earnings Ratio, Return on Equity Ratio and the Dividend Yield ratios are higher. 2. Prospective Investor- An Prospective Investor would like to invest in the company if the Price to Earnings Ratio, Return on Equity Ratio and the Dividend Yield ratios are higher. Also, he would like to keep in mind the Current Ratio and Quick Ration to have an overall view of the company. 3. Promoters and Management -The Promoters and Management would like to keep a close view on the financial health of the company by mainly looking at the Profitability Ratios like Return on Assets and Profit Margin. Also, they keep in mind the Debt-to- Equity ratio which should be fairly maintained.

17. 4. Employee - An Employee is a stake holder of the company who is directly affected by the Profits of the company. So, an employee would be interested in knowing the Profitability ratios of the firm. 5. Supplier- A Supplier’s main interest would be to obtain his payments timely from the company. So his main interest would be interest would be to know the Liquidity Ratios of the firm like Quick Ratio and Current Ratio. 6. Lenders- The Lenders would be interested in getting timely interest from the company and having an assurance that their money is in safe hands. They would be interested in the Profitability, Liquidity and Efficiency ratios.  7. Customers-The Customers are not as such directly affected by any of the Ratios, but a good overall performance of the company gives them an assurance that the company is doing well and they are buying the product of a reputed company. They might be interested in the Liquidity Ratios.  8. Tax Collector- A Tax collector would primarily be concerned about the ratios related to taxes such as the Gross Profit % of sales and Net Profit % of sales ratios.

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