PARAMETER LIQUIDITY RATIOS Current Ratio Current Ratio= Current asset/ Current liabilities Current assets for the year 2013-14 is Rs. 959.57 (in crores) A current liability for the year 2013-14 is Rs. 634.44 (in crore) Current ratio for the year 2013-14 is 1.34. It has increased from 0.87 to 1.34. Quick or acid test or liquid ratio Quick ratio= liquid assets/ all current liabilities-BOD Liquid assets for the year 2013-14 is 418.74 crores Current liabilities including BOD is 634.44 crores Therefore, quick ratio= 0.66:1. Last year it was 0.42:1. Significance of liquidity ratios. Liquidity generally means the ability of the firm to meet its current liabilities. When a company wants a short term loans from banks or creditors, the banks and creditors …show more content…
These ratios measure the aspects of profitability like rate of profit on sales, whether the profits are increasing or decreasing. Some of the other financial ratios of Tata global beverages for the year 2014 and 2013 are as follows: Particulars March 2014 March 2013 Cash profit margin 10.15% 10.54% Net profit margin 15.58% 10.6% Inventory turnover ratio 4.2 3.57 Interest cover 11.54 10.57 Return on long term funds 15.63 14.45 Total debt to owners fund 0.18 0.08 FINANCIAL SUMMARY OF MARCH 2012 PROFIT AND LOSS STATEMENT Rs. in lakhs INCOME Rs. Revenue from operations 33884.40 Other income 79.02 Total revenue 33963.42 EXPENSES Cost of materials consumed 14932.32 Purchase of trading goods 9321.20 Change in inventories of finished goods (111.74) Employee benefit expense 2018.90 Finance costs 168.24 Depreciation expenses 157.63 Other expenses 7285.98 Total expenses 33772.53 Profit before exceptional 190.89 Exceptional items (net) 416.51 Profit before tax 607.40 Provision for taxation 19.20 Profit after taxation 588.20 BALANCE SHEET EQUITY AND LIABILITIES Rs. in
Net working capital represents organization’s operating liquidity. In order to compute the net working capital, total current assets are divided from total current liabilities. When there is sufficient excess of current assets over current liabilities, an organization might be considered sufficiently liquid. Another ratio that helps in assessing the operating liquidity of as company is a current ratio. The ratio is calculated by dividing the total current assets over total current liabilities. When the current ratio is high, the organization has enough of current assets to pay for the liabilities. Yet, another mean of calculating the organization’s debt-paying ability is the debt ratio. To calculate the ratio, total liabilities are divided by total assets. The computation gives information on what proportion of organization’s assets is financed by a debt, and what is the entity’s ability to pay for current and long term liabilities. Lower debt ratio is better, because the low liabilities require low debt payments. To be able to lend money, an organization’s current ratio has to fall above a certain level, also the debt ratio cannot rise above a certain threshold. Otherwise, the entity will not be able to lend money or will have to pay high penalties. The following steps can be undertaken by a company to keep the debt ratio within normal
The return on sales is the key profitability ratio. This ratio tells the analyst what proportion of the revenues ...
From the table 3 it is indicated that the current ratio of British Petroleum is higher than one both in the recent financial statements i.e. of 2014 and in the financial statement of previous year i.e. of 2013. In 2013 the current ratio of British Petroleum is 1.33 which indicates that the company has sufficient current assets to satisfy it short term liabilities. However, the current ratio in 2014 is 1.37 (BP Global, 2014) indicating increase and depicting that is in position to satisfy its short term debts. Thus this indicates the strength of company in satisfying its debt.
Current Ratio – For the last three years was growing from 3.56 in 2001 to 3.81 in 2002 to 4.22 in 2003. The reason of grow is increased in Assets. Even though Liability was growing, Asset grow was more significant.
The current ratio equals current assets divided by current liabilities. Although Redcorp’s 2015 ratio of 1.57 is a slight decline from its previous two years, a ratio “generally between 1.5% and 3%” (Pastrick, 2017) is considered a healthy financial ratio. Therefore, there is no indication of concerns, especially when
In regards to the corporation’s balance sheet, it is necessary to place an importance on liquidity ratios to demonstrate the company’s ability to pay its short term obligations such as accounts payable and notes that have a duration of less than one year. These commonly used liquidity ratios include the current ratio, quick ratio, and cash ratio. All three ratios are used to measure the liquidity of a company or business. The current ratio is used to indicate a business’s ability to meet maturing obligations. The quick ratio is used to indicate the company’s ability to pay off debt. Finally the cash ratio is used to measure the amount of capital as well short term counterparts a business has over its current liabilities.
Ratios analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future.
The ratio of 1.7 for the last two years indicates consistency, although a lower number is preferred. As a company produces high value product, this could be a satisfactory ratio. By comparing it to 2011 when a ratio was 2.9, in the last two years a ratio improved
Monea, M. (2009). Financial ratios – Reveal how a business is doing? Annals of the University Of Petrosani Economics, 9(2), 137-144. Retrieved from http://www.upet.ro/eng
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound. Among the study’s findings were that the deciding factor of the predictor of bankruptcy should not be only a few ratios, as the measure of a company’s financial solvency may differ as the firm’s situations differ. The important question is to which ratios are to be used and of those ratios chosen, which ratios are given priority weight.
Profitability ratios express ability of the company to produce profit. This shows how well a company is performing in a given period of time. To compare the profitability for the companies, the investors use profitability ratios that are return on equity, profit margin, asset turnover, gross profit, earning per share. Return on asset indicates overall profitability of assets. It is the relationship between net income and average total assets. GM has 0.034 and Ford has 0.036. This indicates Ford is more profitable. Profit margin is how much of every dollar of sales the company keeps. Computing profit margin, net income divided by net sales. This indicates higher profit margin is more profitable and it has better control. Thus, GM’s profit margin is 3.4 percentages and Ford’s is 4.9 percentages. This indicates Ford has better control profitably compared to GM. Next ratio is gross profit rate. It is how much of every dollar is left over after paying costs of goods sold. Assets turnover represents how efficiency a company uses its assets to sales. This ratio is relationship between net sales and average total assets. GM’s is 0.98 and Ford’s is 0.75. This result represents GM is using its assets more efficiently. Gross profit margin is dividing gross profit, which is equal to net sales less cost of gods sold, by net sales. This ratio indicates ability to maintain selling price above its cost of goods sold. GM’s gross profit rate is 11.6 percentages. Ford’s is 5.7 percentages. GM is higher ratio, and it indicates strong net income. Also, it indicates the company has to spend lower operating expenses and the company is able to spend left money for covering fixed costs. Earnings per share indicate the company’s net earnings to each share common stock. This ratio shows margin between selling price and cost of goods sold. From these companies’ income statement, GM is $2.71 and Ford is $1.82. Because GM’s value is higher relative to Ford’s,
Generally, the concept connotes a favorable and desired function that reflects a well-organized and functional financial market. According to Gabrielsen, Marzo and Zagaglia (2011), a market is said to be liquid when the prevailing structure of transactions provide a prompt and a secure link between the demand and supply of assets, thus delivering low transaction costs. Researchers have not been able to come up with unique definition of the term liquidity that would possibly capture all the properties of liquidity. Most the researchers such as Wyss (2004) tend to think that the reason of a unique definition is due to the fact that liquidity has several dimensions. Liquidity concept is also a complex concept that can be defined in several different
This is a trend table of industrial average financial ratio for the previous five years in comparison:
If there is sufficient working capital than we can assume that it has sound financial position and if the business is under trading than there will be increment in liquid assets which shows that the funds are not been utilized and kept ideal.