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LQUIDITY RATIOS

1) Current Ratio=Current Assets/Current Liabilities 1998-99 1999-2000 2000-01 2001-02 2002-03 Current Assets 1353 5708 2522 3968 4040 Current Liabilities 605 1133 966 1103 2033 Ratio (Times) 2.24 5.04 2.61 3.60 1.99

INDICATION:
The current ratio of a firm measures its short-term solvency, that is, its ability to meet short-term obligation. As a measure of a current/short term financial liquidity, it indicates the rupee of current assets available for each rupee of current liability/obligation. The higher the current ratio the larger is the amount of rupees available per rupee of current liability, the more is the firms ability to meet current obligation and the greater is the safety of funds of short term creditor. Thus, current ratio in a way is a measure of margin of safety. The current ratio is the ratio of total current assets to total current liabilities. It is calculated by dividing current assets by current liabilities.

6.00 5.04 5.00 4.00 TIMES 3.00 2.00 1.00 0.00 1998-99 1999-2000 2.24

Current Ratio

3.60 2.61 1.99

2000-01 YEARS

2001-02

2002-03

Current Ratio

INTERPRETATION: In the case of CHCL the current ratio is 1.99 in year 2002-03. It implies that for every one rupee of current liabilities, current assets of 0.99 rupees are available to meet them. Standard current ratio for pharmacy industry is 1.70 times whereas Cadila has ratio of 1.99 times in year 2002-03, which is somewhat higher. The current ratio was highest in year 1999-2000 i.e. 5.04 times because of highest block in current assets. Current assets were highest because of largest portion of cash and bank. Cash and bank was rupees 3787 in that year.

2) Acid Test Ratio=(Current Assets-Stock)/Current Liability 1998-99 1999-2000 2000-01 2001-02 Current Assets 1353 5708 2522 3968 Stock 626 707 837 1057 Current Liabilities 605 1133 966 1103 Ratio (Times) 1.20 4.41 1.74 2.64

2002-03 4040 1756 2033 1.12

INDICATION:
A rupee of cash is more readily available to meet its current obligation than a rupee of, say, inventory. This impairs the usefulness of the current ratio. The acid test ratio is a measure of liquidity designed to overcome this defect of the current ratio. It is often referred as to quick ratio because it is measurement of a firms ability to convert its current assets quickly into cash in order to meets its current liability. Thus, it is a measure of quick or acid liquidity. The acid test ratio is the ratio between quick current assets and current liabilities.

Acid Test Ratio


5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 4.41

TIMES

2.64 1.74 1.20 1.12

1998-99

1999-2000

2000-01 YEARS

2001-02

2002-03

Acid Test Ratio

INTERPRETATION:
Acid test ratio of 1:1 is considered satisfactory as a firm can easily meets its all current claims the quick asset ratio of the company are 1.20,4.41,1.74,2.64 and1.12 times in year 1998-99,1999-2000,2000-01,2001-02 respectively. This ratio was highest in year 1999-2000 i.e. 4.41. Because of low level of inventory of Rs.707 mn as compared to inventory of Rs.1756 mn. Therefore ratio of year 2002-03 was lowest of last five year.

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