Ratio Analysis Of Retail Store: Asian Paints

Prepeared By: Abhishek Kumar Ashish Mahendra Gaurav Kumar MBA- (F&C) ~ IIsem

 Ratios are the simplest mathematical (statistical) tools that reveal significant relationships hidden in mass of data, and allow meaningful comparisons. Some ratios are expressed as fractions or decimals, and some as percentages.

Ratios: Meaning & Type

1. 2.

Liquidity the ability of the firm to pay its way Investment/shareholders information to enable decisions to be made on the extent of the risk and the earning potential of a business investment Gearing information on the relationship between the exposure of the business to loans as opposed to share capital

Ratio Analysis

3.

4.
5.

Profitability how effective the firm is at generating profits given sales and or its capital assets
Financial the rate at which the company sells its stock and the efficiency with which it uses its assets

 Acid Test

(Current assets stock) : liabilities 1:1 seen as ideal

Current Ratio
Current Ratio = Current Assets : Current Liabilities Ideal level 1.33 : 1

Earnings per share

profit after tax / number of shares

Price earnings ratio

market price / earnings per share the higher the better generally. Comparison with other firms helps to identify value placed on the market of the business.

Dividend yield
ordinary share dividend / market price x 100 higher the better. Relates the return on the investment to the share price.

 Gearing :
Gearing Ratio

= Long

term loans / Capital employed x 100

The higher the ratio the more the business is exposed to interest rate fluctuations and to having to pay back interest and loans before being able to re-invest earnings

 Profitability
Gross profit
effectively total revenue (turnover) variable costs (cost of sales)

Gross Profit Margin = Gross profit / turnover x 100 The higher the better Net Profit Margin = Net Profit / Turnover x 100

Net Profit
effectively total revenue (turnover) variable costs and fixed costs (overheads)

Return on Capital Employed (ROCE) = Profit / capital employed x 100

Asset turnover x net profit margin = ROCE

 Financial
Asset Turnover = Sales turnover / assets employed

Stock turnover = COGS / stock expressed as times per year Debtor Days = Debtors / sales turnover X 365 (Shorter the better)

Balance Sheet :

Asian Paints

Interpretation
Current Ratio
Compared to standard we can say that since 2009 to 2013 the company has improved its current ratio and is approximately matching to standard.

Quick Ratio:
Company is doing average performance in mid years but have surely doing good in recent years as its improving its cash and cash equivalent reserve.

Here Current ratio and Quick ratio shows the better incremental position to pay its liabilities year by year with its current & quick assets. Debt Equity ratio express the external equities to internal equities that is very significant factor affecting the long-term solvency position of the concern. In the above analysis it shows the increment in internal equity as also in Long term Debt equity ratio.

Profitability Ratio
An ability to earn maximum from the maximum use of available resources by the business concern is known as Profitability. Where profit is an absolute measure of earning capacity & profitability is the relative measure of earning capacity.

Operating profit shows irregular margin over total operating expenses and sales. Profit before interest & tax margin also increase and decrease in different years. Profit margin ratio also fluctuating but a higher ratio is always considered good & an index of higher profitability. Return on capital Employed / Investments / Rate of return measures the adequacy or otherwise of profit in relation to capital employed.

Management Efficiency Ratio

Activity or operational efficiency refers to the profitable, efficient and judicious use of recourses available to the concern in perfect consonance with clearly laid down financial policies relating to the operation. Efficiency ratios measure how effectively the company utilizes these assets, as well as how well it manages its liabilities.

Efficiency Ratio fluctuating in every year besides the Total Assets turnover ratio is in decreasing manner. Total Assets Turnover ratio shows that how efficiently the business generates sales on each Rupee of assets.