Ratio Analysis of Asian Paints

Ratio Analysis Of Retail Store: Asian Paints

Prepeared By:Abhishek Kumar

Ashish Mahendra Gaurav Kumar

MBA- (F&C) ~ IIsem

Ratios: Meaning & Type

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.

Ratio Analysis

1. Liquidity – the ability of the firm to pay its way

2. Investment/shareholders – information to enable decisions to be made on the extent of the risk and the earning potential of a business investment

3. Gearing – information on the relationship between the exposure of the business to loans as opposed to share capital

4. Profitability – how effective the firm is at generating profits given sales and or its capital assets

5. Financial – the rate at which the company sells its stock and the efficiency with which it uses its assets

Acid Test(Current assets – stock) : liabilities1:1 seen as ideal

Current RatioCurrent Ratio = Current Assets : Current LiabilitiesIdeal 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)

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

Gross Profit Margin = Gross profit / turnover x 100

The higher the better

Net Profit Margin = Net Profit / Turnover x 100

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

•Current RatioCompared 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.

Interpretation

• 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.

• 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.

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.

• 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.

Management Efficiency RatioActivity 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.