Profitability Ratios

PROFITABILITY RATIOS
GROSS PROFIT RATIO
Gross Profit Ratio measures the relationship between gross profits & sales; it is
usually represented in percentage. Thus Gross profit margin highlights the
production efficiency at a concern.
Gross Profit Ratio = Gross Profit x100

Net revenue from operations
Gross Profit = Net Revenue from operations – Cost of Goods Sold
Gross Profit Ratio indicate the extent to which selling price of goods per unit
may decline without resulting in losses on operations of firm. It reflect
efficiency with which firm produces the product.
GROSS PROFIT RATIO
Years (Cr.) 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Net
Revenue
34705.90 42612.6 42664.8 48605.50 56350.40
from
Operations
Cost of
Goods 28108.30 32559.00 31348.80 35007.10 38840.2
Sold
Gross
6597.60 10053.6 11316.00 13598.40 17510.2
Profit
Gross
Profit 5.26% 4.24% 3.77% 3.57% 3.22%
Ratio
ANALYSIS
From the above table, it is observed that the:
 Gross profit has increased from Rs. 6597.60 Cr. to Rs. 17510.20 Cr. in
between the years 2012 – 2016.
 Net revenue from operations has increased from Rs. 34705.90 Cr. to Rs.
56350.40 Cr. in between the years 2012 – 2016.
 Gross profit ratio for the year 2012-2013 was 5.26%
INTERPRETATION
It is interpreted that Gross profit ratio is decreasing over the years.
This ratio indicates the degree to which the selling price of goods per unit may
decline without resulting in losses from operations to the firm.
From the above table we can see that the percentage of the Gross Profit ratio has
been decreasing from 5.26% to 3.22% over the 5 years 2012 – 2016. It indicates
that there is an increase in the cost of goods sold without corresponding increase
in the sales. Stock at the end may have been undervalued.
OPERATING PROFIT RATIO
The operating profit margin ratio indicates how much profit a company makes
after paying for variable costs of production such as wages, raw materials, etc. It
is expressed as a percentage of sales and shows the efficiency of a company
controlling the costs and expenses associated with business operations. Phrased
more simply, it is the return achieved from standard operations and does not
include unique or one time transactions. Terms used to describe
operating profit margin ratios this include operating margin, operating income
margin, operating profit margin or return on sales (ROS).
Operating Profit Ratio = Operating Profit x 100

Net Revenue from operations
Operating Profit = Net Revenue from operations – Operating

Expenses
It is the relation between cost of goods sold & operating expenses on one hand
& the sales on the other hand. It measures the cost of operations per rupee of
sales.
OPERATING PROFIT RATIO
Years
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Cr.)
Net
revenue
34705.90 42612.6 42664.8 48605.50 56350.40
from
expenses
Operating 34255.2 41263.3 40723.4 45727.1 51651.9
expenses
Operating
450.7 1349.3 1941.4 2878.4 4698.5
Profit
Operating
Profit 1.2% 3.2% 4.6% 5.9% 8.3%
Ratio
Operating profit ratio must be less than GP ratio. Please check

ANALYSIS
 Operating profit has increased from Rs. 450.7Cr. to Rs. 4698.5 Cr. in
 Operating profit ratio for the year 2012-2013 was 1.2%
INTERPRETATION
It is interpreted that Operating profit ratio is increasing over the years.
This ratio is the best test for operational efficiency with which the business is
being carried. This operating ratio should be low enough to leave a portion of
sales to give a fair return to the investors.
From the above table we can see that the percentage of the Operating Profit ratio
has been increasing from 1.2% to 8.3% over the 5 years 2012 – 2016. The net
operating profit is showing an increasing trend as a percentage of net sales,
which indicates that the business turns a higher profit margin on its revenues. It
also indicates that the company is lowering its expenses to generate revenue to
the company.
PROFIT BEFORE TAX RATIO
Profit before tax (PBT) is a profitability measure that looks at a company's

profits before the company has to pay corporate income tax by deducting all
expenses from revenue including interest expenses and operating
expenses except for income tax. Also referred to as "earnings before tax" or
"pretax profit", this measure combines all of the company's profits before tax,
including operating, non-operating, continuing operations and non-continuing
operations. PBT exists because tax expense is constantly changing, and taking it
out helps give an investor a good idea of changes in a company's profits or
earnings from year to year.
Profit before tax provides investment analysts with useful information for
evaluating a company’s operating performance without regard to tax
implications. By removing the tax factor, profit before tax helps to minimize a
variable that may be unique from company to company, in order to focus the
analysis on operating profitability as a singular measure of performance.
Profit before Tax Ratio = Profit before Tax x 100

Net Revenue from Operations
PROFIT BEFORE TAX RATIO
Years (Cr.) 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Profit
2146.20 2991.00 3658.5 4868.2 6535.00
Before Tax
Net
revenue
34705.90 42612.6 42664.8 48605.50 56350.40
from
Operations
Profit
Before Tax 6.18 7.02 8.57 10.01 11.60
Ratio
PBT ratio must be less than OP ratio. Please check.

ANALYSIS
 Profit before Tax has increased from Rs. 2146.20 Cr. to Rs. 6535.00 Cr.
in between the years 2012 – 2016.
 Profit before tax ratio for the year 2012-2013 was 6.18%
INTERPRETATION
It is interpreted that Operating profit ratio is increasing over the years.
From the above table we can see that the percentage of the Gross Profit ratio
has been increasing from 1.2% to 8.3% over the 5 years 2012 – 2016 which
indicates that
RETURN ON CAPITAL EMPLOYED RATIO
Return on capital employed (ROCE) is a financial ratio that measures a

company's profitability and the efficiency with which its capital is employed.
ROCE is calculated as:
ROCE = Earnings before Interest and Tax (EBIT) / Capital Employed
Capital Employed = Share capital + Reserves and surplus + Long term

loans
“Capital Employed” as shown in the denominator is the sum of shareholders'

equity and debt liabilities; it can be simplified as (Total Assets – Current
Liabilities). Instead of using capital employed at an arbitrary point in
time, analysts and investors often calculate ROCE based on “Average Capital
Employed,” which takes the average of opening and closing capital employed
for the time period.
RETURN ON CAPITAL EMPLOYED RATIO
Years
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Cr.)
Earnings
before
2146.20 2991.00 3658.50 4868.20 6535.00
Interest
and Tax
Capital 15284.00 19372.1 21667.00 23954.4 27129.5
Employed
ROCE 0.14 0.15 0.17 0.20 0.24
Convert ROCE to %.
ANALYSIS
 Earnings before Interest and Tax has increased from Rs. 2146.20 Cr. to
Rs. 6535.00 Cr. in between the years 2012 – 2016.
 Capital Employed has increased from Rs. 15284.00 Cr. to Rs. 27129.5 Cr.
 Return on capital employed ratio for the year 2012-2013 was 0.14
INTERPRETATION
It is interpreted that ROCE ratio is increasing over the years.
A higher ROCE indicates more efficient use of capital. ROCE should be higher
than the company’s capital cost; otherwise it indicates that the company is not
employing its capital effectively and is not generating shareholder value.
From the above table we can see that the percentage of the ROCE ratio has been
increasing from 0.14 to 0.24 over the 5 years 2012 – 2016 which indicates that
the company is creating a of its shareholders, which increases the credibility of
the company and maes shareholders remain invested in the company.
LIQUIDITY RATIOS
CURRENT RATIO
Current ratio may be defined as the relationship between quick or liquid asset
and current liabilities. This is a measure of general liquidity & is most widely
used to make analysis of short-turn financial position or liquidity of firm. It is
calculated by dividing the total current assets by total current liabilities.
CURRENT RATIO
Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Current
11079.00 10946.00 14171.70 8197.90 7149.50
Assets
Current 6547.6 6727.50 8074.10 8823.00 11290.00
Liabilities
Current
1.69 1.62 1.76 0.93 0.63
Ratio
CURRENT RATIO
1.69 1.76
1.8 1.62
1.6
CURRENT RATIO
1.4
1.2 0.93
1
0.8 0.63
0.6
0.4
0.2
0
2012 2013 2014 2015 2016
YEARS
ANALYSIS
 Current assets has decreased from Rs. 11079.00 Cr. to Rs. 7149.50 Cr. in
 Current Liabilities has increased from Rs. 6547.60 Cr. to Rs. 11290.00 Cr.
 Current ratio for the year 2012-2013 was 1.69
INTERPRETATION
It is interpreted that Current ratio is fluctuating over the years.
An ideal current ratio is 2:1. The ratio of 2 is considered as a safe margin of

solvency due to the fact that if the current assets are reduced to half, i.e., 1
instead of 2 then also the creditors will be able to get their payments in full. But,
a very high current ratio is also not desirable since it means less efficient use of
funds. This is because a high current ratio means excessive dependence on long-
term sources of raising fund. Long-term liabilities are costlier than current
liabilities and therefore, this will result in considerable lowering down the
profitability of the concern.
The ratio has been consistently lower than the standard ratio over the years. This
shows that the company has a very poor liquidity position. Attention has to be
given towards improving current ratio and the liquidity position of the company.
QUICK RATIO / LIQUID RATIO
Quick ratio establishes relationship between quick or liquid assets & current
liabilities. It is also known as acid test ratio. An asset is said to be liquid if it can
be converted into cash within short period of time without loss of value. The
prepaid expenses and stock were excluded.
Liquid Asset ratio = Liquid Assets

Current Liabilities
Liquid assets = Current Assets – Inventories.

QUICK RATIO / LIQUID RATIO
Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Current
11079.00 10946.00 14171.70 8197.90 7149.50
Assets
Inventories 1796.50 1840.70 1705.90 2615.00 3132.10
Liquid
9282.50 9105.30 12465.80 5582.90 4017.40
Assets
Current
6547.60 6727.50 8074.10 8823.00 11290.00
Liabilities
Liquid
1.42 1.35 1.54 0.63 0.36
Ratio
ANALYSIS
 Liquid Assets has increased from Rs. 9282.50 Cr. to Rs. 4017.40 Cr. in
 Current Liabilities has increased from Rs. 6547.60 Cr. to Rs. 11290.00 Cr.
 Liquid ratio for the year 2012-2013 was 1.42
INTERPRETATION
It is interpreted that quick ratio is decreasing over the years.
The ideal ratio is 1:1.
The ratio is also an indicator of short term solvency of the company. The
decreasing trend of the quick ratio indicates a more risky position since the
company doesn't have adequate current assets, without inventory, to cover near-
term debt. This also means the company heavily depends on efficient inventory
turnover to keep afloat in the short-term.
A higher ratio is safer than a lower one because the company has excess cash.
The drawback of maintaining a high quick ratio is that the company may not be
making effective use of cash to grow the business.
ABSOLUTE LIQUID RATIO / CASH RATIO
Cash ratio is the strongest measurement of liquidity. Since cash is the most
liquid assets, a financial analyst may examine cash ratio & its equivalent to
current liabilities. Trade investments or marketable securities are equivalent of
cash therefore they may be included in computation of cash ratio.
To calculate absolute quick ratio we consider cash in hand, cash at bank &
marketable securities.
Absolute Liquid Ratio = Cash and cash equivalents

Current Liabilities
ABSOLUTE LIQUID RATIO / CASH RATIO
Years
2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
(Cr.)
Cash and
cash 2436.10 775.00 629.70 18.30 39.10
equivalents
Current
6547.6 6727.50 8074.10 8823.00 11290.00
Liabilities
Absolute
Liquid 0.37 0.12 0.078 0.0021 0.0035
Ratio
ANALYSIS
 Cash and cash equivalents has decreased from Rs. 2436.10 Cr. to Rs.
 Current liabilities has increased from Rs. 6547.6 Cr. to Rs. 11290.00 Cr.
 Absolute Liquid ratio for the year 2012-2013 was 0.37
INTERPRETATION
It is interpreted that Absolute quick ratio is decreasing over the years.
The standard ratio for Absolute quick ratio is 0.5: 1.
From the above table we can see that the percentage of the Absolute quick ratio
has been decreasing from 0.37 to 0.0035 over the 5 years 2012 – 2016. Absolute
quick ratio is below the standard ratio i.e. 0.5:1 which indicates that 50 paisa
worth of absolute liquid assets are to be maintained to meet one rupee worth of
current liabilities. In the years the ratio is seen a decreasing trend, which
indicates that there is no sufficient liquidity in the firm.
INVENTORY TURNOVER RATIO
Inventory turnover ratio indicates the number of times stock has been turned
over during the period & evaluates efficiency with which a firm is able to
manage inventory.
The ratio is calculated by dividing the net sales by average inventory at cost.
Inventory Turnover Ratio= Cost of goods sold x 100

Average Inventory at Cost
Average inventory should be taken for calculating stock turnover ratio. Adding
the stock in the beginning & at the end of period & dividing it by 2 to calculate
average inventory.
Average Inventory = [Opening stock + Closing Stock] / 2

INVENTORY TURNOVER RATIO
Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Cost of
28108.30 32559.00 31348.80 35007.10 38840.2
Goods sold
Average 1818.60 3546.6 2160.45 2873.55 3132.10
Inventory
Inventory
15.46 9.18 14.51 12.18 12.40
Ratio
ANALYSIS
 Cost of Goods sold has increased from Rs. 28108.30 Cr. to Rs. 38840.20
Cr. in between the years 2012 – 2016.
 Average inventory has increased from Rs. 1818.60 Cr. to Rs. 3132.10 Cr.
 Inventory turnover ratio for the year 2012-2013 was 15.46
INTERPRETATION
It is interpreted that inventory turnover ratio is fluctuating over the years.
A high inventory turnover ratio is better than a low ratio. A high ratio implies
good inventory management but is sometimes an indication of under investment.
It may adversely affect the ability of the firm to meet its customers demand. At
the same time, a higher ratio reflects efficient business activity.
In the year 2012-2013 inventory turnover ratio is high which indicates that there
might have been under investment in inventories, but a high ITR symbolizes
effective inventory management of company.
In the year 2013-2014 the inventory turnover ratio decreased due to over
investment in inventory. It may also be due to inferior quality of goods, stock of
unsaleable and absolute goods reflecting dull business.
RECIEVABLES TURNOVER RATIO
An accounting measure used to quantify a firm's effectiveness in

extending credit and in collecting debts on that credit. The receivables turnover
ratio is an activity ratio measuring how efficiently a firm uses its assets.
Receivables turnover ratio can be calculated by dividing the net value of

credit sales during a given period by the average accounts receivable during the
same period. Average accounts receivable can be calculated by adding the value
of accounts receivable at the beginning of the desired period to their value at the
end of the period and dividing the sum by two.
The method for calculating receivables turnover ratio can be represented with
the following formula:
The receivables turnover ratio is most often calculated on an annual basis,

though this can be broken down to find quarterly or monthly accounts receivable
turnover as well.
Debtors Turnover Ratio = Net Revenue from Operation

Average Debtors
RECIEVABLES TURNOVER RATIO
Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Net
Revenue
34705.90 42612.6 42664.8 48605.50 56350.40
from
Operations
Average
1203.75 1441.8 1241.75 1184.2 1298.60
Debtors
Debtors
turnover 28.83 29.56 34.36 41.05 43.39
Ratio
Analysis
 Average Debtors has increased from Rs. 1203.75 Cr. to Rs. 1298.60 Cr. in
 Receivables turnover ratio for the year 2012-2013 was 28.83
Interpretation
It is interpreted that Receivables turnover ratio is increasing over the years.
From the above table we can see that the percentage of the Receivables turnover
ratio has been increasing from 28.83 to 43.39 over the 5 years 2012 – 2016. It
indicates that the company is efficient in managing its credit sales. Increasing
trend ratio indicates that the company has a faster collection period and which is
helping the company in having cash to pay off its creditors and thereby reducing
the working capital cycle for a better working capital management.
PAYABLES TURNOVER RATIO
Payables Turnover Ratio = Purchase of Stock-In Trade

Average Payables
PAYABLES TURNOVER RATIO
Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Purchase
of Stock-In 1532.50 2186.40 2431.40 2665.20 3126.40
Trade
Average
3753.90 4527.70 5229.45 6278.35 7013.30
Payables
Payables
turnover 0.41 0.48 0.46 0.42 0.45
Ratio
Analysis
 Purchase of stock-in trade has increased from Rs. 1532.50 Cr. to Rs.
 Average Payables has increased from Rs. 3753.90 Cr. to Rs. 7013.30 Cr.
 Payables turnover ratio for the year 2012-2013 was 0.41
Interpretation
It is interpreted that Receivables turnover ratio is increasing over the years.
From the above table we can see that the percentage of the Receivables turnover
ratio has been fluctuating from 0.41 to 0.48 over the 5 years 2012 – 2016.
Accounts payable turnover ratio indicates the creditworthiness of the company.

A high ratio means prompt payment to suppliers for the goods purchased on
credit and a low ratio may be a sign of delayed payment. Here the ratios have
been fluctuating and seem to be very low every year, which is not a good sign to
a company’s creditworthiness.
WORKING CAPITAL TURNOVER RATIO
Working Capital Turnover Ratio = Cost of Goods Sold

Average Working capital
Working capital = Current Assets – Current Liabilities.

WORKING CAPITAL TURNOVER RATIO
Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Current
11079.00 10946.00 14171.70 8197.90 7149.50
Assets
Current 6547.6 6727.50 8074.10 8823.00 11290.00
Liabilities
Working
4531.4 4218.5 7444.20 -625.1 -4204.5
Capital
Cost of
Goods 28108.30 32559.00 31348.80 35007.10 38840.2
Sold
Average
Working 4374.95 5831.35 3409.55 -2414.8 -4204.5
capital
Working
capital 6.42 5.58 9.19 -14.50 -9.24
Ratio
Analysis
 Cost of goods sold has increased from Rs. 28108.30 Cr. to Rs. 38840.2
 Average working capital has decreased from Rs. 4374.95 Cr. to Rs. -
 Working capital turnover ratio for the year 2012-2013 was 6.42
 Working capital turnover ratio for the year 2012-2013 was -14.50
 Working capital turnover ratio for the year 2012-2013 was -9.24
Interpretation
It is interpreted that working capital ratio is decreasing over the years.

From the above table we can see that the percentage of the Working capital
turnover ratio has been decreasing from 6.42 to -9.24 over the 5 years 2012 –
2016. Negative working capital means that the business currently is unable to
meet its short-term liabilities with its current assets. Therefore, an immediate
increase in sales or additional capital into the company is necessary in order to
continue its operations.
SOLVENCY RATIOS
DEBT – EQUITY RATIO
Debt-Equity ratio shows the relative contribution of creditors and owners. Debt-
Equity also known as External-Internal equity ratio is calculated to measure the
relative claims of outsiders against firm assets.
Debt – Equity Ratio = Total Long term debt

Shareholders’ funds
DEBT – EQUITY RATIO
2012-
Years 2013-2014 2014-2015 2015-2016 2016-2017
2013
Total Long
96.60 793.20 699.00 250.20 122.40
term debt
Shareholders’
15187.4 18578.9 20978.00 23704.20 27007.10
Funds
Debt Equity
0.006 0.043 0.033 0.011 0.005
Ratio
Analysis
 Long term debt has increased from Rs. 96.60 Cr. to Rs. 122.40 Cr. in
 Shareholders’ Funds has increased from Rs. 15187.4 Cr. to Rs. 27007.10
 Debt - Equity ratio for the year 2012-2013 was 0.006
Interpretation
It is interpreted that working capital ratio is decreasing over the years.

The standard ratio is 1:1 which means that the creditors and stakeholders equally
contribute to the assets of the business.
From the above table we can see that the percentage of the Working capital
turnover ratio has been decreasing from 0.006 to 0005 over the 5 years 2012 –
2016 which indicates that the portion of assets provided by stockholders is
greater than the portion of assets provided by creditors and a greater than 1 ratio
indicates that the portion of assets provided by creditors is greater than the
portion of assets provided by stockholders.
PROPRIETARY RATIO
It is a variant of debt- equity ratio. It establishes relationship between the

proprietor’s funds and the total tangible assets.
Proprietary ratio = Shareholders Funds

Total assets.
PROPRIETARY RATIO
2012-
Years 2013-2014 2014-2015 2015-2016 2016-2017
2013
Shareholders’
15187.4 18578.9 20978.00 23704.20 27007.10
Funds
Total assets. 22302.20 26734.20 30353.7 33551.00 39195.60
Proprietary
68% 69% 69% 71% 69%
Ratio
Analysis
 Shareholders’ Funds has increased from Rs. 15187.4 Cr. to Rs. 27007.10
 Total Assets from operations has increased from Rs. 22302.20 Cr. to Rs.
 Proprietary ratio for the year 2012-2013 was 68%
Interpretation
It is interpreted that Proprietary ratio is increasing over the years.

This ratio focuses the attention on the general financial strength of the business
enterprise. The ratio is of particular importance to the creditors who can find out
the proportion of shareholders funds in the total assets employed in the business.
From the above table we can see that the percentage of the Proprietary ratio has
been varying from 68% to 71% over the 5 years 2012 – 2016.
The proprietary ratios above is not a clear indicator because an excessively high
ratio means that management has not taken advantage of any debt financing, so
the company is using nothing but expensive equity to fund its operations.
CAPITAL GEARING RATIO
Check the formula for this ratio

Earnings Before Interest and Taxes (EBIT)
Capital Gearing Ratio =
Total Capital Employed.
CAPITAL GEARING RATIO
Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
EBIT 2146.20 2991.00 3658.5 4868.2 6535.00

Total 15284.00 19372.1 21667.00 23954.4 27129.5
Capital
Employed
Capital
Gearing 0.14 0.15 0.17 0.20 0.24
Ratio
Analysis
 EBIT has increased from Rs.2146.20 Cr. to Rs.6535.00 Cr. in between the
period 2012 – 2016.
 Total capital employed has increased from Rs. 15284.00 to Rs.27129.5. in
between the period 2012 – 2016.
 Capital Gearing ratio for the year 2012-2013 was 0.14
Interpretation
It is interpreted that Capital gearing ratio is increasing over the years.

Capital gearing ratio is the measure of capital structure analysis and financial
strength of the company and is of great importance for actual and potential
investors. In a company form of organization, real risk is borne by equity
shareholders because they are entitled to whatever residue is left after all others
have been paid at the contracted rate. This ratio measures the extent of
capitalization by the funds raised by the issue of fixed cost securities. This ratio
is interpreted by the use of two terms.
From the above table we can see that the percentage of the Capital Gearing ratio
has been varying from 0.14 to 0.24 over the 5 years 2012 – 2016 which indicates
that the company is highly geared i.e. lower proportion of equity as compared to
fixed cost bearing capital.
FIXED ASSETS RATIO
The fixed asset turnover ratio is an efficiency ratio that measures a company’s
return on their investment in property, plant, and equipment by comparing net
sales with fixed assets. In other words, it calculates how efficiently a company is
a producing sales with its machines and equipment.
Fixed assets ratio = Fixed assets

Long Term Funds
FIXED ASSETS RATIO
Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Fixed
8132.10 11740.10 13411.80 14142.10 13774.70
assets
Long term 15284.00 19372.1 21667.00 23954.4 27129.5
Funds
Fixed
Asset 0.53 0.61 0.62 0.59 0.51
Ratio
Analysis
 Fixed Assets has increased from Rs. 8132.10 Cr. to Rs.13774.70 Cr. in
 Long term funds has increased from Rs. 15284.00 to Rs.27129.5. in
 Fixed Asset ratio for the year 2012-2013 was 0.53
Interpretation
It is interpreted that fixed assets ratio is fluctuating over the years.
The fixed-asset turnover ratio is, in general, used by analysts to measure

operating performance. It is a ratio of net sales to fixed assets. This ratio
specifically measures how able a company is to generate net sales from fixed-
asset investments, namely property, plant and equipment (PP&E), net
of depreciation. In a general sense, a higher fixed-asset turnover ratio indicates
that a company has more effectively utilized investment in fixed assets to
generate revenue.
From the above table we can see that the percentage of the fixed assets ratio has
been varying from 0.51 to 0.62 over the 5 years 2012 – 2016 which indicates
that assets are being utilized efficiently and large amount of sales are generated
using a small amount of assets. It is also an indicative of greater efficiency in
managing fixed-asset investments.
INTEREST COVERAGE RATIO

The interest coverage ratio is a financial ratio that measures a company’s ability
to make interest payments on its debt in a timely manner. Unlike the debt
service coverage ratio, this liquidity ratio really has nothing to do with being
able to make principle payments on the debt itself. Instead, it calculates the
firm’s ability to afford the interest on the debt.
Creditors and investors use this computation to understand the profitability and
risk of a company. For instance, an investor is mainly concerned about seeing
his investment in the company increase in value. A large part of this
appreciation is based on profits and operational efficiencies. Thus, investors
want to see that their company can pay its bills on time without having to
sacrifice its operations and profits.
Interest coverage ratio = Earnings before interest and tax

Interest charges (Finance cost)
Earnings before interest and taxes is essentially net income with the interest and
tax expenses added back in. The reason we use EBIT instead of net income in
the calculation is because we want a true representation of how much the
company can afford to pay in interest. If we used net income, the calculation
would be screwed because interest expense would be counted twice and tax
expense would change based on the interest being deducted. To avoid this
problem, we just use the earnings or revenues before interest and taxes are paid.
INTEREST COVERAGE RATIO
Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017
Earnings
before
2146.20 2991.00 3658.50 4868.20 6535.00
Interest
and tax
Interest 55.20 189.80 175.90 206.00 81.50
charges
Interest
coverage 38.88 15.75 20.80 23.63 80.18
ratio
Analysis
 EBIT has increased from Rs.2146.20 Cr. to Rs. 6535.00 Cr. in between
the period 2012 – 2016.
 Interest Charges has increased from Rs. 55.20 Cr. to Rs. 81.50 Cr. in
 Interest Coverage ratio for the year 2012-2013 was 38.88
Interpretation
It is interpreted that Interest Coverage ratio is increasing over the years.
From the above table we can see that the percentage of the Interest Coverage
ratio has been varying from 15.75 to 80.18 over the 5 years 2012 – 2016
which indicates that coverage measurement is above 1, it means that the
company is making more than enough money to pay its interest obligations
with some extra earnings left over to make the principle payments.

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PROFITABILITY RATIOS

GROSS PROFIT RATIO

Gross Profit Ratio = Gross Profit x100

Gross Profit = Net Revenue from operations – Cost of Goods Sold

Years (Cr.) 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Operating Profit Ratio = Operating Profit x 100

Operating Profit = Net Revenue from operations – Operating

Operating profit ratio must be less than GP ratio. Please check

It is interpreted that Operating profit ratio is increasing over the years.

Profit before tax (PBT) is a profitability measure that looks at a company's

Profit before Tax Ratio = Profit before Tax x 100

Years (Cr.) 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

PBT ratio must be less than OP ratio. Please check.

Return on capital employed (ROCE) is a financial ratio that measures a

ROCE = Earnings before Interest and Tax (EBIT) / Capital Employed

Capital Employed = Share capital + Reserves and surplus + Long term

“Capital Employed” as shown in the denominator is the sum of shareholders'

Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

An ideal current ratio is 2:1. The ratio of 2 is considered as a safe margin of

QUICK RATIO / LIQUID RATIO

Liquid Asset ratio = Liquid Assets

Liquid assets = Current Assets – Inventories.

Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

The ideal ratio is 1:1.

ABSOLUTE LIQUID RATIO / CASH RATIO

Absolute Liquid Ratio = Cash and cash equivalents

The standard ratio for Absolute quick ratio is 0.5: 1.

Inventory Turnover Ratio= Cost of goods sold x 100

Average Inventory = [Opening stock + Closing Stock] / 2

Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

RECIEVABLES TURNOVER RATIO

An accounting measure used to quantify a firm's effectiveness in

Receivables turnover ratio can be calculated by dividing the net value of

The receivables turnover ratio is most often calculated on an annual basis,

Debtors Turnover Ratio = Net Revenue from Operation

Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Payables Turnover Ratio = Purchase of Stock-In Trade

Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

Accounts payable turnover ratio indicates the creditworthiness of the company.

WORKING CAPITAL TURNOVER RATIO

Working Capital Turnover Ratio = Cost of Goods Sold

Working capital = Current Assets – Current Liabilities.

Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

It is interpreted that working capital ratio is decreasing over the years.

DEBT – EQUITY RATIO

Debt – Equity Ratio = Total Long term debt

It is interpreted that working capital ratio is decreasing over the years.

It is a variant of debt- equity ratio. It establishes relationship between the

Proprietary ratio = Shareholders Funds

It is interpreted that Proprietary ratio is increasing over the years.

CAPITAL GEARING RATIO

Check the formula for this ratio

Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

EBIT 2146.20 2991.00 3658.5 4868.2 6535.00

It is interpreted that Capital gearing ratio is increasing over the years.

FIXED ASSETS RATIO

Fixed assets ratio = Fixed assets

Years 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017

It is interpreted that fixed assets ratio is fluctuating over the years.

The fixed-asset turnover ratio is, in general, used by analysts to measure

INTEREST COVERAGE RATIO

Interest coverage ratio = Earnings before interest and tax