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Ultratech And Ambuja cement

Detailed Ratio Analysis – Five year Comparison

1. Liquidity Ratio

Liquidity ratios are a class of financial metrics used to determine a debtor's ability to
pay off current debt obligations without raising external capital. Liquidity ratios
measure a company's ability to pay debt obligations and its margin of safety through
the calculation of metrics including the current ratio, quick ratio.

Current Ratio

Current Assets / Current Liabilities

This ratio reflects the number of times short-term assets cover short-term liabilities
and is a fairly accurate indication of a company's ability to service its current
obligations. A higher number is preferred because it indicates a strong ability to
service short-term obligations.

Ideal Value of current ratio is 2:1


Ambuja cement Current ratio year 2019-2015
Current 1.48 1.25 1.12 2.02 1.90
Ratio

Ultratech cement Current Ratio 2019-2015


Current 1.02 1.01 1.55 0.86 0.91
Ratio

 During the past 13 years, UltraTech Cement's highest Current Ratio


was 1.60. The lowest was 0.82. And the median was 1.17Same as in 2017 .
 UltraTech Cement has a current ratio of 1.02. It indicates that the company
may have difficulty meeting its current obligations. Low values, however, do
not indicate a critical problem. If UltraTech Cement has good long-term
prospects, it may be able to borrow against those prospects to meet current
obligations.
 During the past 13 years, Ambuja Cements's highest Current Ratio
was 1.94.
Current Ratio

(Cash + Marketable Securities + Trade Accounts Receivable) / Current Liabilities

The quick ratio is an indicator of a company’s short-term liquidity position, and


measures a company’s ability to meet its short-term obligations with its most liquid
assets. Since it indicates the company’s financial position to instantly use its near
cash assets (that is, liquid assets) to get rid of its current liabilities, it is also called as
the acid test ratio. An acid test is a quick test designed to produce instant results,
hence the name.

The ideal ratio is 2:1

2. Profitability Ratio

Profit Margin on Sales

Earnings before Taxes / Sales * 100

Net profit margin, or net margin, is equal to net income or profits divided by total
revenue, and represents how much profit each dollar of sales generates. Net profit
margin is the ratio of net profits or net income to revenues for a company, business
segment or product. Net profit margin is typically expressed as a percentage but can
also be represented in decimal form. The net profit margin illustrates how much of
each dollar collected by a company as revenue translates into profit. The term "net
profits" is equivalent to "net income" on the income statement, and one can use the
terms interchangeably. Most commonly, investors will refer to net profit margin as the
"net margin" and describe it as "net income" divided by total sales instead of using
the term "net profits."
Ambuja cement 2019-
2015
12% 15% 19% 20% 24%

Ultratech cement
2019-2015
5% 8% 20% 19% 16%

 As you can see both the companies has been generating less profit margin
year by year.
Return on Asset (ROA)
Earnings before Taxes / Total Assets * 100

Return on assets (ROA) is an indicator of how profitable a company is relative to its


total assets. ROA gives a manager, investor, or analyst an idea as to how efficient a
company's management is at using its assets to generate earnings.
Ambuja Cement
10% 13% 17% 15% 20%

Ultra tech
Cement
3% 5% 14% 14% 12%

 Ultra tech cement not showing a good sign here. ROA of Ultra tech is
Decreasing year by year.
 Ultra tech Have to find solution for this.This was not a good indicator for the
company.
Return on Asset (ROI)
Earnings before Taxes / Total Equity * 100

Return on equity (ROE) is a measure of financial performance calculated by


dividing net income by shareholders' equity. Because shareholders' equity is equal to
a company’s assets minus its debt, ROE could be thought of as the return on net
assets.

ROE is expressed as a percentage and can be calculated for any company if net
income and equity are both positive numbers. Net income is calculated before
dividends paid to common shareholders and after dividends to preferred
shareholders and interest to lenders.

AMBUJA cement
ROE 13% 17% 21% 21% 27%
Ultratech
Cement
6% 10% 24% 25% 23%

3. Solvency Ratio

Debt to Equity Ratio

Total Liabilities / Total Equity


The Debt/Equity (D/E) Ratio is calculated by dividing a company’s total liabilities by
its shareholder equity. These numbers are available on the balance sheet of a
company’s financial statements. The ratio is used to evaluate a company's
financial leverage. The debt/equity ratio is also referred to as a risk or gearing ratio.
Ideal Debt to Equity Ratio is 1:1

Ultratech
Cement
0.53 0.54 0.18 0.12 0.24

4. Efficiency Ratio

Inventory turnover Ratio

Cost of Goods Sold ÷ Average Inventory

Inventory turnover is a ratio showing how many times a company has sold and
replaced inventory during a given period. A company can then divide the days in the
period by the inventory turnover formula to calculate the days it takes to sell the
inventory on hand. It is calculated as sales divided by average inventory. Calculating
inventory turnover can help businesses make better decisions on pricing,
manufacturing runs, how to leverage promotions to move excess inventory, and how
and when to purchase new inventory. Inventory turnover may also be found by
dividing cost of goods sold with average inventory.

Ambuja 3.01 3.17 2.93 3.18 3.45


cement
Ultratech 1.65 1.46 1.76 1.75 1.36
Cement

Days Inventory Outstanding

(Average inventory / cost of goods sold) * 365 days)

Day’s inventory outstanding ratio, explained as an indicator of inventory turns, is an


important financial ratio for any company with inventory. It shows how
quickly management can turn inventories into cash. In general, a decrease in DIO is
an improvement to working capital, and an increase is deterioration.

Ambuja 121.32 114.96 124.63 114.62 105.86


Cement
Ultratech 220.90 250.46 207.61 208.72 268.35
Cement

Days Sales Outstanding

(Account receivevable/Net credit Sales * 365)

Days sales outstanding (DSO) is a measure of the average number of days that it
takes a company to collect payment after a sale has been made. DSO is often
determined on a monthly, quarterly or annual basis, and can be calculated by
dividing the amount of accounts receivable during a given period by the total value of
credit sales during the same period, and multiplying the result by the number of days
in the period measured

Ambuja 18.73 13.72 14.87 9.92 7.55


cement
Ultratech 20.82 19.63 16.42 18.37 16.19
cement

Total Asset Turnover (TAT)

(Total sales / Average total asset )

The asset turnover ratio measures the value of a company's sales


or revenues relative to the value of its assets. The asset turnover ratio can be used
as an indicator of the efficiency with which a company is using its assets to generate
revenue.
Ambuja 0.86 0.90 0.91 0.76 0.81
Cement
Ultratech 0.62 0.58 0.72 0.73 0.77
Cement