Name: Tanya Mohan

PRN: 19020441147
Roll No. & Div.: B-29
Assignment 1: Basic of Financial Management

Bajaj Auto Limited

For the following assignment I have chosen Bajaj Auto Limited for the financial assessment. After analysing the
companies standalone Profit and Loss statement and Balance sheet for the year ended 31 st March 2018, below are
the following ratios calculated for analysing the company.

1)Liquidity Ratio:
a) Current Ratio
Current ratio = Current assets/Current Liabilities
Current assets = Rs. 9,235.63
Current liabilities = Rs. 4,111.29

Current ratio = 9,235.63 /4,111.29

= 2.25
The current ratio helps investors and creditors understand the liquidity of a company and how easily a company will
be able to pay off its current liability. Bajaj Auto has a current ratio of 2.25 that means its current assets is more
than double than its current liabilities.

2) Profitability Ratio:
a) Return on total assets (ROTA)
Return on total assets (ROTA) = Profit after Tax/Average total assets
Profit After Tax = 4,068.10
Average total assets = (opening assets + closing assets)/2
= (20,814.89+ 23,819.49)/2
= 44634.38/2
= 22317.19
ROTA = 4,068.10/22317.19
= 0.182
The return on total assets ratio measures how effectively a company can earn a return on its investment in assets.
Bajaj Auto has a ROTA of 0.182 which means Bajaj invested in assets during the year produced Rs. 0.182 of net
income.

b) Net Profit Ratio:

Net profit Ratio = (Profit After sales/ Net Sales) *100
Profit After Sales (PAT) = 4,068.10
Net Sales = 24,700
Net Profit Ratio = (4,068.10/24,700) *100
= 0.1647 * 100
= 16.47 %
The Net Profit Ratio measures the percentage of sales which is made up of profit after tax. In short it measures how
much profits are produced at a certain level of sales. Bajaj converted 16.47% of their sales into profit.
3) Leverage Ratio
a) Financial Leverage ratio:
Financial Leverage Ratio = EBIT/EBT
EBIT (Earnings before interest and tax) = 4830
EBT (Earnings before tax) = 4829
Financial Leverage Ratio = 4830/4829
= 1.0002
Inclusion of external debt in capital structure creates a leverage i.e. increase chances of maximisation of profits due
to trading on equity. Interest on loans have tax shields.

b) Debt Equity Ratio:

Debt Equity Ratio = Long Term Debt / Shareholder’s fund
Long Term Debt = 604.34
Shareholder’s Fund = Share capital + Reserves = 19,103.86
Debt Equity Ratio = 604.34 / 19,103.86
= 0.0316
Debt to Equity shows the ratio of how much external inflow has been raised compared to equity funds raised.
As the company has a lower debt equity ratio i.e. 0.031 the company has financially stability.

4) Activity Ratio
a) Working capital turnover ratio = Net Sales/ Average working Capital
Net Sales = 24700
Working capital = Current assets – current Liabilities
Average working capital = (opening working capital + closing working capital)/2
2017: 9391.37 - 3,212.58 = 6178.79
2018: 9,235.63 - 4,111.29 = 5123.71
Average working capital = (6178.79 + 5123.71)/2
= 5651.25
Working Capital Turnover ratio = 24700/5651.25
= 4.37
It is a ratio that measures sales to working capital that means how much of the net sales is used for working capital.
Since the ratio is above one it shows that the company can pay its working capital from the sales it receives.

b) Fixed Assets Turnover Ratio:

Fixed Assets turnover Ratio = Net sales / Average Fixed Assets
Net Sales = 24700
Average fixed assets = (opening fixed assets + closing fixed assets)/2
= (14,583.86 + 11,423.52)/2
= 13003.69
Fixed Asset Turnover Ratio = 24700/13003.69
= 1.89
This ratio indicates how the company uses its fixed assets to generate sales. The company is generating 1.89 rupees
for every rupee invested in fixed assets.

Company Analysis: After analysis of the ratios and interpreting it, my understanding is that the company is using its
assets properly to generate income. The above ratios indicate that the company is financially safe.