Current Ratio

1.
Current Ratio
It is generally believed that 2: 1 ratio shows a comfortable working capital position. I.e.
the current assets should be twice the current liabilities. However, this rule should not
be taken as a hard and fast rule, because a ratio which is satisfactory for one business
may not be satisfactory for the other. There may be instances when in enterprise may
function satisfactorily even with a Current ratio of' one to one or less and some
enterprises require much higher ratio than 2 to 1. If the amount of stock-in-trade is
unduly large, then the 2 to I ratio may not be satisfactory.
Current Asset
Current Ratio =
Current Liability
Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

1.15 1.36 1.4 1.12 1.07
Current Ratio
1.6
1.4
1.2
0.8
0.6
0.4
0.2
0
Mar'15 Mar'16 Mar'17 Mar'18 Mar'19
2. Quick Ratio
This ratio is calculated to ascertain the quick or instant liquidity position of a concern.
Normally this ratio should be 1:1 as liabilities at short notice a variant of current ratio
is the liquid ratio or quick ratio which is desired to show the amount of cash available
to meet immediate payments. The measure of absolute liquidity may be obtained, by
comparing only cash and bank balance as well as readily marketable securities with
liquid liabilities. This is a very exacting standard of liquidity and it is satisfactory if the
ratio is 0.5: 1.
Current Asset - Inventory

Quick Ratio =
Current Liability
0.73 0.85 0.88 0.6 0.66
1
0.8
0.6
0.4
0.2
0
3. Net Profit Margin

The ratio is valuable for the purpose of ascertaining the over-all profitability of business
and shows the efficiency of operating the business. It is the reverse of the operating
Expense ratio.
It is calculated as follows:
Net Profit
Net Profit Ratio = * 100
Net Sales
Mar'19
Mar'18
Mar'17
Mar'16
Mar'15
0 2 4 6 8 10 12 14
4. Return On Net worth\Return on Owner’ s Equity

The Ratio of Return on owner’s equity is a valuable measure for judging the profitability of
an organization. This Ratio helps the shareholders of a company to know the return on
investment in terms of profits. Shareholders are always interested in knowing as to what
return they earned on their invested capital. Anthony and Reece opine that this ratio
“reflects that how much the firm has earned on the funds invested by the shareholders
(Either directly or through retained earnings).
They further point out that the ratio of return on owner’s equity is most significant when
the book value of the net worth is close to the market value of the stock since new capital
is raised at market prices rather than at book value and firms are usually judged on their
earnings performance relative to the market price of their stock.
5.69 12.51 13.92 34.12 35.6
This ratio is expressed in the percentage form of net profit earned to the owner’s equity.
The formula for the derivation of this ratio is:
Net Profit (After Int. & Tax)

Return on Owner’ s Equity = * 100
Owner’ s Equity
40
35
30
25
20
15
10
5
0
Mar' 15 Mar' 16 Mar' 17 Mar' 18 Mar' 19
5. Return on Capital Employed

It is an index of profitability of business and is obtained by comparing net profit (before
interest and taxes) with capital employed. The ratio is normally expressed in the
percentage. The term Capital Employed includes share capital, reserves and long term
loans such as debentures. It must be remembered that in this ratio Net Profit is Profit
before deducting Interest and Taxes (Earnings before interest and taxes). The formula for
derivation of this ratio is:
Net Profit (EBIT)

Return on Capital Employed = * 100
Capital Employed
Where Capital Employed = Share Capital + Reserves + Long Term Loan

11.5 6.87 6.78 17.02 17.38
20
18
16
14
12
10
8
6
4
2
0
EARNING PER SHARE

Earnings per Share is a widely used term. Its usefulness in analyzing the effect of a change in leverage
on the net operating earnings to the ordinary shareholders and, given the requirements of maximizing
Earning Per Share, what would be an appropriate capital structure for a firm is discussed in detail. Yet,
Earning Per Share as a measure of profitability of a firm from the owner’ s point of view should be
used cautiously as it does not recognize the effect of increase in equity capital as a result of retention
of earnings. It is calculated as follows:
Net Profit available to equity holders

Earnings Per Share =
No. of Ordinary shares Outstanding

1.41 3.03 3.05 6.45 50.8
60
50
40
30
20
10
0
Dividend Per Share
0.3 0.65 0.65 1.3 10.5
D.P.S.
12
10
0
DPS
BOOK VALUE per Share

24.78 24.18 21.91 18.91 142.6
160
140
120
100
80
60
40
20
0
DU-Pont Analysis
The DuPont analysis (also known as the DuPont identity or DuPont model) is a framework for analyzing
fundamental performance popularized by the DuPont Corporation. DuPont analysis is a useful
technique used to decompose the different drivers of return on equity (ROE). Decomposition of ROE
allows investors to focus on the key metrics of financial performance individually to identify strengths
and weaknesses.
G.P. EBIT Sales EBT EAT C.E.

Return on Equity = * * * * *
Sales G.P. C.E. EBIT EBT NW
ROE
45
40
35
30
25
20
15
10
0
MAR'15 MAR'16 MAR'17 MAR'18 MAR'19
ROE

Current Ratio

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1.

Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

Current Asset - Inventory

3. Net Profit Margin

4. Return On Net worth\Return on Owner’ s Equity

Net Profit (After Int. & Tax)

5. Return on Capital Employed

Net Profit (EBIT)

Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

EARNING PER SHARE

Net Profit available to equity holders

Mar-19 Mar-18 Mar-17 Mar-16 Mar-15

BOOK VALUE per Share

G.P. EBIT Sales EBT EAT C.E.

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