Ratio Analysis on ashok leyland

Atharva School of Business : 

Atharva School of Business FINANCIAL ACCOUNTING

RATIO ANALYSIS : 

RATIO ANALYSIS Ashok Leyland is the largest supplier of logistics vehicles to the Indian Army.

Profit and Loss A/c : 

Profit and Loss A/c

Balance Sheet : 

Balance Sheet

Cont… : 

Cont…

Gross Profit Ratio : 

Gross Profit Ratio GPR = Gross Profit/Sales * 100 GPR = 5209/11407 * 100 = 45.66 %

Interpretation : 

Interpretation It shows the gross profit on sales A high ratio may not result in high gross profit figure unless a large volume of sales is achieved. The higher the better A gross profit margin of 45.66% means that for every 1rupee of sales, the firm makes 45.66 rupee in gross profit

Expense Ratio : 

Expense Ratio Exp ratio = Exp/Sales * 100 Exp Ratio = 1982/11407 * 100 =17.37 % Expenses = Admin Exp + Selling Exp = 1125 +587 = 1982

Interpretation : 

Interpretation It shows the Expenses on sales The lower the Expense ratio, the larger is the profitability and higher the Expense ratio, lower is the profitability. The Expense Ratio of 17.37 % is considered to be under control which can be minimized with more efforts to maximize the profit.

Net Profit Ratio : 

Net Profit Ratio NPR = Net Profit/Sales * 100 = 3227 / 11407 * 100 = 28.29 %

Interpretation : 

Interpretation It shows the net profit as a percentage of sales It gives some ideas of the company’s pricing policy and cost control Net profit takes into account the fixed costs involved in production – the overheads The Net Profit of 28.29% means company is earning 28.29 paisa on the investment of 1 rupee each

Operating Ratio : 

Operating Ratio Op.Ratio = COGS + Op.Exp/Sales * 100 = 6198 + 1982 / 11407 * 100 =71.71 %

Interpretation : 

Interpretation It shows the operational efficiency of the business An operating ratio ranging between 75% and 80% is generally considered as standard for manufacturing concerns The Operating Ratio of 71.71% means that company is just below the standard manufacturing.

Stock Turnover Ratio : 

Stock Turnover Ratio STR = COGS / Average Stock = 6198 / 3312 = 1.9 times Average Stock = Opening stock + Closing stock / 2 = 2208 + 4416 / 2 = 3312

Interpretation : 

Interpretation Also known as Inventory Turnover Ratio the level of inventory should neither be too high nor too low. high inventory means higher carrying costs and higher risk of stocks low inventory may mean the loss of business opportunities

Current Ratio : 

Current Ratio CR = Current assets/Current Liabilities = 8038 / 3725 = 2.15 : 1

Interpretation : 

Interpretation Looks at the ratio between Current Assets and Current Liabilities Ideal level – 2 : 1 A ratio of 2.15 : 1 would imply the firm has 2.15 of assets to cover every 1 in liabilities It might also suggest that too much of its assets are tied up in unproductive activities – too much stock, for example

Quick Ratio : 

Quick Ratio Quick Ratio = Quick Assets/Quick Liabs = 3622 / 2235 = 1.62 : 1 Quick Assets = Current Assets – Closing stock = 8038 - 4416 = 3612 Quick Liabilities = Current Liabs – Bank Overdraft = 3725 - 1490 = 2235

Interpretation : 

Interpretation Also referred to as the ‘Acid ratio’ 1:1 seen as ideal It gives an indication of the cash the firm has in relation to its liabilities (what it owes) A ratio of 1.62 : 1 therefore would suggest the firm has 1.62 times as much cash as it owes – which is quiet healthy!

Stock to Working Capital : 

Stock to Working Capital Stock to WC = Closing stock / W.C * 100 = 4416 / 4313 * 100 = 102.3 % Working Capital = Current Assets – Current Liab = 8038 - 3725 = 4313

Interpretation : 

Interpretation It measures the efficiency with which the working capital is being used by a firm. high ratio indicates efficient utilization of working capital low ratio indicates inefficient utilization of working capital Here the 102.3% shows the efficient use of Working Capital

Proprietary Ratio : 

Proprietary Ratio PR = Shareholders funds/Total Assets*100 = 2656 / 5313 * 100 = 50 % Shareholders Fund = Share Capital + Reserves = 133 + 2523 = 2656 Total Assets = FA + Investments + CA = 630 + 370 + 4313 = 5313

Interpretation : 

Interpretation It is also known as Equity ratio or net worth to total assets ratio. It indicates the long-term or future solvency position of the business. This means that out of every 1Rupee employed in the business, shareholders contribution is about 50 paisa. Accordingly, the creditors contribution would be the remaining 50 paisa

Capital Gearing Ratio : 

Capital Gearing Ratio CGR = Borrowed Funds + Pref sh.cap Shareholders Fund – Pref sh.cap = 2657 2656 = 1 Borrowed Funds = Secured + Unsecured Loans = 1272 + 1385 = 2657

Interpretation : 

Interpretation Its mainly used to analyze the capital structure of a company. It must be carefully planned as it affects the company's capacity to maintain a uniform dividend policy during difficult trading periods.

Debt Equity Ratio : 

Debt Equity Ratio Debt Equity Ratio = Borrowed Funds Shareholders Funds = 2657 / 2656 = 1 : 1

Interpretation : 

Interpretation It is also known as external internal equity ratio. It indicates the proportionate claims of owners and the outsiders against the firms assets. Its is 1:1 which is considered as balanced

Debt Turnover Ratio : 

Debt Turnover Ratio Debt Turnover Ratio = Sales / Debtors = 11407 / 1730 = 6.6 times

Interpretation : 

Interpretation It represents the number of days by the firm to pay its creditors It indicates the number of times average Creditors (Payable) are Paid during a year. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm.

Creditors Turnover Ratio : 

Creditors Turnover Ratio Creditors Turnover Ratio = Cost of Sales Creditors = 6198 / 2015 = 3.08 times Cost of Sales = Sales – Gross Profit = 11407 - 5209 = 6198

Interpretation : 

Interpretation It indicates the velocity of debt collection of a firm It indicates the number of times average debtors (receivable) are turned over during a year. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm. The higher the value, more liquid the debtors are and vice versa.

THANK YOU : 

THANK YOU Presented by Murli boda 02 Bhavika Vakharia 12 Vikas singh 22 Jagin Desai 32 Krishna Soni 42 tHANK YOU