Solvency ratio

1. SOLVENCY RATIO – APOLLO TYRES LTD.
Presented by-
Dipanway Bhabuk

2. INTRODUCTION
 Apollo Tyres Ltd is the world's 17th biggest tyre manufacturer.
 It was founded in 1976.
 GDP Contribution of 21.50 %.
 Annual revenues of Rs 121.5 billion (US$2.5 billion) in 2011.
 The company now has four manufacturing units, one in South Africa, two in Zimbabwe and 1 in Netherlands.
 It has a network of over 4,000 dealerships in India, of which over 2,500 are exclusive outlets.
 It gets 62.6% of its revenues from India, 27.9% from Europe and 9.5% from Africa.
 It is planning to become the 10th biggest tyre manufacturer in the world.

3. WHAT IS SOLVENCY RATIO ?
A key metric used to measure an enterprise’s ability to meet its debt and
other obligations. The solvency ratio indicates whether a company’s cash flow
is sufficient to meet its short-term and long-term liabilities. The lower a
company's solvency ratio, the greater the probability that it will default on its
debt obligations.

4. MAJOR SOLVENCY RATIOS
• Current Ratio
• Quick Ratio
• Total Debt Ratio
• Debt equity Ratio
• Interest coverage ratio

5. CURRENT RATIO
Particulars 2011 ( In Millions) 2012 ( In Millions) 2013 ( In Millions) 2014 ( In Millions)
Current Assets 22357.77 24377.04 24810.26 28863.43
Current Liabilities 27844.70 27555.56 25390.01 30919.31
Ratio 0.92 0.88 0.98 0.94
• It measures the short term liquidity of a firm. A firm with a
higher ratio has better liquidity.
• A ratio of 2:1 is considered safe.

6. QUICK RATIO
Particulars 2011 ( In Millions) 2012 ( In Millions) 2013 ( In Millions) 2014 ( In Millions)
Quick assets
(Current assets – inventory)
10994.43 13299.24 13602 16026.51
Current Liabilities 27844.70 27555.56 25390.01 30919.31
Ratio 0.39 0.48 0.53 0.52
• It establishes a relation between the quick or liquid assets and current
liabilities.
• A company with a high value of quick ratio can suffer from shortage of
funds if it has slow paying.

7. TOTAL DEBT RATIO
Particulars 2011 ( In Millions) 2012 ( In Millions) 2013 ( In Millions) 2014 ( In Millions)
Total Debts 8702.92 12680.33 13507.78 7267.06
Capital Employed 5332.75 6316.87 6852.76 13317.80
Ratio 1.63 2.00 1.97 1.83
 It indicates what proportion of the permanent capital of a firm consists of long-term
debt.
 A ratio 1:2 is considered safe.

8. DEBT-EQUITY RATIO
Particulars 2011 ( In Millions) 2012 ( In Millions) 2013 ( In Millions) 2014 ( In Millions)
Total Debts 7267.06 13507.78 12680.33 8702.92
Shareholder’s Fund 18955.60 20476.04 23414.23 27398.16
Ratio 0.38 0.65 0.54 0.32
This ratio indicates the relative proportions of debt and equity in financing the assets
of a firm.
A ratio of 1:1 is considered safe.

9. INTEREST COVERAGE RATIO
Particulars 2011 2012 2013 2014
EBIT 5737.67 6905.91 9613.37 11839.38
Interest 1628.65 2473.86 2667.47 2504.00
Ratio 3.52 2.79 3.60 4.72
A ratio used to determine how easily a company can pay on outstanding debt.
A ratio of more than 1.5 is satisfactory.

10. INTERPRETATION
• The Current ratio has a very Negligible rise & fall over the 4 years. Overall it can be said that
almost the same i.e., the short term liquidity of the firm is almost the same.
• The Quick ratio indicates how they are using its liquid assets. In 2011, it was 0.39 which
increased to 0.52 in the year 2014 i.e., it has a significant rise over 4 years but not to that
high extent.
• The Total debt ratio has come down from 1.63 to 0.54 from 2011 to 2014 which is a good
sign for a company.
• The debt equity ratio for all the 4 years was less than 1, which is not idle for any company.
• The Interest coverage ratio is more than 200 % which is a very good sign for the company as
they are able to pay there interest over their borrowings for all the 4 years.
• Overall, the company is doing good.