Ratio AnalysisThere are total 5 types of ratios•Liquidity Ratios•Leverage Ratios•Asset Management Ratios•Profitability Ratios•Operating Ratios•Market Based Ratios
Liquidity Ratios• Liquidity ratios provide information about a firm’ s ability to meet its short-term financial obligations.• They are of particular interest to those extending short-term credit to the firm.
Liquidity RatiosCurrent Ratio = Total current assets Total current liabilitiesTata Motors = 7,133.06 = 0.45 15,740.69 6,443.10Maruti = = 1.48 4,331.00
Leverage Ratios P DIT BInterest Coverage Ratio = Interest 5,047.25Tata Motors = = 3.64 1,383.79 4,258.20Maruti = =173.5 24.4
Asset Management Ratios• Asset Management Ratios are the key to analyzing how effectively & efficiency your small business is managing its assets to produce sales.• Asset Management Ratios are also called “ Turnover Ratios” or “ Efficiency Ratios” .
Asset Management Ratios COGSInventory Turnover Ratio = Average Inventory 5,047.25Tata Motors = = 14.25 480.425 4,258.20Maruti = = 31.07 274.1
Profitability Ratios• Profitability ratios measure the companys use of its assets and control of its expenses to generate an acceptable rate of return• They are of great importance to investors since they measure how effectively A firms management is generating profits on sales, total assets, and stockholders investment.
Operating Ratios• The operating profit margin ratio indicates how much profit a company makes after paying for variable costs of production such as wages, raw materials, etc.• It is expressed as a percentage of sales and shows the efficiency of a company controlling the costs and expenses associated with business operations.
Operating Ratios S & D expensesSelling and Distribution Ratio = * 100 Sales 2,790.19Tata Motors = * 100 0.05 % 47,957.24 1,153.87Maruti = * 100 0.03% 36,561.50
Market Based Ratios• A market-based ratio is a metric used to gauge a companys viability in terms of such variables as profitability and the market valuation of its stock.• Different ratios indicate a companys viability, or financial health, where asset values, revenue, income, and ability to pay bills are concerned.