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Ratio-Analysis of Asian Paints
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Ratio-Analysis of Asian Paints


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  • A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company
  • Ability of a company to meet it’s short term liabilities.
  • Current Assets are the assets that the firm expects to convert into cash in the coming year and Current Liabilities represent the liabilities which have to be paid in cash in the coming year
  • If these Inventories had to be sold off in a hurry to meet an obligation ,the firm might have difficulty in finding a buyer and the inventory items would likely have to be sold at a substantial discount from their fair market value.
  • Super Quick Assets determines the amount of money available to pay off current liabilities
  • Ability of a company to meet its long term financial obligations. Debt Management Ratios attempt to measure the firm's use of Financial Leverage and ability to avoid financial distress in the long run. These ratios are also known as Long-Term Solvency Ratios
  • Indicates what part of assets is funded by insiders and what part is funded by outsiders.
  • Asset Management Ratios attempt to measure the firm's success in managing its assets to generate sales
  •  a higher Inventory Turnover Ratio is indicative of better performance since this indicates that the firm's inventories are being sold more quickly. However, if the ratio is too high then the firm may be losing sales to competitors due to inventory shortages.
  •  the Days' Inventory indicates how long, on average, an inventory item sits on the shelf until it is sold.
  • the higher the Receivables Turnover Ratio the better since this implies that the firm is collecting on its accounts receivables sooner
  • the Days' Receivables indicates how long, on average, it takes for the firm to collect on its sales to customers on credit
  • A measure of efficiency or activity
  • The Fixed Assets Turnover Ratio measures how productively the firm is managing its Fixed Assets to generate Sales
  • The Total Assets Turnover Ratio measures how productively the firm is managing all of its assets to generate Sales
  • operations=EAT+Non-cash flow items(depreciation)
  • The P/E Ratio indicates how much investors are willing to pay per dollar of current earnings
  • Return on total capital is a profitability ratio. It is a measure of the return an investment generates for those who contribute capital, i.e. bondholders and stockholders.  Return on total capital signifies how effective a company is at turning capital into profits.
  • Transcript

    • 1. RATIO ANALYSIS OF ‘ASIAN PAINTS’ ByAvneesh Pandey(PRN-12030141071) Amit Mekane(PRN-12030141093) Savita Marwal(PRN-12030141094) MBA-IT(2012-2014)
    • 2. LIQUIDITY RATIOS    Current Ratio Quick Ratio/Acid Test Ratio Super Quick/Cash Ratio
    • 3. Current Ratio F.Y 2013(in Crores) F.Y 2012(in crores) =Current Assets =4006.5 =3506.67 Current Liabilities 2931.4 2587.03 Current Ratio= 1.366753087 1.355480996 Mostly Current Ratio of 2 or 1.3 is considered acceptable. Indicates a firms commitment to meet financial obligations. A heavy ratio is not desirable as it indicates less efficient use of funds.
    • 4. Quick Ratio/Acid Test Ratio =Cash+Marketable securities+Recievable Fy2013 Fy2012 OR =Current Ratio-Stock =4006.5-1830.29 =3506.67-1598.89 Current Liabilities 2931.41 2587.03 Quick Ratio= 0.74 0.73 Current Liabilities A Quick Ratio of 1 or greater is acceptable. This ratio indicates short term solvency of a firm. A ratio of 1:1 means that a social enterprise can pay its bills without having to sell inventory.
    • 5. Super Quick/Cash Ratio =Cash+Marketable securities Current Liabilities OR =Current Ratio-Recievables-Inventories =4006.50 – 1830.29 – 980.83 =3506.67 – 1598.89 – 788.25 Current Liabilities Super Quick/Cash Ratio Ideal Ratio is 1 or higher. 2931.41 2587.03 0.40 0.43
    • 6. SOLVENCY RATIOS   Debt-Equity Ratio Proprietor's Ratio/Equity Ratio
    • 7. Debt-Equity Ratio = short term+Long term Debt = 2931.41+ 47.8 =2587.03+55.32 Shareholder's fund 3384.29 2748.5 Debt-Equity Ratio= 0.8803 0.9613 DebtEquity Ratio:- Long term Debt =47.8 =55.32 Shareholder's fund 3384.29 2748.5 Debt-Equity Ratio= 0.0141 0.0201 Ideal Ratio-1:2or less Indicates long term solvency Higher ratio is riskier for the creditors
    • 8. Proprietor's Ratio/Equity Ratio =Equity Total Tangible assets Proprietor's Ratio/Equity Ratio= =3384.29 =2748.5 2455.95 1876.11 1.3780 1.4650 Higher ratio indicates little danger to creditors and vice-versa.
    • 9. ACTIVITY RATIOS/TURNOVER RATIOS      Inventory Turnover Ratio Debtor's Turnover ratio Creditor's TurnOver Ratio Fixed Asset TurnOver Ratio Total Assets TurnOver Ratio
    • 10. Inventory Turnover Ratio A)Inventory Turnover Ratio:- =Cost of goods sold =6254.94 1714.59 Inventory Turnover Ratio= where, Average inventory during the year= =Opening stock+Closing stock 1452.16 3.6481 Average inventory during the year =5720.53 3.9393 =1598.89+1830. =1305.43+1598. 29 89 2 Hence,Avg Inventory= Higher ratio is desirable which means more cycles in a year. Indicates whether investment in stock is efficiently used or not. 2 2 1714.59 1452.16
    • 11. Inventory Holding Period(One Cycle time) Inventory Holding Period i) (One Cycle time):- =365 Inventory Turnover ratio Inventory Holding Period (One Cycle time)= Less cycle time is acceptable. =365 =365 3.6481 3.9393 100 days 93 days
    • 12. Debtor's Turnover ratio B)Debtor's Turnover ratio:- =Credit Sales =10901.01 =9598.33 Average Recievables 881.065 677.175 Debtor's Turnover ratio= 12.3725 14.1741 where, Average Receivables =Opening Receivables+Closing during the year= Receivables 2 Hence,Avg Receivables= Higher ratio is better. =781.25+980.88 =573.10+781.25 2 2 881.065 677.175
    • 13. Average Debtor's Period i) Average Debtor's Period:- =365 =365 =365 Debtor's Turnover ratio 12.3725 14.1741 Average Debtor's Period= 30 days 26 days Lower period is better.i.e Cash should be received faster.
    • 14. Creditor's TurnOver Ratio C)Creditor's TurnOver Ratio:- =6049.61 1352.01 1174.94 Creditor's TurnOver Ratio= 4.91 5.15 =Opening Payables+ Closing Payables =1262.45+1441.57 =1087.44+1262.45 2 2 2 Hence,Avg Payables= Lower ratio is better. =6631.74 Average Payables where, Average Payables during the year= =Credit Purchase 1352.01 1174.94
    • 15. Average Creditor's Period i)Average Creditor's Period:- =365 creditor's Turnover ratio Average Creditor's Period= =365 =365 4.91 5.15 75days 71 days Higher cycle time is better. Indicates the speed with which the payments of creditors are made
    • 16. Total Cycle time TOTAL CYCLE TIME= Inventory Cycle Time +Recievables Cycle Time -Creditor's Cycle Time 55 days This cycle time(Days in cash operating cycle) should be high. 47 days
    • 17. Fixed Asset TurnOver Ratio Fixed Asset TurnOver D) Ratio:- =Net Sales =10906.01 =9598.33 2166.03 1596.05 5.04 6.01 =Opening Fixed Assets+Closing =1876.11+24 Fixed Assets 55.95 =1316+1876.11 Average Fixed Assets Fixed Asset TurnOver Ratio= where, Average Fixed Assets during the year= 2 Hence,Avg Fixed Assets= 2 2 2166.03 1596.05 Higher ratio is better. An increasing ratio indicates you are using your assets more productively
    • 18. Total Assets TurnOver Ratio Total Assets TurnOver E) Ratio:- =Net Sales Average Total Assets Total Assets TurnOver Ratio= Higher ratio is better. =10906.01 =9598.33 6788.96 5713.93 1.61 1.68
    • 19. COVERAGE RATIOS   Interest Coverage Ratio Debt Service Coverage Ratio
    • 20. Interest Coverage Ratio Interest Coverage A) Ratio:- =Cash flow from operations p.a Interest payable to bank p.a Interest Coverage Ratio= =1186.79 =699.63 10.52 9.11 112.81 76.80 Measures your ability to meet interest payment obligations with business income. Ratios close to 1 indicates company having difficulty generating enough cash flow to pay interest on its debt. Ideally, a ratio should be over 2.
    • 21. Debt Service Coverage Ratio B)Debt Service Coverage Ratio:- =Net Operating Income Debt Service Debt Service Coverage Ratio:- 2 and higher is better. Indicates ability of a company to repay principal. =1846.46 =1616.18 312.49 241.7 5.91 6.69
    • 22. RATIOS IMPORTANT FOR SHAREHOLDERS AND POTENTIAL INVESTORS         Book Value per share Earnings per Share(EPS) Dividend per share(DPS) Earnings Yield/Capitalization Rate(%) Dividend Yield(%) Dividend Cover Dividend Payout Ratio(%) Price to Earnings Ratio
    • 23. Book Value per share A)Book Value per share:- =Equity No. Of shares(Outstanding) Book Value per share= =3384.29 =2748.5 9.59 9.59 352.90 286.60
    • 24. Earnings per Share(EPS) B)Earnings per Share:- =Net Profit-Preference dividend-tax dividend Outstanding shares Earnings per Share(EPS):- =1113.88 =988.73 9.59 9.59 116.15 103.10 Higher ratio is better. Helps in estimating company’s ability to pay dividend to shareholders.
    • 25. Dividend per share(DPS) C)Dividend per share(DPS):- =Dividend paid =462.05 =383.07 No. of shares 9.59 9.59 Dividend per share(DPS):- 48.18 39.94
    • 26. Earnings Yield/Capitalization Rate(%) D)Earnings Yield/Capitalization Rate(%):- =EPS Market Price per share Earnings Yield OR Capitalization Rate(%):- =116.15 =103.10 406.5 370.1 28.57% 27.86%
    • 27. Dividend Yield(%) E)Dividend Yield(%):- =DPS Market Price per share Dividend Yield(%):- =48.18 =39.94 406.5 370.1 12% 11%
    • 28. Dividend Cover F)Dividend Cover:- =EPS DPS Dividend Cover:- =116.15 =103.10 48.18 39.94 2.41 2.58
    • 29. Dividend Payout Ratio(%) Dividend Payout G) Ratio(%):- =DPS =48.18 =39.94 EPS 116.15 103.10 Dividend Payout Ratio(%):- 41.48% 38.74%
    • 30. Price to Earnings Ratio H)Price to Earnings Ratio:- =Market Price per share EPS Price to Earnings Ratio:- =406.5 =370.1 116.15 103.10 3.50 3.59 Higher ratio is better. Helps the investor in deciding whether to buy or not to buy the shares.
    • 31. EXPENSE RATIOS Operating Expense A) Ratio(%):- =(Cost of goods sold+Operating Expenses) Net sales Operating Expense Ratio(%):- =9238.8 =8123.47 10906.01 9598.33 84.71% 84.63% A decreasing ratio is considered desirable since it generally indicates increased efficiency
    • 32. PROFITABILITY RATIOS      Return On Investment(%) Return on Equity(%) Return on Capital Employed(%) Return on Assets(%) Return on Total Capital(%)
    • 33. Return on Equity(%) B)Return on Equity(%):- =EAT(Net income after tax) =1113.88 =988.73 Equity 3384.29 2748.5 Return on Equity(%):- 32.91% 35.97% Rate of return on investment by shareholders  It measures how profitable a company is for the owner of the investment, and how profitably a company employs its equity
    • 34. Return On Investment(%) A)Return On Investment(%):- =Net Profit After Interest and Tax/EAT =1159.52 =1020.58 Total Assets 6788.96 5713.92 Return On Investment(%):- 17.08% 17.86% •ROI measures how effectively the firm uses its capital to generate profit •The income that an investment provides in a year. •The higher the ROI, the better.
    • 35. Return on Capital Employed(%) Return on Capital C) Employed(%):- =EBIT =1846.46 =1616.18 Total Assets-Current Liabilities 6788.96-2931.41 5713.92-2587.03 Return on Capital Employed(%):- =1846.46 =1616.18 3857.55 3126.89 47.87% 51.69% Return on Capital Employed(%):- •A higher ROCE indicates more efficient use of capital. •ROCE should be higher than the company’s capital cost; otherwise it indicates that the company is not employing its capital effectively and is not generating shareholder value. •A good ROCE is one that is greater than the rate at which the company borrows.
    • 36. Return on Assets(%) D)Return on Assets(%):- =EBIT =1846.46 =1616.18 Average total assets 6251.44 5253.39 Return on Assets(%):- 29.54% 30.76% where, Average Total Assets =Opening Total Assets during the year= +Closing Total Assets =6788.96+5713.92 =4610.50+5896.21 2 2 6251.44 5253.39 2 Hence,Avg Total Assets= Measures your ability to turn assets into profit. This is a very useful measure of comparison within an industry. A low ratio compared to industry may mean that your competitors have found a way to operate more efficiently.
    • 37. Return on Total Capital(%) Return on Total E) Capital(%):- =(Net Income+Interest Expense) ROTC(%)= where, Average Total Capital during the Opening Total Capital year= +Closing Total Capital 2 Hence,Avg Total Capital= 3343.49 2705.11 =1170.04 =1029.69 2705.11 34.99% Return on Total Capital(%):- =(1020.58+9.11) 3343.49 Average Total Capital =(1159.52+10.52) 38.06% (3384.29+312.49)+(27 (2748.50+241.70)+( 48.50+241.70) 2187.42+232.61) 2 2 3343.49 2705.11
    • 38. Z-score 8) Z-SCORE Z- Score = A*3.3+B*.99+C*0.6+D*1.2+E*1.4 A = EBIT/Total Assets= A=1809.81/6788.96 = 0.27 B=10906.01/6788.96 B= Net Sales/ Total Assets =1.61 C=424.55*9.59Cr C= MV of Equity/ Total /6788.96Cr Liabilities= =0.60 D=(4006.50-2931.41)/ D= Working Capital/ Total 6788.96 Assets= =0.16 E= Retained Earnings/ E=(3288.37/6788.96) Total Assets= =0.4844 Z=0.27*3.3+1.61*.99+0.60*. Thus,Z= 6+0.16*1.2+0.4844*1.4 Z= Note:-Since,Z>3- Company is solvent based on Financial Figures 3.7089 A=1575.21/5713.92 =0.28 B=9598.33/5713.92 = 1.69 C=362.50*9.59Cr/ 5713.92Cr =0.62 D= (3506.67-2587.03)/ 5713.92 =0.16 E=(2652.58/5713.92) =0.5 Z=0.28*3.3+1.69*.99+0.6 2*0.6+0.16*1.2+0.5*1.4 3.86