RATIO ANALYSIS

OF

MARUTI SUZUKI INDIA

LIMITED
2008-2009
RATIO ANALYSIS

Liquidity ratio
The liquidity ratios are the basic bank financial ratios. Liquidity ratios are the financial statement
ratios which measure the ability of a business to meet its short term financial obligations on time.

 Current ratio
The current ratio is used to evaluate the liquidity, or ability to meet short term debts. The generally
acceptable current ratio is 2:1.

Current Ratio

= Current assets / Current liabilities

= 56,216 / 31,431

= 1.78 : 1

Current assets = Rs. 56,216 (millions)

Current liabilities = Rs. 31,431 (millions)

 Acid ratio
The acid ratio measures the immediate amount of cash immediately available to satisfy short term
debt.

Acid ratio

= Quick assets / (Current liabilities – Bank overdraft)

= 47,003 / 30,886

= 1.52 : 1

Quick assets = Current assets – Inventory – Pre-paid expenses

= 56,216 - 9,213 – 0

= Rs. 47,003(millions)

Current liabilities – Bank overdraft = 31,431 – 545 (schedule- 13) =Rs. 30,886 (millions)
  Cash ratio
The cash ratio measures the immediate amount of cash available to satisfy short term debt.

Cash ratio

= (Cash & bank + current investment) / Current liabilities

=19,868 / 31,431

= 0.63 : 1

Cash & bank balance + current investment = 19,868 + 0

= Rs. 19,868 (millions)

Leverage ratio
Leverage ratios are the financial statement ratios which show the degree to which the business is
leveraging itself through its use of borrowed money.

 Debt- equity ratio

Debt to Equity Ratio is also referred to as Debt Ratio, Financial Leverage Ratio or Leverage Ratio. The
debt to equity ratio indicates the extent to which the business relies on debt financing.

Debt- equity ratio

= debt / equity

= 7,588 / 95,653

= 0.08 : 1

Debt = Debentures + Secured loans + Unsecured loans

= 0 + 119 + 7,469 = Rs. 7,588 (millions)

Equity = Capital + Reserves and Surplus

= 1, 445 + 94,208

= Rs. 95,653 (millions)

 Debt -Assets ratio
The debt to assets ratio indicates the extent to which assets are encumbered with debt. A debt to
assets ratio over 65% indicates excessive debt.

Debt- Asset Ratio

= Debt / Assets

= 7,588 / 76, 272

= 9.94%

Assets = Fixed assets + Work in progress + Investments + Net working Capital

– Non trade Investment (Schedule 7)

= 42,163 + 8,674 + 32,772 + 21,230 – (18,663 + 9,904) = Rs. 76,272 (millions)

 Interest coverage ratio

The interest coverage ratio is also referred to as the times interest earned ratio. The interest coverage
ratio indicates the extent of which earnings are available to meet interest payments. A lower interest
coverage ratio means less earnings are available to meet interest payments and that the business is
more vulnerable to increases in interest rates.

Interest coverage ratio

= profit before interest, tax and depreciation / interest

= 26,764 / 545

= 49.10

Profit before interest, tax and depreciation = Rs. 26,764 (millions)

Interest = Rs 545 (millions)

 Debt service coverage ratio

The debt service coverage ratio shows the ability to meet annual interest and debt repayment
obligations. A debt service coverage ratio of less than 1:1 means that it does not have sufficient income
to meet its debt demands.
 Debt service coverage ratio

= (profit after tax + depreciation + interest on term loan)/(interest on loan + payment of term loan)

= 20,109 / 2,788

= 7.21 : 1

Profit After Tax + depreciation + interest on term loan + loss on sale of fixed assets = 12,274 + 7,165 + 545+125*

= Rs. 20,109 (millions)

*(schedule 18)

Interest on term loan + payment of Term loan = 545 + (1 + 660 + 1,582)*

= Rs. 2,788 (millions)

*(schedule 3 and 4)

Turnover ratios
 Inventory turnover ratio
The inventory turnover ratio measures the number of times a company sells its inventory during the
year. A high inventory turnover ratio indicated that the product is selling well.

Inventory turnover ratio

= cost of goods sold / average inventory

= 162,803 / 9,848

= 16.53 times

Cost of Goods Sold =Opening inventory + consumption of raw materials+ Purchases

- closing inventories + power and fuel (schedule18)

= 10,483 +152,274 + 7,323 – 9,213 + 1,936

= Rs.162,803 (millions)

Average Inventory = (opening inventory + closing inventory) / 2

= (10,483 + 9213)/2

= Rs. 9,848 (millions)

 Inventory holding period
The Inventory holding period shows the number of days that inventory is held prior to being sold. An
increasing ratio indicates a risk in the company's inability to sell its products. A decreasing ratio may
represent under-investment in inventory.

Inventory holding period

= 365 days / inventory turnover ratio

= 365 / 16.53

= 22 days

 Debtors turnover ratio

This is the ratio of the number of times that accounts receivable amount is collected throughout the
year.

Debtors turnover ratio

= credit sales / average debtors

= 205,579 / 8,198.5

= 25.07 times

Credit sales = Net sales ( credit sales is not given)

= Rs. 205,579 (millions)

Average Debtors = (Opening debtors + Closing Debtors) / 2

= ( 6,798 + 9,599 ) / 2

= Rs. 8,198.5 (millions)

 Debtors collection period
The Debtors collection period or average collection period must be compared to competitors to see
whether the credit given, and customer risk, is in line with the industry. A high collection period shows a
high cost in extending credit to customers

Debtors collection period

= 365 days / debtors turnover ratio

= 365 / 25.07

= 15 days

 Creditors turnover ratio

The accounts payable turnover ratio or creditors turn over ratio shows the number of times that
accounts payable are paid throughout the year. A low accounts payable turnover ratio indicates that
the company is taking longer to pay its suppliers

Creditors turnover ratio

= credit purchase / average creditors

= 159,597 / 21,526

= 7.41 times

Credit Purchase = Purchases + Raw materials consumed ( Credit purchase is not given)

= 7,323 + 152,274

= Rs.159,597 (millions)

Average Creditors = (opening creditors + closing creditors)* / 2

= (17,080 + 25,972 ) / 2

= Rs. 21,526 (millions)

*(schedule 13)
 Creditors payment period

= 365 days / average creditors

= 365 / 7.41

= 50 days

 Fixed asset turnover ratio

The Fixed Asset Turnover measure a company's effectiveness in generating Net Sales revenue from
investments back into the company.  However, the Fixed Asset Turnover ratio evaluates only the
investments in fixed assets.

Fixed asset turnover ratio

= net sales / total fixed assets

= 205,579 / 50,837

= 4.04 times

Net Sales = Rs. 205,579 (millions)

Total Fixed assets = Gross Block – Accumulated Depreciation + Capital work in progress

= 89,041 – 46,878 + 8,674 = Rs. 50,837 (millions )

 Total assets turnover ratio

This is a measure of how well assets are being used to produce revenue. In other words it indicates
how successful a firm is in utilizing its assets in generation of sales revenue.

Total assetes turnover ratio

= net sales / total assets

= 205,579/ 76,272

= 2.69 times

Net sales = Rs. 205,579 (millions)

Assets = Fixed assets + Work in progress + Investments + Net working Capital

– Non trade Investment (Schedule 7)

= 42,163 + 8,674 + 32,772 + 21,230 – (18,663 + 9,904) = Rs. 76,272 (millions)

Profitability ratios

The profitability ratios are the basic bank financial ratios. Profitability ratios are the financial
statement ratios which focus on how well a business is performing in terms of profit.

 Gross profit ratio

Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced
without incurring losses on operations. It reflects efficiency with which a firm produces its products. As
the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it
is.

Gross profit ratio

= gross profit/ net sales

= 42,776 / 205,579

= 0.21 = 21%

Gross profit = Net Sales – cost of goods sold

=Net sales – ( Opening inventory + consumption of raw materials+ Purchases

- closing inventories + power and fuel (schedule18))

= 205,579 – (10,483 +152,274 + 7,323 – 9,213 + 1,936)

= Rs. 42,776 (millions)

Net sales = Rs.205,579 (millions)

 Net profit ratio

NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. This ratio
also indicates the firm's capacity to face adverse economic conditions such as price competition, low
demand, etc. Higher the ratio the better is the profitability.
 Net profit ratio

= net profit / net sales

= 12,944 / 205,579

= 6.29 %

Net Sales = Rs.205,579 (millions)

Net profit = Profit after tax + interest + loss on sale of fixed assets

= 12,274 + 545 + 125

= Rs.12,944 (millions)

 Operating profit ratio

The Operating Profit Percentage measures how much of a profit the company is generating from their
main operations. This ratio uncovers situations where companies are relying on actions other than
operations to generate an income. A high, or increasing Operating Profit Percentage is usually a positive
sign, showing the company is increasingly able to generate sales from its operations.
Operating profit ratio

= operating profit / net sales

= 17,744 / 205,579

= 8.63 %

Operating profit = net profit before interest , tax and depreciation – depreciation +

( loss on sale of fixed assets + provisions for doubtful debts)*

= 24,764 - 7,165 + ( 125 + 50 )

= Rs. 17,774 (millions)

*( Schedule 18)

Net sales = Rs. 205,579 (millions)

 Return on Investments
Return on Investment, or ROI measures the Net Earnings in relation to the Total Assets.  The Return on
investment identifies how well the investments of the company (the Total Assets) have generated
earnings (Net Earnings) back to the company. 

Return on investment

= profit before interest and tax / total assets

= 17,724 / 76,272

= 23%

Profit before interest and tax = profit before interest, tax and depreciation – depreciation +

loss on sale of fixed assets (schedule 18)

= 24,764 – 7,165 + 125

= Rs.17,724 (millions)

Total assets = Fixed assets + Work in progress + Investments + Net working Capital

– Non trade Investment (Schedule 7)

= 42,163 + 8,674 + 32,772 + 21,230 – (18,663 + 9,904) = Rs. 76,272 (millions)

 Return on capital employed

= net operating profit after tax / total assets

= 13,037 / 76,272

= 17%

Net operating profit after tax = Profit after interest, tax and depreciation + interest +

( loss on sale of fixed assets + provisions for doubtful debts)*

= 12,317 + 545+ 125 +50 = Rs. 13,037 (millions)

 Return on equity
The amount of net income returned as a percentage of shareholders equity. Return on equity measures
a corporation's profitability by revealing how much profit a company generates with the money
shareholders have invested.

Return on equity

= equity earnings / total equity

= 9,872 / 95,653

= 10.32 %

Equity earnings = Profit for the year – proposed dividend – corporate dividend tax

-General reserve

= 12,274 – 1,011 – 172- 1,219

= Rs. 9,872 (millions)

Total equity = Capital + Reserves and Surplus

= 1, 445 + 94,208

= Rs. 95,653 (millions)

 Earning per share

The portion of a company's profit allocated to each share of common stock. Earnings per share serves
as an important indicator of a company's profitability.

Earning per share

= equity earnings / no. Of equity shares

= 9,872,000,000 / 288,910,060

= Rs 34.16

Equity earnings = Profit for the year – proposed dividend – corporate dividend tax

-General reserve

= 12,274 – 1,011 – 172- 1,219

= Rs. 9,872 (millions)

No. of equity shares = 288,910,060 (schedule 1)

Valuation ratio
 Price earning ratio

= market price per share / earnings per share

= 1364.5 / 34.16

= 39.94

Market price = Rs 1364.45 ( as on 21st august 2009)