P.C.E.

T’s

S. B. Patil Institute of Management

202 – GC – 08 – FINANCIAL MANAGEMENT

Comprehensive Concurrent Evaluation - 2

CCE Group: B

Title: Situation Analysis

Linkages with COs

1. CO202.2: EXPLAIN in detail all theoretical concepts throughout the syllabus.

2. CO202.5: EVALUATE impact of business decisions on Financial Statements, Working
Capital, Capital Structure and Capital Budgeting of the firm.

A Description of the Assessment:

1. Take print of Formats given and write details as per information provided in point 2, 3, 4
2. Part – I: Write formula for respective ratio along-with its meaning / definition / relevant detail
3. Part – II : Calculate the given Ratios for allotted company for 2 years
4. Part – III : Write appropriate interpretation for given ratios on the basis of calculated ratios of
Part – II

Conduction & Submission Dates

1. Conduction Date:
2. Submission Date:
 P.C.E.T’s

S. B. Patil Institute of Management

202 – GC – 08 – FINANCIAL MANAGEMENT

Comprehensive Concurrent Evaluation - 2

Name of the Student: R u s h i k e s h B a l a j i G a d h a v e

Division: B

Roll No: 2022415

PART – I (Formula and Meaning)

1) Current Ratio: The current ratio is a popular metric used across the
industry to assess a company's short-term liquidity with respect to its
available assets and pending liabilities. In other words, it reflects a
company's ability to generate enough cash to pay off all its debts once they
become due. It's used globally as a way to measure the overall financial
health of a company.
Formulae : Current Ratio= Current Liabilities/Current Assets

2) Quick Ratio: The quick ratio is an indicator of a company’s short-

term liquidity position and measures a company’s ability to meet its short-
term obligations with its most liquid assets. The quick ratio is considered a
more conservative measure than the current ratio, which includes all current
assets as coverage for current liabilities.
Formulae: QR = (Current Assets - Inventories - Prepaid Expenses) /
Current Liabilities. QR = (Cash + Cash Equivalents + Marketable
Securities + Accounts Receivable) / Current Liabilities.
3) Inventory Turnover Ratio: The inventory turnover ratio is an efficiency
ratio that shows how effectively inventory is managed by comparing cost of
goods sold with average inventory for a period. This measures how many
times average inventory is “turned” or sold during a period.
Formulae:
Inventory turnover ratio= cost of goods sold /Average inventory
4) Debtors Turnover Ratio: Accounts Receivables Turnover ratio is also
known as debtors turnover ratio. This indicates the number of times average
debtors have been converted into cash during a year. This is also referred to
as the efficiency ratio that measures the company's ability to collect
revenue. It also helps interpret the efficiency in using a company's assets in
the most optimum way.
Formula :
Debtor Turnover Ratio = Net Credit Sales / Average Trade Debtors
5) Working Capital Turnover Ratio: Working capital turnover is a ratio that
measures how efficiently a company is using its working capital to support
sales and growth. Also known as net sales to working capital, working
capital turnover measures the relationship between the funds used to
finance a company's operations and the revenues a company generates to
continue operations and turn a profit.
Formula: working capital Turnover = Net annual sales/Average
working capital
6) Total Assets Turnover Ratio: The total asset turnover ratio compares
the sales of a company to its asset base. The ratio measures the ability of
an organization to efficiently produce sales, and is typically used by
third parties to evaluate the operations of a business.
Formula: Net sales / Total assets = Total asset turnover

7) Gross Profit Ratio: Gross profit ratio (GP ratio) is a profitability ratio
that shows the relationship between gross profit and total net sales revenue.
It is a popular tool to evaluate the operational performance of the business .
The ratio is computed by dividing the gross profit figure by net sales.
Formula: Gross Profit Ratio = Gross profit / Net sales

8) Net Profit Ratio: The net profit percentage is the ratio of after-tax
profits to net sales. It reveals the remaining profit after all costs of
production, administration, and financing have been deducted from
sales, and income taxes recognized. As such, it is one of the best
measures of the overall results of a firm, especially when combined with
an evaluation of how well it is using its working capital.
Formula: Net Profit Ratio= Net profit/Net Sales
9) Operating Profit Ratio: 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 also expressed as
a percentage of sales and then shows the efficiency of
a company controlling the costs and expenses associated with
business operations.
Formula: Operating profit margin = Operating income / Total revenue

10) Return on Assets: The return on assets ratio, often called the return
on total assets, is a profitability ratio that measures the net income produced
by total assets during a period by comparing net income to the average total
assets. In other words, the return on assets ratio or ROA measures how
efficiently a company can manage its assets to produce profits during a
period.
Formula: Return on Asset Ratio= Net Income/ Average Total Asset

11) Return on Equity: The return on equity ratio or ROE is a

profitability ratio that measures the ability of a firm to generate profits from
its shareholders investments in the company. In other words, the return on
equity ratio shows how much profit each dollar of common stockholders’
equity generates.
Formula: Return on Equity Ratio= Net Income / Shareholders Equity

12) Return on Capital Employed: Return on capital employed –

sometimes referred to as the ‘primary ratio’ – is a financial ratio that is used
to measure the profitability of a company and the efficiency with which it
uses its capital. Put simply, it measures how good a business is at
generating profits from capital.
Formula: Capital employed = Total Assets – Current Liabilities

13) Earnings Per Share: Earnings per share or EPS is an important

financial measure, which indicates the profitability of a company. It is
calculated by dividing the company’s net income with its total number of
outstanding shares. It is a tool that market participants use frequently to
gauge the profitability of a company before buying its shares.
Formula: Earnings per share: Net Income after Tax/Total Number of
Outstanding Shares
 14) Price Earnings Ratio: The price-to-earnings ratio (P/E ratio) is the
ratio for valuing a company that measures its current share price relative to
its earnings per share (EPS). The price-to-earnings ratio is also sometimes
known as the price multiple or the earnings multiple.
Formula: P/E Ratio=Earnings per share /Market value per share

15) Debt Equity Ratio: The Debt to Equity ratio (also called the “debt-
equity ratio”, “risk ratio”, or “gearing”), is a leverage ratio that calculates
the weight of total debt and financial liabilities against total shareholders’
equity. Unlike the debt-assets ratio which uses total assets as a
denominator, the D/E Ratio uses total equity. This ratio highlights how a
company’s capital structure is tilted either toward debt or equity financing.
Formula: Debt to Equity Ratio = (short term debt + long term debt + fixed
payment obligations) / Shareholders’ Equity

16) Interest Coverage Ratio: The interest coverage ratio is a debt and
profitability ratio used to determine how easily a company can
pay interest on its outstanding debt. The interest coverage ratio is calculated
by dividing a company's earnings before interest and taxes (EBIT) by its
interest expense during a given period
Formula: Interest coverage Ratio = EBIT/ Interest Expense

17) Dividend Yield: Dividend yield is the financial ratio that measures
the quantum of cash dividends paid out to shareholders relative to the
market value per share. It is computed by dividing the dividend per share
by the market price per share and multiplying the result by 100. A company
with a high dividend yield pays a substantial share of its profits in the form
of dividends. Dividend yield of a company is always compared with the
average of the industry to which the company belongs.
Formula: Dividend Yield = Cash Dividend per share / Market Price
per share * 100.
 18) Dividend Pay-out Ratio: The dividend pay-out ratio is the amount
of dividends paid to stockholders relative to the amount of total net income
of a company. The amount that is not paid out in dividends to stockholders
is held by the company for growth. The amount that is kept by the company
is called retained earnings.
Formula: Dividend Pay-out Ratio= Dividend/ Net Income

PART – II (Values)

Company: Asian Paints

Ratio / Year 2019 2018
Liquidity Ratios:
Current Ratio 1.1 1.34
Quick Ratio 0.56 0.76

Turnover Ratios:
Inventory Turnover Ratio 6.34 6.68
Debtors Turnover Ratio 13.76 13.29
Working Capital Turnover Ratio 80.5 8.11
Total Assets Turnover Ratio 1.87 1.84

Profitability Ratios:
Gross Profit Ratio 18.08 18.41
Net Profit Ratio 13.00 13.37
Operating Profit Ratio 21.38 20.61
Return on Assets 92.19 81.3
Return on Capital Employed 36.67 36.97
Return on Equity 23.2% 24.1%
Earnings Per Share 28.2 22.5
PE Ratio 66.1x 54.5x
Dividend Yield 0.23% 0.18%
Dividend Payout Ratio 40.03 52.14
Solvency Ratios:
Debt to Equity Ratio 0.04 0.00
Interest Coverage Ratio 41.33 137.08
Net Worth to Total Assets Ratio 0.73 0.70

PART - III
(Interpretation)
Liquidity Ratios:
Current Ratio: A good current ratio is between 1.2 to 2, which means that the
business has 2 times more current assets than liabilities to covers its debts. A
current ratio below 1 means that the company doesn't have enough liquid assets to
cover its short-term liabilities. Here in case of Asian paints its not 1.2 but at least
its not less than 1 which is not good.

Quick Ratio: When a company has a quick ratio of 1, its quick assets are equal
to its current assets. This also indicates that the company can pay off its current
debts without selling its long-term assets. If a company has a quick ratio higher
than 1, this means that it owns more quick assets than current liabilities. Asian
paints has quick ratio less than 1 so they are in trouble if they have to pay current
depts.

Turnover Ratios:
Inventory Turnover Ratio: Inventory turnover measures how many times in a
given period a company is able to replace the inventories that it has sold. Asian
paints had much good inventory turnover ratio. So it shows that they are good
shape while selling there product.
Debtors Turnover Ratio: The Debtors turnover ratio measures the efficiency
with which a company collects on its receivables or the credit it extends to
customers. The ratio also measures how many times a company's receivables are
converted to cash in a period. Here in case of Asian paints they are very efficient
while collecting money from debtors .

Working Capital Turnover Ratio: Working capital turnover measures how

effective a business is at generating sales for every dollar of working capital put to
use.A higher working capital turnover ratio is better, and indicates that a company
is able to generate a larger amount of sales.Asian paints had less working capital
turnover ratio in 2018 because of some problem but in other years they have good
ratio.

Total Assets Turnover Ratio: The total asset turnover ratio, measures the
efficiency with which a company uses its assets to produce sales. Asian paints
have good Total asset turnover ratio if not best .

Profitability Ratios:
Gross Profit Ratio: Gross profit ratio (GP ratio) is a financial ratio that measures
the performance and efficiency of a business by dividing its gross profit figure
by the total net sales. As Asian paint have good Gross profit ratio means that its
generating good profits compare to net sales.

Net Profit Ratio: Net profit margin measures how much net income is generated
as a percentage of revenues received. Net profit margin helps investors assess if a
company's management is generating enough profit from its sales and whether
operating costs and overhead costs are being contained. Asian paints is generating
good income as there ratio shows.
Operating Profit Ratio: The operating margin represents how efficiently a
company is able to generate profit through its core operations. It is expressed on a
per-sale basis after accounting for variable costs but before paying any interest or
taxes (EBIT). Higher margins are considered better than lower margins, and can be
compared between similar competitors but not across different industries. Asian
paints has good Operating profit ratio compare to other competitors.

Return on Assets: Return on assets (ROA) is an indicator of how well a company

utilizes its assets in terms of profitability. ROA is best used when comparing
similar companies or by comparing a company to its own previous performance.
Asian paints have good return on asset compare to its peers.

Return on Capital Employed: Return on capital employed (ROCE) is a financial

ratio that measures a company’s profitability in terms of all of its capital. Return
on capital employed is similar to return on invested capital (ROIC). Asian paints
have good return on capital employed means they generate great profits with the
capital they invested.

Return on Equity: Return on equity (ROE) measures a corporation's profitability

in relation to stockholders’ equity. Whether an ROE is considered satisfactory will
depend on what is normal for the industry or company peers. Asian paints provides
good return on equity. It means that it can attract more investors.

Earnings Per Share: Earnings per share (EPS) is a company's net profit divided
by the number of common shares it has outstanding. Eps indicates how much
money a company makes for each share of its stock and is a widely used metric for
estimating corporate value. A higher EPS indicates greater value because investors
will pay more for a company's shares if they think the company has higher profits
relative to its share price. Asian paints earn great value per share.
PE Ratio: The price-to-earnings (P/E) ratio relates a company's share price to its
earnings per share. A high P/E ratio could mean that a company's stock is
overvalued, or else that investors are expecting high growth rates in the future.
Asian paints have great PE Ratio .

Dividend Yield: The dividend yield—displayed as a percentage—is the amount of

money a company pays shareholders for owning a share of its stock divided by its
current stock price. Mature companies are the most likely to pay dividends.
Companies in the utility and consumer staple industries often having higher
dividend yields. In case of Asian paints there Dividend yield is very poor means
that company does not declare dividends very often.

Dividend Payout Ratio: The dividend payout ratio is the proportion of earnings
paid out as dividends to shareholders, typically expressed as a percentage. Asian
paints have good if not great ratio. As they declare portion of earning as dividend .

Solvency Ratios:
Debt to Equity Ratio: The debt-to-equity (D/E) ratio compares a company’s total
liabilities to its shareholder equity and can be used to evaluate how much leverage
a company is using. Higher-leverage ratios tend to indicate a company or stock
with higher risk to shareholders. However, the D/E ratio is difficult to compare
across industry groups where ideal amounts of debt will vary. Asian Paints have
less than 1 dept. to equity ratio means they kept the balance between Dept. and
equity which makes them a safe company.

Interest Coverage Ratio: The interest coverage ratio is used to measure how well
a firm can pay the interest due on outstanding debt. Generally, a higher coverage
ratio is better, although the ideal ratio may vary by industry. In case of Asian
Paints, there interest coverage ratio is great. That shows that they pay there interest
very well. So it makes there investors comfortable if they want to invest.
Net Worth to Total Assets Ratio: While a 100% ratio would be ideal, that does
not mean that a lower ratio is necessarily a cause for concern. Some assets, such as
those that generate stable income like pipelines or real estate, tend to carry higher
leverage. Asian Paints have less than 100 ratio.