Ratio analysis of Hindustan Unilever Limited

3. Ratio Analysis
Ratio analysis is a useful management tool that
will improve your understanding of financial
results and trends over time, and provide key
indicators of organizational performance.
Managers will use ratio analysis to pinpoint
strengths and weaknesses from which
strategies and initiatives can be formed.

4. Ratios
Profitabilit
y
Liquidity Turnover
Valuation Leverage

5. ProfitabilityRatios
A profitability ratio is a measure of profitability, a way of
measuring a company's performance. Profitability is simply
the capacity to make a profit.
Types of Profitability Ratios
Gross Margin Ratio
Return on Assets Ratio
Net Profit Ratio
Operating Profit Ratio
Return On Capital Employed

6. • Ratio measures how effectively the company
produces income from its assets.
• It measures how efficiently a company can
manage its assets to produce profits during a
year.
• Return on Assets = net income/assets x 100,
here., Assets = Fixed Assets + Current Assets.
• The net income can be found on the income
statement.
Return on Assets

7. Return on Assets = Net Income x 100
Assets
Hindustan Unilever 2014 2015
Ratio 67.021 74.443

8. Gross Margin Ratio
• It tells you about the profitability of your goods
and services. It tells you how much it costs you
to produce the product.
• It indicates the efficiency of the production
department.
• One of the popular tools to evaluate operational
performance of the business.

9. Gross Margin = Gross Profit x 100
Net Sales
Hindustan Unilever 2014 2015
Ratio 17.131 17.928

10. • 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.
Net Profit Ratio

11. Net Profit Ratio = Net Profit Before Tax x 100
Net Sales
Hindustan Unilever 2014 2015
Ratio 17.774 18.308

12. LiquidityRatios
The term liquidity is defined as the ability of a company to meet
its financial obligations as they come due. The liquidity ratio, then,
is a computation that is used to measure a company's ability to
pay its short-term debts.
Types of Liquidity Ratios
Absolute Liquid Ratio
Quick Ratio or Acid Test Ratio
Current Ratio

13. Absolute Liquid Ratio
• It shows the relationship between absolute liquid or super quick
current assets and liabilities. Absolute liquid assets include cash,
bank balances, and marketable securities.
• It indicates the adequacy of the 50% worth absolute liquid assets
to pay the 100% worth current liabilities in time.

14. Absolute Liquid Ratio = Absolute Liquid Assets
Current Liabilities
• Absolute liquid assets : Cash + Bank+ Marketable
Securities.
Hindustan Unilever 2014 2015
Ratio 0.270 0.296

15. Quick Ratio Or Acid Test Ratio
• The acid test ratio is a stringent and meticulous test
of a firm's ability to pay its short-term obligations 'as
and when they are due.
• It is a measure of how well a company can meet its
short-term financial liabilities.

16. Quick Ratio = Liquid Assets
Current Liabilities
• Liquid assets : Current assets – Stock And Prepaid
Expenses.
Hindustan Unilever 2014 2015
Ratio 0.261 0.289

17. Current Ratio
• The current ratio is a financial ratio that measures
whether or not a firm has enough resources to pay its
debts over the next 12 months.
• It compares a firm's current assets to
its current liabilities.
• The ideal current ratio is 2: 1. It is a indication of the
financial soundness of a business concern. When
Current assets double the current liabilities, it is
considered to be satisfactory.

18. Current Ratio = Current Assets
Current Liabilities
Hindustan Unilever 2014 2015
Ratio 1.069 1.084

19. turnoverRatios
• It establish the relationship of sales with various assets.
These are expressed in integers or times rather than as
a percentage or proportion. These are mostly
computed to measure the efficiency.
Types of Turnover Ratios
Debtors turnover ratio
Total assets turnover ratio
Fixed Assets Turnover ratio
Working Capital turnover ratio

20. Debtor Turnover Ratio
• It is an accounting measure used to quantify a firm's
effectiveness in extending credit as well as collecting
debts.
• The receivables turnover ratio is an activity ratio,
measuring how efficiently a firm uses its assets.
• This ratio establishes the relationship between net
credit sales and average debtors for the year.
• It shows how quickly the credit sales of the company
have been converted into cash.

21. Debtors Turnover Ratio = Net Credit Sales
Average Account Receivable
Hindustan Unilever 2014 2015
Ratio 34.298 39.30

22. Total Assets Turnover Ratio
• Total assets turnover ratio shows the relationship between total
assets and sales.
• Total assets turnover ratio indicates how well the firm's total
assets are being used to generate its sales.
Hindustan Unilever 2014 2015
Ratio 2.055 2.369
Total Assets Turnover Ratio = Net Sales
Total Assets

23. Fixed Assets Turnover Ratio
• Fixed assets turnover ratio is also termed as the ratio of sales
to fixed assets.
• Fixed assets turnover ratio indicates how efficiently the fixed
assets are used.
• It measures the efficiency with which the firm has been using
its fixed assets to generate sales.
Hindustan Unilever 2014 2015
Ratio 7.646 8.336
Fixed Assets Turnover Ratio = Net Sales
Net Fixed Assets

24. Creditors Turnover Ratio
• It is a ratio of net credit purchases to average
trade creditors. Creditors turnover ratio is
also know as payables turnover ratio
Creditors Turnover Ratio = Total supplier purchases
(Beginning accounts payable + Ending accounts payable) / 2
Ratio 0.24 0.28
Hindustan Unilever 2014 2015

25. Working Capital Turnover Ratio
• The working capital turnover ratio measures how well a
company is utilizing its working capital to support a given
level of sales.
• Working capital is current assets minus current liabilities.
• A high turnover ratio indicates that management is being
extremely efficient in using a firm's short-term assets and
liabilities to support sales
Fixed Assets Turnover Ratio = Net Sales
Beginning working capital + Ending
working capital
2
Hindustan Unilever 2014 2015
Ratio 4.382 4.639

26. Valuation Ratio
It is a measure of how cheap or expensive a business is, compared to
some measures of profit or value
Earning Per Share
Types of Valuation Ratios

27. Earnings per Share Ratio
• The earnings per share ratio (EPS ratio) measures the amount of a
company's net income that is theoretically available for payment to
the holders of its common stock.
• A company with a high earnings per share ratio is capable of
generating a significant dividend for investors, or it may plow the
funds back into its business for more growth; in either case, a high
ratio indicates a potentially worthwhile investment, depending on
the market price of the stock

28. Earnings per Share Ratio = Net income after tax - Preferred stock dividends
Average number of common shares outstanding
Hindustan Unilever 2014 2015
Ratio 3.277 3.725

29. Proprietary Ratio
• The proprietary ratio (also known as the equity ratio) is
the proportion of shareholders' equity to total assets,
and as such provides a rough estimate of the amount
of capitalization currently used to support a business
Proprietary Ratio = Shareholders' equity
Total tangible assets
Ratio 0.24 0.28
Hindustan Unilever 2014 2015

30. debt-to-equity ratio
• The debt-to-equity ratio (D/E) is a financial ratio
indicating the relative proportion of shareholders'
equity and debt used to finance a company's assets.
Closely related to leveraging, the ratio is also known
as Risk, Gearing or Leverage
Leverage/Solvency Ratios
Ability of the firm to use fixed
costs to magnify the returns to
the shareholders
Hindustan Unilever 2014 2015
Ratio 2.48 3.02

31. Leverage Ratio
• Companies rely on a mixture of owners
equity and debt to finance their operations.
• A leverage ratio is any one of several financial
measurements that look at how much capital comes
in the form of debt (loans), or assesses the ability of
a company to meet financial obligations.
Hindustan Unilever 2014 2015
Ratio 2.63 2.38

32. 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.
Hindustan Unilever 2014 2015
Ratio 0.317 0.336

33. OtherRatios
Inventory Turnover Ratio
Return On Investment Ratio
Capital Turnover Ratio
Operating Profit Ratio
Equity Ratio

34. Inventory Turnover Ratio
Hindustan Unilever 2014 2015
Ratio 0.317 0.336
The inventory turnover ratio is a key measure for evaluating just
how efficient management is at managing company inventory and
generating sales from it. Inventory Turnover. Like a typical turnover
ratio, inventory turnover details how much inventory is sold over a
period of time.
Ratio = Net Sales
Average Inventory At Cost

35. Return On Investment Ratio
Hindustan Unilever 2014 2015
Ratio 1.46 1.48
Return on investment (ROI) is the benefit to the investor resulting
from an investment of some resource. A high ROI
means the investment gains compare favorably
to investment cost.
Ratio = Net Profit Before Tax
Net Working Capital

36. Capital Turnover Ratio
Hindustan Unilever 2014 2015
Ratio 5.117 7.308
• Working Capital Turnover' A measurement comparing the
depletion of working capital to the generation of sales over a
given period.
• This provides some useful information as to how effectively a
company is using its working capital to generate sales.
Ratio = Net Sales
Capital Employed

37. Operating Profit Ratio
Hindustan Unilever 2014 2015
Ratio 15.86 16.84
• Operating margin is a margin ratio used to measure a
company's pricing strategy and operating efficiency.
• Operating margin is a measurement of what proportion of a
company's revenue is left over after paying for variable costs of
production such as wages, raw materials, etc.
Ratio = Operating Profit x 100
Net Sales

38. Equity Ratio
Hindustan Unilever 2014 2015
Ratio 0.30 0.24
Equity Ratio is a good indicator of the level of leverage used by a
company. The Equity ratio measures the proportion of the total
assets that are financed by stockholders and not creditors.
Ratio = Total Equity
Total Assets

39. Evaluation sheet
Serial No. Roll No. Name Of Student Marks
1 12 Arka Das Gupta
2 49 Shreel Dwivedi
3 38 Raj Karan Marhas
4 2 Aarya
5 9 Anwesha Chatterjee
6 57 Varun Mani Tiwari
7 20 Gaurav Deshmukh