A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies.[1] If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios. Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or always less than 1, such as earnings yield, while others are usually quoted as decimal numbers, especially ratios that are usually more than 1, such as P/E ratio; these latter are also called multiples. Given any ratio, one can take its reciprocal; if the ratio was above 1, the reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but may be more understandable: for instance, the earnings yield can be compared with bond yields, while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of 5%. Values used in calculating financial ratios are taken from the balance sheet, income statement, statement of cash flows or (sometimes) the statement of retained earnings. These comprise the firm's "accounting statements" or financial statements. The statements' data is based on the accounting method and accounting standards used by the organization. Ratios Profitability ratios Liquidity ratios Activity ratios (Efficiency Ratios) Debt ratios (leveraging ratios) Market ratios Capital budgeting ratios Financial ratios quantify many aspects of a business and are an integral part of the financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Liquidity ratios measure the availability of cash to pay debt.[2] Activity ratios measure how quickly a firm converts non-cash assets to cash assets.[3] Debt ratios measure the firm's ability to repay long-term debt.[4] Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return.[5] Market ratios measure investor response to owning a company's stock and also the cost of issuing stock.[6] These are concerned with the return on investment for shareholders, and with the relationship between return and the value of an investment in company’s shares. Financial ratios allow for comparisons between companies between industries between different time periods for one company between a single company and its industry average

1. DR.V.N.BEDEKAR INSTITUTE MANAGEMENT
STUDIES
MMS I DIV B
SUBJECT : FINANCIAL ACCOUNTING
TOPIC : RATIO ANALYSIS OF ASIAN PAINTS
SUBMITTED TO : PROF. SMITA JAPE MA’AM

2. Group Members
Sonali Sakpal 48
Sayali Phatak 44
Tanvi Pawar 43
Nikita Rathod 46
Nikita Watve 55
Tushar Sadhye 47
Vikrant Pokharkar 45

3. RATIO ANALYSIS
Ratio analysis is the process of determining and
interpreting numerical relationship based on
financial statements. It is the technique of
interpretation of financial statements with the
help of accounting ratios derived from the
balance sheet and profit and loss account.

4. Basis Of Comparision
 Trend Analysis involves comparison of a firm over
a period of time, that is, present ratios are compared
with past ratios for the same firm. It indicates the
direction of change in the performance –
improvement, deterioration or constancy – over the
years.
 Interfirm Comparison involves comparing the ratios
of a firm with those of others in the same lines of
business or for the industry as a whole. It reflects the
firm’s performance in relation to its competitors.
 Comparison with standards or industry average

5. Ways To Interpret Accounting
Ratios
 Single absolute ratio.
 Group ratio.
 Historical comparison.
 Inter-firm comparison.
 Projected ratios.

6. Classification Of Ratios
Category Also Called Measures
Liquidity Ratios Solvency Ratios Company’s ability in the
near future to pay its debts
as they become due
Profitability Ratios Margin Ratios Company’s success-or
failure-at earning a
profit(i.e., generating more
revenues than expenses
Asset Management
Ratios
Turnover Ratios
Efficiency Ratios
Activity Ratios
Company’s effectiveness at
using various assets
Leverage Ratios Coverage ratios
Capital
Structure Ratio
Company’s long-term ability
to pay debt as it becomes
due

7. Topic for observation

8. Asian Paint
 70 years of innovation in paint
 Since its foundation in 1942,
 India’s largest and Asia’s third largest paint company,
with a turnover of Rs.127.15 billion.
 Asian Paints operates in 17 countries and has 23 paint
manufacturing facilities in the world servicing
consumers in over 65 countries.
 Category - Paints/ Varnishes
 Competitors- Jenson & Nicolson India, Kansai Nerolac,
Akzonobel, Sherwin-Williams, Nippon Paints, PPG
Industries Inc.

9. BALANCE SHEET RATIOS
 CURRENT RATIO
 QUICK RATIO
 DEBT EQUITY RATIO

10. CURRENT RATIO
 Working Capital Ratio or Solvency Ratio
 Express the relationship between Current Assets & Current
Liabilities.
 Current Ratio = Current Assets :: Current Liabilities
 Standard Current Ratio = 2:1 is considered to be satisfactory.

11. SIGNIFICANCE & PURPOSE
Significance
 Test of Credit strength & solvency of an organization.
 Indicates the strength of the working capital (CA-CL).
 Company’s ability to meet its day-to-day financial obligation.
Purpose
 Serves index of short–term solvency.
 Index of the strength of working capital of an organization.

12. ASIAN PAINTS RELATED CURRENT
RATIO ANALYSIS
 Ratio less than 1.00 may
indicate liquidity issues.
 Ratio between 1.00 and
2.00 is sufficient.
 It can meet its short term
obligations with short
term assets.
 CR in 2014 < CR in 2013
as CA > in 2014 but CL has
also > in 2014.

13. QUICK RATIO
Acid Test Ratio
 Measures the ability of a company to
use its near cash or quick assets to
pay off its debts
 An indicator of a company’s short-term
liquidity

14. Significance of Quick Ratio
 Measure of a company's ability to settle its current
liabilities on a very short notice.
 May provide a misleading indication of a company's
liquidity position
 More reliable measure of liquidity for manufacturing
companies and construction firms that have relatively high
levels of inventory, work in progress and receivables
 More conservative version of current ratio.
 More rigorous assessment of a company's ability to pay
its current liabilities

15. Quick Ratio Will be calculated
as follows-
Cash in hand + Cash at Bank +Receivables +
Marketable Securities Inventories
Current Liabilities – Provisions
Quick Ratio of 2014,
= 3122.77 + 478.6 – 1665.05
2423.55 – 617.72
Quick Ratio of 2013,
= 2681.53 + 362.61 – 1480.79
2078.94 – 500.32

16. Analysis
 A quick ratio of 1.00 or 1:1 means that the most liquid assets of
a business are equal to its total debts
 More than one indicates that the most liquid assets of a business
exceed its total debts.
 Less than one indicates that a business would not be able to
repay all its debts by using its most liquid assets.
 Thus we conclude that, generally, a higher quick ratio is
preferable because it means greater liquidity and a lower quick
ratio company indicates a relatively lower liquidity position than
its competitors.
 Low or decreasing quick ratios generally suggest that a
company is over-leveraged, struggling to maintain or grow sales,
paying bills too quickly or collecting receivables too slowly

17. Debt Equity ratio
It indicates what proportion of equity
and debt the company is using to finance
its assets.
Formulae:
Debt:equity ratio=debt/equity
Standard ratio of debt equity is 2:1

18. Analysis of Asian paint
2013 2014
Debt 39.51 46.76
Equity 3600.93 3022.26
Ratio 0.01 0.02
<1:shareholder assets are greater than
creditor assets
>1:creditor assets are greater than
shareholder

19. Profitability Ratio
A profitability ratio is a measure of profitability, which is a
way to measure a company's performance. Profitability is
simply the capacity to make a profit, and a profit is what is
left over from income earned after you have deducted all
costs and expenses related to earning the income.
 DEFINITION OF ‘GROSS PROFIT’
A company's revenue minus its cost of goods sold. Gross
profit is a company's residual profit after selling a
product or service and deducting the cost associated
with its production and sales.

20. GROSS PROFIT RATIO
Significance:-
 It is a profitability ratio measuring what proportion of
revenue is converted into gross profit .
Formula:
GP RATIO =
푔푟표푠푠 푝푟표푓푖푡
푛푒푡 푠푎푙푒푠
*100
GROSS PROFIT = REVENUE - COST OF GOODS SOLD

21. Gross profit ratio for Asian paints
NET SALES 10418.78 8971.70
COST OF GOODS
SOLD
8716.85 7600.34
GROSS PROFIT 1701.93 1371.36
RATIO 16.34 15.29

22. ANALYSIS:
 The ideal level of gross profit margin depends on
the industries, how long the business has been
established and other factors.
 High gross profit margin indicates that the
company can make a reasonable profit, as long as
it keeps the overhead cost in control.
 Low gross profit margin indicates that the business
is unable to control its production cost.

23.  Gross profit ratio is high in current year than that of
previous year which shows increase in profit which
indicates that even the small changes in gross profit can
affect profitability of the company significantly.
 In current year it is shown that we have profit to cover
indirect expenses whichever are there for company.
 It is showing that there is increase in gross profit ratio
from that of previous year which indicates company’s
growth.

24. 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.
Formula:-
Net Profit Ratio =
푁푒푡 푃푟표푓푖푡 퐴푓푡푒푟 푇푎푥
푁푒푡 푆푎푙푒푠
x 100
Here,
NPAT = Gross Profit – Operating expenses –Tax
Net Sales = Gross Sales – Sales returns

25. Significance:-
 Useful tool for profitability measurement.
 Provides clues to company.
 Acts as an indicator of risk/safety and efficiency of the
company.
 Importance of net profit to different parties related to
business-
 Owners
 Investors
 Creditors
 Competitors
 Government

26. Net Profit Ratio calculated for Asian Paints for the year ended
Net Profit ratio =
푁푃퐴푇
x 100
푁푒푡 푆푎푙푒푠
2013 & 2014
For The Year
Ended March
2013
In Rs.(Cr)
For The Year
Ended March
2014
In Rs.(Cr)
NPAT 1050.00 1169.06
Net Sales 8971.70 10418.78
Net Profit Ratio 11.70 % 11.22 %

27. Analysis:-
 A high ratio indicates the efficient management of the affairs of
business.
 Net Profit Ratio can vary significantly from business to business and
can be affected by internal and external factors, Examples of factors
that can affect the net profit ratio are as follows –
 Industries & Segments
 Selling Price
 Cost of Factors
 Efficiency
 Taxation
 Here, In this case of Asian Paints, the Net Profit Ratio has decreased from
11.70% in 2013 to 11.22% in 2014, which means company has failed to convert
its revenue into actual profit.

28. FIXED ASSET TURNOVER RATIO
 Fixed-asset turnover is the ratio of sales (on the profit and loss
account) to the value of fixed assets (on the balance sheet). It
indicates how well the business is using its fixed assets to
generate sales.
Formula:
FIXED ASSET TURNOVER RATIO :-
Net Sales/Fixed Assets
Where, NET SALES = GROSS SALES - SALES RETURN

29. Purpose of FATR
 Ratio establishes a relationship between fixed assets and sales.
 Higher ratio is better
 Standard ratio:5 times
 Comparison for year to year
 Not useful for short term

30. Asian paints fixed assets turnover ratio

31. TRENDS OBSERVED

32. TRENDS OBSERVED

33. TRENDS OBSERVED
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
Trend in Debt Equity Ratio
2013-2014 2012-2013 2011-2012
Series1
11.8
11.7
11.6
11.5
11.4
11.3
11.2
11.1
11
10.9
Trend in Net Profit Ratio
2013-2014 2012-2013 2011-2012
Series1

34. THANK
YOU