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Ratio Analysis of Maruti

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Financial ratios are one way of comparing companies of different sizes, capacities and production level for some single piece of financial information. The use of ratio analysis to interpret financial statements is useful for managers, banks, suppliers, customers, investors, shareholders, government and employees for various purposes.

Text of Ratio Analysis of Maruti




RATIO ANALYSISFinancial ratios are one way of comparing companies of different sizes, capacities and production level for some single piece of financial information. The use of ratio analysis to interpret financial statements is useful for managers, banks, suppliers, customers, investors, shareholders, government and employees for various purposes. The financial ratios are classifies into five groups Liquidity/Short term solvency Ratios Efficiency Ratios Profitability Ratios Leverage/Long term solvency Ratios Market Value Ratios

The following ratios are analysed for Maruti Suzuki for five years and one year of Tata Motors its competitor. A. LIQUIDITY RATIOS These ratios are used to measure a firms ability to meet short term obligations. They compare short term obligations with short term resources available to meet these obligations. Maruti Suzuki 2010-11 2009-10 3856 1208.8 2647.8 3788.4 1.01 0.69 In Cr. Rs. 2008-09 2007-08 5570 902.3 4667.7 3631.6 1.53 1.28 3190.5 1038 2152.5 3088.4 1.03 0.69 Tata Motors 2006-07 201011 3956 14775.6 713.2 3242.8 2779.1 1.42 1.16 3891 10884.6 18963.4 0.77 0.57


Current 6443.1 assets Inventories 1415 CA-INV 5028.1 Current liabilities Current Ratio Quick Ratio 4331 1.48 1.16

Current ratio: It shows the firms ability to cover its current liabilities with its current assets. Current Ratio = current assets/current liabilities Quick Ratio: Its shows the firms ability to meet current liabilities with its most liquid assets.

Quick Ratio = (current assets inventory)/ current liabilities Analysis Comparing the current ratios of Maruti with Tata motors over the period of time shows that the company is too liquid which states that it is in a better position to pay its bills or liabilities as compared to Tata motors. This shows additional profitability. Also its quick ratio is stable and constant when compared to current ratio and far better than Tata motors which states that company follows a conservative policy and liquidity of the company is better off when compared to Tata motors. B. EFFICIENCY RATIOS These are also called asset utilization ratios. These ratios give how efficiently or intensively a firm uses its assets to generate sales. Asset turnover ratioMaruti Suzuki Tata 2011 2010 2009 2008 2007 2011 4,09,489 3,21,805 23,381.50 2,09,493 1,72,935 1,27,420 71,705 55,635 4,649.80 40,328 29,412 43,493.12 2,060.20 64,904 39,232 30,909 39,056 51,034.92 1,36,609 94,867 6,710 71,237 68,468 94,528 3.00 3.39 3.48 2.94 2.53 1.35

Particular Sales revenue total fixed assets total current assets Total assets asset turn over ratio

The amount of sales generated for every dollar's worth of assets. It is calculated by dividing sales in dollars by assets in dollars. Asset turnover ratio = total revenue/ Average total assets Analysis: The ratio has been improving for Maruti Suzuki. It shows that each Rs. invested is generating increasing amount of revenue. The asset turns over ratio for Maruti Suzuki is better that the competitor in the year 2011. This shows that the business is being run more efficiently by Maruti Suzuki Inventory turnover ratioMaruti Suzuki 2011 2010 3,39,600 2,63,028 3,794 1,661 4,220 4,007 Tata 2008 18,396.20 1,60,045 902.3 2,247 5,408 3,828 2009 2007 2011 1,26,721 1,05,353.33 4,857 NA 2,247 NA 3,552 14,070.51

Particular cost of sales stock at the beginning stock at the end Average stock

3,794 2,728


A ratio showing how many times a company's inventory is sold and replaced over a period. Inventory Turnover Ratio = Cost of goods sold/Average Inventory Analysis: We can see that the inventory turnover ratio for Maruti Suzuki is much higher that the inventory turnover ratio of Tata motors. This means that the sales are very strong in case of Maruti. AR turnover ratio

Particulartotal credit sales average accounts receivable balance

Maruti Suzuki Tata 2011 2010 2009 2008 2007 2011 366112.00 293028.00 20,729.40 178603.00 147217.00 123133.30 918.9 9502.00 8494.00 6555.00 7767.00 6877.36 38.53 34.50 22.56 27.25 18.95 17.90

Account receivable turn over ratio

The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets. A/R Turnover = Net Credit Sales/Average A/Rs Analysis: The AR turnover ratio of Maruti Suzuki is much higher than the Tata motors which mean that Maruti Suzuki operates more or less in cash basis. Tata motors should re look at its credit policies. AP Turnover Ratio

Particular Total Supplier ratio Average account payable AP turn over ratio

Maruti Suzuki 2011 2010 29,531 23,461 40,798 35,678

Tata 2009918.9 3,250.90

2008 8,549 28,187

2007 2011 9,256 26,684.78 25,132 37,114.65 0.718982

0.723835 0.657576 3.537817 0.303296 0.368295

These ratios quantify the rate at which a company pays off its suppliers. Accounts payable turnover ratio is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period. AP Turnover Ratio = Total Supplier Purchases/Average APs Analysis: If the turnover ratio is falling from one period to another, this is a sign that the company is taking longer to pay off its suppliers than it was before. The opposite is true when the turnover ratio is increasing, which

means that the company is paying of suppliers at a faster rate. So for Maruti the ratio is increasing which means that the company is paying its creditors in a faster rate and the rate is similar to the Tata motors in the fiscal year ending 2011.

C. PROFITABILITY RATIOS These ratios show the overall effectiveness of the operations. It mainly concentrates on net income i.e. how well the organization has managed to maximize its net income for better effectiveness. The different profitability ratios are discussed below for Maruti Suzuki and Tata Motors Profit marginMaruti Suzuki 2011 2010 2009 2008 2007 36,543.70 29,437.10 20,715.40 18,050.70 14,834.00 2,307.10 2,545.00 1,231.70 1,789.90 1,588.30 0.06 6.3 0.09 8.6 0.06 5.9 0.10 9.9 0.10 10.7 Tata 2011 122,932.83 9,220.79 0.08 7.5

Particular Net sales Net profit Profit margin Profit margin %

Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue. The profit margin is mostly used for internal comparison. A low profit margin indicates a low margin of safety: higher risk that a decline in sales will erase profits and result in a net loss, or a negative margin. Profit Margin = Net Profit/Sales Analysis: The ratio as seen is decreasing from year 2007 to 2010 which implies that the revenue generated is lower than the cost involved but in 2010 the profitability has been increase and shows higher revenue than costs incurred. It also shows that the pricing which Maruti kept was not proper as compared to its competitor as the ratio is lower than TATAs. TATAs have better control over cost as compared to Maruti. Return on assets (ROA)

The return on assets (ROA) percentage company's assets are in generating revenue.


how profitable a

Particular Total assets Net income ROA

Maruti Suzuki 2011 2010 2009 14,722.70 13,064.60 10,333.20

2008 9,512.50

2007 7,660.70

Tata 2011 52,209.48

37,419.30 30,180.60 20,864.50 18,897.10 14,943.80 126,064.14 2.54 2.31 2.02 1.99 1.95 2.41

ROA = Net Income/Total Assets Analysis: The ROA is increasing since 2007 till date which depicts that Maruti is utilising its assets very efficiently. It is investing in assets to generate income better than TATAs. Return on Equity Return on equity (ROE) measures the rate of return on the ownership interest (shareholders' equity) of the common stock owners. It measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth.Maruti Suzuki 2011 2010 2009 14,308.80 12,182.60 9,565.30 Tata 2011 19,171.47

Particular Shareholders Equity Net income ROE

2008 8,627.10

2007 7,006.50

37,419.30 30,180.60 20,864.50 18,897.10 14,943.80 126,064.14 2.62 2.48 2.18 2.19 2.13 6.58

ROE= Net Income/Average Shareholders Equity Analysis: The ROE is the money raised from the shareholders. Maruti has increased in the ROE percentage. It has improved to invest money to generate income out of shareholders equity. But the ratio is very less than TATA, this implies that Maruti is less risky company than TATA because its debt is less as compared to TATA. Return on capital employed (ROCE) ROCE compares earnings with capital invested in the company. It is similar to Return on Assets (ROA), but takes into account sources of financing. NOPAT isequal to EBIT * (1 - tax) -- the return on the capital employed should be measured in after tax terms.

Particular PBDIT Depreciation EBIT Total Assets ROCE

Maruti Suzuki 2011 2010 4,302.00 4,577.50

2009 2,507.90

2008 3,201.60

2007 2,632.30

Tata 2011 18,110.90

1,031.30 841.40 716.50 572.70 275.50 4,655.51 3,270.70 3,736.10 1,791.40 2,628.90 2,356.80 13,455.39 14,722.70 13,064.60 10,333.20 9,512.50 7,660.70 52,209.48 0.22 0.29 0.17 0.28 0.30 0.26

ROCE = EBIT/Capital Employed Analysis: Return on Capital Employed ratio indicates whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets. The ratio is decreasing which shows that company do not have control over t

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