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 MAAM

Group Members

Sonali Sakpal 48

Sayali Phatak 44

Tanvi Pawar 43

Nikita Rathod 46

Nikita Watve 55

Tushar Sadhye 47

Vikrant Pokharkar 45
 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.
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 firms performance in relation to its
competitors.
Comparison with standards or industry
average
 Ways To Interpret Accounting
Ratios
Single absolute ratio.
Group ratio.
Historical comparison.
Inter-firm comparison.
Projected ratios.
 Classification Of Ratios
Category Also Called Measures
Liquidity Ratios Solvency Ratios Companys ability in the
near future to pay its debts
as they become due

Profitability Ratios Margin Ratios Companys success-or

failure-at earning a
profit(i.e., generating more
revenues than expenses

Asset Management Turnover Ratios Companys effectiveness at

Ratios Efficiency Ratios using various assets
Activity Ratios
Leverage Ratios Coverage ratios Companys long-term ability
Capital to pay debt as it becomes
Structure Ratio due
Topic for observation
 Asian Paint
70 years of innovation in paint
Since its foundation in 1942,
Indias largest and Asias 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.
BALANCE SHEET RATIOS

CURRENT RATIO

QUICK RATIO

DEBT EQUITY RATIO

 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.

SIGNIFICANCE & PURPOSE
Significance
Test of Credit strength & solvency of an organization.

Indicates the strength of the working capital (CA-CL).

Companys ability to meet its day-to-day financial obligation.

Purpose
Serves index of shortterm solvency.

Index of the strength of working capital of an organization.

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.
 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 companys short-
term liquidity
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
 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
 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
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
 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
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.
 GROSS PROFIT RATIO

Significance:-
It is a profitability ratio measuring what proportion of
revenue is converted into gross profit .

Formula:

GP RATIO = *100

GROSS PROFIT = REVENUE - COST OF GOODS SOLD

Gross profit ratio for Asian paints
NET SALES 10418.78 8971.70

COST OF GOODS 8716.85 7600.34

SOLD

GROSS PROFIT 1701.93 1371.36

RATIO 16.34 15.29

 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.
 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 companys
growth.
 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 = x 100

Here,

NPAT = Gross Profit Operating expenses Tax

Net Sales = Gross Sales Sales returns

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
Net Profit Ratio calculated for Asian Paints for the year ended
2013 & 2014

Net Profit ratio = For The Year For The Year

Ended March Ended March
x 100 2013 2014

In Rs.(Cr) In Rs.(Cr)

NPAT 1050.00 1169.06

Net Sales 8971.70 10418.78

Net Profit Ratio 11.70 % 11.22 %

 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.
 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

 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

Asian paints fixed assets turnover ratio
TRENDS OBSERVED
TRENDS OBSERVED
 TRENDS OBSERVED
Trend in Debt Equity Ratio Trend in Net Profit Ratio
0.08 11.8

0.07 11.7

11.6
0.06

11.5
0.05
11.4
0.04
11.3
0.03
11.2

0.02
11.1

0.01 11

0 10.9
2013-2014 2012-2013 2011-2012 2013-2014 2012-2013 2011-2012

Series1 Series1
THANK
YOU