FACULTY OF MANAGEMENT STUDIES

MOHANLAL SUKHADIA UNIVERSITY, UDAIPUR

MANAGEMENT ACCOUNTING
MBA 1ST SEMESTER

SUBMITTED TO – SUBMITTED BY –
PROF. HANUMAN PRASAD ROLL NO. 11 - 20
 GROUP PARTICIPANTS

11. Deepak Rao Maratha

12. Deepika Nagda
13. Divya Jain
14. Divyansha Jain
15. Divyanshu Bhandari
16. Gaura Chaturvedi
17. Gayatri Choudhary
18. Himadri Soni
19. Hitisha Khathuria
20. Jaivardhan Singh Panwar
RATIOS INTERPREATATION OF :
 LIQUIDITY RATIO
• Liquidity Ratios: Liquidity ratios measure a company's ability to
pay debt obligations and its margin of safety through the
calculation of metrics including the current ratio, quick
ratio and operating cash flow ratio.
• Current ratio : current assets / current liabilities.
 INTERPRETION
• OUR IDEAL CURRENT RATIO IS 2:1 BUT IN THESE
OUR RATIO IS .62:1 AT THE END OF 31 MARCH
AND AT THE END OF 30 SEP. IT WAS .58:1
BECAUSE :
1. WE HAVE INSUFFICIENT CASH.
2. OUR BORROWING WAS TO HIGH. SO WE HAVE
TO CONTROL THE EXPENCES.
 QUICK RATIO

• QUICK RATIO
• = C.A.-(STOCK + PRE. EXPENCES)/CURRENT LIABILITY
 INTERPRETATION

• OUR IDEAL QUICK RATIO IS 1:1 BUT IN THESE

CASE OUR RATIO AT THE END OF 31 MARCH IS
0.40:1 AND AT THE END OF 30 SEP. IT WAS .39:1.
BECAUSE
1. IDEAL RECIEVABLE RATIO IS 0.5:1 AND IN THESE
CASE AT THE END OF 31 MARCH IT WAS 0.03:1
WHICH WAS TOO LOW AND AT THE END OF 30
SEP. IT WAS 0.04:1.
SO WE HAVE TO INCREASE OUR DEBTOR.
 SOLVENCY RATIOS

Solvency ratio is one of the various ratios used to

measure the ability of a company to meet its long term
debts. Also, it provides an assessment of the likelihood
of a company to continue congregating its debt
obligations.
1. Debt-equity ratio:
D/E ratio indicates how much debt a company is using
to finance its assets relative to the amount of value
represented in shareholders‘ equity.
Formula: Debt
Equity
2. 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.
Formula: Proprietor’s fund x 100
Total tangible assets
3. Debt-Service Coverage Ratio :
The Debt-Service Coverage Ratio is a measure of the cash flow
available to pay current debt obligations.
Formula - Net Operating Income
Total Debt Service

4. Interest-Service Coverage Ratio :

The interest coverage ratio is used to determine how easily a
company can pay their interest expenses on outstanding debt.
The ratio is calculated by dividing a company's earnings
before interest and taxes (EBIT) by the company's interest expenses
for the same period.
Formula – Earning before Interest and Tax (EBIT)
Interest Expenses
5. Fixed Assets to Long-term Funds :
Fixed assets to long term funds ratio establishes the
relationship between fixed assets and long-term
funds and is calculated by dividing fixed assets by long
term funds.
Formula – Fixed Assets
Long-term Funds
SOLVENCY RATIOS :

• Debt – Service Coverage Ratio

30 September 16 30 September 17

1.34 2.36

• Interest – Service Coverage Ratio

30 September 16 30 September 17
10.35 7.77

• Debt – Equity Ratio

30 September 16 30 September 17
0.77 0.78
• Proprietary Ratio
31 March 2017 30 September 2017

0.37 0.37

• Fixed Assets to Long Term Funds Ratio

31 March 2017 30 September 2017

2.42 2.78
 INTERPRETITIONS
• The Debt-Service Coverage Ratio shows the number of times
the earnings of the firms are able to cover the fixed interest
liability of the firm. The ratio has increased from 1.34 to 2.36
which is good as the earnings of the firms has increased in
comparison to its interest liability. Higher the ratio higher is the
ability of the company to meet its interest payment obligations.
• The Interest-Service Coverage Ratio is same as the DSCR and
higher the ratio means higher the ability of a firm to pay its
interest obligation out of its earnings.
• The Debt-Equity Ratio of the company is 0.77 & 0.78 which
shows a greater claim of owners than creditors. During the
periods of low profits the debt surviving will prove to be less
burdensome for a firm with low debt-equity ratio.
• Proprietary Ratio of the company remains same in both
periods i.e. 0.37 and it is not good for the company as it
means poor position of business, because it shows that the
organisation is operated through great degree of outside
funds which means more interference and pressure of
outsiders.
• Fixed Assets to Long-term funds Ratio of the company is 2.42
& 2.78. If the ratio is more than 1 it means large amount fixed
assets portion is financed by long term funds, it means
company is using aggressive policy for obtaining fixed assets
from long term funds. And during the periods it has increased
which is more risky.
 ACTIVITY RATIO
• Activity Ratio : Activity ratios measure a firm's
ability to convert different accounts within its
balance sheets into cash or sales. Activity ratios
measure the relative efficiency of a firm based
on its use of its assets, leverage or other
such balance sheet items and are important in
determining whether a company's management
is doing a good enough job of generating
revenues and cash from its resources.
Inventory turnover ratio :
It 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.
ITR=COGS/Average Inventories
Or
ITR=Net sales/Inventory
• Calculation : 3,30,180/15087= 1.88 Times
 INTERPRETITION
• Since ITR is high ,it implies that organization is
working with less inventory.
• As inventory are maintained low, a firm has
invested less in inventories.
• Inventory conversion period = 365/1.88=194 days
• As the ICP is short, this is a good indicator.
 Debtor's Turnover Ratio :
It is an accounting measure used to measure how
effective a company is in extending credit as well as
collecting debts. The receivables turnover ratio is an
activity ratio, measuring how efficiently a firm uses
its assets.
• DTR = Net sales/ Debtors
• Calculation = 3,30,180 / 8177 = 40.3 times.
 INTERPRETITION
• High DTR implies that the company is following
strict credit policy.
• Collection period : 365 / 40.3 = 9 days.
• Hence the collection period is low which is good
for the company.
Creditors turnover ratio :
It is calculated by taking the total purchases made
from suppliers, or cost of sales, and dividing it by
the average accounts payable amount during the
same period.
• CTR = Net purchase / Creditors.
• CALCULATION = 42431 / 76595 = 0.55 times
 INTERPRETITION

• Low CTR is good indicator for financial

performance of the firm.
• Payment Period = 365/0.55 = 663 days.
• Payment period is high which is again a good
indicator.
Asset turnover ratio :
It is the ratio of the value of a company's sales or
revenues generated relative to the value of
its assets. The Asset Turnover ratio can often be
used as an indicator of the efficiency with which a
company is deploying its assets in generating
revenue.
• ATR = Sales / Total Assets
• CALCULATION = 3,30,180 / 7,06,802 = 0.46
times.
 INTERPRETITION

• Since the ratio is very low, this implies that

company is not investing properly in the assets
which is bad indicator for the firm.
 Profitability Ratios

• Profitability ratios are a class of financial

metrics that are used to assess a business's
ability to generate earnings compared to its
expenses and other relevant costs incurred
during a specific period of time.
 Net profit :
• It is margin ratio is a profitability ratio. Essentially,
it's the percentage of profit from business
operations after you've deducted business
operating expenses, interest expense, taxes and
preferred stock dividends from revenues.
• Net profit Ratio = Net profit / Net Sales x 100
• CALCULATION = 30/march/2017= 7.11%
30/september/2017= 8.51%
 INTERPRETITION

• Higher the ratio, better the business.

• An increase in ratio over previous period
shows improvement in the org. efficiency.
Gross profit ratio (GP ratio) :
• It 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 .
• GPR = Gross profit / net sales x 100
• CALCULATION =
30 NOV 2017 = 261.31 %
30 SEP 2017 = 11.20%
 INTERPRETITION

• GPR is reliable guide for fixing selling price and

efficiency of trading activities.
• Higher ratios are favorable that means org. is
selling inventories at higher profit.
Reverse investment :
• It refers to the acquisition by a
direct investment enterprise of a financial claim
on its direct investor.
• ROI = Net profit before investment, tax and
dividend / Capital employed * 100
• CALCULATION :
30 NOV 2017 = 1.78%
3O SEP 2017 = 5.63%
 INTERPRETITION

• A higher ratio would be more favorable

because it that more rupees of profit is
generated by each rupee of capital employed.
THANK YOU