RATIO ANALYSIS OF MARUTI SUZUKI INDIA LTD.
SUBMITTED TO: ROHIT DUGGAL SUBMITTED BY: SHISHIR SOURABH M.B.A (Hons.) Q1902 A 21
Maruti Suzuki India Ltd Industry :Automobiles passenger cars Mar09
Mar -08
Mar -07
Mar -06
Mar -05
Key Ratios Debt-Equity Ratio Long Term Debt-Equity Ratio Current Ratio Quick Ratio
0.0 0.09 0.1 6 0.0 0.0 0.06 7 6 1.1 1.5 1.22 3 2 1.26 0.66
0.0 0.0 4 8 0.0 0.0 4 8 1.7 1.4 3 2 1.13
1.31 Turnover Ratios Fixed Assets Inventory Debtors Interest Cover Ratio APATM (%) ROCE (%) RONW (%)
2.9 23.9 29.4 5 29.9 1 4.63 15.7 6 12.0 8
3.1 3 24. 18 29. 97 43 8.2 3 30. 51 22. 67
3.1 21. 74 24. 69 61. 63 9.0 8 35. 63 25. 38
2.9 5 19. 06 23. 69 86. 78 8.0 6 34. 68 24. 19
2.7 7 24. 11 20. 69 37. 25 6.4 31. 28 21. 42
DEBT-EQUITY RATIO: Debt-Equity Ratio is calculated to measure the relative claims of outsiders and the owners against the firm’s assets. It is another leverage ratio that compares a company’s total liabilities to its total shareholders’ equity. Debt-Equity Ratio = Outsiders’ Fund / Shareholders’ Fund Interpretation: The Debt-Equity ratio of Maruti Suzuki India Limited is 0.09:1 in 2009. It’s almost same as in 2008. This means that the company is using little outsider’s fund in financing the firm’s assets. However, the owners want to do business with the maximum of outsider’s funds in order to take lesser risk of their investments and to increase their earnings (per share) by paying a lower fixed rate of interest to the outsiders. Therefore, interpretation of this ratio depends primarily upon the financial policy of the firm and upon the firm’s nature of business.
LONG-TERM DEBT-EQUITY RATIO:
To calculate debt-equity ratio, current liabilities should be included in outsiders’ funds. The ratio calculated on the basis of outsiders’
funds excluding current liabilities is termed as Ratio of LongTerm Debt to Shareholders’ funds. = Long-Term Debt / Shareholders’ Funds Interpretation: The long Term Debt-Equity ratio of Maruti Suzuki in 2009 is 0.06 whereas in 2008 it was 0.07, so there is not of so much of change. We can interpret that the firm is not using much of outsiders’ fund or they have not taken much of long term loans from outside.
CURRENT RATIO:
It may be defined as the relationship between current assets and current liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position or liquidity of a firm. It is calculated by dividing the total of current assets by total of the current liabilities.
Current Ratio = Total Current Liabilities
Current Assets/ Total
Interpretation: The current ratio of Maruti Suzuki India ltd. is 1.22:1 in 2009. Low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. As a convention the minimum of ‘two to one ratio’ is referred to as a banker’s rule of thumb. A low current ratio may be due the firm has not sufficient funds to pay off liabilities. And the business may be trading beyond its capacity. The resources may not warrant the activities.
QUICK RATIO:
A stringent test that indicates whether a firm has enough shortterm assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets. Calculated by:
Interpretation: Companies with ratios of less than 1 cannot pay their current liabilities and should be looked at with extreme caution. Furthermore, if the acid-test ratio is much lower than the working capital ratio, it means current assets are highly dependent on inventory. In case of Marui Suzuki Quick ratio in 2009 is 1.26 while in 2008 it was just 0.66, it almost doubled. So, we can say that the company is in position to meet its immediate liabilities.
FIXED ASSETS TURN OVER RATIO: Fixed assets turnover ratio establishes a relationship between net sales and net fixed assets. This ratio indicates how well the fixed assets are being utilised. Fixed Assets Turnover Ratio = Net Sales / Net Fixed Assets
Interpretation:
In case of Maruti Suzuki India Limited the fixed asset turnover ratio in are 2.9 while in 2008 it was 3.13. This means there is minor decline in the net sales. This ratio expresses the number to times the fixed assets are being turned over in a stated period. It measures the efficiency with which fixed assets are employed. A high ratio means a high rate of efficiency of utilisation of fixed asset and low ratio means improper use of assets. So, we can say that Maruti Suzuki is efficiently utilising its fixed assets.
INVENTORY TURN OVER RATIO:
Every firm has to maintain a certain amount of inventory of finished goods so as to be able to meet the requirements of the business. INVENTORY TURN OVER RATIO= COGS / Average Inventory at Cost
Interpretation: Inventory turnover ratio measures the velocity of conversion stock into sales. In case of Maruti we see that in 2009 the inventory turnover ratio is 23.9. As we compare it from 2008 there is slight decline. But still it is good, it shows that there is efficient management because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory.
DEBTOR’S TURN OVER RATIO: Debtors Turnover Ratio indicates the velocity of debt collection of firm. In simple words, it indicates the number of times average debtors (receivables) are turned over during a year. Debtors Turn Over Ratio = Credit Sales / Average Accounts Receivables
Interpretation:
In case of Maruti Suzuki India Limited the debit turnover ratio in 2009 is 29.45 while in 2008 it was 29.97. So, here see there is a slight decrease in the ratio. It indicates that the number times the debtors are turned over during a year. Here we see high value of debtor’s turnover hence the firm is more efficient in managing the debtors/sales or more liquid are the debtors.
INTEREST COVERAGE RATIO: Interest coverage ratio is a ratio between ‘net profit before interest and tax’ and interest on loans’. Interest Coverage Ratio = Net Profit before Interest and Tax / Interest on Long-term Loans
Interpretation: In 2009 the ratio is 29.91 which decreased from 2006 gradually from 86.78. Still the company is in very good position to pay its interest on long term loans. This ratio expresses the satisfaction to the lenders of the concern whether the business will be able to earn sufficient profits to pay interest on long-term loans. This ratio indicates that how many times the profit covers the interest. It also measures the margin of safety for the lenders. The higher the number, more secure the lender is in respect of periodical interest.
AVERAGE PROFIT AFTER TAX MARGIN: A financial performance ratio, calculated by dividing net income after taxes by net sales. A company's after-tax profit margin is important because it tells investors the percentage of money a company actually earns per dollar of sales. This ratio is interpreted in the same way as profit margin - the after-tax profit margin is simply more stringent because it takes taxes into account. APATM % = AFTER – TAX NET INCOME / NET SALES
Interpretation:
Often, a company's earnings don't tell the entire story. The amount of profit can increase, but that doesn't mean the company's profit margin is improving. For example, a company's sales could increase, but if costs also rise, that leads to a lower profit margin than what the company had when it had lower profits. This is an indication that the company needs to better control its costs. In case of Maruti in 2009 it was 4.63% while in 2008 it was 8.23% it declined gradually in the years.
RETURN ON CAPITAL EMPLOYED: The return on capital employed (ROCE) ratio, expressed as a percentage, complements the return on equity (ROE) ratio by adding a company’s debt liabilities, or funded debt, to equity to reflect a company’s total “capital employed”. This measure narrows the focus to gain a better understanding of a company’s ability to generate returns from its available capital base. ROCE = Total Earnings / Total Capital Employed
Interpretation: The ROCE of Maruti Suzuki India Limited is 15.76% in 2009 while in 2008 it was 30.51%. The term capital employed refers to total investments made in business. A higher percentage on return on capital will satisfy the owners that their money is profitably utilised. However, ROCE of Maruti showed a decline in the percentage during the years. So, we can say that the money is not being profitably utilised as compared to previous years.
RETURN ON NET WORTH: Return on Net Worth is the relationship between net profits(after interest & tax) and the proprietors’ funds. This ratio indicates how profitable a company is by comparing its net income to its average shareholders’ equity. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors. RONW = Net Profit / Shareholders’ funds
Interpretation: The RONW of Maruti Suzuki India Limited in 2009 is 12.08% while in 2008 it was 22.67%, in 2007 it was 25.38%. So, there is gradually decline in the RONW. We can comment after seeing the gradual decline in RONW that the firm is not using its resources to its optimum level as the year passed the overall efficiency showed a decrease in the consecutive years.
