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RATIO ANALYSIS

Liquidity ratios: Liquidity ratios show the firms ability to meet short term liabilities. This is usually measured by current ratio, quick ratio, cash ratio etc.

PARTICULARS CURRENT ASSETS CURRENT LIABILITY CA/CL

JSW STEEL 2007-08 41206 47064 0.88 2008-09 50929 82628 0.62

ARCELOR MITTAL 2007 45328 32209 1.42 2008 44414 30760 1.38

From the above figures we can see that the current liabilities are more than current assets for both the years of JSW STEEL but in Arcelor mittal the figures are vice versa. The both company is not in the position to maintain the standard current ratio of 2:1. From above figures we can conclude that the company may face problem in order to meet its short term liability.

Quick ratio Quick ratio =current assets-inventory\ current liabilities PARTICULARS CURRENT ASSETS STOCK CURRENT LIABILITY CA/CL JSW STEEL 2007-08 23578 47064 0.42 2008-09 19673 82628 0.27 ARCELOR MITTAL 2007 19389 32209 0.74 2008 21684 30760 0.70

From the above figures we can see that the current liabilities are more than current assets in both years. The both company is not in the position to maintain the standard quick ratio of 1:1. From above figures we can conclude that the company may face problem in order to meet its short liability.

2.LEVERAGE/CAPITAL STRUCTURE RATIOS DEBT\EQUITY RATIO Debt\equity ratio = total debt\ equity

PARTICULARS Total debt Equity Debt / equity

JSW STEEL 2007-08 142397 78888 1.82 2008-09 220054 78039 2.81

ARCELOR MITTAL 2007 30627 55198 0.54 2008 34076 56685 0.46

Debt-Equity ratio reflects relative contributions of creditors and owners to finance the business. Above figures of Jsw indicates that company has very more amount of debt it means that owners contribution is less than creditors in the company so that it is not good sign to the company but incase Arcelor mittal the company is havin debt this indicates that the company has to pay more interest towards debt.

DEBT TO TOTAL ASSETS Debt /asset ratio = Total debt / asset PARTICULARS Total debt Total assets Debt / Assets JSW STEEL 2007-08 142397 261752 0.54 2008-09 220054 343115 0.64 ARCELOR MITTAL 2007 30627 133625 0.23 2008 34076 133088 0.26

Total debt comprises of long term debt and short term debt. The total assets comprise of fixed assets and current assets. The ratios measure the relationship between debt and total assets. The above figure says that outsiders are contributed nearly 50 60 % towards assets of jsw steel and nearly 25 % towards assets of Arcelor mittal. From the above ratios we can conclude that Arcelor mittal is using less debt than jsw steel.

INTEREST COVERAGE RATIO ICR = EBIT / INTEREST PARTICULARS EBIT INTEREST EBIT / INTEREST JSW STEEL 2007-08 30457 6255 4.87 2008-09 14834 11681 1.27 ARCELOR MITTAL 2007 14830 1801 8.23 2008 12236 1994 6.14

The interest coverage ratio shows the number of times the interest charges are covered by funds that are ordinarily available for the repayment. From the above ratios of Arcelor mittal we can say that the company can pay the interest sufficient and it can use the more debt so shareholders may get advantage. In the year 2008-09 the jsw ratio is very less coverage ratio

which shows that the company should improve its operating efficiency or retire debt to have an comfortable coverage ratio. III. ACTIVITY RATIOS INVENTORY TURNOVER RATIO ITR = Cost of goods sold / average inventory PARTICULARS Cost of goods sold Average inventory Cogs / inv JSW STEEL 2007-08 85847 29245 3.90 2008-09 124255 21817 4.28 ARCELOR MITTAL 2007 84953 21750 2.93 2008 106110 24741 5.69

This ratio indicates the efficiency of the company in producing and selling its product. The above figure shows that how many times the inventory is converted into sales in a year. If the higher will be the ratio it indicates the company is maintaining less inventory and the lesser will be the ratio it indicates the company is maintaining more inventory.

FIXED ASSET TURNOVER RATIO FATR = FIXED ASSETS / SALES PARTICULARS Fixed assets SALES FA / SALES JSW STEEL 2007-08 205877 126103 1.63 2008-09 276171 162065 1.70 ARCELOR MITTAL 2007 61994 105216 0.58 2008 60755 124936 0.48

This ratio shows the relation between the fixed assets and total sales. The fixed assets turnover of 1.63 times implies that JSW is producing Rs.1.63 of sales for one rupee of capital employed in fixed assets.

TOTAL ASSET TURNOVER RATIO TATR = TOTAL ASSETS / SALES PARTICULARS TOTAL ASSETS SALES TA / SALES JSW STEEL 2007-08 133625 126103 1.06 2008-09 133088 162065 0.82 ARCELOR MITTAL 2007 261752 105216 2.48 2008 343115 124936 2.74

This ratio shows the relation between the total assets and sales. The total assets turnover of 2.48 times implies that Arcelor mittal is producing Rs.2.48 of sales for one rupee of capital employed in total assets.

DEBTORS TURNOVER RATIO DTR = CREDIT SALES / AVERAGE DEBTORS PARTICULARS SALES DEBTORS SALES / DEBTORS JSW STEEL 2007-08 126103 10840 11.63 2008-09 162065 13433 12.06 ARCELOR MITTAL 2007 105216 9533 11.03 2008 124936 6737 18.57

Debtors turnover indicates the number of times debtors turnover each year. Generally ,the higher the value of debtors turnover ,the more efficient is the management of credit.

AVERAGE COLLECTION PERIOD ACP = 365 / DTR

PARTICULARS DAYS DTR ACP

JSW STEEL 2007-08 365 11.63 31 2008-09 365 12.06 30 365 11.03 33

ARCELOR MITTAL 2007 365 18.57 20 2008

The ACP measures the quality of debtors and it indicates the speed of their collection. The shorter the ACP,the better the quality of debtors and short period indicates the prompt payment of debtors.

PROFITABILITY RATIOS GROSS PROFIT MARGIN GPMR = (Gross profit x 100)/sales PARTICULARS GROSS PROFIT SALES G/P MARGIN JSW STEEL 2007-08 38718 126103 30.70 % 2008-09 35093 162065 21.65% ARCELOR MITTAL 2007 20263 105216 19.25% 2008 18826 124936 15.06%

The gross profit margin reflects the efficiency with which management produces each unit of product. A high gross profit margin is a sign of good management. A low gross profit margin may reflect higher cost of goods sold.

NET PROFIT MARGIN NPMR = (Net profit x 100)/sales PARTICULARS NET PROFIT SALES N/P MARGIN JSW STEEL 2007-08 24242 126103 19.22% 2008-09 3153 162065 1.94% ARCELOR MITTAL 2007 14888 105216 14.15% 2008 11537 124936 9.23%

Net profit margin establish relationship between net profit and sales and indicates managements efficiency in manufacturing , administering and selling the products. This ratio is the overall measure of the firms ability to turn each rupee sales into net profit. If the net margin is inadequate ,the firm will fail to achieve satisfactory return on shareholders funds.

RETURN ON EQUITY ROE = PROFIT AFTER TAX / NET WORTH PARTICULARS PAT NETWORTH ROE JSW STEEL 2007-08 16400 78888 20.72% 2008-09 2749 78039 3.52% ARCELOR MITTAL 2007 11850 56685 20.90% 2008 10439 55198 18.91%

The ROE indicates the how well firm has used the resources of owners.

RETURN ON INVESTMENT ROE = PROFIT AFTER TAX / TOTAL ASSETS PARTICULARS PAT TOTAL ASSETS ROI JSW STEEL 2007-08 16400 261752 6.27% 2008-09 2749 343115 0.81% ARCELOR MITTAL 2007 11850 133625 8.86% 2008 10439 133088 7.84%

This ratio indicates the relationship between Return and total assets employed.