Ratio Analysis on Maruti Suzuki

Maruti Suzuki India Ltd

Mar16

Mar
-15

Mar
-14

Mar
-13

Mar
-12

0.6
0.0
2
0.6
0

0.0
9
0.0
3
0.7
0

0.0
9
0.0
2
0.8
6

0.0
6
0.0
1
1.0
9

2.2
4
24.
87
42.
57
20.
92
5.9
1
18.
47
14.
45

2.3
0
27.
21
32.
83
18.
85
5.0
3
15.
44
12.
32

2.8
3
26.
78
39.
25
14.
55
4.3
2
14.
96
12.
40

2.9
7
24.
45
42.
43
31.
90
3.6
2
12.
14
9.6
7

Key Ratios
Debt-Equity Ratio
Long Term Debt-Equity
Ratio

0.02

Current Ratio
Quick Ratio
Turnover Ratios

0.56

Fixed Assets

2.33
22.2
8
52.3
2
71.7
5

Inventory
Debtors
Interest Cover Ratio
APATM (%)
ROCE (%)
RONW (%)

0.01

6.99
24.9
2
17.7
9

DEBT-EQUITY RATIO:
Debt-Equity Ratio is calculated to measure the relative claims of
outsiders and the owners against the firms assets. It is another leverage
ratio that compares a companys 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 0.02:1 in 2016.
Its almost same as in 2015. This means that the company is using little
outsiders fund in financing the firms assets. However, the owners want
to do business with the maximum of outsiders 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.

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 Long-Term Debt to
Shareholders funds.
= Long-Term Debt / Shareholders Funds
Interpretation:
The long Term Debt-Equity ratio of Maruti Suzuki in 2016 is 0.01
whereas in 2015 it was 0.02, 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 shortterm 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 =
Current Liabilities

Total

Current

Assets/

Total

Interpretation:
The current ratio of Maruti Suzuki India ltd. is 0.56:1 in 2016.
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
bankers 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 short-term

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 2.33 while in 2015 it was 2.44. 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 2016 the inventory turnover ratio
is 22.28. As we compare it from 2015 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.

DEBTORS 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 2016 is
52.32 while in 2015 it was 42.57. 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 debtors 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 2016 the ratio is 71.75 which decreased from 2013 gradually from
14.55. 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 2016 it was 6.99% while in
2015 it was 5.91% 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

companys debt liabilities, or funded debt, to equity to reflect a

companys total capital employed. This measure narrows the focus to
gain a better understanding of a companys ability to generate returns
from its available capital base.
ROCE = Total Earnings / Total Capital Employed

Interpretation:
The ROCE of Maruti Suzuki India Limited is 24.92% in 2016 while in
2015 it was 18.47%. 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 2016 is 17.79% while in
2015 it was 14.45%, 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.