CHAPTER -1

INTRODUCTION

RATIO ANALYSIS

Relationship between two figures, expressed in arithmetical terms is called a ‘ratio’.

In the words of R. N. Anthony :

“A Ratio is simply one number expressed in terms of another. It is found by dividing one
number into the other.”

Ratio may be expressed in the following four ways:

(1) ‘Proportion’ or Pure Ratio or Simple Ratio: It is expressed by the simple

division of one number by another. For example, if the current assets of a business are
₹ 1,00,000, the ratio of current assets to current liabilities’ will be 2:1.

(2) ‘Rate’ or ‘So Many Times’: In this type, it is calculated how many times a
figure is, in comparison to another figure. For example, if a firm’s credit sales during
the year are ₹ 2,00,000 and its trade receivables at the end of the year are ₹ 40,000,

200000
its Trade Receivables Turnover Ratio = =5×.
40000
It shows that the credit sales are 5 times in comparison to trade receivables.

(3) Percentage: In this type, the relation between two figures is expressed in
hundredth. For example, if a firm’s capital is
₹ 10, 00,000 and its profit is ₹ 2, 00,000, the ratio of profit to capital, in terms of

200000
percentage, is ∗100=20 % .
1000000

1
 (4) Fraction: Say, net profit is one-fifth of capital.
While calculating a ratio, it should be understood that it is desirable to divide the
“more favourable figure” by the “less favourable figures.

OBJECTIVES OF RATIO ANALYSIS

 To locate the weak spots of business which need more attention.

 To provide deeper analysis of the liquidity, solvency, and profitability of the
business.
 To provide information for making cross-sectional analysis, i.e., for making
comparison with that of some selected firms in the same industry.
 To provide information for making time-series analysis, i.e., for making
comparison of a firm’s present ratios with its past ratios.
 To provide information useful for making estimates and preparing plans for the
future.

2
 CLASSIFICATION OF RATIOS

LIQUIDITY SOLVENCY ACTIVITY PROFITABILITY

RATIOS RATIOS RATIOS RATIOS

DEBT-EQUITY INVENTORY GROSS PROFIT

CURRENT RATIOS
RATIOS TURNOVER RATIO RATIOS

TOTAL ASSETS TO RECEIVABLES NET PROFIT

QUICK RATIOS
DEBT RATIO TURNOVER RATIO RATIOS

PROPRIETARY PAYABLES OPERATING

RATIOS TURNOVER RATIO RATIOS

INTEREST WORKING CAPITAL OPERATING

COVERAGE RATIOS TURNOVER RATIO PROFIT RATIOS

RETURN ON
INVESTMENT

3
 I. Liquidity Ratios:

“Liquidity” refers to the ability of the firm to meet its current liabilities. The liquidity ratios,
therefore, are also called ‘Short-term Solvency Ratios’. These ratios are used to assess the
short-term financial position of the concern.

They indicate the firm’s ability to meet its current obligations out of current resources.

Liquidity ratios include two ratios:

1. Current Ratio or working capital ratio: This ratio explains the relationship
between current assets and current liabilities of a business.

Current Assets: Current assets are the assets which are likely to be converted into cash or
cash equivalents within 12 months from the date of Balance Sheet or within the period of
operating cycle.

Current Assets include the following assets:

 Current Investments,
 Inventories(Excluding Loose Tools, Sores and Spares),
 Trade Receivables (Bills Receivables and Sundry Debtors less provision for doubtful
debts),
 Cash and Cash Equivalents (Cash in hand, Cash at bank, Cheques,
Drafts in hand etc.),
 Short term Loans and Advances, and
 Other Current Assets (restricted to prepaid expenses, accrued incomes and advance
tax).

Current Liabilities: Current liabilities are the liabilities payable within 12 months from
the date of Balance Sheet or within the period of operating cycle.

 Current liabilities include the following liabilities:

 Short term Borrowings (including Bank Overdraft),
 Trade Payables (Bills Payables and Sundry Creditors),
 Other Current Liabilities (Current maturities of long term debts, interest accrued on
Borrowings, income received in advance, O/S expenses, unclaimed dividends,

4
 Calls in advance etc. )

 Short term Provisions (Provision for Tax, Proposed Dividend).

Significance: This ratio is used to assess the firm’s ability to meet its short-term liabilities on
time. According to accounting principles, a current ratio of 2:1 is supposed to be an ideal
ratio. It means the current assets of business should, atleast be twice of its current liabilities.
The higher the ratio, the better it is, because the firm will be able to pay its current liabilities
more easily.

If the current ratio is less than the 2:1 it indicates lack of liquidity and shortage of working
capital. But a much higher ratio, even though it is beneficial to the short term trade payables,
is not necessarily good for the company. A much higher ratio than 2:1 may indicate the poor
investment policies of the management.

2. Quick Ratio or Acid Test Ratio or Liquid Ratio: Quick ratio indicates
whether the firm is in position to pay its current liabilities within a month or
immediately.

‘Liquid assets’ means those assets which will be converted into cash and cash equivalents
very shortly. All current assets except inventory and prepaid expenses are included in liquid
assets. Inventory is excluded from liquid assets because it has to be sold before it can be
converted into cash. Prepaid expenses too are excluded from the list of liquid assets because
they are not expected to be converted in cash.

Thus liquid assets include the following:

 Current Investments
 Trade Receivables (Bills Receivables and Sundry Debtors Less Provision for
Doubtful Debts)
 Cash and Cash Equivalents
 Short term Loans and Advances

Significance: An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better.

This ratio is a better test of short-term financial position of the company than the current
ratio, as it considers only those assets which can easily and readily converted into cash.

5
 II. Solvency Ratios:

These ratios are calculated to assess the ability of the firm to meet its long-term liabilities as
and when they become due. These ratios reveal as to how much amount in a business has
been invested by proprietors and how much amount has been raised from outside sources.
Solvency ratios disclose the firm’s ability to meet the interest costs regularly and long term
indebtedness at maturity.

Some important solvency ratios are:

1. Debt Equity Ratio: This ratio expresses the relationship between long term
debts and shareholder’s funds. It indicates the proportion of funds which are
acquired by long-term borrowings in comparison to shareholder’s funds. This
ratio is calculated to ascertain the soundness of the long-term financial policies of
the firm.

Significance: This ratio is calculated to assess the ability of the firm to meet its long term
liabilities. Generally, debt-equity ratio of 2:1 is considered safe. If the debt-equity ratio is
more than that, it shows a rather risky financial position from the long-term point of view, as
it indicates that more and more funds invested in the business are provided by long-term
lenders. A high debt-equity ratio is a danger-signal for long-term lenders.

The lower this ratio, the better it is for long-term lenders because they are more secure in that
case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders.

2. Total assets to Debt Ratio: This ratio is a variation of the debt-equity ratio
and gives the same indication as the debt-equity ratio. In this ratio, total assets are
expressed in relation to long-term debts.

Significance: This ratio expresses the relationship between total assets and long term debts.
It measures the extent to which long-term debts are covered by assets which indicates the
margin of safety available to providers of long-term loans. A higher total assets to debt ratio
implies the use of lower debts in financing the assets which means a larger safety margin for
lenders. On the other hand, low ratio represents risky financial position as it implies the use
of higher debts in financing the assets of the business.

6
 3. Proprietary Ratio: This ratio indicates the proportion of total assets funded
by owners or shareholders.

Significance: A higher proprietary ratio is generally treated an indicator of sound financial

position from long-term point of view, because it means that a large proportion of total assets
is provided by equity and hence the firm is less dependent on external sources of finance. On
the contrary, a low proprietary ratio is a danger-signal for Long-term lenders as it indicates a
lower margin of safety available to them. The lower the ratio, the less secured are the long-
term loans and they face the risk of losing their money.

4. Interest Coverage Ratio: This ratio is also termed as ‘Debt Service Ratio’.
This ratio is calculated by dividing the ‘profit before charging interest and
income-tax’ by ‘fixed interest charges’.

Significance: This ratio indicates how many times the interest charges are covered by the
profits available to pay interest charges. A long-term lender is interested in finding out
whether the business will earn sufficient profits to pay the interest charges regularly. This
ratio measures the margin of safety for long-term lenders. The higher the ratio, more secure
the lender is in respect of payment of interest regularly. If profit just equals interest, it is an
unsafe position for the lender as well as for the company also, as nothing will be left for
shareholders.

An interest coverage ratio of 6 to 7 times is considered appropriate. It also indicates the

extent to which profits can decline without in any way affecting the firm’s ability to meet its
fixed interest obligations.

7
III. Activity Ratios:

These ratios are calculated on the basis of ‘cost of revenue from operations’ or ‘revenue from
operations’, therefore, these ratios are also called as ‘turnover ratios’. Turnover indicates the
speed of number of times the capital employed has been rotated in the process of doing
business. In other words, these ratios indicates how efficiently the working capital and
inventory is being used to obtain revenue from operations. Higher turnover ratios indicate the
better use of capital or resources and in turn lead to higher profitability.

Some important turnover ratios are :

1. Inventory Turnover Ratio: This ratio indicates the relationship between

the cost of revenue from operations during the year and average inventory kept
during that year.

Significance: This ratio indicates whether inventory has been efficiently used or not. It
shows the speed with which the inventory is rotated into revenue from operations or the
number of times the inventory is turned into revenue from operations during the year. The
higher the ratio, the better it is, since it indicates that inventory is selling quickly. In a
business where inventory turnover ratio is high, goods can be sold at a low margin of profit
and even then the profitability may be quite high.

A low inventory turnover ratio indicates that inventory does not sell quickly and remains
lying in the godown for quite a long time. This results in increased storage costs, blocking of
funds and losses on account of goods becoming obsolete or unsaleable.

This ratio can be used for comparing the efficiency of sales policies of two firms doing same
type of business. The inventory policy of the management of that firm, whose inventory
turnover ratio is higher, will be treated as more efficient.

2. Trade Receivables Turnover Ratio: This ratio indicates the

relationship between credit Revenue from Operations and average trade
receivables during the year.

Significance: This ratio indicates the speed with which the amount is collected from trade
receivables. The higher the ratio, the better it is, since it indicates that amount from trade

8
receivables is being collected more quickly. The more quickly the trade receivables pay, the
less the risk from bad debts, and so the lower the expenses of collection and increase in the
liquidity of the firm. A lower trade receivables turnover ratio will indicate the inefficient
credit sales policy of the management. It means that credit sales have been made to customers
who do not deserve much credit. It is difficult to set up a standard for this ratio. It depends
upon the policy of the management and the nature of industry. By comparing the trade
receivables turnover ratio of the current year with the previous year, it may be assessed
whether the sales policy of the management is efficient or not.

3. Trade Payables Turnover Ratio: This ratio indicates the relationship

between credit purchases and average trade payables during the year.

Significance: This ratio indicates the speed with which the amount is being paid to trade
payables. The higher the ratio, the better it is, since it will indicate that the trade payables are
being paid more quickly which increases the credit worthiness of the firm.

4. Working Capital Turnover Ratio: This ratio is of particular

importance in manufacturing concerns where current assets play a major role
in generating Revenue from Operations.

This ratio reveals how efficiently working capital has been utilised in making revenue from
operations. In other words, it shows the number of times working capital has been rotated in
producing Revenue from operations. A high working capital turnover ratio shows efficient
use of working capital and quick turnover of current assets like inventory and trade
receivables. A low working capital turnover ratio indicates under-utilisation of working
capital. However, a very high turnover ratio of working capital is also dangerous, as it is a
sign of over-trading, i.e., doing business with too little working capital. It is an indicator of
the shortage of working capital and put the concern in financial difficulties. On the other
hand, a very low turnover ratio of working capital may be a sign of Under-Trading in
comparison to working capital, i.e., the working capital is in excess of the requirements of
business.

9
IV. Profitability Ratios or Income Ratios:

The main object of all the business concerns is to earn profit. Profit is the measurement of the
efficiency of the business. Profitability ratios measure the various aspects of the profitability
of a company, such as (i) What is the rate of profit on revenue from operations? (ii) Whether
the profits are increasing or decreasing , and if decreasing, the cause of their decrease?

Some important profitability ratios are :

1. Gross Profit Ratio: This ratio establishes a relationship between gross profit and
revenue from operations i.e., Net Sales. This ratio is computed and presented in
percentage

Significance: This ratio measures the margin of profit available on Revenue from
Operations. The higher the gross profit ratio, the better it is. No ideal standard is fixed for this
ratio, but the gross profit ratio should be adequate enough not only to cover the operating
expenses but also to provide for depreciation, interest on loans, dividends and creation of
reserves.

2. Operating Ratio: This ratio measures the proportion of an enterprise’s cost of

Revenue from Operations and operating expenses in comparison to its Revenue from
Operations.

Significance: The ratio ratio indicates the extent of Revenue from Operations that is absorbed
by the cost of Revenue from Operations and operating expenses. Lower the operating ratio,
the better it is, because it will leave higher margin of profit on Revenue from Operations.

3. Operating Profit Ratio: This ratio shows the relationship between operating
profit and net revenue from operations.

4. Net Profit Ratio: This ratio shows the relationship between net profit and net
revenue from operations.

10
Significance: This ratio measures the rate of net profit earned on revenue from operations. It
helps in determining the overall efficiency of the business operations. An increase in the ratio
over the previous year shows improvement in the overall efficiency and profitability of the
business.

5. Return on Investment or R.O.I: This ratio reflects the overall profitability of

the business. It is calculated by comparing the profit earned and the capital employed
to earn it. This ratio is usually in percentage and is also known as ‘Rate of Return’ or
‘Return on Capital Employed’ or ‘Yield on Capital’.

Significance: Since profit is the overall objective of a business enterprise, this ratio is a
barometer of the overall performance of the enterprise . It measures how efficiently the
capital employed in the business is being used. In other words, it is also a measure of the
earning power of the net assets of the business. Even the Performance of two dissimilar firms
may be compared with the help of this ratio.

Furthermore, the ratio can be used to judge the borrowing policy of the enterprise. If an
enterprise having the ratio of return on investment of 15%, borrows at 16%, it would indicate
that it is borrowing at a higher rate than its earning rate.

11
 CHAPTER – 2

OBJECTIVES AND RESEARCH METHODOLOGY

OBJECTIVES OF THE STUDY

 To analyse the financial performance of Maruti Suzuki India Ltd.

 To evaluate the performance of the company by using ratios as a
yardstick to measure the efficiency of the company.
 To understand the liquidity, profitability and efficiency positions of the
company during the study period.
 To evaluate and analyse various facts of the financial performance of the
company. To make comparisons between the ratios during different
periods.
 To study the trend of Maruti Suzuki company’s product in Indian market.

RESEARCH AND METHODOLOGY

 Sample size - Only 1 Company (i.e. Maruti Suzuki India Ltd.)

 Duration of study - 2014-18
 Research Tools
i. Ratio analysis: Calculation of short-term solvency ratios, long-
term solvency ratios and profitability of a company.
ii. Trend analysis

CHAPTER – 3

12
 BRIEF PROFILE OF MARUTI SUZUKI INDIA LTD.

Maruti Suzuki India Limited (MSIL, formerly known as Maruti Udyog Ltd) is a subsidiary of
Suzuki Motor Corporation, Japan. Maruti Suzuki has been the leader of the Indian car market
for over two and a half decades. It is largely credited for having brought in an automobile
revolution to India.

Maruti Suzuki India Limited accounting for nearly 50 percent of the total industry sales. In
terms of number of cars produced and sold, the company is the largest subsidiary of Suzuki
Motor Corporation, cumulatively; the company has produced over 10 million vehicles since
the roll out of its first vehicle on 14th December, 1983.

Maruti Suzuki is the only Indian company to have crossed the 10 million sales mark since
its inception. The company has two manufacturing facilities located at Gurgaon and Manesar,
south of New Delhi, India. Both the facilities have a combined capability to produce over a
1.5 million (1,500,000) vehicles annually.

Maruti Suzuki offers 16 brands and over 150 variants ranging from people’s car Maruti 800
to the latest Life Utility Vehicles, Ertiga. Maruti Suzuki’s portfolio includes Maruti 800,
Alto, Alto K10, A-Star, Estilo, Wagon-R, Ritz, Swift, Swift Dzire, SX4, Omni, Eeco,
Kizashi, Grand Vitara, Gypsy and Ertiga.

The company employs over 9000 people (as on 31st March 2012). Maruti Suzuki’s sales and
service network is the largest among car manufacturers in India. The company has been rated
first in customer satisfaction in the JD Power survey for 12 consecutive years.

Over two and half decades, Maruti Suzuki has won the hearts of customers through high
quality products and services.

The company is engaged in the business of Manufacturing, Purchase and sale of motor
vehicles and Spare parts. The other activities of the company includes facilitation of pre-
owned car sales, fleet management and car financing.

The company has seven subsidiary companies, namely Maruti Insurance Business Agency
Ltd, Maruti Insurance Distribution Services Ltd, Maruti Insurance Agency Solutions Ltd,

13
Maruti Insurance Agency network Ltd, Maruti Insurance Agency Services Ltd, Maruti
Insurance Agency Logistics Ltd and True Value Solutions Ltd.

The first six subsidiaries are engaged in the business of selling motor insurance policies to
owners of Maruti Suzuki vehicles and seventh subsidiary, True Value Solutions Ltd is
engaged in the business of sale of certified pre-owned cars under the brand ‘Maruti True
Value’.

Maruti Suzuki believes in the simple concept of “smaller, fewer, lighter, shorter and neater.”
The work culture is unique where a common uniform and a common canteen for everyone
from the Managing Director to the worker.

Maruti Suzuki strongly believes on following core values-

• Customer Obsession

• Fast, Flexible & First Mover

• Innovation & Creativity

• Networking & Partnership

• Openness & Learning

CHAPTER - 4

PRESENT WORK OF MARUTI SUZUKI

14
 Table 1.1: Maruti’s Locally Manufactured Vehicles

Sr. Model Type/Segment No. of units No. of units sold in 2018

No. sold in 2017

1 Maruti 800 Mini - -

2 Alto 800 Mini

37,511 30,973
3 Wagon R Mini

4 Ciaz Mid Size 4,321 4,918

7 Swift Compact

9 Swift Dzire Compact

10 Celerio Compact 68,885 60,699

11 Baleno Compact

12 IGNIS Compact

13 Dzire Tour Super Compact - 1,166

14 Omni vans
13,689 11,628
15 Eeco Vans

16 Gypsy Utility Vehicle

17 Ertiga Utility Vehicle

22,764 18,311
18 Breeza Utility Vehicle

19 S-Cross Utility Vehicle

15
 80000

70000

60000

50000

40000

30000 Sales in 2017

Sales in 2018
20000

10000

On the basis of bar-diagram we can say that in the year 2017 sales of Maruti Suzuki of locally
manufactured segments- mini, compact, vans, utility vehicles were more than the sales in
2018.

Table1.2: Maruti’s Imported Vehicles

Sr. Model Type/Segment

No.

1 Grand Vitara Utility Vehicle

2 Kizashi Passenger Executive

CHAPTER - 5

DATA ANALYSIS & INTERPRETATION

ANALYSIS OF SHORT-TERM FINANCIAL POSITION OF COMPANY

16
 I. LIQUIDITY RATIOS

 CURRENT RATIO

Current Assets
Current Ratio=
Current Liabilities

Table 1.1

2014 2015 2016 2017 2018

CURRENT
0.37:1 0.96:1 0.71:1 0.66:1 1.51:1
RATIO

Current Assets includes: Current Investments, Inventories, Cash & Bank, Other
Current Assets and Short term Loans & Advances.

Current Liabilities includes: Trade Payables, Other Current Liabilities, Short term
Borrowings and Short term-Provisions.

TREND ANALYSIS OF CURRENT RATIO

1.6
1.4
1.2
1 CURRENT RATIO
0.8
0.6
0.4
0.2
0
2014 2015 2016 2017 2018

17
INTERPRETATION: - An ideal current ratio should be 2:1 which denotes that the
current assets of a business should at least twice of its current liabilities. But in the table 1.1
we can see that there is continuous decrease in the ratios which shows that the short-term
financial position of a company is unsatisfactory. The company is not in a position to pay its
current liabilities in time.

The current ratio is less than 2:1 which indicates lack of liquidity and shortage of working
capital.

 QUICK RATIO / ACID TEST RATIO OR LIQUID RATIO

Liquid Assets
¿
Current liabilities

Liquid Assets=Current Assets−inventories−Other Current Assets

QUICK RATIO
2014 2015 2016 2017
2018
OR
0.24:1 0.80:1 0.40:1 0.40:1 1.29:1
LIQUID RATIO

18
 Table 1.2

TREND ANALYSIS OF CURRENT RATIO

1.4
1.2
1
0.8 Quick Ratio

0.6
0.4
0.2
0
2014 2015 2016 2017 2018

INTERPRETATION: - An ideal quick ratio is said to be 1:1 . If it is more it is said to

be better .But in the given table 1.2 the quick ratio in the year 2014 was 1.24:1 which is more
than the ideal ratio i.e. 1:1 but in the preceding years i.e. 2015, 16, 17 & 18 the ratio goes on
decreasing which shows that the company is not in the positon of paying its current liabilities
instantly.

ANALYSIS OF LONG-TERM FINANCIAL POSITION

II. SOLVENCY RATIOS

Debt
 Debt Equity Ratio ¿ Equity

Table 1.3

DEBT EQUITY 2014 2015 2016 2017 2018

19
 0.01:1 0.02:1 0.01:1 0.01:1 0.01:1
RATIO

Debt= Longterm borrowings + Long term provisions

Equity=Shareholde r ' sfund+ ShareCapital

TREND ANALYSIS OF DEBT-EQUITY RATIO

0.03

0.02

0.02 Debt Equity Ratio

0.01

0.01

0
2014 2015 2016 2017 2018

INTERPRETAION: -This ratio indicates the extent of funds provided by long-term

lenders in comparison to the funds provided by the owners, i.e., shareholders . The normally
accepted debt-equity ratio is 2:1 . If this ratio is higher than 2:1 , it means that long-term
borrowings are more than twice in comparison to funds provided by owners and it will
indicate a risky financial position. In the given table 1.3, long term loans are only o.o1:1 to
0.02:1 in comparison to shareholder’s funds. It shows that the long-term financial position of
the company is sound.

20
 Equity
 Proprietary Ratio¿ Total Assets

Table 1.4

2014 2015 2016 2017 2018

PROPRIETARY
RATIO
54% 55% 71% 71% 70%

TREND ANALYSIS OF PROPRIETARY RATIO

80%
70%
60%
50% Proprietary Ratio
40%
30%
20%
10%
0%
2014 2015 2016 2017 2018

INTERPRETATION: - A higher proprietary ratio is generally treated an indicator of

sound financial position from long term point of view, because it means that a large
proportion of total assets is provided by equity and hence the firm is less dependent on
external sources of finance. On the contrary, a low proprietary ratio is a danger-signal for
Long-term lenders as it indicates a lower margin of safety available to them . The lower the
ratio , the less secured are the long term loans and they face the risk of losing their money.

Hence, from the given table 1.2 we can say that the company’s financial position from long
term point of view is sound in the years 2018, 17 & 16 as the ratios are higher as compared to
the years 2015 and 14 .

21
 ANALYSIS OF PROFITABILITY OF THE COMPANY

III. PROFITABILITY RATIOS

Operating Profit
 Operating Profit Ratio¿ Net Sales
×100

Table 1.5

22
 2014 2015 2016 2017 2018
OPERATING
PROFIT 13.5% 15.09% 17.98% 18.59% 17.68%
RATIO

TREND ANALYSIS OF OPERATING PROFIT RATIO

20.00%
18.00%
16.00%
14.00%
12.00% Operating Profit Ratio
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2014 2015 2016 2017 2018

INTERPRETATION: -This ratio measures the the rate of operating profit earned on
Revenue from Operations. It helps in determining the overall efficiency of the business
operations. An increase in the ratio over the previous year shows improvement in the overall
efficiency and profitability of the business.

¿
 Operating Ratio¿ Cost of Revevenue ¿ Operations Net Sales ×100

Table 1.6

2014 2015 2016 2017 2018

OPERATING
86.49% 81.41% 82.02% 84.91% 82.32%
RATIO

23
 TREND ANALYSIS OF OPERATING RATIO
86.00%
85.00%
84.00%
83.00% Operating Ratio

82.00%
81.00%
80.00%
79.00%
2014 2015 2016 2017 2018

INTERPRETATION: -Operating ratio is a measurement of the efficiency and

profitability of the business enterprise. The ratio ratio indicates the extent of Revenue from
Operations that is absorbed by the cost of Revenue from Operations and operating expenses.
Lower the operating ratio, the better it is, because it will leave higher margin of profit on
Revenue from Operations.

In the given table 1.6 the operating ratio is high which shows that there will be lower margin
of profit on Revenue from Operations.

Note: - ‘Operating ratio’ and ‘Operating Profit Ratio’ are inter-related. Total of both these
ratios will be 100.For example, if the ‘Operating Ratio is 80%, it means that the ‘Operating
profit Ratio’ is 20%. A rise in ‘Operating Ratio’ will lead to a similar amount of decline in
‘Operating Profit ratio’ and vice-versa.

CHAPTER -6

RESULTS AND CONCLUSION

Financial Ratio Analysis also referred to as 'Quantitative Analysis' is considered to be the

most important step while analyzing a company from an investment perspective. Ratios are
classified as profitability ratios, liquidity ratios, asset utilization ratios, leverage ratios and
valuation ratios based on the indications they provide. Balance sheet, Income Statement and
Cash Flow Statements are the most important financial statements and if properly analyzed
and interpreted can provide valuable insights into a company's business. Financial Ratios is
commonly used by current and potential investors, creditors and financial institutions to

24
evaluate a company's past performance to spot trends in a business and to compare its
performance with the average industry performance. It also enables them to identify strengths
and weaknesses of a business and to justify further investments in the business. Internally,
managers use these ratios to monitor performance and to set specific goals, objectives, and
policy initiatives. These are the most common questions any investor has in his mind when he
looks at the financial statements of a company he plans to invest in..

FINDINGS REGARDING SHORT-TERM SOLVENCY OF ACOMPANY

The current ratio is less than 2:1 which indicates lack of liquidity and shortage of working
capital.

Thus, the company is not in the position of paying its current liabilities in time.

1.6

1.4

1.2

0.8 Quick ratio

Current ratio
0.6

0.4

0.2

0
2014 2015 2016 2017 2018

In the year 2014 the quick ratio was 1.24:1 which is more than the ideal ratio i.e., 1:1 but in
the years 2015, 16, 17 & 18, the quick ratio is less than the ideal ratio which shows that
company is not in the position of paying its current liabilities instantly.

FINDINGS REGARDING LONG-TERM SOLVENCY OF A COMPANY

The normally accepted debt equity ratio is 2:1 but if the ratio is more than 2:1 it shows the
risky financial position but the debt equity ratio of Maruti Suzuki is less than the 2:1 for all
five years (i.e. 2014, 15, 16, 17 &18).

25
A higher proprietary ratio is generally treated an indicator of sound financial position from
long term point of view, because it means that a large proportion of total assets is provided by
equity and hence the firm is less dependent on external sources of finance.

0.8

0.7

0.6

0.5

0.4 Proprietary ratio

Debt-Equity ratio
0.3

0.2

0.1

0
2014 2015 2016 2017 2018

By analysing ratios of Maruti Suzuki we can say that the company’s financial position from
long term point of view is sound in the years 2018, 17 & 16 as the ratios are higher as
compared to the years 2015 and 14 .

FINDINGS REGARDING PROFITABILITY OF A COMPANY

An increase in the operating profit ratio over the previous year i.e., 2014, 15, 16 and 17
shows improvement in the overall efficiency and profitability of the company.

26
 120.00%

100.00%

80.00%

60.00% Operating profit ratio

Operating ratio
40.00%

20.00%

0.00%
2014 2015 2016 2017 2018

Whereas operating ratio is decreasing for the years 2014-17 which increases the profit margin
but it slightly increases in 2018.

The company financial performance is not so very good and also they cannot increase their
business easily year by year by expanding their branches.

RATIO ANALYSIS OF MARUTI SUZUKI INDIA LTD.

PARTICULARS 2018 2017 2016 2015 2014

Current Ratio 0.51:1 0.66:1 0.71:1 0.96:1 1.37:1
Quick Ratio 0.29:1 0.40:1 0.40:1 0.80:1 1.24:1

27
 Debt-Equity Ratio 0.01:1 0.01:1 0.01:1 0.02:1 0.01:1
Proprietary Ratio 70% 71% 71% 55% 54%
Operating Ratio 82.32% 81.41% 82.02% 84.91% 86.49%
Operating Profit Ratio 17.68% 18.59% 17.98% 15.09% 13.51%

REFERENCES

 Analysis of financial statement - By Shelly Goel and D.KGoel

 https://www.ndtv.com/business/stock/maruti-suzuki-india-ltd_maruti/financials
 www.marutisuzuki.com

28
 www.moneycontrol.com
 www.economicstime.com
 Management accounting by M Y Khan and P K Jain

29
ANNEXURE

FINANCIAL STATEMENTS OF MARUTI SUZUKI

PROFIT & LOSS A/C

For the year ended 2014-2018

MAR'18 MAR'17 MAR'16 MAR'15 MAR'14

Parameters
(₹ Cr.) (₹ Cr.) (₹ Cr.) (₹ Cr.) (₹ Cr.)

30
 81,994.4 77,266.2 65,054.6 55,133.6 48,969.8
Gross Sales
0 0 0 0 0

Less :Inter divisional transfers 0.00 0.00 0.00 0.00 0.00

Less: Sales Returns 0.00 0.00 0.00 0.00 0.00

Less: Excise 2,231.70 9,231.40 7,516.50 5,163.00 5,178.00

79,762.7 68,034.8 57,538.1 49,970.6 43,791.8

Net Sales
0 0 0 0 0

EXPENDITURE:

Increase/Decrease in Stock 40.70 -380.10 6.90 -455.90 18.50

54,934.3 47,111.7 38,690.5 35,533.0 31,330.3

Raw Materials Consumed
0 0 0 0 0

Power & Fuel Cost 671.90 517.20 692.60 712.30 594.10

Employee Cost 2,833.80 2,331.00 1,978.80 1,606.60 1,368.10

Other Manufacturing Expenses 4,328.10 4,334.00 3,731.40 3,030.60 2,832.70

General and Administration

386.20 291.60 222.30 157.50 145.01
Expenses

Selling and Distribution Expenses 2,599.70 1,970.10 1,817.00 1,462.80 1,193.90

Miscellaneous Expenses 2,005.60 1,611.20 1,574.40 1,279.90 1,156.39

Expenses Capitalised 0.00 0.00 0.00 0.00 0.00

67,800.3 57,786.7 48,713.9 43,326.8 38,639.0

Total Expenditure
0 0 0 0 0

11,962.4 10,248.1
PBIDT (Excl OI) 8,824.20 6,643.80 5,152.80
0 0

Other Income 2,144.60 2,403.70 1,521.20 900.70 766.00

14,107.0 12,651.8 10,345.4

Operating Profit 7,544.50 5,918.80
0 0 0

Interest 345.70 89.40 81.50 206.00 175.90

PBDT 13,761.3 12,562.4 10,263.9 7,338.50 5,742.90

31
 0 0 0

Depreciation 2,757.90 2,602.10 2,820.20 2,470.30 2,084.40

Profit Before Taxation & 11,003.4

9,960.30 7,443.70 4,868.20 3,658.50
Exceptional Items 0

Exceptional Income / Expenses 0.00 0.00 0.00 0.00 0.00

11,003.4
Profit Before Tax 9,960.30 7,443.70 4,868.20 3,658.50
0

Provision for Tax 3,281.60 2,610.10 2,079.40 1,157.00 875.50

PAT 7,721.80 7,350.20 5,364.30 3,711.20 2,783.00

Extraordinary Items 0.00 0.00 0.00 0.00 0.00

Adj to Profit After Tax 0.00 0.00 0.00 -79.20 0.00

31,318.9 25,003.7 21,011.6 17,384.9 15,304.3

Profit Balance B/F
0 0 0 0 0

39,040.7 32,353.9 26,375.9 21,016.9 18,087.3

Appropriations
0 0 0 0 0

Equity Dividend (%) 1,600.00 1,500.00 700.00 500.00 240.00

Earnings Per Share (in ₹) 255.69 243.38 177.63 122.89 92.15

Book Value (in ₹) 1,382.69 1,206.33 989.54 784.91 694.64

BALANCE SHEET

For the year ended 2014-18

MAR'18 MAR'17 MAR'16 MAR'15 MAR'14

Parameters
(₹ Cr.) (₹ Cr.) (₹ Cr.) (₹ Cr.) (₹ Cr.)

32
EQUITY AND LIABILITIES

Share Capital 151.00 151.00 151.00 151.00 151.00

Share Warrants
&Outstandings

41,757.3 36,431.1 29,884.2 23,704.2 20,978.0

Shareholder's Funds
0 0 0 0 0

Long-Term Borrowings 0.00 0.00 0.00 0.00 0.00

Secured Loans 0.00 0.00 0.00 0.00 0.00

Unsecured Loans 0.00 0.00 0.00 144.80 460.40

Deferred Tax Assets /

558.90 466.20 194.30 481.00 586.60
Liabilities

Other Long Term Liabilities 1,585.30 1,105.00 807.50 105.40 104.90

Long Term Trade Payables 0.00 0.00 0.00 0.00 133.70

Long Term Provisions 26.50 21.90 14.80 292.60 198.00

Total Non-Current Liabilities 2,170.70 1,593.10 1,016.60 1,023.80 1,483.60

10,497.0
Trade Payables 8,367.30 7,407.30 5,418.10 4,897.50
0

Current Liabilities

Other Current Liabilities 3,420.20 3,127.80 2,360.00 2,007.40 1,338.20

Short Term Borrowings 110.80 483.60 77.40 35.40 1,224.70

33
 10,378.3
Short Term Provisions 1,414.10 1,247.70 1,194.50 8,584.50
0

15,442.1 13,226.4 11,039.2 17,839.2 16,044.9

Total Current Liabilities
0 0 0 0 0

59,370.1 51,250.6 41,940.0 42,567.2 38,506.5

Total Liabilities
0 0 0 0 0

Non-Current Assets 0.00 0.00 0.00 0.00 0.00

ASSETS

21,423.9 18,659.5 15,321.8 26,461.7 22,701.8

Gross Block
0 0 0 0 0

Less: Accumulated 14,202.4 11,911.4

8,064.90 5,366.80 2,811.80
Depreciation 0 0

Less: Impairment of Assets 0.00 0.00 0.00 0.00 0.00

13,359.0 13,292.7 12,510.0 12,259.3 10,790.4

Net Block
0 0 0 0 0

Lease Adjustment A/c 0.00 0.00 0.00 0.00 0.00

Capital Work in Progress 2,125.90 1,252.30 1,006.90 1,882.80 2,621.40

Intangible assets under

0.00 0.00 0.00 0.00 0.00
development

Pre-operative Expenses
0.00 0.00 0.00 0.00 0.00
pending

Assets in transit 0.00 0.00 0.00 0.00 0.00

34
 34,072.9 26,302.2 18,875.4
Non Current Investments 9,817.60 1,304.80
0 0 0

Long Term Loans & Advances 689.90 428.40 534.90 1,349.30 1,638.40

Other Non Current Assets 1,201.00 1,198.80 1,166.80 44.10 53.30

51,448.7 42,474.4 34,094.0 25,353.1 16,408.3

Total Non-Current Assets
0 0 0 0 0

41,606.3 36,280.1 29,733.2 23,553.2 20,827.0

Total Reserves
0 0 0 0 0

Current Assets Loans &

Advances

Currents Investments 1,217.30 2,178.80 1,056.80 2,996.40 8,813.10

Inventories 3,160.80 3,262.20 3,132.10 2,685.90 1,705.90

Cash and Bank 71.10 13.80 39.10 18.30 629.70

Other Current Assets 179.10 175.70 234.90 253.00 377.90

Short Term Loans and 10,190.7

1,831.30 1,946.50 2,060.90 9,157.90
Advances 0

17,214.1 22,098.2
Total Current Assets 7,921.40 8,776.20 7,846.00
0 0

Net Current Assets (Including

-7,520.70 -4,450.20 -3,193.20 -625.10 6,053.30
Current Investments)

35
Total Current Assets
14,217.7 13,285.1
Excluding Current 6,704.10 6,597.40 6,789.20
0 0
Investments

Miscellaneous Expenses not

0.00 0.00 0.00 0.00 0.00
written off

59,370.1 51,250.6 41,940.0 42,567.2 38,506.5

Total Assets
0 0 0 0 0

Contingent Liabilities 9,683.80 9,855.50 8,513.80 8,131.20 4,994.70

Total Debt 110.80 483.60 230.90 515.60 1,823.90

Book Value (in ₹) 1,382.69 0.00 989.54 784.91 694.64

Adjusted Book Value (in ₹) 1,382.69 0.00 989.54 784.91 694.64

CASHFLOW STATEMENT

For the year ended 2014-18

MAR'18 MAR'17 MAR'16 MAR'15 MAR'14

Parameters
(₹ Cr.) (₹ Cr.) (₹ Cr.) (₹ Cr.) (₹ Cr.)

36
 11,003.4
Net Profit Before Taxes 9,960.30 7,443.70 4,868.20 3,658.50
0

Adjustments for Expenses &

1,030.80 446.40 1,487.60 1,747.50 1,320.90
Provisions

Adjustments for Liabilities &

2,805.80 2,194.00 1,463.10 745.70 756.20
Assets

Cash Flow from operating 11,785.0 10,279.3

8,484.50 6,320.70 4,903.60
activities 0 0

Cash Flow from investing - - -

-8,282.10 -9,177.90
activities 7,227.40 4,410.00 4,892.90

Cash Flow from financing - -

-3,446.00 -1,129.30 -65.90
activities 1,236.40 1,962.10

Effect of exchange fluctuation on

0.00 0.00 0.00 0.00 0.00
translation reserve

Net increase/(decrease) in cash

56.90 -27.90 20.70 -51.40 -55.20
and cash equivalents

Opening Cash & Cash

13.00 38.40 17.70 69.70 124.90
Equivalents

Cash & Cash Equivalent on

Amalgamation / Take over / 0.00 2.50 0.00 0.00 0.00
Merger

Cash & Cash Equivalent of

0.00 0.00 0.00 0.00 0.00
Subsidiaries under liquidations

Translation adjustment on
reserves / op cash balances frgn 0.00 0.00 0.00 0.00 0.00
subsidiaries

Effect of Foreign Exchange

0.00 0.00 0.00 0.00 0.00
Fluctuations

Closing Cash & Cash Equivalent 69.90 13.00 38.40 18.30 69.70

37
38