INTRODUCTION

Ratio Analysis is a mathematical tool used to evaluate the financial position of a

company and compare the outcome with the previous year figures and also analyzes
the performance of the company as compared to its peers. 

Ratio analysis is a quantitative method of gaining insight into a company's liquidity,

operational efficiency, and profitability by comparing information contained in its
financial statements. Ratio analysis is a cornerstone of fundamental analysis.

Outside analysts use several types of ratios to assess companies, while corporate

insiders rely on them less because of their access to more detailed operational data
about a company.
 Objectives of ratio Analysis
 Simplify accounting information.

 Determine liquidity or Short-term solvency and Long-term solvency. Short-term

solvency is the ability of the enterprise to meet its short-term financial obligations.
Whereas, Long-term solvency is the ability of the enterprise to pay its long-term
liabilities of the business.

 Assess the operating efficiency of the business.

 Analyze the profitability of the business.

 Help in comparative analysis, i.e. inter-firm and intra-firm comparisons.

 Significance & uses of ratio
Analysis
The purpose and importance of ratio analysis are to evaluate or analyze the financial
performance of the firm in terms of Risk, Profitability, Solvency, and Efficiency. It helps
us to compare the trends of two or more company over a period of time.

 Analysis of Financial Statements:Interpretation of the financial statements and

data is essential for all internal and external stakeholders of the firm. With the help of ratio
analysis, we interpret the numbers from the balance sheet and income statements. Every
stakeholder has different interests when it comes to the result from the financial like the
equity investors are more interested in the growth of the dividend payments and the
earnings power of the organization in the long run. Creditors would like to ensure that they
get their repayments on their dues on time.

 Helps in Understanding the Profitability of the Company:Profitability

ratios help to determine how profitable a firm  is. Return on Assets and Return on
Equity helps to understand the ability of the firm to generate earnings. Return on assets is
the total net income divided by total assets. It means how many does a company earn a
profit for every dollar of its assets. Return on equity is net income by shareholders equity.
This ratio basically tells us how well a company uses its investors’ money. Ratios like
the Gross profit and Net profit margin. Margins help to analyze the firm’s ability to
translate sales to profit.

 Analysis of Operational Efficiency of the Firms: Certain ratios help us

to analyze the degree of efficiency of the firms. Ratios like account receivables
turnover, fixed asset turnover, and inventory turnover ratio. These ratios can
be compared with the other peers of the same industry and will help to analyze
which firms are better managed as compared to the others. It measures a
company’s capability to generate income by using the assets. It looks at various
aspects of the firm like the time it generally takes to collect cash from debtors
or the time period for the firm to convert the inventory to cash. This is why
efficiency ratios are very important, as an improvement will lead to a growth
in profitability
 To Compare the Performance of the Firms: The main use of ratio
analysis is that the strengths and weakness of each firm can be compared. The
ratios can be also compared to the firm’s previous ratio and will help to
analyze whether progress has been made by the company.

 For Planning and Future Forecasting of the Firm:Analysts and

managers can find a trend and use the trend for future forecasting and can
also be used for important decision making by external stakeholders like the
investors. They can analyze whether they should invest in a project or not
 Helps in Identifying the Financial Risks of the Company: Another
importance of ratio analysis is that it helps in identifying the Financial Risks.
Ratios like Leverage ratio, interest coverage ratio, DSCR ratio etc helps the
firm understand how it is dependent on external capital and whether they are
capable of repaying the debt using their own capital.
 Types of accounting ratios
There are different types of ratios analysis that have been calculated by every
company to evaluate business performance. Simply we may divide it as below:

Type #1 – Profitability Ratios

This type of ratio analysis suggests the Returns that are generated from the Business

with the Capital Invested.

 Gross Profit Ratio: It represents the operating profit of the companyafter

adjusting the cost of the goods that are been sold. Higher the gross profit ratio,
lower the cost of goods sold and greater satisfaction for the management.

 Net Profit Ratio:It represents the overall profitability of the company after
deducting all the cash & no cash expenses. Higher the net profit ratio, higher
the net worth and stronger the balance sheet.

 Operating Profit Ratio: It represents the soundness of the company and the
ability to pay off its debt obligations.

 Return on Capital Employed:ROCE represents the profitability of the

company with the capital invested in the business.

Type #2 – Solvency Ratios

These ratio analysis types suggest whether the company is solvent & is able to pay off

the debts of the lenders or not.

  Debt-Equity Ratio:This ratio represents the leverage of the company. A low
d/e ratio means that the company has a lesser amount of debt on its books and
is more equity diluted. A 2:1 is an ideal debt-equity ratio to be maintained by
any company.

 Interest Coverage Ratio:It represents how many times the company’s

profits are capable of covering its interest expense. It also signifies the solvency
of the company in the near future since higher the ratio more comfort to the
shareholders & lenders regarding servicing of the debt obligations and smooth
functioning of the business operations of the company.

Type #3 – Liquidity Ratios

These ratios represent whether the company has enough liquidity to meet its short

term obligations or not. Higher liquidity ratios more cash-rich the company.

 Current Ratio:It represents the liquidity of the company in order to meet its

obligations in the next 12 months. Higher the current ratio, stronger the

company to pay its current liabilities. However, a very high current ratio

signifies that a lot of money is been stuck in receivables that might not realize

in the future.

 Quick Ratio:It represents how cash rich is the company to pay off its
immediate liabilities in the short term.

Type #4 – Turnover Ratios

Theses ratios signifies how efficiently the assets and liabilities of the company are been

used to generate revenue.

  Fixed Assets Turnover Ratio: Fixed asset turnover represents the
efficiency of the company to generate revenue from its assets. In simple terms,
it is a return on the investment in fixed assets. Net Sales = Gross Sales –
Returns. Net Fixed Assets = Gross Fixed Assets –Accumulated Depreciation.
Average Net Fixed Assets = (Opening Balance of Net Fixed Assets + Closing
Balance of Net Fixed Assets)/2.

 Inventory Turnover Ratio: Inventory Turnover Ratio represents how fast

the company is able to convert its inventory into sales. It is calculated in days
signifying the time required to sell the stock on an average. Average inventory
is been considered in this formula since the inventory of the company keeps on
fluctuating throughout the year.

 Receivable Turnover Ratio: Receivables Turnover Ratio reflects the

efficiency of the company to collect its receivables. It signifies how many times
the receivables are been converted to cash. A higher receivable turnover the
ratio also indicates that the company is collecting money in cash.

Type #5 – Earning Ratios

This ratio analysis type speaks about the returns that the company generates for its

shareholders or investors.

 P/E Ratio:PE Ratio represents the earnings multiple of the company, the

market value of the shares based on the PE multiple. A high P/E Ratio is a

positive sign for the company since it gets a high valuation in the market for

m&a opportunity.
 Earnings Per Share: Earnings Per Share represents the monetary value of
the earnings of each shareholder. It is one of the major components looked at
by the analyst while investing in equity markets.

 Return on Net Worth: It represents how much profit the company

generated with the invested capital from equity & preference
shareholders both.
 index
Sl.no contents
1 INTRODUCTION

2 Objectives of ratio ANALYSIS

3 Significance & uses of RATIO ANALYSIS

4 Types of accounting RATIOS

5 Statement of Profit and Loss OF TVS MOTOR
COMPANY LIMITED

6 Balance Sheet OF TVS MOTOR COMPANY

LIMITED
7 Solution
8 CONCALOSION
9 BIBLIOGRAPHY
 Conclusion
Financial ratios are one of the most common tools of managerial decision
making. Financial ratios remain useful tools for both internal and external
evaluations of key aspects of a firm's performance. Any health care
manager should be able include liquidity ratio, as well as operating ratio,
profitability ratio and solvency ratio that can be used to analyze
performance in hospitals. A working knowledge and ability to use and
interpret ratios remains a fundamental effective aspect. The analysis
involved comparison of the ratios against the national norms of Our Lady
of the Lake Regional Medical Centre. The national norms of this company
included support for the growth care for the elderly by the adoption of
agenda and others. The bottom line is financial ratios are essential in any
organization as it assists in making decisions. ReferencesAccounting Tools
(2017). Retrieved from, Baker, J. (2014.) Healthcare finance: Basic tools for
nonfinancial managers (4th ed.). Sudbury, MA: Jones and Bartlett
Business Plan Hut (2009). Retrieved from, -
 BIBLIOGRAPHY
I have taken this information from the following sources:-

 Www.google.com
 Www.wikipedia.com
 ISC Double Entry Book Keeping - Management Accounting by T.S Grewal
 ACKNOWLEDGEMENT

I would like to express my special thanks of

gratitude to my Accounts teachers, to the HOD of
commerce department, Subhimal Ghosh Dastidar
well as our principal, Dr Bhakta Sundar Sharma
who gave me the golden opportunity to do this
wonderful project on the topic (Ratio Analysis),
which also helped me in doing a lot of Research
and I came to know about so many new things I am
really thankful to them.

Secondly I would also like to thank my parents and

friends who helped me a lot in finalizing this
project within the limited time frame.
 Calculation of ratios
from Statement of Profit
and Loss and Balance
Sheet of TVS Motors
Company