CORPORATE ACCOUNTING

ASSIGNMENT
(TUTORIAL)

AYUSHI CHAUHAN
BCOM(HONS)
SEC-G
ROLL NUMBER- 620
 ACCOUNTING RATIOS
 DEFINITION: Accounting ratios, an important sub-set of financial ratios, are a group
of metrics used to measure the efficiency and profitability of a company based on its
financial reports. They provide a way of expressing the relationship between one
accounting data point to another and are the basis of ratio analysis.

 IMPORTANCE:
1. An accounting ratio compares two-line items in a company’s financial
statements, namely made up of its income statement, balance sheet, and cash
flow statement.
2. These ratios can be used to evaluate a company’s fundamentals and provide
information about the performance of the company over the last quarter or
fiscal year.
3. Common accounting ratios include the debt-to-equity ratio, the quick ratio, the
dividend payout ratio, gross margin, and operating margin.
4. Accounting ratios are used by both the company itself to make improvements or
monitor progress as well as by investors to determine the best investment
option.

 LIMITATIONS:
1. Ignores Price-level Changes: The financial accounting is based on stable money
measurement principle. It implicitly assumes that price level changes are either
non-existent or minimal. But the truth is otherwise. We are normally living in
inflationary economies where the power of money declines constantly. A
change in the price-level makes analysis of financial statement of different
accounting years meaningless because accounting records ignore changes in
value of money.
2. Ignore Qualitative or Non-monetary Aspects: Accounting provides information
about quantitative (or monetary) aspects of business. Hence, the ratios also
reflect only the monetary aspects, ignoring completely the non-monetary
(qualitative) factors.
3. Variations in Accounting Practices: There are differing accounting policies for
valuation of inventory, calculation of depreciation, treatment of intangibles
Assets definition of certain financial variables etc., available for various aspects
of business transactions. These variations leave a big question mark on the
cross-sectional analysis. As there are variations in accounting practices followed
by different business enterprises, a valid comparison of their financial
statements is not possible.
4. Forecasting: Forecasting of future trends based only on historical analysis is not
feasible. Proper forecasting requires consideration of non-financial factors as
well.
 CALCULATION: Ratios are essentially derived numbers and their efficacy depends a
great deal upon the basic numbers from which they are calculated. Hence, if the
financial statements contain some errors, the derived numbers in terms of ratio
analysis would also present an erroneous scenario.
 Britannia
Britannia Industries Limited is an Indian company specialised in food industry, part of
the Wadia Group headed by Nusli Wadia. Founded in 1892 and headquartered in Kolkata, it is
one of India's oldest existing companies and best known for its biscuit products. The company
sells its Britannia brands of biscuits, breads and dairy products throughout India
and abroad. Beginning with the circumstances of its takeover by the Wadia Group in the early
1990s, the company has been mired in several controversies connected to its
management. However, it still has a large market share and it is profitable.[
STATEMENT OF PROFIT AND LOSS
 RATIO ANALYSIS OF MARUTI SUZUKI

(A) LIQUIDITY RATIOS

1. CURRENT RATIO = Current Assets/Current Liabilities

= (16781/17,013.70)
= 0.9:1

Current Ratio Ideal Ratio

0.9:1 2:1

 Here, as the Current Ratio is than the Ideal ratio, it indicates lack of liquidity and
shortage of working capital. The Company is not in a position to pay its current
liabilities in time.
2. QUICK RATIO = Liquid Assets/Current Liabilities
Liquid Assets = Current Assets-Inventories-Prepaid Expenses and Advance Tax
= (16,781.20 –3,533.10 - 325 – 0)/ 17,013.70
= 0.759:1

Quick ratio Ideal Ratio

0.759:1 1:1

 As the Quick Ratio is less than the Ideal ratio, the short-term financial position of the
Company cannot be said to be satisfactory because for every one rupee there should
be atleast one rupee of liquid assets as they can be readily converted into cash.
(B) SOLVENCY RATIOS

1. DEBT EQUITY RATIO = Long Term Debts/Shareholder’s Funds

= (Long Term Borrowings+ Long Term Provisions)/
( (Share Capital + Reserve & Surplus)
= (0 + 83.3)/ (151 + 53,935)
= 0.9

Debt Equity Ratio Ideal Ratio

0.9 2:1
 Here, as the debt-equity ratio is less than the ideal (Safe) ratio. It shows that the
long-term financial position of the company is sound. It is so because it shows that
Maruti Suzuki can borrow more to further finance its operations and long-term
lenders are secure in this case.

2. TOTAL ASSETS TO DEBT RATIO = Total assets/ Long term debts

= 73,394.30/ (0 + 83.3)
= 881.08:1

Total assets to debt ratio Ideal Ratio

881.08:1 2:1

 This ratio measures the extent to which long term debts are covered by the assets.
Here as the total assets to debt ratio is too higher than the ideal ratio which implies
the use of lower debts in financing the assets which means a larger safety margin for
lenders.

3. PROPRIETARY RATIO = Shareholders’ Funds/ Total Assets

= 54086/73394
= 0.836:1

Proprietary Ratio Ideal Ratio

0.836:1 Higher is Better.

 83.6% of the total assets of the company are funded by equity which indicates that
the long-term financial position of the company is very sound.

4. Interest Coverage Ratio = Profit before interest and tax/ Fixed Interest Charges
= 4,582.30/ 11.77
= 389 times

Interest Coverage Ratio Ideal Ratio

389 times Higher is Better.

 This ratio shows by how many times the Interest payments of the company are
covered by the profits so a higher ratio shows that lenders are secure in the long
term in respect of interest payments to them regularly.
(C) ACTIVITY/ TURNOVER RATIOS
1. INVENTORY TURNOVER RATIO = Cost of revenue from operations/ Average Inventory
Cost of Revenue from Operations = Revenue from operations - Gross Profit
 = 83,798.10 – (- 1782.3)
= 85580.3
Average Inventory = (Opening Inventory + Closing Inventory)/2
= (3,533.10 + 3050)/2
= 3291.55
INVENTORY TURNOVER RATIO = 85580.3/3291.55
= 26 times

INVENTORY TURNOVER RATIO Ideal Ratio

32times Higher is Better.

 Here as the ratio is 26 times, it indicates that the inventory is selling quickly. In a
business where inventory turnover ratio is high, goods can be sold a low margin of
profit and even the profitability may be quite high.

2. TRADE RECEIVABLES TURNOVER RATIO = Credit revenue from operations/ Average

Trade Receivables
Average Trade Receivables = (Opening TR + Closing TR)/2
= (1276.6 + 2,030.10)/2
= 1653.35
TRADE RECEIVABLES TURNOVER RATIO = 83,798.10/ 1653.35
= 57.68 times

TRADE RECEIVABLES Ideal Ratio

TURNOVER RATIO
57.68 times Higher is Better.

 Here as the ratio is 50.68 times(approx.) then It shows that amount from trade
receivables is collected quickly and there is less risk of bad debts.

3. WORKING CAPITAL TURNOVER RATIO = Net Sales/ Working Capital (CA – CL)
= 83,798.10/ (16,781.20 - 17,013.70)
= 280 times

WORKING CAPITAL TURNOVER Ideal Ratio

RATIO
280 times Higher is Better.

 A high working capital turnover ratio shows efficient use of working capital and
quick turnover current assets like inventory and trade receivables.
(D) PROFITABILITY RATIOS
1. GROSS PROFIT RATIO (2022) = (Gross profit/ Revenue from Operations) x 100
= (1782.3/83,798.10) x 100
= 2.12 %
GROSS PROFIT RATIO (2021) = 1996.8 /66,562.10
= 3%

GROSS PROFIT RATIO (2022) GROSS PROFIT RATIO (2021)

2.12% 3%

 Decrease in ratio is not good for the company despite increase in sales

2. OPERATING RATIO = {(cost of revenue from operations + operating expenses-

operating income)/ revenue from operations} x 100
OPERATING EXPENSES = Employee Benefit Expenses+ Depreciation and
Amortisation Expenses+ Finance Costs+ Other Expenses
OPERATING EXPENSES = 4,022.20 + 2,786.50 + 125.9 + 12,679.40
= 19614
OPERATING INCOME = Operating Profit+ Operating Expenses
= 2932.9 + 19614
= 22546
OPERATING RATIO (2022) = (85580.3 + 19614 – 22546)/ 83,798.10 x 100
= 96.5%
OPERATING RATIO (2021) = (85580.3 + 19614 – 22546)/ 83,798.10 x 100
= 96.5%

OPERATING RATIO (2022) OPERATING RATIO (2021)

96.5% 96.5%

 OPERATING RATIO is unchanged in both years as the operating profit ratio is

unchanged

3. OPERATING PROFIT RATIO (2022) = (Operating Profit/ Revenue from Operations) X

100
= 2932.9/83798 x 100 = 3.5 %
 OPERATING PROFIT RATIO (2021) = 2329/ 66562 x 100
= 3.5 %

OPERATING PROFIT RATIO OPERATING PROFIT RATIO

 (2022) (2021)

3.5% 3.5%

 The Operating profit Ratio is unchanged

4. NET PROFIT RATIO (2022) = (Net Profit After Tax/ Revenue from Operations) X 100
= 3,766.30/83798
= 4.5%
NET PROFIT RATIO (2021) = 4,229.70/ 66562
= 6.35%

NET PROFIT RATIO (2022) NET PROFIT RATIO (2021)

4.5% 6.35%

 Here as the net profit ratio has decreased from the year 2021 to 2022 which shows
fall in the overall efficiency and profitability of the company

5. RETURN ON INVESTMENT = (Net Profit Before Interest, Tax And Dividends/ Capital
Employed) X 100
CAPITAL EMPLOYED = Non-Current Assets + Working Capital
= 56,613.10 – 232.5 = 56380.6
RETURN ON INVESTMENT (2022) = 4,582.30/ 56380 x 100 = 8.1%
RETURN ON INVESTMENT (2021) = 5,159.40/ 53960 x 100 = 9.5%

ROI 2022 ROI 2021

8.1% 9.5%

 Here as the return on investment has decreased from the year 2021 to 2022 which
shows the negative growth of the company and lesser returns that will reduce its
borrowing power.

PARLE G
Parle-G is a brand of biscuits manufactured by Parle Products in India. A
2011 Nielsen survey reported that it is the best-selling brand of biscuits in the world. Parle
Products was established as a confectionery maker in the Vile Parle suburb of Mumbai, in
1929. Parle Products began manufacturing biscuits in 1939. In 1947, when India became
independent, the company launched an ad campaign, showcasing its Gluco brand of biscuits
as an Indian alternative to British-branded biscuits. Parle-G biscuits were earlier called 'Parle
Gluco' Biscuits until the 1980s. The "G" in the name Parle-G originally stood for "Glucose",
though a later brand slogan also stated "G for Genius".[5]In 2013, Parle-G became India's
first FMCG brand to cross the ₹5,000 crore mark in retail sales.[6]
BALANCE SHEET

STATEMENT OF PROFIT AND LOSS

RATIO ANALYSIS OF TATA MOTORS
 (A) LIQUIDITY RATIOS

1. CURRENT RATIO = Current Assets/Current Liabilities

= 15619.61/16962.91
= 0.92:1

Current Ratio Ideal Ratio

0.92:1 2:1

 Here, as the Current Ratio is than the Ideal ratio, it indicates lack of liquidity and
shortage of working capital. The Company is not in a position to pay its current
liabilities in time. Also, the current ratio of TATA is less than Maruti Suzuki so it is in
less favourable condition to repay the short-term debts.

2. QUICK RATIO = Liquid Assets/Current Liabilities

Liquid Assets = Current Assets-Inventories-Prepaid Expenses and Advance Tax
= 15619.61 - 3718.49 – 161.8
= 11739.32
QUICK RATIO = 11739.32/16962.91
= 0.69:1

Quick ratio Ideal Ratio

0.69:1 1:1

 As the Quick Ratio is less than the Ideal ratio, the short-term financial position of the
Company cannot be said to be satisfactory because for every one rupee there should
be atleast one rupee of liquid assets as they can be readily converted into cash.
However, TATA MOTORS quick ratio is less than Maruti Suzuki it is in less favourable
condition to repay the short-term debts.

(B) SOLVENCY RATIOS

1. DEBT EQUITY RATIO = Long Term Debts/Shareholder’s Funds
= (Long Term Borrowings + Long Term Provisions)/
( (Share Capital + Reserve & Surplus)
 = (14102.74 + 1474)/ (765.88+ 19171.88)
= 0.78:1

Debt Equity Ratio Ideal Ratio

0.78 2:1

 Here, as the debt-equity ratio is less than the ideal (Safe) ratio. It shows that the
long-term financial position of the company is sound. It is so because it shows that
TATA motors can borrow more to further finance its operations and long-term
lenders are secure in this case.

2. TOTAL ASSETS TO DEBT RATIO = Total assets/ Long term debts

= 63899.87/1937.76
= 3.2:1

Total assets to debt ratio Ideal Ratio

3.2:1 2:1

This ratio measures the extent to which long term debts are covered by the assets.
Here as the total assets to debt ratio is too higher than the ideal ratio which implies
the use of lower debts in financing the assets which means a larger safety margin for
lenders
3. PROPRIETARY RATIO = Shareholders’ Funds/ Total Assets
= 19937.76/63899.87
= 031:1

Proprietary Ratio Ideal Ratio

0.31:1 Higher is Better.

 31.1% of the total assets of the company are funded by equity which indicates that
the long-term financial position of the company is sound but it is less than Maruti
Suzuki.

4. Interest Coverage Ratio = Profit before interest and tax/ Fixed Interest Charges
= 1,390.86/9336
= 0.14 times
 Interest Coverage Ratio Ideal Ratio

0.14 times Higher is Better.

 This ratio shows by how many times the Interest payments of the company are
covered by the profits so a higher ratio shows that lenders are secure in the long
term in respect of interest payments to them regularly but TATA motors is in loss and
has high interest payments so it is not in a favourable condition to take more debt
and make interest payments.

(C) ACTIVITY/ TURNOVER RATIOS

1. INVENTORY TURNOVER RATIO = Cost of revenue from operations/ Average
Inventory
Cost of Revenue from Operations = Revenue from operations - Gross Profit
= 46880 + 257.84
= 47137.84
Average Inventory = (Opening Inventory + Closing Inventory)/2
= (3718.49 + 4551.71)/2
= 4135.1
INVENTORY TURNOVER RATIO = 47137.84/4135.1
= 11.39 times

INVENTORY TURNOVER RATIO Ideal Ratio

11.3 times Higher is Better.

 Here as the ratio is 11.3 times, it indicates that the inventory is selling quickly. In a
business where inventory turnover ratio is high, goods can be sold a low margin of
profit and even the profitability may be quite high.

2. TRADE RECEIVABLES TURNOVER RATIO = Credit revenue from operations/

Average
Trade Receivables
Average Trade Receivables = (Opening TR + Closing TR)/2
= (2111 + 2,087)/2
= 2099
TRADE RECEIVABLES TURNOVER RATIO = 46880/ 2099
= 22.33 times

TRADE RECEIVABLES Ideal Ratio

TURNOVER RATIO
22.33 Higher is Better.
 Here as the ratio is 22.33 times(approx.) then It shows that amount from trade
receivables is collected quickly and there is less risk of bad debts.

3. WORKING CAPITAL TURNOVER RATIO = Net Sales/ Working Capital (CA – CL)
= 46880/ 1343
= 35 times

WORKING CAPITAL TURNOVER Ideal Ratio

RATIO
35 times Higher is Better.

 A high working capital turnover ratio shows efficient use of working capital and
quick turnover current assets like inventory and trade receivables.

(D) PROFITABILITY RATIOS

1. GROSS PROFIT RATIO (2022) = (Gross profit/ Revenue from Operations) x 100
= (-257.84/46880) x 100
= -0.55
GROSS PROFIT RATIO (2021) = -270 /29769 x 100
= 0.91%

GROSS PROFIT RATIO (2022) GROSS PROFIT RATIO (2021)

-0.55% -0.91%

 There is Decrease in loss of the company and increase in sales which is a good sign
for its profitability.

2. OPERATING RATIO = {(cost of revenue from operations + operating expenses-

operating income)/ revenue from operations} x 100
OPERATING EXPENSES = Employee Benefit Expenses+ Depreciation and
Amortisation Expenses+ Finance Costs+ Other Expenses
OPERATING EXPENSES = 4,022.20 + 2,786.50 + 125.9 + 12,679.40
= 19614
OPERATING INCOME = Operating Profit+ Operating Expenses
= 2932.9 + 19614
= 22546
OPERATING RATIO (2022) = (85580.3 + 19614 – 22546)/ 83,798.10 x 100
 = 96.5%
OPERATING RATIO (2021) = (85580.3 + 19614 – 22546)/ 83,798.10 x 100
= 96.5%

OPERATING RATIO (2022) OPERATING RATIO (2021)

96.83% 95.19%

 OPERATING RATIO is increasing which shows operating costs are too high.

3. OPERATING PROFIT RATIO (2022) = (Operating Profit/ Revenue from Operations) X

100
= 1486.09/46880 x 100 = 3.17 %
 OPERATING PROFIT RATIO (2021) = 1241/ 29769 x 100
= 4.81%

OPERATING PROFIT RATIO OPERATING PROFIT RATIO

(2022) (2021)

3.17 4.81

 The Operating profit Ratio is decreasing which shows operating costs are too high
and profitability is low.

4. NET PROFIT RATIO (2022) = (Net Profit After Tax/ Revenue from Operations) X 100
= -1390/46880 x 100
= 2.92%
NET PROFIT RATIO (2021) = -2395.70/ 29769
= 7.93%

NET PROFIT RATIO (2022) NET PROFIT RATIO (2021)

-2.92% -7.93%

 Here as the net loss has decreased from the year 2021 to 2022 which shows rise in
the overall efficiency and profitability of the company

5. RETURN ON INVESTMENT = (Net Profit Before Interest, Tax And Dividends/ Capital
Employed) X 100
CAPITAL EMPLOYED = Non-Current Assets + Working Capital
= 56,613.10 – 232.5 = 56380.6
 RETURN ON INVESTMENT (2022) = 4,582.30/ 56380 x 100 = 8.1%
RETURN ON INVESTMENT (2021) = 5,159.40/ 53960 x 100 = 9.5%

ROI 2022 ROI 2021

8.1% 9.5%

 Here as the return on investment has decreased from the year 2021 to 2022 which
shows the negative growth of the company and lesser returns that will reduce its
borrowing power.