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ACCOUNTING RATIO
ANALYSIS
(2015-2017)
1.CURRENT RATIO
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑨𝒔𝒔𝒆𝒕𝒔
=
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
(in crores)

2015 2016 2017

CURRENT 9,616.03 9,408.45 9,144.51
ASSETS
CURRENT 8,689.23 9,166.52 8,374.72
LIABILITIES
CURRENT 1.11:1 1.03:1 1.09:1
RATIO
IDEAL CURRENT RATIO :- 2: 1
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QUICK RATIO
0.9
0.88
0.86
QUICK RATIO
0.84
0.82
2017 2016 2015

INTERPRETATION :- It provides a measure of degree to

which current assets cover current liabilities. The excess of
current assets over current liabilities provides a measure of
safety margin available against uncertainty in realisation of
current assets and flow of funds. The ratio should be
reasonable. It should neither be very high or very low. Both the
situations have their inherent disadvantages. A very high
current ratio implies heavy investment in current assets which is
not a good sign as it reflects under utilisation or improper
utilisation of resources. A low ratio endangers the business and
puts it at risk of facing a situation where it will not be able to pay
its short-term debt on time. If this problem persists, it may affect
firms credit worthiness adversely. Normally, it is safe to have
this ratio within the range of 2:1
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2.QUICK RATIO
𝑸𝒖𝒊𝒄𝒌 𝑨𝒔𝒔𝒆𝒕𝒔
=
𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒍𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔
 Quick Assets=Current Assets-(Inventories+Advance taxes)

2017 2016 2015

QUICK 7446.13 7799.01 7684.76
ASSETS
CURRENT 8374.72 9166.52 8689.23
LIABILITIES
QUICK 0.89:1 0.85:1 0.88:1
RATIO
Working notes:
IDEAL RATIO:- 1:1

QUICK RATIO
0.9
0.88
0.86
QUICK RATIO
0.84
0.82
2017 2016 2015
GRAPH-

INTERPRETATION:- The ratio provides a measure of the capacity of

the business to meet its short-term obligations without any flaw. Normally, it
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is advocated to be safe to have a ratio of 1:1 as unnecessarily low ratio will

be very risky and a high ratio suggests unnecessarily deployment of
resources in otherwise less profitable short-term investments

3. DEBT-EQUITY RATIO
𝑳𝒐𝒏𝒈 𝒕𝒆𝒓𝒎 𝒅𝒆𝒃𝒕𝒔
=
𝑺𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓′ 𝒔𝒇𝒖𝒏𝒅
 Shareholder’s fund(Equity)=share capital + reserve and
surplus+ money received against share warrants
->Share Capital=equity share capital + preference share
capital
->Long term debt=long term borrowings + other long term
liabilities + long term provisions
Or
->Shareholder’s fund (Equity)=Non-current assets+ working
capital-Non-current liabilities

2015 2016 2017

Long term 13,846.04 11,536.33 9745.90
debts
Shareholder’s 35,635.80 35,094.55 38,149.37
fund
Debt equity 0.38 0.32 0.25
ratio
Working notes:
Ideal Ratio :- 2:1
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total assets to
debt ratio
6

4
total assets
2 to debt ratio

0
2015 2016 2017
Graph :-
Interpretation :- This ratio measures the degree of
indebtedness of an enterprise and gives an idea to the long-
term lender regarding extent of security of the debt. As
indicated earlier, a low debt equity ratio reflects more security.
A high ratio, on the other hand, is considered risky as it may put
the firm into difficulty in meeting its obligations to outsiders.
However, from the perspective of the owners, greater use of
debt (trading on equity) may help in ensuring higher returns for
them if the rate of earnings on capital employed is higher than
the rate of interest payable.
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4. TOTAL ASSETS TO DEBT RATIO

𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔
=
𝒍𝒐𝒏𝒈 𝒕𝒆𝒓𝒎 𝒅𝒆𝒃𝒕𝒔
2015 2016 2017
Total assets 58,171.07 55,797.40 56,269.99
Long term 13,846.04 11,536.33 9745.90
debts
Total assets 4.2:1 4.83:1 5.7:1
to debt ratio
Ideal ratio :-

total assets to debt

ratio
6

4
total assets to
2 debt ratio

0
2015 2016 2017
Graph :-
Interpretation :-
The higher ratio indicates that assets have been mainly
financed by owners funds and the long-term loans is
adequately covered by assets.

It is better to take the net assets (capital employed) instead

of total assets for computing this ratio also. It is observed that in
that case, the ratio is the reciprocal of the debt to capital
employed ratio.
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5.PROPRIETARY RATIO
𝒔𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓′ 𝒔𝒇𝒖𝒏𝒅
=
𝒄𝒂𝒑𝒊𝒕𝒂𝒍 𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅
2015 2016 2017
Shareholder’s 35,635.80 35,094.55 38,149.37
fund
Capital 49481.84 46630.88 47897.27
employed
Proprietary 0.72:1 0.75:1 0.79:1
ratio
Working note: Capital Employed =Total Assets- Current liabilities.
2017= 56,269.99 – 8,374.72 = 47895.27
2016= 55,797.40 – 9,166.52 = 46630.88
2015= 58,171.07 – 8,689.23 =49481.84
Graph:-
Interpretation:- Higher proportion of shareholders funds in financing
the assets is a positive feature as it provides security to creditors. This ratio
can also be computed in relation to total assets instead of net assets
(capital employed). It may be noted that the total of debt to capital
employed ratio and proprietory ratio is equal to 1. Take these ratios worked
out on the basis of data of Illustration 7, the debt to Capital Employed ratio
is 0.25 : 1 and the Proprietory Ratio 0.75 : 1 the total is 0.25 + 0.75 = 1. In
terms of percentage it can be stated that the 25% of the capital employed is
funded by debts and 75% by owners’ funds.
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6.DEBTOR’S TURNOVER RATIO(TRADE

RECIEVABLES TURNOVER RATIO)
𝑵𝒆𝒕 𝑺𝒂𝒍𝒆𝒔
=
𝑨𝒗𝒈 𝑫𝒆𝒃𝒕𝒐𝒓𝒔
2015 2016 2017
NET SALES 52,195.97 48,882.99
AVG 227.61 309.32 451.88
DEBTORS
DEBTORS 168.7 108.1
TURNOVER
RATIO
Working notes : We take closing balances of debtors
for calculating the ratio.
Graph:-
Interpretation:- The liquidity position of the firm depends
upon the speed with which trade receivables are realised. This
ratio indicates the number of times the receivables are turned
over and converted into cash in an accounting period. Higher
turnover means speedy collection from trade receivable. This
ratio also helps in working out the average collection period.
The ratio is calculated by dividing the days or months in a year
by trade receivables turnover ratio.

Number of days or Months

i.e.,
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Trade receivables turnover ratio

7.INVENTORY TURNOVER RATIO

𝒄𝒐𝒔𝒕 𝒐𝒇 𝒓𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏𝒔
=
𝒂𝒗𝒆𝒓𝒂𝒈𝒆 𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚
2015 2016 2017
Cost 52,195.97 48,882.99
average 1931.27 1609.44 1698.38
inventory
Inventory 32.4:1 28.7:1
turnover
ratio
Working notes: we have taken closing inventory for
calculating ratio.
Graph:-
Interpretation :- It studies the frequency of conversion of
inventory of finished goods into revenue from operations. It is
also a measure of liquidity. It determines how many times
inventory is purchased or replaced during a year. Low turnover
of inventory may be due to bad buying, obsolete inventory, etc.,
and is a danger signal. High turnover is good but it must be
carefully interpreted as it may be due to buying in small lots or
selling quickly at low margin to realise cash. Thus, it throws
light on utilisation of inventory of goods.
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.TRADE PAYABLE TURNOVER

𝑵𝒆𝒕 𝒄𝒓𝒆𝒅𝒊𝒕 𝒑𝒖𝒓𝒄𝒉𝒂𝒔𝒆
=
𝑨𝒗𝒈 𝒕𝒓𝒂𝒅𝒆 𝒑𝒂𝒚𝒂𝒃𝒍𝒆𝒔

2015 2016 2017

Net credit (+1931.27) (3,388.52+ (3,151.24
purchase 1609.44) +1698.38)
Avg trade 3320.48 2861.60 2716.01
payables
Trade 1.74:1 1.78:1
payables
turnover
Working notes: we have taken closing payables for
calculating ratio.
Net credit purchase = Cost of goods sold + opening
inventory – closing inventory.
Cost of goods sold = opening inventory + purchase –
closing inventories .
Since we have only closing inventory so we use
formula as (Cogs + closing inventory).
Graph :-
Interpretation:-
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The liquidity position of the firm depends upon the speed with
which trade receivables are realised. This ratio indicates the
number of times the receivables are turned over and converted
into cash in an accounting period. Higher turnover means
speedy collection from trade receivable. This ratio also helps in
working out the average collection period. The ratio is
calculated by dividing the days or months in a year by trade
receivables turnover ratio.

Number of days or Months

i.e.,

Trade receivables turnover ratio

9.WORKING CAPITAL TURNOVER RATIO

𝑵𝒆𝒕 𝒓𝒆𝒗𝒆𝒏𝒖𝒆 𝒇𝒓𝒐𝒎 𝒐𝒑𝒆𝒓𝒂𝒕𝒊𝒐𝒏
=
𝒘𝒐𝒓𝒌𝒊𝒏𝒈 𝒄𝒂𝒑𝒊𝒕𝒂𝒍
2015 2016 2017
Net revenue 52,195.97 48,882.99
Working 926.8 241.93 769.79
capital
Working 215.7:1 63.5:1
capital
turnover
ratio
Working notes: working capital = current assets –
current liabilities.
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2017= 9,144.51 – 8374.72 = 769.79

2016= 9,408.45 -9,166.52 = 241.93
2015= 9,616.03 – 8,689.23 =926.8
Graph :-
Interpretation :- High turnover of capital employed,
working capital and fixed assets is a good sign and implies
efficient utilisation of resources. Utilisation of capital employed
or, for that matter, any of its components is revealed by the
turnover ratios. Higher turnover reflects efficient utilisation
resulting in higher liquidity and profitability in the business.

10.INVESTMENT TURNOVER RATIO

2015 2016 2017

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11.GROSS PROFIT RATIO

𝑮𝒓𝒐𝒔𝒔 𝑷𝒓𝒐𝒇𝒊𝒕
=
𝒏𝒆𝒕 𝒔𝒂𝒍𝒆𝒔
2015 2016 2017
Gross profit 3,061.97 5,410.82
Net sales 52,195.97 48,882.99
Gross profit 5.86% 11%
ratio
Working notes :-
GRAPH :-
INTERPRETATION :- It indicates gross margin on
products sold. It also indicates the margin available to cover
operating expenses, non-operating expenses, etc. Change in
gross profit ratio may be due to change in selling price or cost
of revenue from operations or a combination of both. A low ratio
may indicate unfavourable purchase and sales policy. Higher
gross profit ratio is always a good sign.
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12.RETURN ON CAPITAL EMPLOYED(ROI)

𝑷𝒓𝒐𝒇𝒊𝒕 𝒃𝒆𝒇𝒐𝒓𝒆 𝒊𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝒂𝒏𝒅 𝒕𝒂𝒙
= ∗ 𝟏𝟎𝟎
𝒄𝒂𝒑𝒊𝒕𝒂𝒍 𝒆𝒎𝒑𝒍𝒐𝒚𝒆𝒅

 PBT=
2015 2016 2017
PBT 3,061.97 5,410.82
Capital 49481.84 46630.88 47897.27
employed
ROI 6.56% 11.29%

Graph :-

Implication:- It measures return on capital employed in the business. It

reveals the efficiency of the business in utilisation of funds entrusted to it by
shareholders, debenture-holders and long-term loans. For inter-firm
comparison, return on capital employed funds is considered a good
measure of profitability. It also helps in assessing whether the firm is
earning a higher return on capital employed as compared to the interest
rate paid.
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13. EARNING PER SHARE(EPS)

𝑷𝒓𝒐𝒇𝒊𝒕 𝒂𝒗𝒂𝒊𝒍𝒂𝒃𝒍𝒆 𝒕𝒐 𝒆𝒒𝒖𝒊𝒕𝒚 𝒔𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓𝒔
=
𝒏𝒐. 𝒐𝒇 𝒆𝒒𝒖𝒊𝒕𝒚 𝒔𝒉𝒂𝒓𝒆𝒔
In this context, earnings refer to profit available for
equity shareholders which is worked out as
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Profit after Tax – Dividend on Preference Shares.

2015 2016 2017

Profit 2,226.43 3,502.91
available
No. of 169.1 169.1
equity
shares
EPS 13.16 20.71
IDEAL RATIO :
WORKING NOTE:
GRAPH:
INTERPRETATION :- This ratio is very important from equity
shareholders point of view and also for the share price in the stock
market. This also helps comparison with other to ascertain its
reasonableness and capacity to pay dividend.

14.DIVIDEND PAYOUT RATIO

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WORKING CAPITAL
MANAGEMENT
ANALYSIS AND
COMPARISON WITH
ONGC FOR (2015-
2017)
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CASH CONVERSION CYCLE

The cash conversion cycle (CCC) is a metric that expresses the length of
time, in days, that it takes for a company to convert resource inputs into
cash flows. The cash conversion cycle attempts to measure the amount of
time each net input dollar is tied up in the production and sales process
before it is converted into cash through sales to customers. This metric
looks at the amount of time needed to sell inventory, the amount of time
needed to collect receivables, and the length of time the company is
afforded to pay its bills without incurring penalties.The CCC is a
combination of several activity ratios involving accounts receivable,
accounts payable and inventory turnover. AR and inventory are short-term
assets, while AP is a liability; all of these ratios are found on the balance
sheet. In essence, the ratios indicate how efficiently management is using
short-term assets and liabilities to generate cash. This allows an investor to
gauge the company's overall health.

CCC=DIO+DS0-DPO

 DIO=Days Inventory Outstanding

This addresses the question of how many days it takes to sell the
entire inventory. The smaller this number is, the better.

DIO = Average inventory/COGS per day

COGS=Opening inventory + purchases made during the year –
closing inventory

Average Inventory = (beginning inventory + ending inventory)/2

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 DS0=This looks at the number of days needed to collect on sales and

involves AR. While cash-only sales have a DSO of zero, people do
use credit extended by the company, so this number will be positive.
Again, a smaller number is better.

DSO = Average AR / Revenue per day

Average AR = (beginning AR + ending AR)/2

 Days Payable Outstanding (DPO): This involves the company's

payment of its own bills or AP. If this can be maximized, the company
holds onto cash longer, maximizing its investment potential;
therefore, a longer DPO is better.

DPO = Average AP/COGS per day

Average AP = (beginning AP + ending AP)/2

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GAIL DIO DSO DPO CCC

2015
2016
2017
INTERPRETATION :-
ONGC DIO DSO DPO CCC
2015
2016
2017
INTERPRETATION :-