Current ratio

This ratio is mostly commonly used to perform the short-term financial analysis. The ratio
matches the current assets of the firm to its current liabilities.

Table 1

Year Current assets Current liabilities Current ratio

‘Rs in 000 Rs in 000

2005-2006 38,66,559 26,87,296 1.4388
2006-2007 53,25,536 39,05,497 1.3636
2007-2008 85,75,727 62,51,168 1.3718
2008-2009 95,37,357 9029038 1.0562
2009-2010 77,44,120 12,469,202 0.6210

Analysis

From the above table it can analyzed during the year 2006 the current ratio is
1.4388 and the next proceeding years the ratios are stable 1.36, 1,37 and 1.05 but
during 2010 there is sharp decline in the ratio that is 0.62.

Interpretation
The graph clearly shows that during the year 2010 the company is having low current ratio and
the other years show satisfactory result. Normally a current ratio of 2:1 is considered satisfactory.
But in this case its 1:1 which means that the funds yielded by current assets of this company are
just sufficient to pay the amounts due to various creditors and there will be nothing left to meet
the expenses which are being currently incurred.

Quick ratio
Quick ratio is an indicator of a company's short-term liquidity. The quick ratio
measures a company's ability to meet its short-term obligations with its most liquid
assets. The higher the quick ratio, the better the position of the company.
The quick ratio is calculated as:

Liquid Ratio = Quick Assets

Quick Liability

TABLE 2
TABLE SHOWING CHANGES IN QUICK RATIO
Year Quick assets Quick liabilities capital

‘Rs in 000 Rs in 000

2005-2006 11,00,600 26,87,296 0.4095
2006-2007 8002180 3905497 2.0489
2007-2008 12268885 62,51,168 1.9626
2008-2009 12,263,553 90,29,038 1.3582
2009-2010 18,668,124 12,469,202 1.4971

Analysis

In the year 2005-2006 there is low level of quick ratio, but the gradual increase in
2006-2007, it was 2.04 which is the highest ratio among the five years. 2007-2008,
2008-2009 and 2009-2010 years have stable ratio that is 1.96, 1.35 and 1.49. There
is a sharp decline in the during these three years.

GRAPH 2

Graphical representation showing liquidity ratio or quick ratio

INTREPRETATION

The graph shows how the performance of the company started very low during the year 2005-
2006 then gradually it increased during the next four years. Usually a quick ratio of 1:1 is
considered to represent a satisfactory current financial position, the year 2006- 2007 has been
very favorable financial year where in the company had the best strength to meet its current
obligations. The year 2005-2006 the performance is not at all satisfactory because it is less than
1:1such low ratio shows the business was in serious financial difficulties.
Absolute liquid ratio
It may be defined as the relationship between absolute liquid assets and current
liabilities.

Absolute Liquid Ratio = Cash + Marketable Securities

Current Liabilities

Table 3
Year Absolute Liquid Current liabilities Absolute liquid
assets ratio
Rs in 000
‘Rs in 000
2005-2006 10,98,971 26,87,296 0.41
2006-2007 80,00,717 39,05,497 2.05
2007-2008 12,259,993 62,51,168 1.96
2008-2009 12,215,799 90,29,038 1.35
2009-2010 18,548,261 12,469,202 1.48

Analysis
The absolute ratio during the year 2005-2007 is 0.4089 which is lowest ratio among the five
financial years. In the year 2006-2007 it was 2.048 and there is a modest decrease in the year
2007-2008 the ratio is 1.35. In the year 2008- 2009 again there a decrease up to 1.35 but there is
a slight increase of 1.48 in 2009-2010.
GRAPH 3
GRAPHICAL REPRESENTATION SHOWING ABSOLUTE LIQUID RATIO

Interpretation
It can be inferred that 2005-2006 shows a very low ratio it means during this year the company
had low cash liquidity. A low ratio is not a serious matter because the company can always
borrow from the bank to meet its requirements. A standard of 0.5: 1 absolute liquidity ratio is
considered an acceptable norm. 2006- 2077 had a very strong cash liquidity which is useful to
creditors when deciding about the debt. During the years 2008-2010 the company was in a
position to pay its short-term debts.

CASH TO CURRENT ASSET RATIO

This shows the relationship between cash and current asset.

CASH TO CURRENT ASSET= Cash * 100

Current Assets

TABLE 4
Year CASH CURRENT IN
ASSET
‘Rs in 000 PERCENTAGE
Rs in 000
%
2005-2006 2879622 3866559 74.5
2006-2007 33,62,556 53,25,536 63.2
2007-2008 44,93,238 85,75,727 52.4
2008-2009 4108660 9537359 43.07
2009-2010 2826362 7744120 74.5

Analysis
From the above table it can be said that 2005-2006 had 74.5% which is the highest when
compared to other years. There is a modest decrease in the year 2006-2007 which is 63.2% and
the preceding year has also decreased which is 43.07%. There a sharp increase in the year 2009-
2010 which is 74.5%

GRAPH 4

Interpretation

The graph clearly explains how there is tremendous growth in cash to current asset ratio in the
year 2005-2006 and 2009-2010, the company has good profitability with its current assets which
a greater return to the business in liquid form. During the years 2006-2008 the company had
good advantage over its current assets but it had declined its growth. The year 2008-2009 had
very low advantage but it maintained the standard level which is above 5% to 6%.

NET WORTH RATIO

This ratio attempts to measure the relationship between net worth to total assets.

Net worth ratio is calculated as follows:

Net worth ratio = Net Worth

Total Assets

Table 5
Year Net worth Total assets Net worth ratio

‘Rs in 000 Rs in 000 IN %

2005-2006 92,58,620 26,825,143 34.5
2006-2007 8294539 49,983,103 16.5
2007-2008 12706359 90638668 14.01
2008-2009 18511072 105217175 17.5
2009-2010 20232892 201,397,000 10

Analysis

The information that can be drawn from the above table is the year 2005-2006 had the highest
net worth ratio of 34.5% but it decreased to 16.5 in 2006-2007. There is a slight increase of
17.5% in the year 2008-2009. But there is a sharp fall of 10% in 2009-2010.

Interpretation

The graph clearly shows the growth of net worth ratio during the year 2005-2006. During this
year this primary objective of businesses has been achieved, as the primary objective of business
is to maximize its earnings. The investments in the firm are attractive. The years 2006-2009 has
been stable where there is slight difference during these years the resources of the firm is used
well. But the year 2009-2010 shows dangerous sign which is not favorable to the creditors and
the financial strength of the business is low.