RATIO ANALYSIS

Ratio analysis is a financial tool that helps evaluate a company's financial health by analyzing
financial ratios from its balance sheet, income statement, and cash flow statement. It helps
the investors to understand a company's ability to generate profits, meet its obligations, and
operate efficiently.
Ratio analysis is not just comparing different numbers from the balance sheet, income
statement, and cash flow statement. It helps in knowing the trends against the previous
years (Intra firm comparison) and other companies (Inter firm comparison), the industry for
the purpose of financial analysis.

1) Current Ratio
The current ratio is one of the best known measures of short term solvency. It
measures whether the firm has enough resources to meet its current obligation.

Current Ratio = Current Assets/ Current Liabilities

A generally accepted current ratio is 2 TIMES but is also depends upon the nature of
the business and the characteristics of its current assets and liabilities.

CURRENT YEAR (2023-24) 1.4 TIMES

PREVIOUS YEAR (2022-23) 1.3 TIMES

INTERPRETATION:-
The Current ratio in the FY 2023-24 has increased which shows that the Increase in Current
Assets is more than Increase in Current Liabilities in the current year as compared with that
Previous year. This can be a sign of efficient working capital management.

2) DEBT TO EQUITY RATIO

Debt to Equity ratio indicates the propotion of Debt in relation to Equity.

 This ratio is very often used to make capital structure decisions such as issue of
shares or debentures. Debt Equity ratio is the indicator of firms financial leverage.

Debt to Equity Ratio = Total Debt/Shareholders Equity

CURRENT YEAR (2023-24) 0.03 TIMES

PREVIOUS YEAR (2022-23) 0.11 TIMES

INTERPRETATION
The Debt Equity Ratio is 0.03 times in FY 2023-24 as compared to 0.11 times in the FY 2022-
23 which can be an evidence of repayment of company’s debt in the current year.

The debt equity ratio is at 0.03 in current year as against 0.11 in previous year primarily due to
repayment of borrowings during the year. (AS MENTIONED IN NOTES TO ACCOUNTS)

3) DEBTORS (RECEIVABLES) TURNOVER RATIO

The Debtors turnover ratio throw lights on the collection and credit policies of the
firm. It measures how efficient is the management in managing its account
receivables.
A Low Debtor Turnover Ratio reflects liberal credit terms granted to customers, while
a High ratio shows that the receivables are collected rapidly.

Debtor Turnover Ratio= Total Credit sales/Average Trade receivables

CURRENT YEAR (2023-24) 22.6 TIMES

PREVIOUS YEAR (2022-23) 23.5 TIMES

INTERPRETATION
The Debtor Turnover Ratio has declined from 23.5 times in FY2022-23 to 22.6 times in
FY2023-24 which shows that company might have liberalized its receivables collection policy.

4) INVENTORY TURNOVER RATIO

This ratio measures the efficiency of which the firm utilizes or manages its Inventory.
 It establishes the relationship between Cost of Goods Sold during the year and
Average Inventory held during the year.
The ratio indicates how fast the Inventory is used or sold.

Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory

CURRENT YEAR (2023-24) 8.1 TIMES

PREVIOUS YEAR (2022-23) 8.7 TIMES

INTERPRETATION
The Ratio has declined from 8.7 times in FY 2022-23 to 8.1 times in FY 2023-24 which
shows that the Inventory has stayed for a longer period as compared to that of
previous year.

5) INTEREST COVERAGE RATIO

Interest Coverage Ratio indicates the firm’s ability to meet Interest obligation and
other fixed obligation.
A high Interest coverage ratio means that an enterprise can easily meet its interest
obligations. A Lower ratio indicates excessive use of debt or Inefficient operations.

Interest Coverage Ratio = Earnings before Interest & Tax/ Interest Obligations

CURRENT YEAR (2023-24) 66.6 TIMES

PREVIOUS YEAR (2022-23) 28.5 TIMES

INTERPRETATION
The ratio has seen a significant rise from 28.5 times in FY 2022-23 to 66.6 times in
FY 2023-24 which shows that the company has lowered its finance cost and also due
to repayment of its Debts as evident from Debt-Equity Ratio.

The interest coverage ratio is healthier at 66.6 times in FY 2023-24 as against 28.5 times in
the previous year primarily due to decrease in finance cost resulting from repayment of
borrowings during the year. (AS MENTIONED IN NOTES TO ACCOUNTS)
6) OPERATING PROFIT MARGIN

Operating Profit Margin is a profitability or performance ratio that reflects the

percentage of profit a company produces from its operations before subtracting
taxes and interest charge.
Operating Profit is often referred to as EBIT (Earnings Before Interest & Tax).
Operating Profit = Sales – COGS - Operating Expenses

Operating Profit Ratio = Operating Profit/Sales * 100

CURRENT YEAR (2023-24) 14.9%

PREVIOUS YEAR (2022-23) 13.9%

INTERPRETATION

The company has improved its Operating Profit Margin from 13.9% in FY 2022-23 to
14.9% in FY 2023-24. This is because the company was able to lower its Operating
costs resulting in Improving its Operating Profit as compared to the previous year.

7) NET PROFIT MARGIN

Net Profit Ratio measures the relationship between the Net Profit and the Sales of
the business.
A High Net Profit Margin indicates a positive returns from the business and vice-
versa.

Net Profit Margin = Net Profit/ Sales *100

CURRENT YEAR (2023-24) 10.6%

PREVIOUS YEAR (2022-23) 7.6%
INTERPRETATION
The company was able to improve its Net Profit Margin in FY 2023-24 as compares to FY
2022-23 by lowering its overall costs and thus increasing its Net Profits.
Ratio has improved on account of increase in profit for the year. (AS MENTIONED IN NOTES TO
ACCOUNTS)

8) RETURNS ON NET WORTH

The Returns On Net Assets ratio shows how well a company and its management are
utilizing assets in economically valuable ways; a high ratio result indicates that
management is squeezing more earnings out of each rupee invested in assets.
Return on net assets compares a firm's net profits to its net assets to show how well
it utilizes those assets to generate earnings.

Returns On Net Assets = Net Profit/ (Fixed Assets+ Net Working Capital)
(Net Working Capital = Current Assets – Current Liabilities)

CURRENT YEAR (2023-24) 22.4%

PREVIOUS YEAR (2022-23) 16.4%

The company has seen a rise by 6% in the ratio which shows that the company was able to
utilise its assets more efficienty in the current year as compared to that of previous year.
Ratio has improved on account of increase in profit after tax in current year. (AS MENTIONED IN
NOTES TO ACCOUNTS)
 9) EARNING PER SHARE
EPS is the share of a company’s profit that is distributed to each share of stocks.
Further, it is considered to be a significant financial parameter as it helps to analyse a
company’s financial health.
EPS is a key indicator of a company's profitability and is often used by investors to
assess its financial health. A higher EPS can indicate that a company has greater
value, and that investors may be willing to pay more for its shares.

Earning Per Share =

Earnings available for Equity share holders / Total no. of Equity shares

CURRENT YEAR (2023-24) 89.42 per share

PREVIOUS YEAR (2022-23) 54.70 per share

INTERPRETATION
The EPS in the Current FY has increased by 34.72 per share since the company was able to
earn more Profit in FY 2023-24 as compared to that of FY 2022-23.

10) PRICE TO EARNING(PE) RATIO

P/E Ratio or Price to Earnings Ratio is the ratio of the current price of a company’s
share in relation to its earning per share.
When a company demonstrates high P/E Ratio, it means that either the company is
overvalued or is expected to have increased revenue in the future and speculation of
the same by analysts and investors has led to a surge in its current stock prices.
On the other hand, a low Price to Earnings Ratio signifies undervaluation of stocks or
it could also signify that a company shall perform poorly in the future due to which
its stock prices are falling in the present.

CURRENT YEAR (2023-24) 21.49

PREVIOUS YEAR (2022-23) 21.18

INTERPRETATION
The PE ratio of the company shows a negligent change which reflects the company is
performing constantly and the traders are not prefering MAHINDRA & MAHINDRA shares for
speculation purposes.
CONCLUSION

MAHINDRA & MAHINDRA was able to perform constantly as evident from the
profits derived in the statement of Profit And Loss. The company was able to
manage its working capital though it liberalised its Debt Collection Policy. It can
be observed that the manangement has performed efficiently and effectively
which reduced the overall cost and thus resulting in providing High returns to
share holders due to which the Profitability ratios has seen a minor growth.
The company managed to repay its Debt resulting in Lowering the Debt Equity
Ratio and improving the Interest Coverage Ratio. Overall, the company has
performed more effectively and efficiently in FY 2023-24 as compared to that
of in FY 2022-23.
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