Ratio Analysis

Ratio analysis is a powerful tool of financial analysis. In financial analysis, a ratio is used as a
bench mark for evaluating the financial position and performance of a firm.
A. Liquidity Ratios- These ratios depict the short term financial soundness of a company.
The various ratios under this head are:
1. Current Ratio
Current Ratio= Current Assets / Current Liabilities
Financial Year
Current Ratio

March 16

March 15
0.83

March 14
0.89

March 13
1.08

March 12
1.17

1.12

The ideal current ratio should be more than 1.5. There are exceptions to this rule, few good
companies can have current ratio less than 1 when they receive money faster from their
customers than they have to pay to their vendors. This is the case with Dabur as even after the
ratio decreasing over the years, its cash rich status keeps the confidence of investors in the
company. In the FMCG sector, the cash is generated quicker than other industries.
2. Liquid Ratio
Liquid ratios= Liquid Assets / Current Liabilities
Financial Year
Liquid Ratio

March 16

March 15
0.47

March 14
0.54

March 13
0.66

March 12
0.97

0.88

Ideally this ratio should be 1. However, in the case of Dabur despite quicker cash generation
this ratio is declining continuously. For a cash rich company like Dabur this is not a good
indicator for its liquidity.
B. Turnover Ratio- Also referred as activity ratios or asset management ratios, these ratios
measure how efficiently the assets are employed by a firm.
1. Inventory turnover
Inventory turnover= Net Sales / Average Inventory
Financial Year
ITR

March 16

March 15
9.48

March 14
10.00

March 13
8.83

March 12
8.80

7.18

This ratio has increased over the years for Dabur with a little decrease in FY 2015-16. The
increase indicates the efficiency of inventory management of the company.
2. Debtors turnover
Debtors turnover= Net Credit Sales/ Average Trade Receivables
Financial Year
DTR

March 16

March 15
15.14

March 14
16.41

March 13
16.84

March 12
18.14

17.62

This ratio is showing a pattern of irregular increase and decrease over the years for the
company. However, a figure of above 15 is good indicator for credit management efficiency
of the company.
3. Fixed Assets turnover
Fixed assets turnover= Revenue / Average Inventory
Financial Year
FATR

March 16

March 15
5.05

March 14
5.06

March 13
4.84

March 12
4.70

4.38

This ratio has shown marginal increase for the company in the five years. This indicates the
stability at which sales per rupee are invested in fixed assets of the company.
C. Leverage Ratios
1. Debt-equity ratio
Debt-equity ratio= Debt / Equity
Financial Year
Debt Equity
Ratio

March 16

March 15
0.03

March 14
0.06

March 13
0.02

March 12
0.15

0.21

This ratio is continuously decreasing for Dabur. As the cash is generated from internal
sources (retained earnings) quickly, the company doesnt require to borrow funds unless some
business expansion is taking place. At such lower rate of 0.03, debts are very less proportion
of liabilities of the company.
2. Interest cover
Interest coverage ratio= Profit before interest and tax / Profit

Financial Year
Interest
Coverage Ratio

March 16
124.37

March 15
102.16

March 14

March 13
45.55

March 12
41.74

45.82

This ratio has more than double for the company in five years. This increase is because of
lower amount of loans in the balance sheet of the company.
D. Profitability ratios
1. Gross profit margin ratio
Gross profit ratio= Gross profit / Revenue
Financial Year
Gross Profit
Margin (%)

March 16

March 15
17.84

March 14
16.06

March 13
15.84

March 12
15.66

15.72

Over the period of five years, this ratio has remained in the range of 15.5-18 showing the
stability in profitability of the company.
2. Operating profit margin ratio
Operating profit ratio= Operating profit / Net sales
Financial Year
OP Margin (%)

March 16

March 15
19.10

March 14
17.27

March 13
16.95

March 12
17.34

17.47

This ratio is has remained in range of 16-17 for four years with a 2% increase from last year.
This shows increase in operating profit for the company.
3. Net profit margin ratio
Net profit ratio= Profit after tax / Revenue
Financial Year
NP Margin (%)

March 16

March 15
16.33

March 14
14.04

March 13
13.80

March 12
13.58

12.32

This ratio has increased regularly for five years which is a good sign for shareholders of the
company as this ratio indicates earnings left for shareholders as a part of total revenues.
4. Return on Capital employed ratio
Return on Capital Employed ratio= Profit before interest and tax (1- Tax rate)/ Total assets

Financial Year
ROCE (%)

March 16

March 15
41.32

March 14
40.98

March 13
45.27

March 12
41.92

40.99

This ratio has remained around 41% except in FY 2013-14. The stability of this ratio is good
for confidence of shareholders in the company.

Comparative Analysis: Dabur, Hindustan Unilever and Emami Ltd.

Dabur ltd. belongs to Fast-moving consumers goods sector which is known for quick cash
flow and fierce competition. HUL is the market leader in FMCG sector in India whereas
Emami Ltd. is arch rival for Dabur ltd. For the purpose of comparison, the financial position
and performance of these companies will serve as benchmark figures for Dabur ltd.
The share capital base of Dabur, HUL and Emami for FY i16 is 175.9, 216.4 and 22.7 (rupees
crores) respectively. The share capital of Emami is very less in comparison to the other two
companies. The external liability of HUL is nil whereas for Dabur and Emami it is 86.5 and
660 (rupees crores) respectively. The nil liability of HUL is because of its financial relation
with its parent company Unilever whereas for Dabur its retained earnings has avoided the
need for external borrowings. Emami has huge amount of borrowings and less amount of
share capital which shows that it opts for external borrowing as a source of financing for the
company.
The total assets of Dabur, HUL and Emami are 2,958.29, 3,687.29 and 2,010.9 (lakhs crores)
respectively. This valuation of assets is a clear indicator of difference in financial position of
the company. On scrutinization of assets mentioned in the balance sheet of the company, it
showed high amount of fixed assets for all three companies and high amount of investments
for Dabur and HUL. Also, these three companies have lent out loans and advances in good
proportions.
When it comes to sales, the sales of HUL is six times to that of Dabur whereas Dabur sales is
almost double to that of Emami.