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On the
basis of balance sheet and income
statement as on 31-3-2008.
1. Liquidity ratio:
2. Turnover ratio:
Note: the industries stock turnover ratio is 6.24 but CEAT’s stock
turnover ratio is 5.44. it shows that the management level of CEAT
LTD. Is very good and it also shows that the less amount is
employed in stock which leads to higher profit or more dividend to
the share holders so investor can invest his money more
confidently. However it also shows that company keeps low amount
of inventory in stock and it can affect the customer goodwill of the
company.
Note: we will compare avg. Collection period with the firm’s credit
terms to judge the efficiency of credit management if avg.
Collection period is less then credit terms then it is beneficial for
investor to invest their money in this company because less amount
is employed in debtor’s leads to higher profit to the firm
3. Leverage ratio:
Or
ii) Debt/equity
Equity = 54056.14
Note: in general the lower the debt equity ratio the higher the
degree of protection enjoyed by the creditor and share holder. But
as much as firm will become more dependent on the debt it will
increase the profit of the firm but it will also increase the level of
risk for the firm due to its secure nature.
In this company the debt equity ratio is higher so the investor will
not shoe the interest to invest in this company.
b. Interest coverage ratio: profit before interest and taxes/interest
4. Profitability ratio:
Note: the investor can compare the CEAT Company’s net profit ratio
with the industry’s avg. Net profit ratio to take decision to invest his
money in this company or not.
Note: return on equity tell about the earning power of equity. Higher
the return on equity will invite higher number of investors to invest
their money in equity shares.
PAT=rs. 14860.44
Note: EPS ratio tells us about the earning per share. Higher the
profit will increase higher return on investments. Which will attract
large amount of investors.
5. Valuation ratio:
PE ratio = 3.3488