Ratio Analysis of Specific Companies | Best MBA colleges in Bangalore

Posted by Dr. Samiya Mubeen On 16/03/2022 10:55:10

Ratio analysis refers to the analysis of various pieces of financial information in the financial statements of a business. They are mainly used by external analysts to determine various aspects of a business, such as its profitability, liquidity, and solvency. Performance evaluation of a company is usually related to how well a company can use its assets, shareholder equity, liability, revenue, and expenses. Financial ratio analysis is one of the best tools for the performance evaluation of any company. In order to determine the financial position of the pharmaceutical company and to make a judgment of how well the pharmaceutical company is efficient, its operation and management, and how well the company has been able to utilize its assets and earn profit.  We used ratio analysis for easy measurement of liquidity position, asset management condition, profitability and market value, and debt coverage situation of the pharmaceutical company for performance evaluation. It analyzes the company's use of its assets and control of its expenses. It determines the greater the coverage of liquid assets to short-term liabilities and it also computes the ability to pay pharmaceutical companies monthly mortgage payments from the cash generated. It measures pharmaceutical company overall efficiency and performance. It determines the share market condition of pharmaceutical companies. It is also used to analyze the pharmaceutical company's past financial performance and to establish the future trend of financial position. Best MBA college in Bangalore


The ratio analysis is grouped into the following categories:


1. Liquidity ratios- Liquidity ratios measure a company’s ability to meet its debt obligations using its current assets. When a company is experiencing financial difficulties and is unable to pay its debts, it can convert its assets into cash and use the money to settle any pending debts with more ease. Some common liquidity ratios include the quick ratio, the cash ratio, and the current ratio. Liquidity ratios are used by banks, creditors, and suppliers to determine if a client has the ability to honor their financial obligations as they come due. Best B-school in Bangalore


2. Solvency ratios- Solvency ratios measure a company’s long-term financial viability. These ratios compare the debt levels of a company to its assets, equity, or annual earnings. Important solvency ratios include the debt to capital ratio, debt ratio, interest coverage ratio, and equity multiplier. Solvency ratios are mainly used by governments, banks, employees, and institutional investors.


3. Profitability Ratios- Profitability ratios measure a business’ ability to earn profits, relative to their associated expenses. Recording a higher profitability ratio than in the previous financial reporting period shows that the business is improving financially. A profitability ratio can also be compared to a similar firm’s ratio to determine how profitable the business is relative to its competitors. Some examples of important profitability ratios include the return on equity ratio, return on assets, profit margin, gross margin, and return on capital employed.


4. Efficiency ratios- Efficiency ratios measure how well the business is using its assets and liabilities to generate sales and earn profits. They calculate the use of inventory, machinery utilization, turnover of liabilities, as well as the usage of equity. These ratios are important because, when there is an improvement in the efficiency ratios, the business stands to generate more revenues and profits. Some of the important efficiency ratios include the asset turnover ratio, inventory turnover, payables turnover, working capital turnover, fixed asset turnover,  and receivables turnover ratio. MBA Bangalore


5. Coverage ratios- Coverage ratios measure a business’ ability to service its debts and other obligations. Analysts can use the coverage ratios across several reporting periods to draw a trend that predicts the company’s financial position in the future. A higher coverage ratio means that a business can service its debts and associated obligations with greater ease.


6. Market prospect ratios- Market prospect ratios help investors to predict how much they will earn from specific investments. The earnings can be in the form of higher stock value or future dividends. Investors can use current earnings and dividends to help determine the probable future stock price and the dividends they may expect to earn.


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