Financial Management

Assignment

Ratio Analysis &

Interpretation

Submitted To –
Manisha Sanghvi

Submitted By –
Vivek Vashistha
M20221147
Section – E (Trimester 1)
1. Current Ratio
The current ratio is a liquidity ratio that measures a company's
ability to pay short-term obligations or those due within one
year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its
current debt and other payables.

Current Ratio = Current Assets / Current Liabilities

Ideal Ratio – 2:1

Year Bank of baroda Canara Bank

2022 0.96 0.81
2021 1.14 0.62

Interpretation –
The current ratio of Bank of baroda indicates that the company has
enough cash to meet its liabilities along with using its capital
effectively.

The current ratio of Canara Bank indicates that the company

does not have enough liquid assets to cover its short-term
liabilities.

Bank of Baroda is in a better position than Maruti Suzuki India Ltd.

2. Liquid Ratio

It is also known as ‘Quick Ratio’ or ‘Acid Test Ratio’. This ratio

tests the short-term liquidity of the firm in its strict meaning
because it compares current liabilities with liquid or quick assets
and not with current assets. Thus, liquid ratio may be defined as
the relationship between liquid/quick assets and current or liquid
liabilities. Liquid assets are those assets which can easily be
converted into cash within a short period without a loss of value.

Liquid Ratio = Liquid Assets / Current Liabilities

Ideal Ratio – 1:1

Year Bank of Baroda Carana Bank

2022 0.76 0.65
2021 0.92 0.48

Interpretation –
The liquid ratio of Bank of Baroda indicates that the company
will be able to pay off its current debts without selling its long-
term assets.

The liquid ratio of Canara Bank indicates that the firm may not
be able to fully pay off its current liabilities in the short term. It
also indicates an existence of a risk of loss of solvency.

Bank of Baroda is in a better position than Canara Bank

3. Debt to Equity Ratio

This ratio reflects the long-term financial position of a firm and

is calculated in the form of relationship between external
liabilities or outsider’s funds and internal equities or
shareholders’ funds.

Debt-Equity Ratio = Debt / Equity

Ideal Ratio – 2:1

Year Bank of Baroda Carana Bank

2022 0.17 0.01
2021 0.21 0.01

Interpretation –
The debt equity ratio of Bank of Baroda indicates that the
company is using the debt resources but majorly depends on its
shareholders.

The debt equity ratio of Canara Bank indicates that the company
is almost having no financing by debt via lenders and its
financing is majorly through equity via shareholders.
4. Debt to Total Assets Ratio

The ratio of a company's debt to total assets serves as a measure

of its financial leverage. It reveals what proportion of a
company's overall assets were funded by creditors. In other
words, it is the sum of a company's liabilities divided by the sum
of the company's assets.

Debt to Total Assets Ratio = Total Debts / Total Assets

Year Bank of Baroda Canara Bank

2022 0.45 0.00
2021 0.48 0.00

Interpretation –
The debt to total assets ratio of Bank of Baroda indicates that the
most of the company’s assets are financed through equity.

The debt to total assets ratio of Canara Bank indicates that

almost all of the company’s assets are financed through debt.
5. Interest Coverage Ratio

The interest coverage ratio is a debt and profitability measure

that determines how readily a corporation can pay interest on its
existing debt. The interest coverage ratio is also known as the
times interest earned (TIE) ratio.

Interest Coverage Ratio = EBIT / Interest Coverage

Year Bank of Baroda Carana bank

2022 29.90 37.40
2021 14.81 52.18

Interpretation –
The interest coverage ratio of Bank of Baroda indicates that
there is a smaller number of profits available to meet the interest
expense on the debt.

The interest coverage ratio of Canara Bank indicates that the

company is able to fulfil its financial obligations.

Canara Bank is in a better position than Bank of Baroda in terms

of Interest Coverage Ratio.
6. Gross Profit Ratio
Gross Profit Ratio is also called as ‘Gross Profit Margin’ or
‘Gross Margin to Net Sales’. This ratio establishes relationship
of gross profit to net sales of a firm. Gross Profit ratio is a
reliable indicator to the adequacy of selling price and efficiency
of trading activities.

Gross Profit Ratio = (Gross Profit/Sales) X 100

Year Bank of Baroda Canara Bank

2022 7.99 3.3
2021 9.48 3.28

Interpretation –
The gross profit ratio of Bank of Baroda indicates that the
company is producing more efficiently.

The gross profit ratio of Canara Bank indicates that the company
is struggling to create profits on sales.

Bank of Baroda is in a better position than Maruti Suzuki in

terms of gross profit ratio.
7. Net Profit Ratio

Net Profit Ratio establishes the relationship in terms of

percentage between ‘net profit’ and ‘net sales’. Net profit ratio
determines the overall efficiency of the business. Higher the
ratio, better is the position of cost control and operational
efficiency. This ratio helps in the analysis of trend of efficiency
of a firm during different years.

Net Profit Ratio = (Net Profit / Net Sales) X 100

Year Bank of baroda Canara Bank

2022 8.59 4.26
2021 0.59 6.01

Interpretation –
The net profit ratio of Bank of Baroda indicates that the
company is having low direct and indirect costs.

The net profit ratio of indicates that the company is having high
direct and indirect costs.

Bank of Baroda is in a better position than Canara Bank in terms

of net profit ratio.
8. Operating Profit Margin
The operational profit ratio is calculated by dividing a
company's operating income by its net sales. It is a ratio that
shows how much profit a company makes for every dollar of
sales it makes. In the data it works with, the operating profit
ratio does not account for tax or interest.

Operating Profit Ratio = (Operating Profit / Net Sales) X 100

Year Bank of Baroda Canara Bank

2022 12.25 6.45
2021 14.44 7.60

Interpretation –
The operating profit ratio of Bank of Baroda indicates that the
company is having low expenses.

The operating profit ratio of Canara Bank indicates that the

company is having high expenses.
Bank of Baroda is in a better position than Canara Bank in terms
of operating profit ratio.
9. Return on Assets
Return on assets is a profit ratio that shows how much profit a
corporation can make from its assets. In other terms, return on
assets (ROA) gauges how effective a company's management is
at producing a profit from its economic resources or balance-
sheet assets.

Return on Assets = Net Income / Average Total Assets

Year Bank of Baroda Canara Bank

2022 3.20 5.10
2021 1.47 6.25

Interpretation –
The operating profit ratio of Bank of Baroda indicates that the
company is better at managing its assets to generate more net
income.

The operating profit ratio of Canara Bank indicates that the

company is making poor capital investment decisions; it may
also mean that the company’s earnings are dropping as a result
of lower sales.

Bank of Baroda is in a better position than Canara Bank in terms

of return on assets.
10. Return on Capital Employed
Return on Capital Employed establishes the relationship
between profits and the capital employed. In fact, it is the
primary ratio and is most widely used to measure the overall
profitability and efficiency of a business firm. It is important
that the term ‘Capital Employed’ may signify different
meanings under different circumstances.

Return on Capital Employed =

EBIT/ Total Assets – Total Current Liabilities

Year Bank of Baroda Canara Bank

2022 14.66 8.64
2021 13.20 10.14

Interpretation –
The Return on Capital Employed of Bank of Baroda indicates
that the company is working more efficiently.

The Return on Capital Employed of Canara Bank indicates that

the company is having a lot of cash in hand.

Bank of Baroda is in a better position than Canara Bank in terms

of return on capital employed.
11. Return on Equity

The return on equity (ROE) ratio is a profitability statistic that

assesses a business's capacity to create profits from its
shareholders' investments in the company. In other words, the
return on equity ratio illustrates how much profit is generated by
each dollar of common stockholders' equity.

Return on Equity = Net Income / Shareholders Equity

Year Bank of Baroda Canara Bank

2022 12.23 6.90
2021 5.99 8.28

Interpretation –
The Return on Equity of Bank of Baroda indicates that the
company’s net income is increasing.

The Return on Equity of Canara Bank indicates that the

company’s net income is decreasing.

Bank of Baroda is in a better position than Canara Bank in terms

of return on equity.
12. Inventory Turnover Ratio

This ratio is also called as ‘Merchandise Turnover’ or ‘Stock

Velocity’. This ratio establishes relationship between the cost of
goods sold during a given period and the average amount of
inventory carried during that period. Thus, this ratio reveals the
number of times finished stock is turned over during a given
accounting period. The main objectives of this ratio are a) to
find out whether stock has been used efficiently or not, and b) to
check up whether only the required minimum amount has been
invested in stock.

Inventory Turnover Ratio =

Revenue From Operations / Average Inventory

Year Bank of Baroda. Canara Bank

2022 9.76 24.99
2021 11.39 23.06

Interpretation –
The Inventory Turnover Ratio of Bank of Baroda indicates that
the company is having poor sales or an inefficient inventory
management.

The Inventory Turnover Ratio of Canara Bank indicates that the

company is having less storage and other holding costs.
Canara Bank is in a better position than Bank of Baroda in terms
of Inventory Turnover Ratio.

13. Debtors Turnover Ratio

This is also called as ‘Receivables Turnover Ratio’ or ‘Debtors
Velocity’. It establishes the relationship between net credit sales
and average debtors of the year and indicates the speed with
which the amount is collected from debtors. In fact, this ratio is
a measurement of economy and efficiency in collection of
amounts due from debtors. The higher the ratio, the better it is,
since it would indicate that debts are being collected promptly.

Debtors Turnover Ratio =

Net Credit Sales / Average trade receivables

Year Bank of Baroda Canara Bank

2022 21.36 53.40
2021 16.86 43.26

Interpretation –
The Debtors Turnover Ratio of Bank of Baroda indicates that
the company is having inefficient management of debtors and
less liquid debtors.

The Debtors Turnover Ratio of Canara Bank indicates that the

company is having managing the debtors efficiently, but it may
imply the company’s inability due to lack of resources to sell on
credit thereby losing sales and profits.
Canara Bank is in a better position than Bank of Baroda in terms
of Debtors Turnover Ratio.

14. Average Collection Period

The average collection period is the duration of time it takes for
a corporation to collect its accounts receivable (AR). In other
words, it refers to the average time it takes for the firm to
receive money due to it by clients or consumers. The average
collection period must be managed to ensure that a firm has
adequate cash on hand to meet its short-term financial
obligations.

Average Collection Period =

Average trade receivables / Average daily credit sales
OR
= 365 / Debtors Turnover Ratio

Year Bank of Baroda Canara Bank

2022 17.08 6.83
2021 21.64 8.43

Interpretation –
The Average Collection Period of Bank of Baroda indicates that
the company is having inefficient management of debtors and
less liquid debtors.
The Average Collection Period of Canara Bank indicates that
the company is having managing the debtors efficiently, but it
may imply the company’s inability due to lack of resources to
sell on credit thereby losing sales and profits.
Canara Bank is in a better position than Bank of Baroda in terms
of Average Collection Period.

15. Earnings Per share

Earnings per share (EPS) is determined by dividing a company's
earnings by the number of outstanding shares of common stock.
The resultant value is used to determine a company's
profitability. It is typical for a corporation to announce earnings
per share (EPS) that have been adjusted for unusual items and
probable share dilution.

EPS =
Earnings after tax – Preference Dividend / No. of outstanding
shares

Year Bank of Baroda Canara Bank

2022 59.14 128.46
2021 30.15 145.33

Interpretation –
The Earnings Per Share of Bank of Baroda indicates the
company’s poor financial health and gives lower return to the
shareholders.
The Earnings Per Share of Canara Bank indicates that the
investors will pay more for a company’s shares.

Canara Bank is in a better position than Bank of Baroda in terms

of Earnings Per Share.

16. P/E ratio

The price-to-earnings ratio is a valuation ratio that compares a
company's current share price to its earnings per share (EPS).
The price-to-earnings ratio is also known as the earnings
multiple or the price multiple.

Price to Earnings Ratio =

Market Price of Share / Earnings Per Share

Year Bank of Baroda Canara Bank

2022 13.62 58.85
2021 26.37 47.20

Interpretation –
The Earnings Per Share of Bank of Baroda indicates that the
company’s stock price is low relative to earnings.

The Earnings Per Share of Canara Bank indicates that the

company’s stock price is high relative to earnings.
Canara Bank is in a better position than Bank of Baroda in terms
of Earnings Per Share.

17. Dividend Yield Ratio

The dividend yield ratio is a financial measure that is used to
determine the value of shares based on dividend payments. The
dividend yield ratio is used by investors to assess the return on an
investment.

Dividend Yield Ratio =

Annual Dividends Per Share / Price Per Share

Year Bank of Baroda Canara Bank

2022 1.43 0.79
2021 1.10 0.66

Interpretation –
The Dividend Yield Ratio of Bank of Baroda indicates that the
company is distributing a better share of its profits to its
shareholders.

The Dividend Yield Ratio of Canara Bank indicates that the

company is distributing less profits and also that there is some
room for future growth in dividend payments.

Bank of Baroda is in a better position than Canara Bank in terms

of Dividend Yield Ratio.