Financial Ratio Analysis Paper
FINANCIAL RATIO ANALYSIS OF SHREE RENUKA SUGARS (YEAR 2011-2015)
LIQUIDITY RATIOS
Liquidity ratios are a class of financial metrics used to determine a company 's ability to pay off its short-terms debts obligations. Generally, higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts.
The following Table shows the ratios for Years 2011-2015 for Shree Renuka Sugars:
Ratio 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
Current Ratio 1.40 1.49 0.68 0.47 0.42
Quick Ratio 0.86 0.89 0.21 0.19 0.17
Cash Ratio 0.12 0.02 0.04 0.02 0.01
Current Ratio: The current ratio is the most basic liquidity test. It signifies a company 's ability to meet its short-term liabilities with its short-term
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The negative ratios suggest that the Equity investors have been losing their money invested in the company, since the company is incurring losses. Infact, the losses have increased over the years. For the year 2013-14 & 2014-15, even the Owner’s Equity was negative, suggesting that the Equity investors have eroded their reserves & surplus by funding the losses.
Return on Assets Ratio: Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings. Calculated by dividing a company 's annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as "return on investment".
Analysis: Except for the year 2010-11, the company has reported losses; hence we have negative values for the Return on Assets Ratio. We also observe that the ROA has been declining in the subsequent years, suggesting that company has been incurring increasing losses and has not been showing any improvement in the numbers year after year. The company needs an in-depth analysis to efficiently use its Fixed Assets to make a turn-around
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Such high financial leverage can prove risky and can also make the company face bankruptcy risks since for the year 2013-14 and 2014-15, the company has had negative Equity reserves. To add more to the financial risks, the company has also been reporting net losses, which in turn negatively impacts the company’s ability to meet even its Debt Interest obligations. Immediate attention is required to address this risky financial
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