Ratio Analysis

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FINANCIAL MANAGEMENT

Ratio Analysis
Raymonds
Itee Gupta MFM-3

RAYMOND UCO DENIM PVT.LTD.


1925 - Setup of The Raymond Woollen mill in 1925 the area around Thane creek.



1944: Lala Kailashpat Singhania took over The Raymond Woollen Mill. The mill was primarily
making cheap and coarse woollen blankets, and modest quantities of low priced woollen fabrics.



1950 - Setup of a new manufacturing activity for making indigenous engineering files known as JK
Files & Tools. This has now become the largest facility of its kind in the world.



1958 - The first exclusive Raymond Retail showroom, King's Corner, was opened in 1958 at Ballard
Estate in Bombay.



1964 - Setup of a new Combing Division. This was followed by a phase of vertical integration,
facilitating in the processing of multi-fibres and technology improvements to make blended fabrics.



1968 - Raymond setup a readymade garments plant at Thane. The readymade garments division of
Raymond has since then grown rapidly. Raymond has now become the leader among readymades, in
India, achieving a business turnover of over Rs. 2000 million.



1979 - A new manufacturing facility was set up at Jalgaon, to meet the increasing demand for
worsted woollen fabrics.



1980: Vijaypat Singhania took over the reins of the company. He injected fresh vigour into
Raymond, transforming it into a modern, industrial conglomerate.



1986 - Launch of "Park Avenue", the premium lifestyle brand providing a complete wardrobe
solution to the men who like to dress well & be current on styles & fashion.



1990 - The first showroom abroad for Raymond in Oman.



1991 - A new manufacturing facility was set up at Chhindwara, near Nagpur.



1995: Superfine pure wool collection under the Lineage Line (Super 100S to Super 140S).



1996: The Renaissance Collection made of Merino wool blended with polyester and specialty fibres
(Super 100S to Super 140S).



1996: Raymond's denim; focusing on quality, innovation and the creation of exclusive products that
have always caught the eye of some of the world's leading denimwear brands. Its designs have
always kept pace with the changing styles and cuts found in every youngster's closet. With a 40
million meters capacity, Raymond today ranks amongst the top 2 producers of ring denim in India



1999: The Chairman's Collection of Super 150S made from Merino Wool and Cashmere followed by
Super 160S to Super 190S.



1999: Launch of "Parx", a premium casual wear brand bringing customers a range of semi-formal
and casual clothes.



2000: Launch of "Be:", exclusive prêt line of ready-to-wear designer clothing for men and women.



2002: Acquisition of ColorPlus.

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2003: Setup of 'Silver Spark Apparel Ltd.' for manufacturing suits and formal trousers catering
largely to export markets.



2004: Super 220S fabrics under the Chairman's Collection.



2005: Setup of state-of-the art jeanswear facility 'Everblue Apparel Ltd.' near Bangalore.



2005: Setup of state-of-the art facility 'Celebrations Apparel Ltd.' for the manufacturing of formal
shirts.



2005: Raymond achieved a rare feat and a historical milestone with the creation of the world's finest
worsted-suiting fabrics from the finest wool ever produced in the world- The Super 230s made up of
11.8 micron of wool.



2005: Launch of 'Expressions' an exquisite collection of all wool and polywool suiting specially
crafted using exotic fibres like Cashmere, Angora, Mohair, Bamboo, Casein.



2006 Set of Raymond's third worsted unit at Vapi in Gujarat. Raymond now has 3 state of the art
units with a combined capacity of 31 million meters of worsted fabric.



2006 Launch of design studio in Italy for cutting edge design capabilities for exports and domestic
brands.



2006: Set up of world class carded woollen unit, Raymond Fedora Ltd, in Jalgaon.



2006 Set up of greenfield shirting unit at Kolhapur producing high value cotton shirting. This facility
is set up as part of the company's JV with Gruppo Zambaiti.



2006 Set up of J.K. Talabot Ltd - JV with MOB, France for the manufacturing of files and rasps.



2006 Launch of Zapp! our kidswear brand with first store in Ahmedabad.



2007 Entered into Joint Venture to retail premium brand ‘GAS’ in India.



2009 Launch of new brands for women’s wear.



2010 Launch of 'Raymond Finely Crafted Garments' – readymade apparel under Raymond brand.



2014 Launch of 'Neckties & More' - New format store for accessories.

VARIOUS BRANDS OF RAYMOND
For over 80 years, Raymond is counted as one of the world's premier manufacturers of
worsted suiting fabric in fine grade wool, in the same league as the finest that Europe has to offer.
Today, the Raymond product range includes pure wools, wool blended with exotic fibres like camel hair,
cashmere and angora and innovative blends of wool with polyester, linen and silk. Offering suiting and
trousering fabric for all occasions and needs.
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Our domestic distribution is spread far and wide with more than 30,000 outlets that stock and sell our
wide range of fabrics.

Fine products, wide range, superb distribution and intelligent advertising support have helped the
company gain a dominant share of the market. No wonder, premium labels from the world's fashion
capitals prefer Raymond.

Manzoni is a luxury lifestyle brand offering the discerning customer a super premium
range of formal wear and sportswear including shirts, suits, trousers, jackets, ties and leather accessories.
Our exclusive designs provide customers the best in contemporary international style & luxury. Each
garment is crafted from the most exotic cotton silk, linen and superfine wool, the best-in-the-world
linings, interlinings and threads sourced from around the globe.

Launched in 1986, Park Avenue is today, India's most admired formalwear brand. It offers stylish and
innovative wardrobe solutions to gentlemen for all their dressing needs, be it Business, Evening,
Leisure, Travel or Heritage Wear. The brand has received several awards. Recently, it had the honor of
being the 'Most Admired Brand' at the Lycra Images Fashion Awards 2007 for the third consecutive year.
Crossing the gender divide, Park Avenue launched 'Park Avenue Woman' - a complete range of Business
Wear for women. ‘Park Avenue Woman’ is designed specially for the working women professionals of
today.

ColorPlus is one of India's premium and most respected casual wear brands offering customers a range
of shirts, trousers, knits and survival gear. ColorPlus constantly innovates processes and technologies
offering buyers new worlds of comfort. Some of the technological innovations it is well known for;
include thermo-fused buttons, golf ball wash, soft jeans, wrinkle free technology, stain-free fabric, and
the cone dyed technique.
Adding new color now to the woman’s wardrobe, ColorPlus recently launched ColorPlus Woman - An
exclusive range of smart-casual clothing.

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Parx is a 'premium casual lifestyle' brand bringing customers a range of stylish semiformal and casual clothes that reflects the easy, relaxed attitude of the energetic 22-30 year old. Parx was
launched in 1999 to cater to the smart and fashionable clothing segment.

The burgeoning children's wear market has now turned stylish with Zapp! - our range of
stylish and fashionable kidswear. The brand brings to 4-12 years a wide range of clothes, accessories,
bed and bath linen and more. The first Zapp! store has been launched in Ahmedabad with ten more on
their way for kids across the country.

Notting Hill reflects style and manifests originality of today's fashion- conscious and discerning young
professionals at an affordable price. The brand collection features a spectrum of men's lifestyle products
comprising of suits, shirts, trousers, jeans, t-shirts and also accessories like ties, handkerchiefs and
socks.

Be: HOME is a specialty multi brand Home Retail Chain that present elegant, soft home furnishings &
accessories which are sourced from across the globe from reputed labels (private & International).
Spanning from a mid to premium pricing range, Be: HOME provides an assortment of quilts, blankets,
robes, apparels, wall décor, vases, candles, gourmet cooking range and much, much more under one roof
to provide the perfect look for your home.

The Raymond Shop is a premium retail store offering complete wardrobe solutions for men, which
includes top-of-the-line brands - Raymond, Manzoni, Park Avenue, ColourPlus and Parx

Ratio analysis:
5

Ratio analysis is a powerful tools for financial analysis. A ratio is defined as a indicate quotient
of the two mathematical expression and as the relationship between two or more thing . In the financial
analysis, ratio is use for a benchmark for evaluating the financial position and performance of the firm.
The absolute accounting figure reported in the financial statement do not provide a meaningful
understanding of the performance and financial position of a firm. An accounting figure conveys
meaning when it is related to some other relevant information the relationship between the two
accounting figure, expressed mathematically, is known as financial ratio. Ratio helps to summaries large
quantity is of finical data and to make to quantitative judgment about the firm’s financial performance.
Strategic information is just as important to shareholder as it is the company management who
will select ratios that help them in their daily operation. But it is worth remembering that the
management usually has access the more information concerning the company and its competitors than
person’s external to the company.
It is a simple arithmetical expression of one number to another. The technique of ratio analysis
can be employed for measuring short term liquidity or working capital position of the firm. The
following ratios may be calculated for this purpose:
1. CURRENT RATIO
2. QUICK/ACID TEST RATIO
3. ABSOLUATE LIQUID RATIO
4. INVENTORY TURNOVER RATIO
5. DEBTORS TURNOVER RATIO
6. CREDITORS TURNOVER RATIO
7. WORKING CAPITAL TURNOVER RATIO
8. CURRENT ASSET TO TOTAL ASSET RATIO
9. CURRENT ASSET TO SALES RATIO
10. CURRENT ASSET TO FIXED ASSET RATI

1. Current ratio:
This compares assets which will become liquid within approximately twelve months with liabilities
which will be due for payment in the same period and is intended to indicate whether there are sufficient
short term assets to meet the short- term liabilities. Recommended current ratio is 2: 1. Any ratio below
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indicates that the entity may face liquidity problem but also Ratio over 2: 1 as above indicates over
trading, that is the entity is under utilizing its current assets.
Current assets
Current liabilities

Current ratio =

Current assets
Current liabilities

The following are the statistic of last three years Current ratios data.

TABLE NO 1
Year

2012-13

2013-14

2014-15

Current assets

96214.73

105254.79

101030.38

Current liabilities

68120.67

65553.70

50459.23

1.41

1.60

2.00

current ratio

GRAPH
2
2

1.41

1.6

1.5
1
0.5
0

2012-13

2013-14

2014-15

current ratio

Interpretation:
As we know the company’s current ratio is 1.42, 1.60 and 2.00 in the year 2012-13, 2013-14, and 201415 respectively. The standard current ratio should be 2:1. In the last year (2015) company reached up to
the standard which is satisfactory but it should remain at that level that is to be stable and should not
extend the ratio more than this.

2. Quick/ acid test ratio:
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This shows that, provided creditors and debtors are paid at approximately the same time, a view
might be made as to whether the business has sufficient liquid resources to meet its current liabilities.
A company in the service industry will not have inventories as such current ratio will not significantly be
different from the current ratio.
This ratio should ideally be 1 for companies with a slow inventory turnover. For companies with
a faster inventory turnover, a quick ratio can be less than 1 without suggesting that the company should
be in cash flow trouble.
Both current and quick ratio offer an indication of the company's liquidity position, but the absolute
figures should not be interpreted too literally. It is often theorized that an acceptable figure should be 2:1
for current ratio and 1: 1 for quick ratio but these should only be used as a guide. Different businesses
operate in very different ways. A supermarket group for example might have a current ratio of .5 and
quick ratio of .17. Supermarkets have low receivables (as sales are usually made on credit), low cash,
medium inventories (high inventories but quick turnover). While as in a manufacturing company these
ratios may be regarded as showing solvency problems.

Quick/acid test ratio =

quick∨liquid a ssets
current liabilities

The following are the static’s of last three years acid test ratios data.
TABLE NO 2
Year

2012-13

2013-14

2014-15

Quick assets
Current liabilities
Acid test ratio

51876.95
68120.67
0.76

61907.32
65553.70
0.94

45356.56
50459.23
0.95

GRAPH

8

1

0.94

0.95

2013-14

2014-15

0.76

0.8
0.6
0.4
0.2
0

2012-13

Acid test ratio

Interpretation:
This ratio indicates the availability of quick assets to pay for current liabilities. It should be 1:1.as we
computed the company’s acid test ratio as 0.76, 0.94, and 0.95 for the respected year as shown in graph.
That is growing from the last three year which is satisfactory but it was remains lower than standard,
need to be little improvement.

3. Absolute liquid ratio:
Absolute liquid assets include cash in hand and at bank and marketable securities or temporary
investments. The acceptable norm for this ratio is 50% or 0.5:1.
Absolute liquid ratio should also be calculated together with current ratio and acid test ratio. As exclude
receivables from the current assets and find out the absolute liquid assets.

Absolute liquid ratio =

¿ Absolute liquid assets
current liabilities

¿ Absolute liquid assets
current liabilities

The following are the static’s of last three years Absolute liquid ratios data.
TABLE NO 3
Year

2012-13

2013-14

2014-15

Cash and bank balance

3648.75

1783.16

2913.49

Current liabilities

68120.67

65553.70

50459.23

Absolute liquid ratio

0.054

0.027

9

0.058

GRAPH
0.06

0.05
0.06
0.03

0.04
0.02
0

2012-13

2013-14

2014-15

Absolute liquid ratio

Interpretation:
As we know the company’s absolute liquid ratio is 0.054, 0.027 and 0.058 in the year 2012-13, 2013-14,
and 2014-15 respectively.
The standard ratio should be 0.5:1. we see the graph; that this ratio is not satisfactory, need to improve
to make sure liquidity position.

4. Inventory turnover ratio:
The ratio is aimed at checking how vigorous the entity is trading. It measures approximately the
number of times an entity is able to acquire the inventories and convert them into sales. A
lengthening inventory turnover period from one accounting year to the next indicates:
1. A slowdown in trading; or

2. A build in inventory levels, perhaps suggesting that the investment in inventories is becoming
excessive.
The higher turnover ratio is good for the firm, but several aspects of inventory holding policy have to be
balanced.


Lead times



Seasonal fluctuations in orders.



Alternative use of warehouse space.

10



Bulk discounts.



Inventory turnover ratio also known as stock velocity is normally calculated as sales/average
inventory or cost of goods sold.

Inventory turnover ratio =

Net sales
Inventory

Net sales
Inventory

The following are the static’s of last three years Inventory turnover ratios data.

TABLE NO 4
Year
Net Sales
Average Inventory
Inventory turnover ratio

2012-13

2013-14

224061.79

139530.79

140837.47

43748.81

43842.63

49510.65

5.12

3.18

2014-15

2.84

GRAPH
6

5.12

4

3.18

2.84

2013-14

2014-15

2
0

2012-13

Inventory turnover ratio

Interpretation
From the graph, as we can see the inventory ratio is decreasing from 5.12 to 2.04 times from last three
years, it is not good indication for company. Company should need to improve this ratio so company can
able to acquire the required inventories to convert them into sales.

5. Debtor’s turnover ratio:
Another asset management ratio which is used estimates how long it takes for the credit customers to
settle their balances. As outlined above it is very difficult to establish the optimum level of receivables
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days, it will always depend with the nature of the business an enterprise is involved. For this company
receivable of 6 to 7 times will be considered as to operate on cash basis. When setting the receivable
days, an enterprise should also consider how long its major suppliers demand their payments.
Increase in receivable days may also indicate overtrading especially when the profit levels increases,
together with receivable amounts but there is no improvement in collection of receivables.
The enterprise should always strive to be within the industrial averages because if they are too loose
with their customers they run a risk of increasing the bad debtor’s levels. Some of the reasons for
improvement may be:
a. Aggressive debt collection by the company.
b. Strict rules on credit transactions.
c. Offering cash discounts for early settlement.

Debtors/receivable turnover ratio =

Net credit annu al sales
Average trade debtors

Net credit annual sales
Average trade debtors

The following are the static’s of last three years debtor’s turnover ratios data.
TABLE NO. 5
Year

2012-13

2013-14

2014-15

Net credit annual sales

224061.79

139530.79

140837.47

Average trade debtors

31820.25

45071.56

42106.51

Debtors turnover ratio

7.04

3.10

GRAPH

12

3.34

8

7.04

6

3.34

3.1

4
2
0

2012-13

2013-14

2014-15

Debtors turnover ratio

Interpretation:
As we can see the debtors’ turnover ratio, it shows the decreasing trend from last three year. The debtor’s
turnover ratio comes down from 7.04 times to 3.10 times and again slight fall in this and comes down to
3.34 times in year 2007 and 2008 respectively. When the debtor’s turnover decreases the average credit
period of company is lengthened.

6. Creditor’s turnover ratio:
Measures how long it takes for an entity to settle its creditors. The payable days should always be
more than the receivable days. Remember the cash received from the customers will be used in settling
the suppliers so it is imperative that the company should always ensure than they secure more payable
days than the days they allow their customers.
Increase in payable days may indicate that the business is facing cash flow problems and will deter new
and old suppliers from extending credit supplies to the business. On the other hand the business with
short payable days indicates that it is not trusted by its suppliers. Usually if the payment record of the
business has been bad suppliers will always insist cash purchases from the business in service industries
the ratio is of little relevance than in trading organizations. The service industries purchase consumables
which are not the core of their business unlike in trading activities where the performance is based on
the level of purchases made.

Creditors/payable turnover ratio =

Net credit annual purchase
Average trade creditors

13

The following are the static’s of last three years Creditors turnover ratios data
TABLE NO. 6
Year

2012-13

2006-07

2007-08

Net credit annual purchase

150016.6

99475.27

90341.76

Average trade creditors

47606.59

57391.45

48064.3

Creditors turnover ratio

3.15

1.73

1.88

GRAPH:
3.5

3.15

3
2.5

1.73

2

1.88

1.5
1
0.5
0

2012-13

2013-14

2014-15

Creditors turnover ratio

Interpretation:
As we can see the creditors turnover ratio 3.15, 1.73 and 1.88 times in 2006, 2007, 2008 respectively.
The creditor’s turnover ratio is satisfactory because the average payable period is more than average
collection period.

7. Working capital turnover ratio :
Working capital of a concern is directly related to sales. The current assets like debtors, bills
receivable, cash, stock etc. change with the increase or decrease in sales. The ratio indicates the number

14

of times the working capital is turned over the course of a year. This ratio measures the efficiency with
which the working capital is being used by a firm.

Working capital turnover ratio: =

Cost of sales
Net working capital

The following are the static’s of last three years Working capital turnover ratios data.

TABLE NO. 7
Year

2012-13

2006-07

2007-08

Cost of sales

224061.79

139530.79

140837.47

Net working capital

28094.06

39701.09

50571.15

Working capital turnover ratio

7.98

5.27

2.78

GRAPH
7.98
8
7

5.27

6
5
4

2.78

3
2
1
0

2012-13

2013-14

2014-15

Working capital turnover ratio

Interpretation:
As we can see in graph, the working capital ratio is decreasing year by year. It was decreased by 2% in
2013 and 3 % approx. in year 200 and 2007-08 respectively. A higher ratio indicates efficient utilization
of working capital and vice-versa. But it is decreasing, need to improve.

15

8. Current asset to total asset ratio:
Current assets play an important role in day-to-day functioning of an organization. So, every firm
should maintain adequate current assets so as to meet the daily requirements of business. If the
proportion of current assets in total assets exceeds then the required limit, there will be some idle
investments on such assets. At the time, the proportion of current assets in total should not less than
requirements. So, every firm should maintain the adequate quantity of current assets. But during the
situations of peak demand, should employ more current assets and vice-versa. Particularly in case of
production organizations, there is heavy importance to the current assets than fixed assets. This kind of
analysis will enable the managers to understand the working capital position of the firm.
Data relating to the proportion of working capital in total assets is depicted as follows-

TABLE NO. 8
Year

2012-13

2013-14

2014-15

Current asset

96214.73

105254.79

101030.38

Total assets

125389.28

135024.43

136470.35

Current asset to total assets ratio

0.78

0.78

0.74

GRAPH
0.78

0.78

0.78
0.77
0.76
0.74

0.75
0.74
0.73
0.72

2012-13

2013-14

2014-15

Current asset to total assets ratio

Interpretation:
16

From the current asset to total asset ratio graph, it can be inferred that the proportion of current assets to
total assets had constant from last three years while we can see slight fall in ratio in 2015.

9. Current asset to sales ratio:
The current assets are used for the purpose of generating sales. A ratio of current assets to sales
reveals that how best the assets are applied in business for turnover. As per the above said ratio, a low
proportion of current assets in relation to sales indicates better turnover of the company and vice-versa,
which will show positive impact on profitability.
The data relating to this aspect is provided as follows and it is calculated as follows.

TABLE NO. 9
Year
Current assets
Sales
Current asset to sales ratio

2012-13

2013-14

2014-15

96214.73
224061.79
0.42

105254.79
139530.79
0.50

101030.38
140837.47
0.56

GRAPH

0.5

0.56

0.5

0.6
0.42

0.4
0.3
0.2
0.1
0

2012-13

2013-14

2014-15

Current asset to sales ratio

17

Interpretation:
As per the above said ratio, a low proportion of current assets in relation to sales indicates better
turnover of the company and vice-versa but the actual figure 0.42, 0.50 and 0.56 in the year 2013, 2014
and 2015 respectively are contradicting this statement.

10.

Current asset to fixed asset ratio:

Total assets in any business contain both fixed and current assets. For properly functioning of the
organization in terms of production and marketing it is necessary to maintain a properly balance between
them. If the proportion of fixed assets increases, it will be a negative impact on the firm’s liquidity and if
current assets increase, production increases and which causes impact on the demand for the product. In
view of effective management of funds and to invest on both fixed and current assets, it is necessary to
take the decision as soon as possible.
Data relating to the ratio between current assets to fixed assets is depicted as follows.

TABLE NO. 10
Year
Current assets
Fixed assets
Current assets to fixed asset ratio

2012-13

2013-14

2014-15

96214.73
29169.56
3.3

105254.79
29764.63
3.54

101030.38
35439.97
2.85

GRAPH

18

4

3.3

3.54

3.5

2.85

3
2.5
2

Current assets to fixed asset ratio

1.5
1
0.5
0

2012-13

2013-14

2014-15

Interpretation:
As per the above said ratio, the ratios are 3.3, 3.54 and 2.85 in the year 20013, 20014 and 2015
respectively. For properly functioning of the organization in terms of production and marketing, it is
necessary to maintain a properly balance between the current asset and fixed asset.

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