• Maruti Suzuki does not have many assets that can be converted into liquid in a short span, which shows the company is not financially secure in the short term. • Company depends a lot on its inventory. 2017 2018 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.4 0.3 0 Quick Ratio/Acid Test ratio/Liquid ratio Quick Ratio/Acid test ratio/Liquid ratio
SOLVENCY RATIOS DEBT - EQUITY RATIO ( Ideal 2:1 ) • Debt-Equity ratio - This is a measurement of the percentage of the company’s balance sheet that is financed by suppliers, lenders, creditors and obligors versus what the shareholders have committed. • Maruti Suzuki has zero debt which means that the major part of finance is funded through equity. This results in a higher price earning ratio. • A higher P/E ratio results in better future MPS. • Both the years the company has maintained zero debt. PROPRIETARY/ NET WORTH RATIO ( Ideal 0.5:1 ) • The net worth ratio states the return that shareholders could receive on their investment in a company, if all of the profit earned were to be passed through directly to them. • This ratio is very important for the shareholder as it tells them about the investors return. It establishes the relationship between shareholders funds and total assets. • Maruti Suzuki has a ratio of 0.6:1 ( Higher than ideal ratio of 0.5:1 ) which indicates that the company has good long term solvency. 2017 2018 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.67 0.69 0 Proprietary ratio/Net worth ratio propreitory ratio/Net worth ratio
This ratio is very important for the bankers as it depicts the credit worthiness of the company Maruti Suzuki has zero debt therefore the company is self- sufficient in terms of finance. FIXED ASSETS TO NET WORTH RATIO ( Ideal 0.75:1 ) • It is obtained by dividing the depreciated book value of fixed assets by the amount of proprietor’s funds. • Maruti Suzuki has a ratio lower than the ideal ratio which states that less of fixed assets are funded through equity funds. 2017 2018 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.36 0.31 0 Fixed Asset to Net Worth Ratio Fixed asset to net worth ratio INTEREST COVERAGE RATIO ( Ideal 6-7 times )
• The purpose of this ratio is to show the percentage of proprietor’s fund investment in current assets. • Maruti Suzuki has a less ratio as compared to fixed asset to net worth ratio which states that less of company’s current assets are funded by the owners funds. • This is a good sign as company does not want much of owners funds to get blocked with the current assets. 2017 2018 0 0.05 0.1 0.15 0.2 0.25 0.24 0.19 0 Current Asset to Net Worth Ratio Current Asset to net worth ratio CURRENT ASSETS TO NET WORTH RATIO CURRENT LIABILITY TO NET WORTH RATIO ( Ideal 1:3 ) • It is expressed as a proportion and is obtained by dividing current liabilities by proprietor's fund. • Maruti Suzuki has maintained an ideal ratio in this parameter.
- Fall '19
- Maruti Suzuki India Limited