Essay About Current Assets And Profitability Fixed Asset Turnover

Quality of Pidilite – Case Study
Credit Quality of Pidilite is analysed based on the following parametersLiquidity and working capitalCurrent Ratio = Current Assets / Current LiabilitiesQuick Ratio = Current Assets – Inventory- Prepaid Expense /Current LiabilitiesAverage Days Receivables = Net Accounts Receivable / (Revenue/365)[pic 1][pic 2]Pidilite exhibits consistent liquidity over the period as Acid ratio is approximately 1. The current ratio is also consistent with the ideal ratio of 2. Hence, the firm is liquid with unhindered inventory flow. There is a rise in inventory and increase in consumption of raw materials. There is no/less idle stock. The company’s receivable conversion is continuously more than a month over the period.Efficiency and Profitability Fixed Asset Turnover = Revenue/ Net Fixed AssetAsset Turnover = Revenue / Total AssetsYEAR20112012201320142015[pic 3]ASSET TURNOVER1.301.321.411.461.46FIXED ASSET TURNOVER2.933.093.433.613.36The fixed asset turnover is high across the period .i.e. there is effective utilisation of fixed assets in creating sales. It also indicates that the firm maintains low to optimum level fixed assets and no assets are underutilised. For the firm to expand sales asset acquisition is mandatory as the existing capacity is fully utilised. The total asset turnover indicating high presence of current and non-current assets than fixed assets. Hence, the company has leveraged long term income-generating capacity for short term liquidity.Profit Margin =Net Income / Operating RevenueReturn on Assets = Net Income/ Total Assets Return on equity = Net Income / EquityYEAR20112012201320142015RETURN ON ASSET0.150.140.160.150.15ROIC0.120.120.130.110.11RETURN ON EQUITY 0.280.240.260.230.22PROFIT MARGIN0.120.100.110.100.10Return on asset is low over the 5 years i.e. the assets are not efficiently managed to earn profits. There is increased expense on assets which is reducing the profit in spite of increasing revenue. Return on equity is also low. The firm is not generating enough profits to justify the equity investment. As the return on equity is steadily low, it has to be assumed that company has bot bought back any shares and has not traded on equity. Profit margin is low. Hence, dividend decision and ploughing back profits become tough decisions.