Quality of Pidilite - Case Study
Autor: Neha Ekka • August 28, 2018 • Case Study • 563 Words (3 Pages) • 659 Views
Credit Quality of Pidilite is analysed based on the following parameters
- Liquidity and working capital
- Current Ratio = Current Assets / Current Liabilities
- Quick Ratio = Current Assets – Inventory- Prepaid Expense /Current Liabilities
- Average 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 Asset
- Asset Turnover = Revenue / Total Assets
YEAR | 2011 | 2012 | 2013 | 2014 | 2015 |
[pic 3]
ASSET TURNOVER | 1.30 | 1.32 | 1.41 | 1.46 | 1.46 |
FIXED ASSET TURNOVER | 2.93 | 3.09 | 3.43 | 3.61 | 3.36 |
The 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 Revenue
- Return on Assets = Net Income/ Total Assets
- Return on equity = Net Income / Equity
YEAR | 2011 | 2012 | 2013 | 2014 | 2015 |
RETURN ON ASSET | 0.15 | 0.14 | 0.16 | 0.15 | 0.15 |
ROIC | 0.12 | 0.12 | 0.13 | 0.11 | 0.11 |
RETURN ON EQUITY | 0.28 | 0.24 | 0.26 | 0.23 | 0.22 |
PROFIT MARGIN | 0.12 | 0.10 | 0.11 | 0.10 | 0.10 |
Return 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.
...