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Ratio Analysis: Liquidity Ratios

This document analyzes financial ratios and insights for InterGlobe Aviation Ltd. over several years: - Passenger services made up the largest sector at 90.4% on average, while Tours & Packages decreased over time. - The debt-equity ratio fluctuated due to an equity issue in 2015-16, reducing financial leverage. Maintaining an optimal ratio is suggested. - Profitability declined as indirect expenses increased sharply, crowding out profits even after the equity issue. Controlling costs is important. - Initial liquidity was risky but improved after 2015-16, likely due to the equity issue providing more working capital. Ongoing strong liquidity is important.

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VanshGupta
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195 views5 pages

Ratio Analysis: Liquidity Ratios

This document analyzes financial ratios and insights for InterGlobe Aviation Ltd. over several years: - Passenger services made up the largest sector at 90.4% on average, while Tours & Packages decreased over time. - The debt-equity ratio fluctuated due to an equity issue in 2015-16, reducing financial leverage. Maintaining an optimal ratio is suggested. - Profitability declined as indirect expenses increased sharply, crowding out profits even after the equity issue. Controlling costs is important. - Initial liquidity was risky but improved after 2015-16, likely due to the equity issue providing more working capital. Ongoing strong liquidity is important.

Uploaded by

VanshGupta
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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You are on page 1/ 5

INR in

Ratio Analysis million


2012- 2013- 2014- 2015- 2016- 2017-
2011-12 2018-19
Year 13 14 15 16 17 18
Debt -
2.37 3.04 7.56 8.53 2.14 0.69 0.35 0.35
Equity Ratio
Liquidity Ratios
Current
1.72 1.62 1.02 1.07 1.41 1.97 2.39 2.26
Ratio
Quick Ratio 1.64 1.56 0.97 1.00 1.35 1.91 2.33 2.21
Cash Ratio 0.97 0.71 0.39 0.68 0.93 0.97 1.07 1.08
Turnover Ratio
Inventory
Turnover 99.18 109.48 107.66 59.59 59.23 58.78 62.74 80.79
ratio
Capital
Turnover 0.82 0.87 0.67 0.84 1.01 0.94 0.83 0.75
ratio
Asset
Turnover 14.94 17.77 28.08 34.04 9.05 5.13 3.39 4.29
Ratio
Net
Working
capital 2.09 3.17 78.03 29.87 5.63 2.10 1.47 1.26
turnover
ratio
Profitability Ratios
Net Profit
2.24 8.32 2.77 9.11 11.99 8.55 9.36 0.52
Margin
Return on
Investment 0.05 0.18 0.05 0.17 0.22 0.16 0.15 0.01
(ROI)
Earnings
4165 25646 10325 42481 51.17 45.94 63.03 4.06
per share
Risk Ratio
Operating
Leverage -2.02 16.94 -4.14 5.15 1.36 -5.51 1.28 -49.47
Ratio
Financial
Leverage 0.88 0.35 1.15 1.09 0.99 0.40 1.01 0.87
Ratio
Total
Leverage -1.78 6.01 -4.77 5.60 1.35 -2.23 1.28 -43.16
Ratio
By conducting the company analysis, we have not used www.moneycontrol.com, instead,
we organically used the information for the company statements of Indigo (InterGlobe
Aviation Ltd.).

The following reasons were behind this approach -

1. Money control did not include Leverage ratios. Risk is important for any organization
especially aviation companies thus the analysis of operating and financial leverage
ratios was pertinent to mention.
2. We also had conducted an analysis of relevant absolutes like the change in debt over
time, the growth rate of revenues, the sectoral growth of the company, etc.
3. Money control did not include sector wise revenue from operations. There are 4 major
sectors of revenue in the company - Passenger Services, Cargo Services, Inflight Services
& Tours & Packages
The above reasons compelled our group to analyze the financial statements

Insight no-1 - Sectoral Growth


Over the years the average revenue from each sector is represented through a pie chart and
it shows that passengers services was the highest in Gross sector of Indigo with a share of
90.4%.
Using the line chart, it can be said that the Tours and Packages are continuously decreasing
so less focus must be given on the Tours and Packages sector and more focus should be
given to the Inflight Sales sector.

Figure 1 Insight - 1

Insight no-2 - Debt-Equity analysis


We observed a flaw in the financial statements of FY-2015-16 to FY-2016-17. The figures of
Equity did not match. Considering this abnormality, we have analyzed that the debt equity
ratio has been fluctuating a lot. The company raised new equity shares FPO (Follow-up
Public Offering) in the year 2015-16. It has already been raising debts consistently in order
to increase its fleet and comence international operation. As the company has substituted
equity for debt, the financial obligation of the company has reduced, which in turn has
reduced the financial leverage of the company.
Suggestion - The company must trade on equity

Insight no-3 - Profitability analysis

The difference between the gross profit and net profit is indirect expenses. Indigo has
experienced a steep increase in their indirect expenses which has crowded out the profits of
the company. Also after the follow up public offering of 2015-16, the net profit margin has
either remained constant or it has shown a declining trend.

Insight no-4 - Liquidity analysis


From 2011-12 to 2014-15, Indigo
practiced a risky working capital
management policy. The current assets
to current liabilities ratio was close to
1:1 as compared to Industry average of
2:1. However after 2015-16, it
increased its current assets. This
change might be attributed to the
increased cash requirements for FPO.
This resulted in better working capital management which is depicted in the Working capital
turnover ratio.

Insight no - 5 - Risk Analysis

Usually the operating leverage is negative because of decreasing percentage of change in


earnings before interest and tax. This has resulted in a negative total leverage, making the
business risk high and the company is susceptible to high deviation and fluctuation. On the
other hand, the company has managed the financial leverage in an efficient manner. It has
reduced its financial obligations over time by substituting debt for equity. This has reduced
the finance costs of the company and the fixed obligation which in turn has reduced the risk.

Insight no - 6 - Geographical Segmentation Analysis


2011-
Year 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
12
Revenue according to Geographical Areas
Domestic 83148.94 100022.61 127254.63 146893.36 170254.03 205224.28 244571.27
International 8997.17 11349.62 12084.26 14697.26 15550.97 24984.59 40396.45

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