# Financial Analysis Liquidity Ratios

LIQUIDITY RATIO

Liquidity ratios are used to determine a company’s ability to meet its short-term debt obligations. Investors often take a close look at liquidity ratios when performing fundamental analysis on a firm. Since a company that is consistently having trouble meeting its short-term debt is at a higher risk of bankruptcy, liquidity ratios are a good measure of whether a company will be able to comfortably continue as a going concern.

• Current ratio

One of important function of the financial manager is to maintain sufficient liquidity. Current ratio is an important criterion to test the liquidity and also the short term solvency. The ratio of 2:1 is considered as

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In case of NIIT operating margin in 2010 was 46.93, it kept declining and in 2013 it came 19.63. On the other hand operating margin of 3i Infotech in 2010 was 51.73 and in 2013 it came to 21.49. In case of efficiency NIIT had a better performance than 3i Infotech, but in terms of profitability 3i Infotech is better than NIIT.

• In table 5 the gross profit margin has been calculated. Here in case of NIIT, the gross profit margin in year 2010 was 38.26 and it kept declining and became 16.55 in 2013. On the other hand in case of 3i Infotech the gross profit margin in the year of 2010 was 33.59 and the ratio of this company was also declining and came to 27.96 last year. From this it can be concluded that the financial position of 3i Infotech is better than the NIIT in term of gross profit because NIIT has more variation in Gross Profit as compared to 3i Infotech.

• In table 6, the net profit margin has been calculated. In NIIT the ratio in 2010 was 14.75 and after it kept declining and last year it reached to 0.16. On the other hand in case of 3i Infotech in year 2010 it was 18.85 and in 2013 it was 11.35. The financial position of 3i Infotech is better than the NIIT in terms of net

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In case of NIIT it was 1.47 in 2010 and it went 1.42 in 2011 and 1.16 in 2012 and came to 1.22 in 2013. On the other hand in 3i Infotech the ratio was greater than NIIT throughout. From this we conclude 3i Infotech is more risky than NIIT because they have more liabilities and less equity.

• In table 8 total debt/equity ratio has been calculated. In case of NIIT this ratio was 0.64 in 2010 whereas in 3i Infotech it was 0.87. Here NIIT was more financial stable than 3i Infotech. But in last year the ratio of NIIT went to 0.26 in year 2013 and 0.24 of 3i Infotech. From this it can be concluded that 3i Infotech is more financial stable than NIIT.

• In table 9 fixed asset turnover ratios of NIIT and 3i Infotech has been calculated. In 2010 NIIT had ratio of 2.42 whereas 3i Infotech had 0.22. Last year this ratio went to 1.89 in case of NIIT and in case of 3i Infotech it went to 0.12. 3i Infotech always had this ratio less than NIIT. From this it can be concluded that NIIT has been more effective in using the investment in fixed assets to generate revenues, than 3i