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LQUIDITY RATIOS

1) Current Ratio=Current Assets/Current Liabilities

1998-99 1999-2000 2000-01 2001-02 2002-03

Current Assets 1353 5708 2522 3968 4040Current Liabilities 605 1133 966 1103 2033

Ratio (Times) 2.24 5.04 2.61 3.60 1.99

INDICATION:

The current ratio of a firm measures its short-term solvency, that is, its ability tomeet short-term obligation. As a measure of a current/short term financial liquidity, it indicates

the rupee of current assets available for each rupee of current liability/obligation. The higher the

current ratio the larger is the amount of rupees available per rupee of current liability, the more is

the firms ability to meet current obligation and the greater is the safety of funds of short termcreditor. Thus, current ratio in a way is a measure of margin of safety. The current ratio is the

ratio of total current assets to total current liabilities. It is calculated by dividing current assets by

current liabilities.

Current Ratio

2.24

5.04

2.61

3.60

1.99

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1998-99 1999-2000 2000-01 2001-02 2002-03

YEARS

TIMES

Current Ratio

INTERPRETATION:

In the case of CHCL the current ratio is 1.99 in year 2002-03. It implies

that for every one rupee of current liabilities, current assets of 0.99 rupees are available to meetthem. Standard current ratio for pharmacy industry is 1.70 times whereas Cadila has ratio of

1.99 times in year 2002-03, which is somewhat higher. The current ratio was highest in year

1999-2000 i.e. 5.04 times because of highest block in current assets. Current assets werehighest because of largest portion of cash and bank. Cash and bank was rupees 3787 in that

year.

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2) Acid Test Ratio=(Current Assets-Stock)/Current Liability

1998-99 1999-2000 2000-01 2001-02 2002-03

Current Assets 1353 5708 2522 3968 4040

Stock 626 707 837 1057 1756

Current Liabilities 605 1133 966 1103 2033

Ratio (Times) 1.20 4.41 1.74 2.64 1.12

INDICATION:

A rupee of cash is more readily available to meet its current obligation

than a rupee of, say, inventory. This impairs the usefulness of the current ratio. The acid testratio is a measure of liquidity designed to overcome this defect of the current ratio. It is often

referred as to quick ratio because it is measurement of a firms ability to convert its currentassets quickly into cash in order to meets its current liability. Thus, it is a measure of quick oracid liquidity. The acid test ratio is the ratio between quick current assets and current liabilities.

Acid Test Ratio

1.20

4.41

1.74

2.64

1.12

0.00

0.50

1.00

1.50

2.002.50

3.00

3.50

4.00

4.50

5.00

1998-99 1999-2000 2000-01 2001-02 2002-03

YEARS

TIMES

Acid Test Ratio

INTERPRETATION:

Acid test ratio of 1:1 is considered satisfactory as a firm can easily

meets its all current claims the quick asset ratio of the company are 1.20,4.41,1.74,2.64 and1.12

times in year 1998-99,1999-2000,2000-01,2001-02 respectively. This ratio was highest in year1999-2000 i.e. 4.41. Because of low level of inventory of Rs.707 mn as compared to inventory of

Rs.1756 mn. Therefore ratio of year 2002-03 was lowest of last five year.