Analysis of Financial Ratios of Dlf free essay sample

How can DLF improve in it’s various ratios ? Asset Utilization The utilization of assets forms the basis for the profitability of a firm. Overbuying the assets leads to a lower utilization rate. Operating cycle = Days inventory + Days receivable Net operating cycle = Operating cycle – days payable Greater the operating cycle greater is the liquidity required to meet short term obligations. Greater liquidity implies large requirement of short term assets which can easily be put to use. Large accumulation of assets (fixed as well as short term) leads to their underutilization. So, probably in order to increase the asset utilization they need to rethink their strategy and process with an eye towards making better use of available resources. They should think in terms of better marketing strategy and better sales promotion. Operating Efficiency The under utilization of assets is related to long operating cycle. Hence to improve operating efficiency the first thing to be done is reduction in the operating cycle which can be achieved in two ways. We will write a custom essay sample on Analysis of Financial Ratios of Dlf or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 1. Increase the days account payable which will offset the long account receivable period. This can be done by getting good credits from the customer. 2. Strengthening the market strategy which can reduce the account receivable period. Profitability Profitability can directly be increased if the asset utilization is increased an operating efficiency is increased. Additionally, DLF has been accused on unfair trade practices and some other issues for which they had to pay a penalty for 650 mn so if they improve on these things, and deliver projects on time, perhaps profitabilty will improve. Leverage The current Debt to Equity ratio for Industry is 0. 91 whereas for DLF it is 1. 09. This indicates that this company is at par with the industry in leverage which can be further improved by lowering the debt which can be achieved by increasing the asset utilization. Liquidity The nature of the business is such that it demands high liquidity. The industry current ratio is 2. 9 whereas current ratio for DLF is 3. 51. This indicates DLF is maintaining a good liquidity. Being a veteran in industry it is already performing very well. Hence it just need to maintain the competition and stay ahead. However, we have noticed that it is low on asset turnover rate which should be taken care of by measures specified in answer 3. DLF can make use the following theory to be ahead of the competition: DLF can use the above model given by Porter by analyzing following areas: The threat of entry of new competitors (new entrants) The threat of substitutes The bargaining power of buyers The bargaining power of suppliers The degree of rivalry between existing competitors