Financial analysis of spicejet

Liquidity ratio
1. Current Ratio: The current ratio, also known as the working capital ratio, measures the
capability of a business to meet its short-term obligations that are due within a year. The
ratio considers the weight of total current assets versus total current liabilities. It indicates
the financial health of a company and how it can maximize the liquidity of its current assets
to settle debt and payables.
Current Ratio formula is:

Current Ratio = Current Assets / Current Liabilities

Current ratio of spicejet :
year 2020 2019 2018

Current Ratio 0.33 0.38 0.30

Current ratio of spicejet in all three years as mentioned in table is less than 1.0. This means that
company have more current liabilities than current assets. This means the company does not have
enough to pay for its short term obligations. The situation was good in 2019 as compared to 2018
but again in 2020 situation got worse.

2. Quick Ratio: The Quick Ratio, also known as the Acid-test or Liquidity ratio, measures the ability of a
business to pay its short-term liabilities by having assets that are readily convertible into cash. These
assets are, namely, cash, marketable securities, and accounts receivable. These assets are known as
“quick” assets since they can quickly be converted into cash.
The Quick Ratio Formula

Quick Ratio = [Cash & equivalents + marketable securities + accounts receivable] /

Current liabilities
Or
Quick Ratio = [Current Assets – Inventory – Prepaid expenses] / Current Liabilities

year 2020 2019 2018

Quick Ratio 0.31 0.34 0.26

The data in the table represent that the company quick ratio is very low and this is the matter of
concern. Data speaks that the spicejet have very fewer liquid asset than liabilities . This means that
that spicejet has very slow sales ,numerous bills and poor collection of account receivable. There is
increase in liquid asset in FY 2019 but there was again a decrease in FY2020 from 0.34 to 0.31.
Capital structure ratio
1. Debt-Equity ratio: The Debt to Equity ratio (also called the “debt-equity ratio”, “risk
ratio”, or “gearing”), is a leverage ratio that calculates the weight of total debt and
financial liabilities against total shareholders’ equity. Unlike the debt-assets ratio which
uses total assets as a denominator, the D/E Ratio uses total equity. This ratio highlights
how a company’s capital structure is tilted either toward debt or equity financing.

Debt to Equity Ratio Formula

Short formula:
Debt to Equity Ratio = Total Debt / Shareholders’ Equity
Long formula:
Debt to Equity Ratio = (short term debt + long term debt + fixed payment obligations) /
Shareholders’ Equity

year 2020 2019 2018

Total debt/equity -0.55 -2.78 -18.33
ratio

The data in the table indicate that spicejet in 2020, 2019 and 2018 has interest rate on
its debts that are greater than the return on investment. This means company was in
great loss.

2.Interest coverage ratio: The Interest Coverage Ratio (ICR) is a financial ratio that is
used to determine how well a company can pay the interest on its outstanding debts.
The ICR is commonly used by lenders, creditors, and investors to determine the riskiness
of lending capital to a company. The interest coverage ratio is also called the “times
interest earned” ratio.
Interest Coverage Ratio Formula
Interest Coverage Ratio = EBITDA / Interest Expense

year 2020 2019 2018

Interest Coverage -0.72 -4.33 14.08
Ratios (%)
Interest Coverage -0.72 -4.33 14.08
Ratios (Post Tax)
(%)

The interest coverage ratio for 2018 was very good. In 2018 , spicejet was capable to
meet its interest expenses around 14.08 times but in year 2019 and 2020 the interest
coverage ratio went too low -4.33 and -0.72. This indicate that they were not able to its
interest expenses.
Profitability Ratios:
1. Gross Profit Margin: The Gross Margin Ratio, also known as the gross profit margin
ratio, is a profitability ratio that compares the gross margin of a company to its
revenue. It shows how much profit a company makes after paying off its Cost of
Goods Sold (COGS).
The ratio indicates the percentage of each dollar of revenue that the company
retains as gross profit.
Formula
Gross Margin Ratio = (Revenue – COGS) / Revenue
year 2020 2019 2018

Gross Profit -7.56 -3.31 7.18

Margin

Gross profit margin was 7.18 in FY2018 means that spice was achieving good sales
and profitability goals but in FY2019 it is -3.31 means spicejet cost of production
exceeded total sales. It indicates that spicejet inability to control cost. In FY 2020
even the situation got worse.

2. Net Profit Margin: Net Profit Margin (also known as “Profit Margin” or “Net Profit
Margin Ratio”) is a financial ratio used to calculate the percentage of profit a
company produces from its total revenue. It measures the amount of net profit a
company obtains per dollar of revenue gained. The net profit margin is equal to net
profit (also known as net income) divided by total revenue, expressed as a
percentage.
Net Profit Margin Formula
Net Profit margin = Net Profit ⁄ Total revenue x 100
year 2020 2019 2018

Net Profit -7.56 -3.31 7.18

Margin(%)

Activity Ratios:
1. Fixed Asset Turnover Ratio: Fixed Asset Turnover (FAT) is an efficiency ratio that
indicates how well or efficiently a business uses fixed assets to generate sales. This
ratio divides net sales by net fixed assets, calculated over an annual period. The net
fixed assets include the amount of property, plant, and equipment, less the
accumulated depreciation. Generally, a higher fixed asset ratio implies more
effective utilization of investments in fixed assets to generate revenue. This ratio is
often analyzed alongside leverage and profitability ratios.
Fixed Asset Turnover Ratio Formula
Fixed Asset Turnover = Net Sales / Average Fixed Assets
 2. Total Asset Turnover Ratio: The asset turnover ratio, also known as the total asset
turnover ratio, measures the efficiency with which a company uses its assets to
produce sales. The asset turnover ratio formula is equal to net sales divided by the
total or average assets of a company. A company with a high asset turnover ratio
operates more efficiently as compared to competitors with a lower ratio.
The Formula:

year 2020 2019 2018

Asset 95.51 190.31 193.07

Turnover
Ratio

The spicejet efficiency to use it asset to produce sales kept on decreasing from
FY2018 to FY2019 to FY2020.

Valuation Ratios:
1. Earnings Per Share: EPS is a financial ratio, which divides net earnings available to
common shareholders by the average outstanding shares over a certain period of
time. The EPS formula indicates a company’s ability to produce net profits for
common shareholders. This guide breaks down the Earnings per Share formula in
detail.
Earnings per Share Formula
There are several ways to calculate earnings per share.
Below are two versions of the earnings per share formula:
EPS = (Net Income – Preferred Dividends) / End of period Shares Outstanding
EPS = (Net Income – Preferred Dividends) / Weighted Average Shares Outstanding
 year 2020 2019 2018

EPS -15.61 -5.04 9.30

Spicejet was reporting profit in FY 2018 but in FY2019 it reported negative EPS which
indicate it bearing loss and even more loss in FY2020.

2. Book Value Per Share: The book value per share (BVPS) is calculated by taking the
ratio of equity available to common stockholders against the number of shares
outstanding. When compared to the current market value per share, the book value
per share can provide information on how a company’s stock is valued. If the value
of BVPS exceeds the market value per share, the company’s stock is deemed
undervalued. The book value is used as an indicator of the value of a company’s
stock, and it can be used to predict the possible market price of a share at a given
time in the future.
Formula for Book Value Per Share
The formula for calculating the book value per share is given as follows:

year 2020 2019 2018

BVPS -26.34 -5.84 -0.93

Negative BVPS indicate that the share value of spicejetwas undervalued in all three
financial years.

3. Dividend Per Share: Dividend Per Share (DPS) is the total amount of dividends
attributed to each individual share outstanding of a company. Calculating the
dividend per share allows an investor to determine how much income from the
company he or she will receive on a per-share basis. Dividends are usually a cash
payment paid to the investors in a company, although there are other types of
payment that can be received (discussed below).
Dividend Per Share Formula
The formula for calculating dividend per share has two variations:
Dividend Per Share = Total Dividends Paid / Shares Outstanding
Or
Dividend Per Share = Earnings Per Share x Dividend Payout Ratio
 year 2020 2019 2018

DPS 0.00 0.00 0.00

Dividend was not paid in all three year.

4. Dividend Payout Ratio: he Dividend Payout Ratio (DPR) is the amount of
dividends paid to shareholders in relation to the total amount of net income the
company generates. In other words, the dividend payout ratio measures the
percentage of net income that is distributed to shareholders in the form of
dividends.
Dividend Payout Ratio Formula
There are several formulas for calculating DPR:
1. DPR = Total dividends / Net income
2. DPR = 1 – Retention ratio (the retention ratio, which measures the percentage of
net income that is kept by the company as retained earnings, is the opposite, or
inverse, of the dividend payout ratio)
3. DPR = Dividends per share / Earnings per share
year 2020 2019 2018

DPR 0.00 0.00 0.00

Dividend was not paid.