HLL's ability to aggressively invest in brand building and to acquire large businesses, stems from a basic strength, ie consistent generation of huge cash resources. In 1998, HLL generated cash profits of Rs9bn. The company has had a negative working capital during the last three years. Ratios Ratios are useful tools that enable intra-year comparison within a company. Ratios also enable us to make inter-firm comparison for a group of companies.
Ratios can sometimes also mislead.
If you look at HLL's current ratio - the measure of liquidity of a company, it has steadily declined from 1.5x four years ago to 1.1x today. Therefore looking at the component composition of the ratio being analyzed is also very important. Similarly, a high fixed asset turnover ratio may indicate efficient utilization of assets. However it is also likely that the ratio appears high because of a low denominator base due to old, worn out and depreciated assets. After a blue chip company, let us see the other side of corporate India.