Financial Planning through the Liquidity Ratios for HDFC and SBI Banks

Abstract

Financial planning and Analysis plays a vital role in the evaluation of Budget and forecasting for the future periods. One of the tools is financial planning through the liquidity ratios calculation and Analysis of the ratios. The present study concentrates on current ratio and Cash ratio of both banks for evaluating the cash fluidness. The analysis of current ratio infers about the liquidity position of the firm, which is crucial in paying short-term liabilities. The current ratio is calculated by dividing current assets with current liabilities. The current ratio is called as “current” because it includes all current assets and current liabilities for a particular accounting year. A current ratio which is less than the industry average is an indicator of risk of default and distress. A high ratio indicates that the organization is utilizing the assets efficiently. The current ratio is used as yardstick for short term solvency of the firm. A high current ratio enables the firm to cover all the current liabilities of a particular accounting year. But it is also an indicator of non efficient usage of short term assets. A current ratio of 1.5 indicates that for 1.5 current assets to 1 current liabilities. The current assets are those assets which can be converted in to cash within the specified year. The second objective of the study is to compare the liquidity stand of the banks through analysis of cash ratio’s of the selected banks. The cash ratio helps the banks to is identify the deposited amount which can be used for the credit lending purposes for an accounting year. The cash ratio is calculated by dividing cash equivalents plus cash with current liabilities. The present study is financial planning through current ratios for HDFC and SBI banks operating in India. The data is collected through the official websites of banks. The data is collected for the years from March 16 to March 20. The analysis is done through the calculation of current ratio, descriptive statistical analysis, bar charts for both the banks.