Financial Perfomance Analysis of Hero Motocorp LTD

FINANCIAL PERFOMANCE ANALYSIS OF
HERO MOTOCORP Ltd.
PROJECT REPORT
Submitted to Mahatma Gandhi University in partial fulfillment of the

requirements for the award of the Degree of
MASTER OF BUSINESS ADMINISTRATION
By
JACK P JAMES
Reg. No. 190031000649

Under the guidance of
JIBUMON K G
Faculty Guide
Accredited by NAAC with ‘A’ Grade
DEPARTMENT OF MANAGEMENT STUDIES
MAR ATHANASIOS COLLEGE FOR ADVANCED STUDIES

TIRUVALLA
JUNE 2021
MAR ATHANASIOS COLLEGE FOR
ADVANCED STUDIES TIRUVALLA
Ph: 0469 2730323 Fax: 0469 2730317 macfast@macfast.org
www.macfast.org
CERTIFICATE
This is to certify that the project report entitled “FINANCIAL PERFOMANCE
ANALYSIS OF HERO MOTOCORP Ltd.” is a bonafide report of the project
work undertaken by JACK P JAMES ,fourth semester MBA student of our college
during a period of 8 weeks commencing from 1st April to 30th May, 2021.
Jibumon K G Dr. Sudeep B. Chandramana

Faculty Guide Head, Dept. of management Studies
Rev. Dr.Cherian J. Kottayil University Examiner
Principal
DECLARATION
I hereby declare that this project report entitled “FINANCIAL PERFORMANCE

ANALYSIS OF HERO MOTOCROP LTD” is a bonafide report of the study
undertaken by me, under the guidance of JIBUMON, Department of Management
Studies, MACFAST,Tiruvalla.
I also declare that this project report has not been submitted to any other University
or Institute for the award of any degree or diploma.
Place: Tiruvalla JACK P JAMES
Date : 30 May 2021

ACKNOWLEDGEMENT
Firstly, I would like to express my deep sense of gratitude to God Almighty for his endless
blessings, which led to the successful completion of my project.
I take this opportunity to express my sincere thanks to all who helped me throughout of
completion of my project successfully.
I express my profound gratitude and sincere thanks to Rev. Fr. Dr. Cherian J Kottayil,
principal of MACFAST College Tiruvalla.
I express my heartfelt thanks to Dr.Sudeep B Chandramana (HOD, Department of

Management Studies), for his valuable guidance, unfailing support, good suggestions and
timely encouragement for the preparation.
I express my deep sense of gratitude to the faculty guide JIBUMON, for encouraging and
inspiring me for developing the project. Let me also thank all the faculty members of the
department of management studies for their help in the successful completion of the project.
My project work involves many people at different stages. I would like to thank all those who
have directly or indirectly contributed to the success of the project.
Finally, I thank my parents and friends near and dear ones who have contributed to the
successful completion of my project. It is my duty and pleasure to acknowledge them.
JACK P JAMES
LIST OF TABLES
SL NO Title Page No
5.1 Current Ratio 34
5.2 Liquid Ratio 35
5.3 Absolute Liquid Ratio 36
5.4 Debt Equity Ratio 37
5.5 Total Asset Ratio 38
5.6 Proprietary Ratio 39
5.7 Interest Coverage Ratio 41
5.8 Stock Turnover Ratio 42
5.9 Debtors Turnover Ratio 43
5.10 Creditors Turnover Ratio 45
5.11 Working Capital Turnover Ratio 46
5.12 Gross Profit Ratio 47
5.13 Operating Ratio 48
5.14 Operating Profit Ratio 49
5.15 Net Profit Ratio 50
5.16 Return on total asset Ratio 51
5.17 Comparative Balance Sheet As At 54
2016 & 2017
5.18 Comparative Income Statement 55
As At 2016&2017
2017 & 2018
As At 2017&2018
2018 & 2019
As At 2018&2019
2019 & 2020
As At 2019&2020
LIST OF FIGURES
SL No Title Page No
5.1 Current Ratio 34
5.2 Liquid Ratio 35
5.3 Absolute Liquid Ratio 36
5.4 Debt Equity Ratio 38
5.5 Total Asset Ratio 39
5.6 Proprietary Ratio 40
5.7 Interest Coverage 41
Ratio
5.8 Stock Turnover Ratio 43
5.9 Debtors Turnover 44
Ratio
5.10 Creditors Turnover 45
Ratio
5.11 Working Capital 46
Turnover Ratio
5.12 Gross Profit Ratio 48
5.13 Operating Ratio 49
5.14 Operating Profit Ratio 50
5.15 Net Profit Ratio 51
5.16 Return on total asset 52
Ratio
ABBREVATIONS
1. GDP: GROSS DOMESTIC PRODUCT
2. P&L : Profit And Loss
3 HIP : Human Information Program

4 DEA : Data Envelopment Analysis
5 GM : General Motors
6 FY : Financial Year
CONTENTS
Sl.N0 CHAPTERS PAGENO
i. Acknowledgement
ii. List of tables
iii. List of figures
INTRODUCTION 1-3
01
1.1Backgroundofthestudy 2
1.2Statementoftheproblem
2-3
1.3Relevance and scope of the study
3
1.4Objectives of the study 3
PROFILEOFOILANDGASINDUSTRY 4-15
2.1Business process of the study 5
02 2.2marketdemandsupply-contributiontoGDP-Revenue 6-7
Generation
levelandtypeofcompetition-firmsoperatinginthe 7-9
Industry
pricingstrategies in the industry 10-12
prospects and challenges of the industry 12-13
keydrivers of the industry 13-15
REVIEWOFLITERATURE 16-29
03 3.1 Brief theoretical construct related to the problem 17-26
Anoverviewofearlierstudies 26-29
uniqueness of research study 29
METHODOLOGYOFTHESTUDY 30-32
04 4.1ResearchApproachanddesign 31
Sources of online data 31
Dataanalysistools 31
Reportstructure 31-32
Limitationofthestudy 32
05 DATAANALYSIS,INTERPERATION,INFERENCE 33-60
06 FINDINGS 61-65
07 CONCLUSION 66-67
BIBLOGRAPHYANNEXURES 68
CHAPTER 1
INTRODUCTION
1
BACKGROUND OF THE STUDY
Financial statement analysis is an important part of the overall financial analysis. It is based on
the financial statements, i.e., Balance Sheet and Statements of profit and Loss, which are the end
products of accounting process. Analysis of Financial Statements is a systematic process of
critical examination of the financial information contained in the financial statements to
understand and make decisions regarding the operations of the enterprise. The analysis of
financial statements is a study of relationships among various financial figures as set out in the
financial statements, i.e., Balance Sheet and Statement of Profit and Loss. The complex data
given in these financial statements is divided or broken into simple and valuable elements and
relationships are established between the elements of the same statement or different financial
statements. The project is undertaken with the aim of understanding the company HERO
MOTORCORP and to study about the financial structure, to interpret and analyze the financial
statement which will help to forecast its activities for future earnings. The main objective is to
analyze the financial statement on the basis of ratio analysis and comparative statements.
STATEMENT OF THE PROBLEM
Finance in our present-day economy is defined as the provision of money at the time when it is
required. Every enterprise whether big or medium or small need fund to carry on its day to day
operations and to achieve its targets. In fact, finance is so dispensable today, it is said that
finance is the “Life Blood of an Enterprise”. Without finance no enterprise can accomplish its
goals and objectives.
Financial management is such a managerial process which is concerned with the planning and
control of financial resources. It is recently originated as a separate discipline. Proper handling of
finance makes an organization profitable. In this present scenario, financial management is not
only collection of funds but also their proper utilization.
2
The money related perfection makes an association effective in achieving its goals. Association
conveys their budgetary data through money related reports and explanations. By dissecting the
monetary presentation, we can comprehend that whether the association is under sound money
related condition. The financial smoothness makes an organization successful in accomplishing
its objectives. Organization communicates their financial information through financial reports
and statements. By analyzing the financial performance, we can understand that whether the
organization is under sound financial condition.
RELEVANCE & SCOPE OF THE STUDY
 The project is undertaken to analyze and understand the financial statement of HERO
MOTORCORP which gives an opportunity to use theoretical knowledge practically.
 To know how company manages its managerial efficiency.
 To have a sound knowledge regarding various ratios and comparative statements and how
it impacts the organization
 To find out the relationship between the various variables and its impact on the
functioning of the organization.
OBJECTIVE OF THE STUDY
 The project is undertaken to analyze and understand the financial statement of HERO
MOTORCORP which gives an opportunity to use theoretical knowledge practically.
 To know how company manages its managerial efficiency.
 To have a sound knowledge regarding various ratios and comparative statements and how
it impacts the organization
 To find out the relationship between the various variables and its impact on the
functioning of the organization.
3
CHAPTER 2
INDUSTRY PROFILE
4
BUSINESS PROCESS OF AUTOMOBILE INDUSTRY
The Indian two-wheeler industry has got tremendous market potential. With the growth of
population and change in their pattern of life style as a result of urbanization, there has been
rapid increase in the demand for Indian two wheelers. The three main product segments in the
two-wheeler category are scooters, motorcycles and mopeds. However, the response to evolving
demographics and various other factors, other sub-segments have emerged, namely, scooterettes,
gearless scooters and four-stroke scooters. While the first two emerged as a response to
demographic changes, the introduction of four stroke scooters has followed the imposition of
stringent pollution control norms in early 2000. Besides these prominent sub-segments, product
groups within these sub segments have gained importance in the recent years such as 125cc
motorcycles, 100- 125cc, gearless scooters with the two-wheeler market, especially the motor
cycle market has become extremely competitive and life cycle of products getting shorter, the
ability to offer new models to meet fast changing customer preferences has become imperative.
They have also concentrated on three main areas: fuel economy, environment compliance and
performance. The Indian automobile industry consists of four segments: passenger vehicles,
commercial vehicles, three-wheelers and two wheelers. In the automobile industry, the two
wheelers segment possesses a high domestic market share.
Two-wheeler segment posts healthy growth as both scooter and motorcycle segments grow in
double-digits. The two-wheeler industry performance has been strong during FY2018, reporting
YoY growth of 14.5% during 11m FY2018. The year was characterized by periodic swings in
growth rate caused by a confluence of factors, e.g., channel filling by OEMs during April 2017
(post BS IV) and July 2017 (post GST rollout), pre festive season dealer stocking during August-
September 2017. During the latter half of the fiscal, the growth gained pace, supported by strong
double-digit growth during November 2017-February 2018 partly driven by low base of previous
fiscal and partially benefitting from positive demand sentiments, especially from the rural
market. During 2018, both the major products segments of scooters and motorcycles contributed
to growth, expanding by healthy double-digits over the corresponding previous. While scooters
have reported a growth of 21.2%, the motorcycle segment also reported double-digit growth of
12.7% during the same period, being the first instance of double-digit growth of the motorcycle
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segment since FY2012. Although the moped segment had reported healthy growth of 23%
during FY2017, the volumes decreased by 4.8% during 11m FY2018, in absence of new model
launches and shift of consumer preference towards lower displacement motorcycles.
MARKET DEMAND & SUPPLY – CONTRIBUTION TO GDP –

REVENUE GENERATION
Many foreign companies have been investing in the Indian automobile market in various ways such
as technology transfers, joint ventures, strategic alliances, exports and financial collaborations. The
auto market in India can boast of attractive finance schemes, increasing purchase power and launch
of latest products.
Some vital statistics regarding the automobile market in India has been mentioned below:
 India ranks 2nd in the global two-wheeler market

 India is the 4th biggest commercial vehicle market in the world
 India ranks 11th in the international passenger car market
 India ranks 5th pertaining to the number of bus and truck sold in the world.
Between passenger vehicles and two wheelers, the market share of the two-wheeler segment
(76%) more than doubled its share of the passenger vehicles (16.25%) and commercial vehicles
and three wheelers stood lower at 4.36 per cent and 3.39 per cent, respectively. This shift, which
continues, has been prompted by two major factors: innovative models and technological
advancements. The Indian two-wheeler industry has witnessed a strong volume growth over the
last two years, having grown by 25 per cent in 2009-2010 and 27 per cent in 2010-11 to reach
million units. This strong double-digit growth has been driven by multiple factors. The prime
reason is statistical as this period of high double-digit growth has showed up after a rather sedate
previous two years, when the two-wheeler industry volumes had shrunk by 5 per cent in 2007-08
and had grown by a mere 5 per cent in 2008-09. In addition to the contribution of pent- up
demand, the two-wheeler industry growth over the last few years has been supported strongly by
various underlying factors including India’s rising per capita GDP, increasing rural demand,
growing urbanization, swelling replacement demand, increasing proportion of cash sales and the
less measurable metric of improved consumer sentiments.
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INDIAN DOMESTIC MARKET FOR TWO WHEELERS
India has the youngest population in the world with 70 per cent under 35 years. This implies a
huge demand for two wheelers in the domestic market. The demands driving for the two-wheeler
industry are:
(i) High growth in the service sector

(ii) Favorable demographics - a young population, rising household incomes,
increasing literacy levels.
(iii) Faster introduction of new models.
(iv)Increasing replacement demand.
(v) Increasing availability of low-cost retail finance
The modern automobile market in India has been considering key issues in the process of growth:
(i) Customer care, and not just service

(ii) Searing through cut-throat competition
(iii)Anti-pollution norms
(iv) Domestic as well as multi-national investments
(v) Used vehicle trade
(vi) Co-ordination with government to enable advancement
(vii) Road safety
Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's largest manufacturer of
two – wheelers, based in India. In 2001, the Company achieved the coveted position of being the
largest two-wheeler manufacturing Company in India and also, the ‘World No.1’ two-wheeler
Company in terms of unit volume sales in a calendar year. Hero MotoCorp Ltd. continues to
maintain this position till date.
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LEVEL AND TYPES OF COMPETITION
India is the second biggest maker and maker of bikes on the planet. It remains next just to Japan
and China regarding the quantity of bikes created and homegrown deals separately. This
differentiation was accomplished because of assortment of reasons like prohibitive arrangement
followed by the Government of India towards the traveler vehicle industry, rising interest for
individual vehicle, failure in the public transportation framework and so on. The Indian bike
industry made a little start in the mid-50s when Automobile Products of India (API) began
fabricating bikes in the nation. Until 1958, API and Enfield were the sole makers.
In 1948, Bajaj Auto started exchanging imported Vespa bikes and three-wheelers. At long last, in
1960, it set up a shop to make them in specialized cooperation with Piaggio of Italy. The
arrangement lapsed in 1971.
In the underlying stages, the bike fragment was overwhelmed by API, it was later surpassed by
Bajaj Auto. Albeit different government and private undertakings entered the conflict for bikes,
the main new player that has endured till today is LML.
Under the directed system, unfamiliar organizations were not permitted to work in India. It was a
finished dealer market with the sitting tight period for getting a bike from Bajaj Auto being as
high as 12 years.
The bikes fragment was the same, with just three producers viz Enfield, Ideal Jawa and Escorts.
While Enfield slug was a four-stroke bicycle, Jawa and the Rajdoot were two-stroke bicycles.
The bike portion was at first overwhelmed by Enfield 350cc bicycles and Escorts 175cc bicycle.
The bike market was opened to unfamiliar rivalry during the 80s. Also, the then market pioneers
- Escorts and Enfield - were gotten unconscious by the attack of the 100cc bicycles of the four
Indo-Japanese joint endeavors. With the accessibility of eco-friendly low force bicycles, request
expand, bringing about Hero Honda - at that point the main maker of four stroke bicycles (100cc
class), increasing a top space.
The principal Japanese bikes were presented in the mid-eighties. TVS Suzuki and Hero Honda
acquired the initial two-stroke and four-phase motor bikes separately. These two players at first
began with gathering of CKD packs, and later on advanced to indigenous assembling. During the
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90s the significant development for cruiser fragment was acquired by Japanese bikes, which
developed at a pace of almost 25% CAGR over the most recent five years.
The business had a smooth ride during the 50s, 60s and 70s when the Government restricted new
passages and carefully controlled limit development. The business saw an abrupt development
during the 80s. The business saw a consistent development of 14% prompting a pinnacle volume
of 1.9mn vehicles in 1990.
The passage of Kinetic Honda in mid-eighties with a variometric bike helped in giving usability
to the bike proprietors. This aided in instigating youths and working ladies, towards purchasing
bikes, who were prior slanted towards sulked buys. During the 90s, this pattern was turned
around with the presentation of scooterettes. In accordance with this, the bike portion has reliably
lost its aspect of the piece of the pie in the bike market.
In 1990, the whole vehicle industry saw an extreme fall popular. This brought about a decay of
15% in 1991 and 8% in 1992, bringing about a creation loss of 0.4mn vehicles. Excepting Hero
Honda, all the significant makers experienced downturn in FY93 and FY94. Saint Honda
indicated a minimal decrease in 1992.
The explanations behind downturn in the segment were the unremitting ascent in fuel costs, high
info costs and discounted buying power because of huge ascent all in all value level and credit
mash in purchaser financing. Variables like expanded creation in 1992, because of new
contestants combined with the downturn in the business brought about organizations either
announcing misfortunes or a fall in benefits.
India is one of the not many nations fabricating three-wheelers on the planet. It is the world's
biggest producer and dealer of three-wheelers. Bajaj Auto orders an imposing business model in
the homegrown market with a piece of the pie of above 80%, the rest is shared by Bajaj Tempo,
Greaves Ltd and Scooters India.
The all out number of enlisted bikes and three-wheelers on street in India, as on March 31, 1998
was 27.9mn and 1.7mn separately. The bike populace has nearly multiplied in 1996 from a base
of 12.6mn in 1990.
9
India turned into the fifth biggest auto market in 2019 with deals coming to 3.81 million units. It
was the seventh biggest maker of business vehicles in 2019. The bikes portion overwhelm the
market as far as volume attributable to a developing working class and a youthful populace.
Also, the developing enthusiasm of the organizations in investigating the rustic business sectors
further helped the development of the area. India is likewise a noticeable auto exporter and has
solid fare development desires for the not so distant future. What's more, a few activities by the
Government of India and significant vehicle major parts in the Indian market is relied upon to
make India a pioneer in the bike and four-wheeler market on the planet by 2020.
PRICING STRATEGIES IN THE AUTOMOBILE INDUSTRY
Indian Two wheeler Pricing Trend Analysis is an exclusive Analysis of Indian Passenger
Vehicle. Pricing is one of the most important criteria for Indian buyers. Each segment is having
different user, dynamics, expectation, and Outlook and product position. Our latest report gives
an in-depth analysis of Vehicle pricing, how it curved with product and market parameters and
other key detail
Effective pricing strategies shall help a company sell its products in a competitive market to
witness a profit. So, it is a way or literally an approach to find the competitive price of service or
a product in that particular market. This strategy is one of the other marketing strategies followed
in the system of every management. It is indeed a known fact that a company's ultimate goal is to
maximize their turnover. In order to maximize the profit, one has to choose the right strategy for
price setting.
Business magnate might use different combinations of price strategies to increase sales, but
finding the right strategy is a crucial step in the journey towards success. Often, the
misconceived thought on price setting is, sales volume is directly proportional to profit. An
increase in sales volume is expected to increase a company's profit. There are different strategies
one can depend on in the process of price setting. A few significant factors are given below.
Penetration & psychological pricing strategies
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In order to gain a great market share, many companies embrace the penetration pricing strategy.
The company aims to set up a customer-based price in the market. This is primarily achieved by
providing a free to low price for their products or services to a limited period of time. This later
on, with a revised version comes into the market as a premium product with a little raise in the
price. This strategy is implied to meet the expectation that consumers will hop on to new brands
when they're priced low. On the other hand, a psychological pricing strategy is a method that
embraces a consumer's emotional response rather than considering their rational one. Here
consumer ignores the quality of a service/ product but sticks on to the costing price.
Product line & economy pricing strategies
The product line pricing strategy is nothing but, providing service with an option to upgrade
upon choosing higher value packs. Consumers are pushed to compare the packages and choose a
wise plus cost-effective product or service. The other purpose of the product line strategy is to
bring a product or service to the spotlight which had low visibility or recognition earlier.
Whereas, economy pricing strategy embraces no to the low marketing cost in product or service
promotion. It's more like the budget pricing of a product or service. A great example would be
promoting only a certain range of products or services that shall gain specific and quick attention
among people.
Customer value-based pricing strategy
This is the most effective method that is followed by many successful companies. Value-based
pricing is a nothing but, price setting strategy that exclusively focuses on consumer perceived
value of a service or product. This is entirely based on how consumers value the product or
service and how they find it worth buying. Many companies that offer unique and high-value
products choose this strategy in setting the price. The value-based pricing embraces customer's
abilities to buy a product by considering the unparalleled experience upon buying a particular
service or a product. Many luxury automakers find customer-value based pricing strategy an
effective method of approach. A value-based strategy will enable manufacturing companies to
extend the life-cycle of existing products and will help to establish a great bond with value-added
suppliers.
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Pricing analytics
Manufacturers and service providers predict the future well enough to carry out a price
optimization system. They evaluate the past performance with a specific set of market conditions
and suggest the state of conditions for the probability of profit for your product or service in the
market. This will help the automotive industry to gain an insight into pricing strategy. Pricing
analytics include the process of finding the underperformers of a particular industry. It's highly
crucial to analyze why certain product lines become your cause of down economy. We develop
reports exclusively after researching the probabilities and will let you understand the customer
value definition with facts and figures.
Customer satisfaction
When a pricing system includes detailed pricing analytics, it will definitely boost the customers'
satisfaction. The system of achieving maximum profit with minimum wasted effort shall only be
obtained upon consulting the business consultants. ACG shall help you find not only the best
pricing strategy for your company but also identify the substitute product or service that might
better fit in a customers' budget. This will help your sales team create a budget based service or
product that shall come with a package deal to the customers which in turn allows you to
enhance customer's ability to purchase.
Almost everything in business aims for justification for the value of a specific price. Customers
do not buy a product or service by just seeing the price tag; they meticulously research before
buying it. With much of comparisons, they find the right choice that will fit in their budget and
lifestyle. Our business consulting services shall help you understand how customers understand
the value of a service or product. We consider a lot of factors, impacts on buying decisions with
that of other parameters before drawing the conclusion.
PROSPECTS AND CHALLEGES OF THE AUTOMOBILE INDUSTRY
Challenges in the Industry Of course, like companies in all sectors of manufacturing, automobile
manufacturers face unique challenges that they must address in order to create long-lasting
success. Here are five in particular that hold special significance for automobile manufacturers.
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1. Overcapacity.
Like all industries, automobile manufacturing experiences ups and downs. Overcapacity is the
problem that occurs when a manufacturer has already invested the resources (such as payroll and
materials) into building a certain quantity, only to discover later that they do not need to produce
as much as they had planned for. The result is an over-expenditure that can damage cash flow
and result in waste. The best way to avoid overcapacity is to invest in increased production floor
responsiveness and better master production scheduling.
2. Sustainability.
Consumers are increasingly concerned about sustainability. Manufacturers, therefore, must strive
to create more eco-friendly motorcycle and to be more efficient in production.
3. Globalization.
Increased global competition means lower market prices for many vehicles: once again, most
solutions call for increased efficiency in order to offset a lower margin of profit.
4. Attracting talent.
As the automobile industry continues changing, manufacturers will need to continue attracting
the best and the brightest talent in order to adapt to the times.
KEY DRIVERS OF AUTOMOBILE INDUSTRY
Economic Conditions:
The first key driver is economic conditions. When economic conditions are favourable, people
are more likely to purchase new vehicles giving momentum to the industry. Slowdown in
economic output leads to reduced consumer and business confidence and levels of vehicle
consumption goes down.
Automotive manufacturers need to plan capacity to achieve economies of scale. Companies plan
their capacities based on their sales predictions which are totally dependent on economic cycles.
The capacity issue has a strong influence on industry economics as vehicle prices are calculated
on forecast capacities and reduced capacity means higher unit costs. Vehicle makers, therefore,
get heavily impacted due to economic conditions.
Consumer Demand and Interests:
The second key driver is consumer interest, their preferences and demand. There is a growing
demand for more choice. Volume production may become similar to that for motorcycle, with a
13
greater number of vehicles being made to order on the basis of a multi-option choice. The market
for niche vehicles is growing, as consumers demand more variation of body shape and styling.
This has led to a variety of body shapes being constructed on standard platforms. There is an
increased awareness of occupant and pedestrian safety, and consumers also look for greater fuel
economy, exemplified by the growing rise of fossil fuel prices. Consumer are becoming more
aware of specifications and looking for inclusion of more on-board electronics and
telecommunications systems. Automobile safety is tremendously important to consumers in all
markets and consumers are willing to pay more for vehicles with safety features.
Globalization:
The third key driver is globalization and global industry influences. Today, the modern global
automotive industry operates in a global competitive marketplace. Globalization of the
automotive industry has been greatly accelerated during the last half of the 1990's due to the
construction of important overseas facilities and establishment of mergers between giant
multinational automakers. The world's largest automobile manufacturers invest into production
facilities in emerging markets in order to reduce production costs. Automakers, have merged
with, and in some cases established commercial strategic partnerships with other automobile
manufacturers, enabling them to expand in overseas markets. Increasing global competition
amongst the global manufacturers and positioning within foreign markets has divided the world's
automakers into three tiers, the first tier being GM, Ford, Toyota, Honda and Volkswagen, and
the two remaining tier manufacturers attempting to consolidate or merge with other lower tier
automakers to compete with the first tier companies.
Technological Innovations:
The fourth key driver influencing automotive industry significantly is Technology. Automotive
companies seek to take advantage of sophisticated technology to address the competitive
pressure and to meet increased customer expectations on quality and cost. Technological
advances help them add value to their vehicles and offset the squeeze on costs and profit
margins. Technology also helps them meeting the demands of environmental legislation. It is
through technology that manufacturers are able to address consumer demands for increased
safety and sophistication.
Other innovations that consumers are interested in include features that improve navigation, like
GPS, and features that enhance entertainment, including satellite radio and in-scooter access to
digital music. In terms of the vehicle, the innovations that are likely to be in demand are more
electronics and telematics, move to a 42-volt electrical system, safety improvements, electrically
controlled steering, braking, ABS and suspension. There might be continued development of
electric, hybrid and fuel cell drives, especially for city motor cycle. Features likely to be
introduced could be sophisticated route guidance, inter model route planning, lane guidance and
proximity radars for speed control and warning systems. The consumer in this sector always
14
demands innovation and technology-driven innovations such as fuel-efficient, safer, more
comfortable low-emission vehicles will shape the future of the industry.
Government & Regulations:
The fifth key driver of the automotive industry is government. Legislation is a major driver of
the industry; emissions and recycling legislation have a strong impact both on vehicle
technologies and construction. In many countries, governments have imposed strict
environmental regulations dealing with fuel economy and emissions control on auto
manufacturers. These environmental legislations vary in different countries and define standards
that are compulsory for all vehicles sold in those countries. This has huge impact on global auto
manufacturers as they must keep updating the products, they sell in different parts of the world to
comply with these regulations. This can add significantly to manufacturing costs.
15
CHAPTER 3
REVIEW OF LITERATURE
16
Brief Theoretical Construct Related To The Problem
Financial statement analysis is largely a study of relationships among the various financial
factors in a business, as disclosed by a single set of statements, and a study of trends of these
factors, as shown in a series of statements. Financial statements have information about assets,
liabilities, equity, revenues, expenses and profit or loss of an enterprise is an absolute amount.
They are not readily understandable to the external users of financial statements. They are not
much use and meaning when analyzed in isolation. They are analyzed with the financial
statements of the same enterprise for earlier years or with that of another firm enterprise of
similar nature and size operating in a similar business environment. They may be compared with
the industry standards.
TYPES OF FINANCIAL ANALYSIS
a.) On the basis of material used:
1. External analysis:
External analysis is conducted by those who do not have access to the detailed records of an
enterprise and therefore have to depend on published accounts, i.e., statement of profit and loss,
balance sheet, directors, and auditor’s reports. Such type of analysis is made by investors, credit
agencies, government agencies and research scholars.
2. Internal analysis:
Internal analysis is conducted by the management to know the financial position and operational
efficiency of the organization. The important feature of such analysis is that the management has
access to all information of the enterprise and, therefore, the analysis is more detailed, extensive
and accurate.
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b) On the basis of Modus of Operandi:
1. Horizontal (or dynamic) analysis
This analysis is made to review and analyze financial statements for a number of years and is,
therefore, based on financial data taken for those years. It is a time series analysis. It shows
comparison of financial data for several years against a chosen base year.
2. Vertical analysis (or Static) analysis
This analysis is made to review and analyze the financial statements of one year only. Ratio
analysis of the financial statement relating to a particular accounting year is an example of this
type of analysis. Such an analysis is useful in comparing the performance of several companies
of the same type or divisions or departments in one enterprise.
c.) Intra-firm analysis and Inter-firm analysis
1. Intra-firm analysis: A comparison of financial variables of an enterprise over a period of

time is known as Intra-firm comparison. It is also called time series analysis or trend analysis. It
analyses the performance of a business over a number of years and shows trend of financial
factors.
2. Inter – firm analysis: A comparison of two or more enterprises or firms is known as Inter-
firm analysis. It analyses and compares financial variables of two or more enterprises or firms to
determine their competitive position. When single set of statements of two firms is compared, it
is known as Cross – sectional Analysis.
Tools for analysis of financial statements:
Financial statements when analyzed in isolation are not of much meaning and use. They are thus
analyzed by comparing with financial statements of previous years or with that of other
enterprises of similar nature and size operating in similar business environment or with the
industry standards. The tools used for carrying out analysis are:
1. Comparative Statements
2. Common – size Statements
18
3. Ratio Analysis
4. Cash Flow Statement
5. Trend Analysis
6. Fund flow statement
COMPARATIVE STATEMENTS
Comparative statements or comparative Financial Statements means a study of components or

elements or items of financial statements (Balance sheet and Statement of Profit and Loss) for
two years or with that of other enterprises. As a first step, each component or element or item of
financial statements of two or more financial years is placed alongside each other. Thereafter,
difference between the two amounts is determined. And lastly, the percentage change in the
amount is ascertained. The statement so prepared is known as Comparative statement.
COMPARATIVE BALANCE SHEET
“Comparative Balance Sheet analysis is the study of the trend of the same items, group of items
and computed items in two or more balance sheets of the same business enterprise on different
dates “. Comparative balance sheet of an enterprise as on two or more dates are used for
comparing assets, liabilities and capital and ascertaining increase and decrease in those items.
Such analysis often yields considerable information which is of value in forming the opinion
regarding the process of an enterprise.
COMPARATIVE STATEMENT OF PROFIT AND LOSS OR INCOME STATEMENT:
Statement of Profit and Loss or Income Statement shows net profit earned or net loss incurred for
the year. Comparative Income Statement shows the operating results for a number of accounting
periods so that changes in data in terms of absolute amount and percentage from one period to
another may be known.
RATIO ANALYSIS:
Ratio analysis is a technique of Financial Statements Analysis and is most widely used tool to
interpret quantitative relationship between two variables of the financial statements. ‘Ratio’ is an
19
arithmetical expression of relationship between two related or inter-dependent items. Ratios,
when calculated on the basis of accounting information, are called Accounting Ratios.
Accounting ratio is, thus, an arithmetical relationship between two accounting variables. “The
term accounting ratio is used to describe significant relationships which exist between figures
shown in a balance sheet, in a Statement of Profit and Loss, in a budgetary control system or in
any part of the accounting organization.” Accounting ratios can be expressed in any of the
following forms:
1. Pure: It is expressed as a quotient. For example, Current Ratio which expresses the
relationship between current assets and current liabilities
2. Percentage: It is expressed in percentage. For example, net Profit Ratio which relates net
profit to net sales
3. Times: It is expressed in number of times a particular figure is when compared to another
figure. For example, Creditors’ or Trade Payables Turnover Ratio, which studies
relationship between Net Credit Purchases and average Payables
4. Fraction: It is expressed in fraction. For example, ratio of fixed assets to share capital.
CLASSIFICATION OF RATIOS:
Ratios as a tool of analysis may be classified into following four categories:
1. Liquidity ratios: These ratios show the ability of the enterprise to meet its short- term
financial obligations. The important Liquidity Ratios are:
(i) Current ratio

(ii) Quick ratio
2. Solvency ratios: These ratios show the ability of the enterprise to meet its long– term financial
position of the business. Solvency means firm’s ability to meet its long – term liabilities. The
important liquidity ratios are:
(i) Debt to equity ratio

(ii) Total assets to Debt ratio
(iii) Proprietary ratio
(iv) Interest coverage ratio
20
3. Activity Ratios or Turnover Ratios: These ratios show how efficiently a company is using
its assets to generate sales. The important Activity Ratios are:
(i) Stock turnover Ratio

(ii)Debtors’ turnover Ratio
(iii)Creditors’ turnover Ratio
(iv)Working Capital Turnover
4. Profitability Ratios: The profitability of affirm can be measured by its profitability ratios. The
important Profitability Ratios are:
(i) Gross profit ratio

(ii)Operating ratio
(iii)Operating profit ratio
(iv) Net profit ratio
(v)Return on investment
1. Liquidity Ratio
(i) Current Ratio
Current ratio is a relationship of current assets to current liabilities and is computed to assess the
short-term financial position of the enterprise. It means current ratio is an indicator of the
enterprise ability to meet its short-term obligations. It is an accepted norm that current assets
should be two times the current liabilities. If the current ratio is 2:1 only, then realization from
current assets is adequate to pay current liabilities in time and enable enterprise to meet other
day-to-day expenses.
(ii) Quick Ratio/ Liquid Ratio
Liquidity ratio is a relationship of liquid assets with current liabilities and is computed to assess
the short-term liquidity of the enterprise. Liquid assets put against the current liabilities give the
liquid ratio. Quick ratio of 1:1 is an accepted standard, since for every rupee of current liabilities;
there is a rupee of quick assets.
21
(iii) Absolute liquid ratio
This ratio is obtained by dividing cash and marketable securities by current liabilities. It is also
known as cash position ratio. A ratio of 0.75:1 is recommended to ensure liquidity. This test is
vigorous measures of a firm’s liquidity position. This ratio gains much significance only when it
is used in function with the current and liquid ratios. A standard 1.2:2absolute liquidity is
considered as standard norm. However, this ratio is not much in use.
2. Solvency Ratio
(i) Debt – Equity Ratio
Debt – Equity Ratio is computed to assess long – term financial soundness of the enterprise. The
ratio expresses the relationship between external equities and internal equities (i.e., Shareholders’
funds) of the enterprise. Debt – Equity ratio indicates the relative proportion of shareholders’
fund and debt, i.e., capital contributed by long term lenders and shareholders, used to finance
company assets. Ideal debt- equity ratio depends on the nature of the business. Normally, a Debt-
Equity Ratio of 2:1 is considered appropriate ratio.
(ii) Total assets to debt ratio
Total Assets to Debt Ratio establishes relationship between total assets and total long-term debts.
The objective of computing the ratio is to establish relationship between total assets and long-
term debts of the business. It measures the safety margin available to the providers of long-term
debts. In other words, it measures the safety margin available to the providers of long-term debts.
(iii) Proprietary ratio
The proprietary ratio establishes relationship between proprietors’ funds and total assets.
Proprietors’ fund is a sum of share capital, reserves and surplus, money received against share
warrants and share application money pending allotment but deducting there from Deferred Tax
assets(net) and fictitious assets such as Unamortized Loss on issue of debentures which may be
shown as Other Non – Current asset and/or Other current assets of the business. Total assets
22
include all the assets less fictitious assets. The objective of computing this ratio is to measure the
proportion of total assets financed by the proprietor’s funds. The ratio is important for creditors.
(iv) Interest Coverage Ratio
The ratio establishes relationship between net profit before interest and tax and interest payable
on long term debts. Interest is a charge on profit therefore; net profit before interest and tax is
taken to calculate the ratio. The ratio is very meaningful to debenture holders and lenders of
long-term funds. The objective of calculating the ratio is to ascertain the amount of profit
available to cover the interest.
3. Activity Ratio
(i) Stock or inventory Turnover ratio
Inventory Turnover Ratio establishes relationship between the cost of goods sold, i.e., Cost of
Revenue from Operations and the average amount of inventory carried during that period.
Inventory ratio is an activity as well as efficiency ratio and it measures how many times per
period a business sells and replaces its inventory.
(ii) Debtors’ turnover ratio or Trade Receivables turnover ratio
Debtors’ Turnover ratio establishes the relationship between net credit sales and average trade
receivables, i.e., debtors and bill receivable of the year. This ratio indicates the number of times
the receivables are turned over in a year in relation to sales. It shows how quickly receivables are
converted into cash and thus, shows the efficiency in collection of amounts due from debtors.
(iii) Creditors’ turnover ratio
Creditors’ or Trade Payables Turnover Ratio shows the relationship between net credit purchases
and total payables or average payables, whereas average payment period or creditors velocity
signifies the credit period enjoyed by the enterprise in paying creditors. The objective of
calculating Creditors’ Turnover Ratio is to establish the number of times the creditors are turned
over in relation to purchases.
23
(iv) Working Capital Turnover Ratio:
Working Capital Turnover Ratio establishes the relationship between working capital and
revenue from operations or sales. It shows the number of times a unit of rupee invested in
working capital produces sales. The ratio indicates whether the working capital has been
effectively utilized or not. In fact, in the short- run, it is the current assets and current liabilities
which play a major role.
4. Profitability ratio
(i) Gross Profit Ratio
Gross profit ratio establishes the relationship of gross profit and Net sales, i.e., Net Revenue
from Operations of an enterprise. The ratio is calculated and presented in percentage.
(ii) Operating Ratio
Operating Ratio is computed to establish relationship between Operating Costs and Revenue
from operations, i.e., Sales. The ratio shows the proportion of cost of goods sold and operating
expenses. Operating Ratio is the test of operational efficiency of the business. It shows the
percentage of Revenue from Operations, i.e., sales that is absorbed by the cost of sales and
operating Expenses.
(iii) Operating Profit Ratio
Operating ratio measures the relationship between Operating Profit and Net sales. It is computed
by dividing the operating profit by the net sales and is expressed as a percentage. The objective
of computing this ratio is to determine the operational efficiency of the management.
(iv) Net Profit Ratio
Net Profit Ratio establishes the relationship between Net Profit and Net Sales. It shows the
percentage of Net Profit earned on Revenue from Operations. It is an indicator of overall
efficiency of the business
24
(v) Return on Investment (ROI) or Return on Capital Employed Ratio
Return on Capital Employed Ratio shows the relationship of profit (profit means profit before
interest and tax) with Capital Employed. The net result of operation of a business is either profit
or loss. The sources, i.e., funds used by the business to earn this (profit or loss) are proprietors’
(shareholders’) funds and loans. The objective is to assess overall performance of the enterprise.
It measures how efficiently the sources entrusted to the business are used.
Total Assets Turnover Ratio
Total assets turnover Ratio shows the relationship between Total Assets, i.e., fixed assets and
current assets and revenue from operations. Fictitious assets, if any, are excluded. The objective
of computing the ratio is to determine how efficiently assets have been utilized and in turn it
shows the promise of profitability and efficiency of management.
Return on Shareholders’ Funds
This ratio measures the relationship between net profit after interest and tax, and shareholders,
funds. The objective of computing this ratio is to find out how efficiently the funds supplied by
the shareholders have been used. This ratio indicates the firm’s ability to generate profit per
rupee of shareholders’ funds.
Return on Total Assets.
This ratio shows the relationship between the net profit and total assets. The ratio is computed by
dividing net profit after tax by total assets. It is expressed as percentage. The ratio is computed to
ascertain whether the investments in assets have generated adequate net profit. It also reflects on
the efficiency of the management.
Earnings per Share (EPS)
It is the earnings of a company attributable to the Equity shareholders divided by the number of
Equity Shares. In other words, this ratio measures the earnings available to equity shareholders
on per basis. This ratio helps in evaluating the prevailing market price of share in the light of
profit earning capacity. The more the earning per share, better is the performance and prospects
of the company
25
An Overview of Earlier Studies
This chapter deals with the overall review of the literature available on the particular topic.
Literature is the most important part of any research. In this topic, the review is taken from
research articles and books regarding the research topic. This chapter contains Review of
Research Articles, Review of Books, thesis and review of other related published or unpublished
literature available on the concerned topic
Bollen (1999) conducted a study on Ratio Variables on which he found three different uses of
ratio variables in aggregate data analysis: (1) as measures of theoretical concepts, (2) as a means
to control an extraneous factor, and (3) as a correction for heteroscedasticity. In the use of ratios
as indices of concepts, a problem can arise if it is regressed on other indices or variables that
contain a common component. For example, the relationship between two per capita measures
may be confounded with the common population component in each variable. Regarding the
second use of ratios, only under exceptional conditions will ratio variables be a suitable means of
controlling an extraneous factor. Finally, the use of ratios to correct for heteroscedasticity is also
often misused. Only under special conditions will the common form forgers soon with ratio
variables correct for heteroscedasticity. Alternatives to ratios for each of these cases are
discussed and evaluated.
Feroz& et al. (2003) Ratio analysis is a commonly used analytical tool for verifying the
performance of a firm. While ratios are easy to compute, which in part explains their wide
appeal, their interpretation is problematic, especially when two or more ratios provide conflicting
signals. Indeed, ratio analysis is often criticized on the grounds of subjectivity that is the analyst
must pick and choose ratios in order to assess the overall performance of a firm. In this paper
they demonstrate that Data Envelopment Analysis (DEA) can augment the traditional ratio
analysis. DEA can provide a consistent and reliable measure of managerial or operational
efficiency of a firm. They test the null hypothesis that there is no relationship between DEA and
traditional accounting ratios as measures of performance of a firm. Their results reject the null
hypothesis indicating that DEA can provide information to analysts that is additional to that
provided by traditional ratio analysis. They also apply DEA to the oil and gas industry to
demonstrate.
26
Bansal and Gupta (1985) In their study entitled, “Financial Ratio Analysis and Statistics”
enlightened that the coefficient of variation in the study period had a wide gap varying between
7.1 per cent and 51.3 per cent for current ratio and ratio of fixed assets to sales. The correlation
of components of short-term liquidity ratio generally possesses low correlation as against long
term solvency ratio components but the components of both ratios independently possess quite
satisfactory correlation in cotton textile industry. The profitability ratio elements in the industry
also have quite high correlation in cotton industry as compared to synthetic industry
Bansal, L.K. and Gupta, R.K., “Financial Ratio Analysis and Statistics”, The Management
Accountant, Volume-20(12), December 1985, Pp. 673-676.
Praveen Kumar Jain (1993) conducted a study among seven paper companies in India to
“Analyze the basic components of Working Capital”. The study revealed that the current ratio in
public sector undertakings during the study period was found to be highly erratic while the same
in private sector undertakings registered continuous decrease. As far as the inventory was
concerned, the study revealed that it was highly unplanned in public sector undertaking units
when compared to private sector units. The study contributed much in terms of realizing the
importance of effective management of working capital.
Srinivasa Rao and Indrasena Reddy (1995) in their study entitled “Financial Performance in
Paper Industry- A Case Study” stated that the financial position of the company had been
improving from year to year. The company’s performance in relation to generating internal funds
in the form of reserves and surplus was excellent and also was doing well in mobilizing outside
funds. The liquidity position of the company was sound as it was revealed by current and liquid
ratios which were above the standard. The solvency ratios showed that the company had been
following the policy of low capital gearing from 1990-91 as these ratios had been decreasing
from this year. The performance of the company in relation to its profitability was not up to the
expected level. The company’s ability to utilize assets for generation of sales had not been
improved much during the study period as it was revealed by its turnover ratios.
Srinivasa Rao, G. and Indrasena Reddy, P., “Financial Performance in Paper Industry- A Case
Study”, The Management Accountant, May 1995, Pp. 327-336.
27
Gangadhar (1998) has made an attempt on “Financial Analysis of Companies in Criteria: A
Profitability and efficiency focus” one of the objectives of the study is to analyze the liquidity
position of the companies and to point out the factors responsible for such a position. It is
concluded that the liquidity position was quite alarming since these are facing chronic liquidity
problems. Their proportion current assets in relation to the current liabilities are very low. It is
suggested that, they may be improved by reducing excessive burden of current liabilities or
increasing the level of current assets depending upon the requirements.
Moses Joshuva Daniel (2013) in his study “A Study on Financial Status of TATA Motors Ltd”
stated the main objectives to analyzing the overall financial status of the TATA Motors Ltd by
using various financial tools. In order to analyze financial status in terms of Profitability,
Solvency, Activity and Financial stability various accounting ratios have been used. It is cleared
from the study that 37 the company‟s financial performance is satisfactory. The company has
stable growth and it shows a greater status in all the areas it works. The company has been
suggested to reduce the expenditure as it increases every year. Decrease in expenses will increase
the profitability.
Moses Joshuva Daniel, A, “A Study on Financial Status of Tata Motors Ltd”, Indian Journal of
Applied Research, Volume 3, Issue 4, April 2013 ISSN - 2249-555X, Pp.320-322
Kavitha and Palanivelu (2013) main objectives of their study is know about the financial health
of the steel industries and to analyze and compare the financial performances of NSE listed steel
industries based on ratio analysis and „Z‟Score (Altman/s model). They suggested that the
companies‟ try to increase production and sales get maximize profit to strengthen financial
position of the NSE listed companies. The management may utilize maximum production
capacity and reduce interest burden increase profit. The policy of borrowed financing in selected
steel group of companies under study was not proper. So the companies may use widely
borrowed funds and can try to reduce the fixed charges burden gradually by decreasing borrowed
funds and enhancing the owner„s fund. They concluded that the companies might enlarge their
equity share capital by issuing new equity shares. For regular supply of raw materials and the
final product infrastructure facilities are required further improvement.
28
Kavitha, K.S, and Palanivelu. P, “An Analysis on Financial Health of NSE Listed Steel
Industries”. International Journal of Scientific Research, Volume 2, Issue No.9, September 2013,
ISSN No 2277-8179, Pp. 46-48.
Keith A Houghton, David R Woodliff (1987) Financial Ratios: The Prediction of corporate
success and failure. This paper investigated about the financial ratios to predict the business
failure. This has done from both the Human Information Processing (HIP) and from the
prediction from environmental predictability.
G.E. Halkos (2004) Efficiency measurement of the Greek commercial banks with the use of
financial ratios: a data envelopment analysis approach. This paper studied about the application
of the non-parametric analytic technique in respect of the DEA (Data Envelopment Analysis) to
measure the performance of Greek banking sector.
Toshiyuki Sueyoshi (2005) Financial ratio analysis of the electric power industry. This approach
compares 147 nondefault firms with 24 default firms of US power/energy market in terms of the
financial performance and this is a type of non-parametric discriminant analysis which provides
the weights of linear discriminant function
James A.Largay et al (1980) Cash flows, Ratio analysis and the W.T. grant company
bankruptcy. The W.T Grant company problems such as bankruptcy, liquidation was not raised at
overnight. The traditional analysis which is the ratio analysis only cannot reveal the company
problems whereas cash flow analysis reveal most of the problems of the company
M Kumbirai, R Webb (2010) A financial ratio analysis of commercial bank performance in

South Africa. This paper investigated the South Africa’s performance of commercial banking
sector period for 2005-2009.this financial ratio is used to measure the liquidity, profitability and
credit quality performance of large five commercial banks of South Africa.
UNIQUENESS OF RESEARCH STUDY
 The study is entirely based on online data.

 Data collected from reliable sources.
 The tools were used for analysis are updated as well as have advanced techniques.
29
CHAPTER 4
METHODOLOGY OF THE STUDY
30
RESEARCH APPROACH AND DESIGN
Research methodology is a way of systematically solving the problem. Methodology is a science
of studying how research is done scientifically. In other words all these methods which the
researcher used during the course of studying his/her research are termed as methodology.
Analytical Research
The study is primarily based on the internal records and the annual records of the company.
Besides, information is gathered through discussions held with the officers of the company.
Research design
The research design used in this project is nature the procedure using, which researcher has to
use facts or information already available, and analyze these to make a critical evaluation of the
performance.
SOURCES OF ONLINE DATA
1. Estimated cash flows and P&L account for 12 years

2. Website
3. Past records and Articles
4. Annual reports
5. Books
DATA ANALYSIS TOOLS

The data collected where classified and analyzed with the help of percentages , averages,
accounting rates and comparative financial statement.
REPORT STRUCTURE
The report is presented in five chapters as given below;
Chapter 1 - Introduction.
Chapter 2 - Industry Profile.
Chapter 3 - Review of Literature.
Chapter 4 - Methodology of the Study.
31
Chapter 5 - Data Analysis , Interpretation , Inference.
Chapter 6 - Findings of the Study
Chapter 7 – Conclusions
LIMITATIONS OF THE STUDY
 The entire study is done on the data provided by the company that is based on various
assumptions.
 An in – depth analysis of the functional activities of various department was not possible.
 Study is restricted to single project of HERO MOTORCORP
 Since data used for analysis are financial reports and published information, the quality of
the study largely depends on quality of the data.
 Change in price level affects the comparability of the ratios. But price level changes are
not considered in accounting variables from which ratios are computed.
 Ratios are calculated from the financial statements, so the reliability of the ratio and its
analysis is dependent upon the correctness of the financial statements.
 Since information utilized for examination are budgetary reports and distributed data, the
nature of the investigation generally relies upon the nature of the information.
 Change in value level influences the similarity of the proportions. Yet, value level
changes are not considered in bookkeeping factors from which proportions are registered.
 Ratios are determined from the fiscal reports, so the dependability of the proportion and
its investigation is reliant upon the rightness of the budget summaries.
32
CHAPTER 5
DATA ANALYSIS, INTERPRETATION & INFERENCE
33
1) LIQUIDITY RATIOS
a) Current ratio
The ratio is calculated as: Current assets
Current Liabilities
Year Current asset Current liabilities Current ratio
2020 8,649.20 4,279.06 2.02
2019 8,413.21 4,409.18 1.91
2018 9,002.23 4,481.36 2.01
2017 7,570.51 4,176.69 1.81
2016 6,303.33 3,571.52 1.76
34
The company is more capable of paying its obligations because it has a larger proportion
of short-term asset value relative to the value of its short-term liabilities and has consistently
maintained this liquidity over the five year period. However, the company should also make sure
that this ratio doesn’t increase further as it will indicate inefficient way of utilizing the current
assets.
b.) Liquid Ratio:
It is calculated as: Liquid Assets
Current liabilities
Year Liquid asset Current liabilities Current ratio
2020 7938.76 4,279.06 1.86
2019 7472.42 4,409.18 1.69
2018 8218.34 4,481.36 1.83
2017 6999.78 4,176.69 1.68
2016 5694.72 3,571.52 1.59
35
The company has consistently maintained high cash and liquid assets over the short-term
liabilities and over the 5 years the short term assets held by the company has always been more
than 1.5 times the current liabilities indicating the cash richness and high cash reserves of the
company as well as the very high liquidity.
c.) Absolute Liquid Ratio:

It is calculated as: Cash + Marketable Securities
Current liabilities
Cash and Marketable Current Liabilities

Year Liquid Ratio
Securities (Cr.) (Cr.)
1272.45 0.28
4,279.06
2020
1247.09 0.26
4,409.18
2019
992.96 0.20
4,481.36
2018
864.27 0.19
4,176.69
2017
834.68 0.19
3,571.52
2016
36
Similar to the liquid ratio, absolute liquid ratio is also maintained consistently over the 5 years
and has increases during the latest years indicating the high reserves of cash and cash equivalent
assets by the company. The cash and cash equivalent assets alone have covers over 25% of the
current liabilities of the company and which also indicates high liquidity of the company.
II.) SOLVENCY RATIO
a.) Debt- Equity Ratio
It is calculated as: Debt (short term debt + long term debt + other fixed payments)
Equity (Shareholder’s fund)
Year Debt Equity Debt equity ratio
14,406.29
2020 4,371.01 0.30
13,120.41
2019 4,474.31 0.34
11,971.46
2018 4,570.70 0.38
10,315.51
2017 4,342.02 0.42
8,834.11
2016 3,687.70 0.42
37
The company doesn’t have much exposure towards both long and short-term debt and has shown
a declining trend in the ratio over the 5 years indicating that the company has linearly decreased
the amount of debts held. The current debts of the company are very less as compared to equity
of the company and this is also in line with the liquidity ratios as the company already has very
strong cash equivalent assets.
b.) Total assets Ratio:
It is calculated as: Total Assets
Long-Term Debts
Year Total asset Total debt Total asset ratio
19,674.07
2020 4,371.01 4.50
18,504.36
2019 4,474.31 4.14
17,396.73
2018 4,570.70 3.81
15,312.00
2017 4,342.02 3.53
12,895.81
2016 3,687.70 3.50
38
There is a linear increase in the total asset ratio of the company which is not only due to the
increase in the assets held by the company but also is attributable to the gradual decrease in
the debts of the company over the 5 years. The total asset ratio shows a linear increase and
the debt equity ratio has shown a linear decrease indicating the reduction in the debts held
and the corresponding buildup of assets over the years
c.) Proprietary Ratio:
It is calculated as: shareholder’s fund or Proprietary funds
Total Assets
Year Shareholders fund Total asset Proprietary ratio
14,406.29 19,674.07
2020 0.73
13,120.41 18,504.36
2019 0.71
11,971.46 17,396.73
2018 0.69
10,315.51 15,312.00
2017 0.67
8,834.11 12,895.81
2016 0.69
39
The proprietary ratio has always been maintained at high levels indicating that the
company has a sufficient amount of equity to support the functions of the business,
and probably has room in its financial structure to take on additional debt, if necessary
as it indicates a strong financial position of the company and greater security for creditors.
d.) Interest Coverage Ratio:
It is calculated as: Earnings before Interest and Tax
Interest
40
Earnings before Interest coverage
Year Interest
interest and tax ratio
46.64
2020 3,852.44 82.60
37.18
2019 5,006.36 134.65
30.8
2018 5,211.64 169.21
27.28
2017 4,541.11 166.46
14.61
2016 4,338.06 296.92
As seen above in the other ratios the Debts both long- and short-term debts held by the
company is significantly less compared to the assets and equity of the company. Move over
the current Debt of the company is significantly contributed by the trade’s payables and the
41
interest payable and financial cost of the company is very less. But the interest coverage
ratio has a declining trend over the years which indicates that the interest expenses has
increased more proportionally than earnings of the company. Since the financial cost of the
company is still significantly less compared to the assets and equity this decline is an
indication of significant increase in financial cost but a higher growth rate as compared to
the rate at which the earnings has increased.
III. ACTIVITY RATIOS/ TURNOVER RATIOS
a.) Stock Turnover Ratio:
It is calculated as: Cost of goods sold
Average Stock
Stock turnover
Year Cost of goods sold Average inventory
ratio
2020 20,004.29 1265.93 15.80
2019 23,503.46 1106.11 21.25
2018 21,995.94 835.63 26.32
2017 19,019.34 735.28 25.87
2016 19,357.96 811.69 23.85
42
There is a significant reduction in the inventory turnover ratio over the 5-year period
indicating the decline in sales and possibly excess inventory or over stocking by the
company. This also could lead to increase in the storage cost and other related costs of the
company due to overstocking.
b.) Debt Turnover Ratio:
It is calculated as: Net Credit Sales
Average Trade Receivables
Average trade
Year Net credit sales Debt turnover ratio
receivables
2020 29,253.97 2128.51 13.74
2019 33,970.82 2086.04 16.28
2018 32,458.37 1489.36 21.79
2017 28,610.43 1416.91 20.19
2016 30,715.33 1326.95 23.15
43
The Debtors turnover ratio is on the lower side and has shown a declining trend over the
years indicating the inefficiency in collecting the receivables by the company. The
declining trend and the low ratio is an indicator ofpoor collection process, bad credit
policies, or customers that are not financially viable or creditworthy. This needs to be
monitored and improved so as the credit collection process becomes more efficient and this
can improve the liquidity of the company as well as reduce chances of bad debt. The
company should reassess its credit policies to ensure the timely collection of its receivable
and also better utilization of such cash inflows should be looked into.
b.) Creditors’ Turnover Ratio:
It is calculated as: Net Credit Purchases
Average Trade Payables
44
Average trade Creditors turnover
Year Net credit purchase
payable ratio
2020 20,037.08 3282.93 6.10
2019 25,715.67 3406.75 7.55
2018 22,250.04 3320.73 6.70
2017 18,965.93 2970.77 6.38
2016 19,258.56 2765.13 6.96
The company has maintained a low creditors turnover ratio indicating that the slow
payment to suppliers for purchases on credit. This may be due to favorable credit terms
provided by the suppliers and not due to any financial or liquidity issues as there is high
current asset holding and high liquidity. This low ratio is favorable to the company in terms
45
of holding more cash, proving more liquidity and also benefits in terms of opportunity cost
as cash outflows flows are delayed.
d.) Working Capital Turnover Ratio:
It is calculated as: Cost of Goods sold (Cost of Revenue from Operations)
Net Working Capital
Creditors turnover
Year Cost of goods sold Net working capital
ratio
2020 20,004.29 4,370.14 4.58
2019 23,503.46 4,004.03 5.87
2018 21,995.94 4,520.87 4.87
2017 19,019.34 3,393.82 5.60
2016 19,357.96 2,731.81 7.09
46
Here the working capital turnover ratio has always been on the higher side indicating that
the management is efficiently utilizing the company’s short-term assets and liabilities to
generate sales. There is a high return generated through sale in terms of cash outflows of
the company in the form of current liabilities.
IV. PROFITABILITY RATIOS:
a.) Gross Profit Ratio:
It is calculated as: Gross Profit X 100
Net Sales
Year gross profit net sales gross profit ratio
2020 8,808.29 29,253.97 0.30
2019 9,926.49 33,970.82 0.29
2018 9,809.84 32,458.37 0.30
2017 9,262.06 28,610.43 0.32
2016 8,860.94 30,715.33 0.29
The gross profit ratio is showing almost constant ratio for the past 5 years. The ratio means
that the company may reduce the selling price by 30 % without incurring any loss. There
has been a slight improvement in the gross profit ratios which indicates a constant
improvement.
47
b.) Operating Ratio:
It is calculated as: Cost of Goods Sold + Operating Expenses X 100
Net Sales
COGS+
Year Net sales Gross profit ratio
Operating expense
2020 34,893.74 29,253.97 1.19
2019 39,540.50 33,970.82 1.16
2018 37,548.94 32,458.37 1.16
2017 33,826.05 28,610.43 1.18
2016 33,378.22 30,715.33 1.09
From the above operating ratios we can conclude that the company is having a desirable
operating ratio.
48
c.) Operating Profit Ratio:
It is calculated as: Operating Profit X 100
Sales (Revenue from Operation)
Operating profit
Year Operating profit Net sales
ratio
2020 4,060.92 29,253.97 0.14
2019 5,018.43 33,970.82 0.15
2018 5,325.05 32,458.37 0.16
2017 4,575.97 28,610.43 0.16
2016 6,655.91 30,715.33 0.22
49
The company is having higher operating profit ratio which enables the organization to
recoup non-operating expenses out of operating profits and provide reasonable return
d.) Net Profit Ratio:
It is calculated as: Net Profit X 100
Sales (revenue from operations)
Year Net profit Net sales Net profit ratio
3,638.11 29,253.97
2020 0.12
3,444.09 33,970.82
2019 0.10
3,720.40 32,458.37
2018 0.11
3,584.27 28,610.43
2017 0.13
3,141.98 30,715.33
2016 0.10
50
The company is having a good net profit ratio. It means that its current business practices
allow them to sell their products at a higher price than the cost of manufacture and
distribution.
Return on total assets:
It is calculated as: Net Profit after Tax X 100
Total Assets
Year Total assets Net profit after tax ratio
2020 19,674.07 3,624.78 5.43
2019 18,504.36 3,405.59 5.43
2018 17,396.73 3,672.51 4.74
2017 15,312.00 3,229.29 4.74
2016 12,895.81 3,077.96 4.19
51
The company is having a higher return on total asset ratio. Higher ratio is more favorable to
investors because it shows the company is more effectively managing its assets to produce
greater amount of net income . It shows a upward profit trend.
52
COMPARITIVE BALANCE SHEET AS AT 2016 AND 2017
Absolute Percentage
Particulars 2016 2017 change change
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS
Equity Share Capital 39.94 39.94 0 0%
Total Share Capital 39.94 39.94 0 0%
Reserves and Surplus 8,794.17 10,275.57 1481.4 17%
Total Reserves and Surplus 8,794.17 10,275.57 1481.4 17%
Employees Stock Options 0 0 0
Total Shareholders Funds 8,834.11 10,315.51 1481.4 17%
Minority Interest 54.63 67.38 12.75 23%
NON-CURRENT LIABILITIES
Long Term Borrowings 145.98 207.9 61.92 42%
Deferred Tax Liabilities [Net] 221.77 468.9 247.13 111%
Other Long Term Liabilities 0 0 0 0%
Long Term Provisions 67.8 75.62 7.82 12%
Total Non-Current Liabilities 435.55 752.42 316.87 73%
CURRENT LIABILITIES
Short Term Borrowings 84.06 40.08 -43.98 -52%
Trade Payables 2,675.34 3,266.20 590.86 22%
Other Current Liabilities 782.32 827.84 45.52 6%
Short Term Provisions 29.8 42.57 12.77 43%
Total Current Liabilities 3,571.52 4,176.69 605.17 17%
Total Capital And Liabilities 12,895.81 15,312.00 2416.19 19%
ASSETS
NON-CURRENT ASSETS
Tangible Assets 3,654.64 4,495.03 840.39 23%
Intangible Assets 129.07 103.82 -25.25 -20%
Capital Work-In-Progress 325.23 386.5 61.27 19%
Intangible Assets Under Development 328.14 194.46 -133.68 -41%
Fixed Assets 4,437.08 5,179.81 742.73 17%
Non-Current Investments 1,029.51 1,522.31 492.8 48%
Long Term Loans And Advances 26.7 48.52 21.82 82%
Other Non-Current Assets 1,099.19 990.85 -108.34 -10%
Total Non-Current Assets 6,592.48 7,741.49 1149.01 17%
CURRENT ASSETS
Current Investments 3,471.57 4,544.06 1072.49 31%
Inventories 761.99 708.58 -53.41 -7%
Trade Receivables 1,282.07 1,551.75 269.68 21%
Cash And Cash Equivalents 179.09 195.39 16.3 9%
Short Term Loans And Advances 23.21 24.93 1.72 7%
OtherCurrentAssets 585.4 545.8 -39.6 -7%
Total Current Assets 6,303.33 7,570.51 1267.18 20%
53
Total Assets 12,895.81 15,312.00 2416.19 19%
COMPARATIVE INCOME STATEMENTENT AS AT 2016 AND 2017
ABSOLUTE PERCENTA
PARTICULARS 2016 2017 CHANGE GE CHANGE
Revenue From
30,477.11 30,654.63
Operations [Gross] 177.52 1%
Less: Excise/Sevice
2,258.21 2,373.23
Tax/Other Levies 115.02 5%
Revenue From
28,218.90 28,281.40
Operations [Net] 62.50 0%
Other Operating
238.22 329.03
Revenues 90.81 38%
Total Operating
28,457.12 28,610.43
Revenues 153.31 1%
Other Income 412.83 521.95 109.12 26%
Total Revenue 28,869.95 29,132.38 262.43 1%
EXPENSES
Cost Of Materials
19,357.96 19,019.34
Consumed -338.62 -2%
Changes In
Inventories Of
-49.86 96.74
FG,WIP And Stock-In
Trade 146.60 -294%
Employee Benefit
1,339.46 1,432.49
Expenses 93.03 7%
Finance Costs 14.61 27.28 12.67 87%
Depreciation And
Amortisation 443.25 502.25
Expenses 59.00 13%
Other Expenses 3,411.86 3,485.89 74.03 2%
Total Expenses 24,517.28 24,563.99 46.71 0%
Profit/Loss Before
Exceptional,
4,352.67 4,568.39
ExtraOrdinary Items
And Tax 215.72 5%
Exceptional Items 0 0 0.00 0%
Profit/Loss Before Tax 4,352.67 4,568.39

215.72 5%
Tax Expenses-
Continued
Operations
Current Tax 960.91 1,082.24 121.33 13%
Deferred Tax 313.8 256.86 -56.94 -18%
Total Tax Expenses 1,274.71 1,339.10 64.39 5%
Profit/Loss After Tax

And Before 3,077.96 3,229.29
ExtraOrdinary Items
151.33 5%
Profit/Loss From
Continuing 3,077.96
543,229.29
Operations 151.33 5%
Profit/Loss For The
3,077.96 3,229.29
Period 151.33 5%
Absolute Percentage
SHAREHOLDER'S FUNDS
Employees Stock Options 0 0 0 0%
Long Term Borrowings 207.9 149.63 -58.27 -28%
CURRENT LIABILITIES
Short Term Borrowings 40.08 75.37 35.29 88%
Trade Payables 3,266.20 3,375.26 109.06 3%
Total Current Liabilities 4,176.69 4,481.36 304.67 7%
ASSETS
NON-CURRENT ASSETS
Tangible Assets 4,495.03 4,771.39 276.36 6%
Intangible Assets 103.82 189.57 85.75 83%
Capital Work-In-Progress 386.5 239.02 -147.48 -38%
Intangible Assets Under Development 194.46 116.46 -78 -40%
Fixed Assets 5,179.81 5,316.44 136.63 3%
Long Term Loans And Advances 48.52 45.85 -2.67 -6%
Other Non-Current Assets 990.85 954.09 -36.76 -4%
CURRENT ASSETS
Inventories 708.58 962.68 254.1 36%
Trade Receivables 1,551.75 1,426.97 -124.78 -8%
Short Term Loans And Advances 24.93 28.5 3.57 14%
OtherCurrentAssets 545.8 755.39 209.59 38%
55
Total Assets 15,312.00 17,396.73 2084.73 14%
CO MPARATIVE INCO ME STATE MENT AS AT 2017 AND 2018
ABSOLUTE PERCENTAGE
PARTICULARS 2017 2018 CHANGE CHANGE
Revenue From
30,654.63 32,448.35
Operations [Gross] 1,793.72 6%
Less: Excise/Sevice
2,373.23 642.57
Tax/Other Levies -1,730.66 -73%
Revenue From
28,281.40 31,805.78
Operations [Net] 3,524.38 12%
Other Operating
329.03 652.59
Revenues 323.56 98%
Total Operating
28,610.43 32,458.37
Revenues 3,847.94 13%
Other Income 521.95 523.17 1.22 0%
Total Revenue 29,132.38 32,981.54 3,849.16 13%
EXPENSES
Cost Of Materials
19,019.34 21,995.94
Consumed 2,976.60 16%
Changes In
Inventories Of
96.74 -110.12
FG,WIP And Stock-In
Trade -206.86 -214%
Employee Benefit
1,432.49 1,583.71
Expenses 151.22 11%
Finance Costs 27.28 30.8 3.52 13%
Depreciation And
Amortisation 502.25 574.98
Expenses 72.73 14%
Other Expenses 3,485.89 3,663.79 177.90 5%
Total Expenses 24,563.99 27,739.10 3,175.11 13%
Profit/Loss Before
Exceptional,
4,568.39 5,242.44
ExtraOrdinary Items
And Tax 674.05 15%
Profit/Loss Before
4,568.39 5,242.44
Tax 674.05 15%
Tax Expenses-
Continued
Operations
Current Tax 1,082.24 1,450.99 368.75 34%
Deferred Tax 256.86 118.94 -137.92 -54%
And Before 3,229.29 3,672.51
ExtraOrdinary Items 443.22 14%
Profit/Loss From
Continuing 3,229.29 3,672.51
Operations 443.22 14%
Profit/Loss For The 56
3,229.29 3,672.51
Period 443.22 14%
Absolute Percentage
SHAREHOLDER'S FUNDS
Equity Share Capital 39.94 39.95 0.01 0%
Total Share Capital 39.94 39.95 0.01 0%
Employees Stock Options 0 9.59 9.59 0%
CURRENT LIABILITIES
Short Term Borrowings 75.37 183.68 108.31 144%
Trade Payables 3,375.26 3,438.24 62.98 2%
Other Current Liabilities 970.44 727.55 -242.89 -25%
Short Term Provisions 60.29 59.71 -0.58 -1%
Total Current Liabilities 4,481.36 4,409.18 -72.18 -2%
ASSETS
NON-CURRENT ASSETS
Tangible Assets 4,771.39 4,792.50 21.11 0%
Intangible Assets 189.57 159.86 -29.71 -16%
Capital Work-In-Progress 239.02 384.85 145.83 61%
Intangible Assets Under Development 116.46 187.97 71.51 61%
Fixed Assets 5,316.44 5,525.18 208.74 4%
Other Non-Current Assets 954.09 1,565.90 611.81 64%
CURRENT ASSETS
Current Investments 5,591.12 3,173.88 -2417.24 -43%
Inventories 962.68 1,249.53 286.85 30%
Trade Receivables 1,426.97 2,745.11 1318.14 92%
Short Term Loans And Advances 28.5 25.08 -3.42 -12%
OtherCurrentAssets 755.39 915.71 160.32 21%
Total Current Assets 9,002.23 8,413.21 -589.02 -7%
57
Total Assets 17,396.73 18,504.36 1107.63 6%
COMPARATIVE INCOME STATEMENT AS AT 2018 AND 2019
ABSOLUTE PERCENTAGE
Revenue From
32,448.35 33,431.36 983.01 3%
Operations [Gross]
Less: Excise/Sevice
642.57 1.41 -641.16 -100%
Tax/Other Levies
Revenue From
31,805.78 33,429.95 1,624.17 5%
Operations [Net]
Other Operating
652.59 540.87 -111.72 -17%
Revenues
Total Operating
32,458.37 33,970.82 1,512.45 5%
Revenues
Other Income 523.17 686.73 163.56 31%
Total Revenue 32,981.54 34,657.55 1,676.01 5%
EXPENSES
Cost Of Materials
21,995.94 23,503.46 1,507.52 7%
Consumed
Changes In Inventories
Of FG,WIP And Stock-In -110.12 -59.04
Trade 51.08 -46%
Employee Benefit
1,583.71 1,778.03 194.32 12%
Expenses
Finance Costs 30.8 37.18 6.38 21%
Depreciation And
574.98 624.44
Amortisation Expenses 49.46 9%
Other Expenses 3,663.79 3,729.94 66.15 2%
Total Expenses 27,739.10 29,614.01 1,874.91 7%
Profit/Loss Before
Exceptional,
5,242.44 5,043.54
ExtraOrdinary Items
And Tax -198.90 -4%
Profit/Loss Before Tax 5,242.44 5,043.54 -198.90 -4%
Tax Expenses-Continued
Operations
Current Tax 1,450.99 1,608.81 157.82 11%
Deferred Tax 118.94 29.14 -89.80 -76%
And Before 3,672.51 3,405.59
ExtraOrdinary Items -266.92 -7%
Profit/Loss From
3,672.51 3,405.59
Continuing Operations -266.92 -7%
Profit/Loss For The
3,672.51 3,405.59 -266.92 -7%
Period 58
Absolute Percentage
SHAREHOLDER'S FUNDS
Employees Stock Options 9.59 15.44 5.85 61%
Deferred Tax Liabilities [Net] 612.88 472.58 -140.3 -23%
Other Long Term Liabilities 0 207.62 207.62 0%
Total Non-Current Liabilities 858.66 848.12 -10.54 -1%
CURRENT LIABILITIES
Short Term Borrowings 183.68 165.88 -17.8 -10%
Trade Payables 3,438.24 3,127.62 -310.62 -9%
Total Current Liabilities 4,409.18 4,279.06 -130.12 -3%
ASSETS
NON-CURRENT ASSETS
Tangible Assets 4,792.50 6,305.03 1512.53 32%
Intangible Assets 159.86 167.9 8.04 5%
Capital Work-In-Progress 384.85 204.64 -180.21 -47%
Intangible Assets Under Development 187.97 186.69 -1.28 -1%
Fixed Assets 5,525.18 6,864.26 1339.08 24%
Other Non-Current Assets 1,565.90 443.41 -1122.49 -72%
CURRENT ASSETS
Inventories 1,249.53 1,282.32 32.79 3%
Trade Receivables 2,745.11 1,511.91 -1233.2 -45%
Short Term Loans And Advances 25.08 23.75 -1.33 -5%
OtherCurrentAssets 915.71 686.69 -229.02 -25%
59
Total Assets 18,504.36 19,674.07 1169.71 6%
COMPARATIVE INCOME STATEMENT AS AT 2019 AND 2020
ABSOLUTE PERCENTAGE
Revenue From
33,431.36 28,813.93
Operations [Gross]
-4,617.43 -14%
Less: Excise/Sevice
1.41 1.35
Tax/Other Levies
-0.06 -4%
Revenue From
33,429.95 28,812.58
Operations [Net] -4,617.37 -14%
Other Operating
540.87 441.39
Revenues -99.48 -18%
Total Operating
33,970.82 29,253.97
Revenues -4,716.85 -14%
Other Income 686.73 730.56 43.83 6%
Total Revenue 34,657.55 29,984.53 -4,673.02 -13%
EXPENSES
Cost Of Materials
23,503.46 20,004.29
Consumed -3,499.17 -15%
Changes In
Inventories Of FG,WIP -59.04 -173.34
And Stock-In Trade
-114.30 194%
Employee Benefit
1,778.03 1,889.32
Expenses 111.29 6%
Finance Costs 37.18 46.64 9.46 25%
Depreciation And
624.44 845.76
Amortisation Expenses
221.32 35%
Other Expenses 3,729.94 3,472.78 -257.16 -7%
Total Expenses 29,614.01 26,085.45 -3,528.56 -12%
Profit/Loss Before
Exceptional,
5,043.54 3,899.08
ExtraOrdinary Items
And Tax
-1,144.46 -23%
Exceptional Items 0 677.37 677.37 0%
Profit/Loss Before Tax 5,043.54 4576.45
-467.09 -9%
Tax Expenses-
Continued Operations
Current Tax 1,608.81 1,096.79 -512.02 -32%

Deferred Tax 29.14 -145.12 -174.26 -598%
Total Tax Expenses 1,637.95 951.67
-686.28 -42%
And Before 3,405.59 3,624.78
ExtraOrdinary Items
219.19 6%
Profit/Loss From
3,405.59 3,624.78
Continuing Operations
219.19 6%
Profit/Loss For The
3,405.5960 3,624.78
Period 219.19 6%
CHAPTER 6
FINDINGS OF THE STUDY
61
FINDINGS
 The company is more capable of paying its obligations because it has a larger
proportion of short-term asset value relative to the value of its short-term liabilities
and has consistently maintained this liquidity over the five-year period. However,
the company should also make sure that this ratio doesn’t increase further as it will
indicate inefficient way of utilizing the current assets.
 The company has consistently maintained high cash and liquid assets over the
short-term liabilities and over the 5 years the short-term assets held by the company
has always been more than 1.5 times the current liabilities indicating the cash
richness and high cash reserves of the company as well as the very high liquidity.
 Similar to the liquid ratio, absolute liquid ratio is also maintained consistently over
the 5 years and has increases during the latest years indicating the high reserves of
cash and cash equivalent assets by the company. The cash and cash equivalent
assets alone have covers over 25% of the current liabilities of the company and
which also indicates high liquidity of the company
 The company doesn’t have much exposure towards both long and short-term debt
and has shown a declining trend in the ratio over the 5 years indicating that the
company has linearly decreased the amount of debts held. The current debts of the
company are very less as compared to equity of the company and this is also in line
with the liquidity ratios as the company already has very strong cash equivalent
assets
 There is a linear increase in the total asset ratio of the company which is not only
due to the increase in the assets held by the company but also is attributable to the
gradual decrease in the debts of the company over the 5 years. The total asset ratio
shows a linear increase and the debt equity ratio has shown a linear decrease
indicating the reduction in the debts held and the corresponding buildup of assets
over the years
 The proprietary ratio has always been maintained at high levels indicating that
the company has a sufficient amount of equity to support the functions of the
business, and probably has room in its financial structure to take on
62
additional debt, if necessary as it indicates a strong financial position of the
company and greater security for creditors
 As seen above in the other ratios the Debts both long- and short-term debts held by
the company is significantly less compared to the assets and equity of the company.
Move over the current Debt of the company is significantly contributed by the
trade’s payables and the interest payable and financial cost of the company is very
less. But the interest coverage ratio has a declining trend over the years which
indicates that the interest expenses has increased more proportionally than earnings
of the company. Since the financial cost of the company is still significantly less
compared to the assets and equity this decline is an indication of significant increase
in financial cost but a higher growth rate as compared to the rate at which the
earnings has increased.
 There is a significant reduction in the inventory turnover ratio over the 5-year period
indicating the decline in sales and possibly excess inventory or over stocking by the
company. This also could lead to increase in the storage cost and other related costs
of the company due to overstocking.
 The Debtors turnover ratio is on the lower side and has shown a declining trend
over the years indicating the inefficiency in collecting the receivables by the
company. The declining trend and the low ratio is an indicator ofpoor collection
process, bad credit policies, or customers that are not financially viable or
creditworthy. This needs to be monitored and improved so as the credit collection
process becomes more efficient and this can improve the liquidity of the company
as well as reduce chances of bad debt. The company should reassess its credit
policies to ensure the timely collection of its receivable and also better utilization of
such cash inflows should be looked into.
 The company has maintained a low creditors turnover ratio indicating that the slow
payment to suppliers for purchases on credit. This may be due to favorable credit
terms provided by the suppliers and not due to any financial or liquidity issues as
there is high current asset holding and high liquidity. This low ratio is favorable to
the company in terms of holding more cash, proving more liquidity and also
benefits in terms of opportunity cost as cash outflows flows are delayed
63
 Here the working capital turnover ratio has always been on the higher side
indicating that the management is efficiently utilizing the company’s short-term
assets and liabilities to generate sales. There is a high return generated through sale
in terms of cash outflows of the company in the form of current liabilities.
 The gross profit ratio is showing almost constant ratio for the past 5 years. The ratio
means that the company may reduce the selling price by 30 % without incurring any
loss. There has been a slight improvement in the gross profit ratios which indicates
a constant improvement.
 The company is having higher operating profit ratio which enables the organization
to recoup non-operating expenses out of operating profits and provide reasonable
return
 The company is having a good net profit ratio. It means that its current business
practices allow them to sell their products at a higher price than the cost of
manufacture and distribution.
 The company is having a higher return on total asset ratio. Higher ratio is more
favorable to investors because it shows the company is more effectively managing
its assets to produce greater amount of net income . It shows an upward profit
trend
 Proper coordination the company among staffs and workers must be ensured so that
the number of errors while preparing the closing balances can be reduced.
 The company should maintain the ideal profitability ratios to ensure long term
efficiency in the long run
SUGGESTIONS
 The company should try to maintain its current liquidity ratios which will help it to
meet its short-term obligations and funds for its day to day activities.
 Proper coordination the company among staffs and workers must be ensured so that
the number of errors while preparing the closing balances can be reduced.
 The company should maintain the ideal profitability ratios to ensure long term
efficiency in the long run
64
 The company should maintain the current liquid ratio so as to ensure the cash richness
and high cash reserves of the company as well as the very high liquidity
 The Debtors turnover ratio is on the lower side and has shown a declining trend. This
needs to be monitored and improved so as the credit collection process becomes more
efficient and this can improve the liquidity of the company as well as reduce chances
of bad debt.
 The company should reassess its credit policies to ensure the timely collection of its
receivable and also better utilization of such cash inflows should be looked into
65
CHAPTER 7
CONCLUSIONS
66
The project “A STUDY ON ANALYSIS AND COMPARISON OF FINACIAL STATEMENTS
USING FINANCIAL ANALYSIS TOOLS” was a good learning experience both theoretically
and in practice. It gave me a greater insight on various concepts of financial statement analysis
the practical use of the same during the project. It also helped me to think beyond bookish
knowledge and understand the relative worth of the project. I find myself privileged to do a study
on the financial statements of the HERO MOTOCORP.
From the financial analysis, the company is shown in a good and financially sound position. The
way different departments uniquely contribute to the overall functioning of the organization
reveals their unanimous efforts to the overall objective of the company. As a nation one can be
proud of the contributions made by the company towards its economy and its GDP.
67
BIBLIOGRAPHY
 Company site www.heromotocorp.com

 Accounting text by s.p Jain and k.lnarang
 Annual reports of company
 www.moneymarket.com
 www.yahoofinance.com
68

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FINANCIAL PERFOMANCE ANALYSIS OF

HERO MOTOCORP Ltd.

Submitted to Mahatma Gandhi University in partial fulfillment of the

Reg. No. 190031000649

Accredited by NAAC with ‘A’ Grade

DEPARTMENT OF MANAGEMENT STUDIES

MAR ATHANASIOS COLLEGE FOR ADVANCED STUDIES

Jibumon K G Dr. Sudeep B. Chandramana

Rev. Dr.Cherian J. Kottayil University Examiner

I hereby declare that this project report entitled “FINANCIAL PERFORMANCE

Place: Tiruvalla JACK P JAMES

Date : 30 May 2021

I express my heartfelt thanks to Dr.Sudeep B Chandramana (HOD, Department of

1. GDP: GROSS DOMESTIC PRODUCT

2. P&L : Profit And Loss

3 HIP : Human Information Program

STATEMENT OF THE PROBLEM

RELEVANCE & SCOPE OF THE STUDY

OBJECTIVE OF THE STUDY

MARKET DEMAND & SUPPLY – CONTRIBUTION TO GDP –

 India ranks 2nd in the global two-wheeler market

(i) High growth in the service sector

(i) Customer care, and not just service

PRICING STRATEGIES IN THE AUTOMOBILE INDUSTRY

Penetration & psychological pricing strategies

Product line & economy pricing strategies

Customer value-based pricing strategy

PROSPECTS AND CHALLEGES OF THE AUTOMOBILE INDUSTRY

KEY DRIVERS OF AUTOMOBILE INDUSTRY

Consumer Demand and Interests:

Government & Regulations:

TYPES OF FINANCIAL ANALYSIS

a.) On the basis of material used:

1. Horizontal (or dynamic) analysis

2. Vertical analysis (or Static) analysis

c.) Intra-firm analysis and Inter-firm analysis

1. Intra-firm analysis: A comparison of financial variables of an enterprise over a period of

Tools for analysis of financial statements:

Comparative statements or comparative Financial Statements means a study of components or

COMPARATIVE BALANCE SHEET

COMPARATIVE STATEMENT OF PROFIT AND LOSS OR INCOME STATEMENT:

Ratios as a tool of analysis may be classified into following four categories:

(i) Current ratio

(i) Debt to equity ratio

(i) Stock turnover Ratio

(i) Gross profit ratio

(i) Current Ratio

(ii) Quick Ratio/ Liquid Ratio

(i) Debt – Equity Ratio

(ii) Total assets to debt ratio

(iii) Proprietary ratio

(iv) Interest Coverage Ratio

(i) Stock or inventory Turnover ratio

(ii) Debtors’ turnover ratio or Trade Receivables turnover ratio

(iii) Creditors’ turnover ratio

(i) Gross Profit Ratio

(ii) Operating Ratio

(iii) Operating Profit Ratio