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FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CHAPTER 1
INTRODUCTION
1.1 Company Profile
Ashok Leyland, the Hinduja Group flagship company in India, is a leading
manufacturer of commercial vehicles with a product range of 7.5 tonne to
49 tonne in haulage vehicles, from numerous special application vehicles
to diesel engines for industrial, marine and genset applications, Ashok
Leyland offers a wide range of products goods vehicles and 18 seaters to
82 seaters in passenger models. The Company’s annual turnover exceeds
US $ 2 billion. It has a production capacity of 84,000 vehicles which is
being enhanced to 100,000 in the current year and 87,000 engines per
annum. The Company has associate companies in the Czech Republic and
the UAE and joint ventures in Sri Lanka and Bangladesh, and also exports
to over 20 countries worldwide.

Founded in 1948 and head quartered in Chennai, Ashok Leyland started


manufacturing commercial vehicles in 1955, with technology from and
equity participation by Leyland Motors Ltd, UK. In 1987, Hinduja Group
jointly with IVECO, the commercial vehicle arm of Fiat, Italy, gained a
controlling interest in Ashok Leyland and its associate companies when it
acquired the UK-based Land Rover Leyland International Holdings Ltd
(LRLIH).

With its own comprehensive R&D base, strengthened by collaborations


with global technology leaders, Ashok Leyland has established a tradition
of technological leadership and a strong reputation for product reliability.
The history of Company has been punctuated by a number of
technological innovations, which have since become industry norms.

For over three decades, Ashok Leyland has been a pioneer in the design
and development of special vehicles for the armed forces. The Company
has been supporting the modernization of the Indian Army by developing
a host of modern special application vehicles that include Light Recovery
Vehicles, High Mobility Vehicles, Fire Fighting Trucks and Field Artillery
Tractors.

The Company’s all-India customer-base is served through an all-India


sales, service and parts network.

In 1995, Ashok Leyland set up a driver-training center in Namakkal, the


first of its kind in India – offering a comprehensive training package that
prepares a driver for life on and off the road. Over 100,000 drivers have
already been trained. Close on the lines of Namakkal, a Driver Training

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Institute has been recently established at Burari near Delhi as a joint


venture with the Government of NCT of Delhi.

Ashok Leyland was the first automotive manufacturer in India to receive


ISO 9002 certification in 1993. While the ISO 9001 certification came in
1994, the QS 9000 certification came in 1998. All the manufacturing Units
of Ashok Leyland are ISO 14001 certified for their Environment
Management System (EMS). In addition, the Company has taken up a
‘Greening the supply chain’ initiative so as to extend its commitment of a
green environment to its suppliers.

In its effort to convert its technological leadership into market leadership


through improved customer satisfaction, the Company has been
enhancing its product range by positioning customized models to suit
geographical and application segments.

The Company employs 12,000 people and has six manufacturing units
with an annual capacity of 112500 vehicles.

1.2 Company History


The origin of Ashok Leyland can be traced to the urge for self-reliance, felt
by independent India. Pandit Jawaharlal Nehru, India's first Prime Minister
persuaded Mr. Raghunandan Saran, an industrialist, to enter automotive
manufacture. In 1948, Ashok Motors was set up in what was then Madras,
for the assembly of Austin Cars. The Company's destiny and name
changed soon with equity participation by British Leyland and Ashok
Leyland commenced manufacture of commercial vehicles in 1955.

Since then Ashok Leyland has been a major presence in India's


commercial vehicle industry with a tradition of technological
leadership, achieved through tie-ups with international technology
leaders and through vigorous in-house R&D.
Access to international technology enabled the Company to set a tradition
to be first with technology. Be it full air brakes, power steering or rear
engine busses, Ashok Leyland pioneered all these concepts. Responding

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to the operating conditions and practices in the country, the Company


made its vehicles strong, over-engineering them with extra metallic
muscles. "Designing durable products that make economic sense to the
consumer, using appropriate technology", became the design philosophy
of the Company, which in turn has moulded consumer attitudes and the
brand personality.

Ashok Leyland vehicles have built a reputation for reliability and


ruggedness. The 500000 vehicles we have put on the roads have
considerably eased the additional pressure placed on road transportation
in independent India.

In the populous Indian metros, four out of the five State Transport
Undertaking (STU) buses come from Ashok Leyland. Some of them like
the double-decker and vestibule buses are unique models from Ashok
Leyland, tailor-made for high-density routes.
In 1987, the overseas holding by Land Rover Leyland International
Holdings Limited (LRLIH) was taken over by a joint venture between the
Hinduja Group, the Non-Resident Indian transnational group and IVECO.
(Since July 2006, the Hinduja Group is 100% holder of LRLIH).

The blueprint prepared for the future reflected the global ambitions of the
company, captured in four words: Global Standards, Global Markets. This
was at a time when liberalization and globalization were not yet in the air.
Ashok Leyland embarked on a major product and process up gradation to
match world-class standards of technology.

In the journey towards global standards of quality, Ashok Leyland reached


a major milestone in 1993 when it became the first in India's
automobile history to win the ISO 9002 certification. The more
comprehensive ISO 9001 certification came in 1994, QS 9000 in 1998 and
ISO 14001 certification for all vehicle manufacturing units in 2002. It has
also become the first Indian auto company to receive the latest
ISO/TS 16949 Corporate Certification (in July 2006) which is specific
to the auto industry.

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1.3 General Information


EXHIBIT 1.3
1. Name of unit : Ashok Leyland Limited.
2. Registered office : 19, Rajaji Salai,
Chennai – 600001.
3. Plants locations : • Ennor & Ambattar at Chennai.
• Hosur – I, II, IIA units at Tamilnadu.
• Bhandra at Maharastra.
• Alwar at Rajasthan.
4. Form of organization : Public Limited Company.
5. Types of industry : Heavy Automobiles Industries.
6. Book closure date : From July 18, 2007 to July 20, 2007
7. Stock code :
a. Trading symbol at Madras Stock Exchange – All
Mumbai Stock Exchange
(Physical) – 477
(Demat) - 500477
National Stock Exchange – AshokLey
b. Demat ISIN no. in
NSDL & CDSL Equity shares – INE208A1029.
8. Accounting year : 1 April to 31st March.
st

9. Incorporated year : 1948


10. Face value : Re.1 (for year 2005), Re, 10 (for year
2004 & past years).
11. Subsidiary company :  Ashley Holdings Limited
 Ashley Investments Limited
 Ashley Transport Services Limited
 Ashok Leyland Project Services Limited
 Ashok Leyland (UAE) LLC, Ras Al
Khaimah, UAE
 Automotive Coaches and Components
Limited
 Avia Ashok Leyland Motors s.r.o, Czech
Republic
 Gulf Ashley Motor Limited
 Irizar TVS Limited
 Lanka Ashok Leyland Limited, Sri
Lanka
 Ashok Leyland Finance Limited.

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1.4 Corporate Information


EXHIBIT 1.4
1 Board Of Directors R J Shahaney Chairman
D G Hinduja Vice Chairman
D J Balaji Rao
A K Das Chatterjee Alternate : P
Banerjee)
P N Ghatalia
S R Krishnaswamy Representing LIC
S Raha
F Sahami
S Shroff
A Spare
R Seshasayee Managing Director
2 Chief Operating
Officer
Vinod K Dasari
3 Executive Directors
J N Amrolia
S Balasubramanian
N Basavanahalli
A Bhat
A R Chandrasekharan
A K Jain
R Malhan
N Mohanakrishnan
S Nagarajan
M Natraj
B M Udayashankar
4 Company Secretary
N Sundararajan
5 Auditors M S Krishnaswami & Rajan
Deloitte Haskins & Sells
6 Cost Auditors Geeyes & Co.
7 Bankers Bank Of America
Bank Of Baroda
Canara Bank
Central Bank Of India
Citibank N.A.
HDFC Bank Limited
ICICI Bank Limited
IDBI Bank Limited
Punjab National Bank
Standard Chartered Bank
State Bank Of India

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HSBC Limited
8 Registrar & Transfer From April 1,2003, the
Agents company has appointed
M/s Integrated Enterprises
(India) Ltd,
2nd Floor, Kences Tower,
1 Ramakrishna Street,
North Usman Road,
T. Nagar,
Chennai – 600017.
Tel: 91-44-28140801/03
Fax: 91-44-28142479
E-mail:
yesbalu@iepindia.com
9 Listing On Stock
Exchange
Listing of Equity shares  Madras Stock
Exchange Ltd.
 Bombay Stock
Exchange Ltd.
 National Stock
Exchange of
India Ltd.
Listing of Global Depository At London Stock
Receipts (GDRs) Exchange
Listing of Foreign Currency At London Stock
Convertible Notes (FCCNs) Exchange

1.5 Finance Function OF Company


Finance function is the life board of any company so the management
puts special attention towards it. A firm performs finance function
efficiently so that the business goes on smoothly and interruption and the
company remains not only able to grow on its own resources generated
through surpluses. Finance function call for skill planning control and
execution of s firm’s activities.
Following are the three major decisions as function of finance

1. The Investment decision.


2. The Financing decision.
3. The Dividend policy decision.

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1.5.1 The Investment Decision:

The investment decision relates to the selection of assets in which funds


will be invested by a firm > the assets that can be acquired fall into two
broad groups

I. Long term or Fixed assets


II. Short term or Current assets

The financial manager has to carefully allocate the available funds to


recover not only the cost of the fund but also must earned sufficient
return on the investment. Two important aspects of the investment
decision are:

a) The evolution of the prospective return of new investment


b) The measurement of cut off rate against that prospective return of
new investment could be compared. Investment proposal should be
evaluated in term of both expected and risk. In brief the main
element in the financial decision is

The long & short-term assets and their computation

 The business risk complexion of the firm


 Concept and measurement of the cost of capital
 Efficient management of asset
1.5.2 Financing Decision:
Financing decision is the second important function to be performed by
the financial manager. Broadly, he or she must decide when, where & how
to acquire funds to meet the firm’s investment needs. In practice, a firm
considers many other factors such as control, flexibility, loan covenants,
legal aspects etc. in deciding its capital structure.
EXHIBIT 1.5.2
(Rs in Millions)

2003 2004 2005 2006 2007


SOURCE OF
FUNDS
Share capital 1189.29 1189.29 1189.29 1221.59 1323.87
Reserve &
surplus 8405.57 9328.68 10489.36 12902.94 17621.81
Secured loans 5045.62 3103.56 2634.96 1846.91 3602.16
Unsecured loans 2129.60 1885.52 6169.10 5072.37 2801.82
Deferred tax
liability 1684.99 1802.86 1708.48 1796.89 1969.29
TOTAL: - 18455.07 17309.91 22191.19 22840.70 27318.95

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1.5.3 Dividend Decision: -


Dividend decision is the third major financial decision. The financial
manager must decide whether the firm should distribute all profits, or
retain them, or distribute a portion & retain the balance. The optimum
dividend policy is one that maximizes the market value of the firm’s
shares.
The director’s receded dividend of 150% (Rs. 1 per Equity share of Rs.
1.5) for the year ended March 31st 2007.

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1.6 Highlights of Performance

Particular 2006- 2005- 2004- 2003- 2002- 2001- 2000- 1999- 1998- 1997-
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998
Sales Volume
Vehicles (nos.) 83094 61655 54740 48654 36444 29673 32475 37859 29741 31547
Engines (nos.) 8202 7171 6254 5085 5924 5298 6311 6004 7185 7611
Spare parts & Others 5468 7838 5460 4468 4771 5492 5139 2145 2145 2520

Sales Values 83047 60531 48113 39273 30740 26304 26067 25987 20451 20143
Profit Before Tax 6045 4523 3550 2865 1701 1322 1019 933 233 207
Profit After Tax 4413 3273 2714 1936 1202 923 917 785 204 184

Assets
Fixed Assets 15445 10847 9790 9211 9398 10098 9613 9458 9547 9026
Investments 2211 3682 2292 1466 1576 1173 1179 1204 625 485
Net Current Assets 9419 8239 9916 6310 7481 9825 10223 10329 10491 13914
27075 22768 21998 16987 18455 21096 21015 20991 20663 23425

Financed By
Shareholder’s fund
- Capital 1324 1222 1189 1189 1189 1189 1189 1189 1189 1189
- Reserve 17378 12830 10296 9006 8406 9131 10496 10145 9852 9763
Loan funds 6404 6919 8804 4990 7175 8884 9330 9657 9622 12473
Deferred Tax Liability
- Net 1969 1797 1709 1803 1685 1892 - - - -
27075 22768 21998 16987 18455 21096 21015 20991 20663 23425

Basic Earning Per Share


(Paise) (Face Value Re.1 Each) 338 274 228 163 101 78 77 66 17 15

Dividend (%) 150 120 100 75 50 45 40 35 10 10

Employee (Nos.) 12125 11845 12178 12007 11860 13218 13489 14056 14254 14635

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1.7 Production Plant


Ashok Leyland has six manufacturing plants - the mother plant at Ennore
near Chennai, two plants at Hosur (called Hosur I and Hosur II, along
with a Press shop), the assembly plants at Alwar, Bhandara and the
castings plant at Hyderabad. The total covered space at these six plants
exceeds 450,000 sq m and together employs over 11,500 personnel.

1. Encore
2. Hosur unit-1
3. Hosur unit-2
4. Hosur unit-2a
5. Alwar
6. Bhandara

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1.8 Functional Distribution of


Employees

Ashok Leyland limited committed to maintaining their technological


leadership. Ashok Leyland limited manages this through continuous
learning. So that they can master ever-evolving technologies and meet
changing customer needs. Understandably, a career with Ashok Leyland
offers a lifetime of learning.

Structured training programmers address the needs of workmen,


apprentices, graduate engineering trainees, executives in the managerial
levels for knowledge and skills up gradation, computerization, attitudinal
changes, self-development, and supervisory and managerial skills
orientation to new technologies as also requirements specific to various
requirements specific to various functional areas. This breadth is reflected
in the comprehensive annual training calendar.

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1.9 Qualification Analysis - Executives

Ashok Leyland has a tie-up with BITS, Pilani for a custom-designed, off-
campus 2-year MS course in Engineering Management. Aimed at making
Managers out of Engineers, assignments and projects are central to the
learning process thus bridging the classroom with the engineers'
workplace. From 2000, a BS programme in Industrial Engineering and
Technology, is offered for diploma holders, again in collaboration with
BITS. Apart from updating their knowledge base, the programme
empowers engineers to acquire multiple skills.
Ashok Leyland is one of the moving forces behind a Mitch course in
Automobile Engine Technology jointly managed by the automobile
industry (Indian Society for Automotive Technology, made up of auto
manufacturers), IIT, Madras and Institute Francais du Petrole, the French
institute for IC engines.

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1.10 Environment Friendliness


We are concerned about the earth our children will inherit. That's why we
make sure our vehicles consume less, pollute less. This concern is
reflected in the manufacturing systems, the various processes, energy
conservation measures and conscious greening initiatives of the
Company.”

In 2002, all the vehicle-manufacturing units of Ashok Leyland were ISO


14001 certified with Environmental Management System.

Over the decades, Ashok Leyland's R&D engineers have been addressing
the twin concerns of fuel-efficiency and emissions. Not surprisingly, when
the legislation came in 1987, limiting vehicular emission, Ashok Leyland
vehicles were already meeting them. In 1992, came the more stringent
norms for gaseous emissions. By then, Ashok Leyland, through timely
technology tie-ups - and ahead of competition - had absorbed and was
offering eco-friendly engine technology. In 1996, when the permissible
levels of gaseous exhaust emissions were further tightened, Ashok
Leyland again met the norms with ease.

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1.11 PRODUCT PROFILE


1.11.1 BUSES

Ashok Leyland. Over five decades in the transport solutions industry.


Offering a world-class range of trucks buses special application vehicles
and engines touching millions across 40 countries worldwide

Viking BS - I Viking BS - II 12 M Bus

Cheetah BS - I Panther Luxury Cheetah BS - II

Stag BS - II Vestibule Bus Airport Tarmac coach

222 CNG Bus Lynx Double Decker

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1.11.2 TRUCK

Ashok Leyland manufactures trucks of various capacities that take on any


task with ease.

4 X 2 Haulage Models 4 X 2 and Multi axle


Multi axle Vehicles
Tippers

Tractors E comet

1.11.3 ENGINE

Ashok Leyland manufacturer’s diesel engines in collaboration with world


leaders for industrial, genset and marine applications These are mostly
manufactured at Hosur with the traditional engines being manufactured at
the Ennore plant. Click on the links below for details.

Engines for Generating Set Application

Range: 30 - 125 KVA (Conforms to CPCB emission norms)


Industrial Segment
Hospitals / Clinics
Commercial / Residential Complexes
Hotels / Restaurants
Theatres
Shopping mall / Offices
Rice Mills

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Engines for Special Applications

Range: 39 - 200 PS
Front End Loaders
Excavators
Compactors
Pavers
Road Sweepers
Harvester Combines
Compressors
Cranes
Pumps
Marine Diesel Engines

Range: 42 - 193 PS
Ideal Choice for
Trawlers, Pure -Seiners, Gill-netters
Sailing Vessels
Marine generating sets
Pavers
Auxiliary drive in Vessels

1.11.4 DEFENCE AND SPECIAL VEHICLES

Ashok Leyland has long been in the manufacture of Defence and speciality
vehicles. Each as rugged as and performance intensive as any comparable
vehicle in the world

Special Vehicles Defence Vehicles

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CHAPTER 2
HORIZONTAL ANALYSIS
Financial statements present comparative uniformities for the current year
and the previous year. A simple approach to financial statement analysis,
known as horizontal analysis is to calculate amount changes & percentage
changes from the previous year to the current year.

Relative = Current year amount – previous year amount


Absolute (%) = ((Current year – Previous Year) \ Previous Year) x 100

EXHIBIT 2.1

2.1 COMPARATIVE PROFIT & LOSS ACCOUNT OF


ASHOK LEYLAND LTD FOR THE YEAR ENDED
31st March 2003-04
Rs. In Millions
Increase/(Decrease)
Particulars 2003-04 2002-03
Amount Percentage
INCOME
SALES 33938.84 26803.75 7135.09 26.62
OTHER 186.20 152.93 33.27 21.76
34125.04 26956.68 7168.36 26.59
EXPENDITURE
MANUFACTURING &
OTHER EXPENSES 29992.80 23554.18 6438.62 27.34
DEPRECIATION 964.54 1029.69 (65.15) (6.33)
FINANCIAL EXPENSES 207.91 585.10 (377.19) (64.47)
31165.25 25168.97 5996.28 23.82
PROFIT BEFORE EXTRA
ORDINARY EXPENSES 2959.79 1787.71 1172.08 65.56
EXTRA ORDINARY
EXPENSE 95.19 86.69 8.50 9.81
PROFIT\(LOSS) FOR THE
YEAR (PBT) 2864.60 1701.02 1163.58 68.40
PROVISION FOR
TAXATION 928.80 498.90 429.90 86.17
PROFIT\(LOSS) FOR
THE YEAR (PAT) 1935.80 1202.12 733.68 61.03

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 In 2003-04, the sales increased by 26.62% over 2002-03 & profit is


also increased by 61.03%.
 Increase in expenditure by 23.82% that is less then the increase in
income by 26.59%.
 Other income increased by 21.76% but depreciation & financial
expenditure decreased by 6.33% & 64.47% respectively.
 Extra ordinary expense increased by 9.81%.
 This year sales, expenditure & profit increase compare to the last
year because of company introducing some engines. So that
increases in sales, expenditure and profit.

EXHIBIT 2.1.1

Growth in year 2003 – 2004


Figures in %

Particulars 2003-04
INCOME 26.59
EXPENDITURE 23.82
PROFIT\(LOSS) FOR THE YEAR (PBT) 68.40
PROVISION FOR TAXATION 86.17
PROFIT\(LOSS) FOR THE YEAR (PAT) 61.03

Chart 2.1.1
Growth in percentage of the year 2003-04

2003-04
100
90 86.17
GROWTH IN %

80
68.4
70 61.03
60
50
40
26.59 23.82
30
20
10
0
INC OME EXPENDITURE PROFIT\(LOSS) PROVISION FOR PROFIT\(LOSS)
FOR THE YEAR TAXATION FOR THE YEAR
(PBT) (PAT)

PARTICULARS

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EXHIBIT 2.2

2.2 COMPARATIVE PROFIT & LOSS ACCOUNT OF


ASHOK LEYLAND LTD FOR THE YEAR ENDED
MARCH 31 2004-05
Rs. In Millions
Increase/(Decrease)
Particulars 2004-05 2003-04
Amount Percentage

INCOME
SALES 41818.97 33938.84 7880.13 23.22
OTHER 537.55 186.20 351.35 188.69
42356.52 34125.04 8231.48 24.12

EXPENDITURE
MANUFACTURING &
OTHER EXPENSES 37590.47 29992.80 7597.67 25.33
DEPRECIATION 1092.14 964.54 127.60 13.23
FINANCIAL EXPENSES 27.98 207.91 (179.93) (86.54)
38710.59 31165.25 7545.34 24.21
PROFIT BEFORE EXTRA
ORDINARY EXPENSES 3645.93 2959.79 686.14 23.18
EXTRA ORDINARY
EXPENSE 95.83 95.19 0.64 0.67
PROFIT\(LOSS) FOR THE
YEAR (PBT) 3550.10 2864.60 685.50 23.93
PROVISION FOR
TAXATION 836.00 928.80 (92.80) (9.99)
PROFIT\(LOSS) FOR
THE YEAR (PAT) 2714.10 1935.80 778.30 40.21

 In 2004-05, the sales registered a growth of only 23.22% over


2003-04.
 Profit of year (2004-05) increase by 40.21%, which is more than
the last year. Increase in profit is more than increase in sales for
every year.
 Expenditure increased by 24.21%, which is, more than increase in
sales by 23.22%.
 In 2004-05 provision for tax decreased by 9.99% so that profit of
the company has increased to 40.21% from 23.93%.
 Extra ordinary expenses increased by 0.67% compare to last year.

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EXHIBIT 2.2.1

Growth in year 2004- 2005


Figures in %

Particulars 2004-05
INCOME 24.12
EXPENDITURE 24.21
PROFIT\(LOSS) FOR THE YEAR (PBT) 23.93
PROVISION FOR TAXATION (9.99)
PROFIT\(LOSS) FOR THE YEAR (PAT) 40.21

Chart 2.2.1
Growth in percentage of the year 2004-05

2004-05

50
40.21
40
GROWTH IN %

30 24.12 24.21 23.93


20

10

0
INCOME EXPENDITURE PROFIT\(LOSS) PROVISION FOR PROFIT\(LOSS)
-10 FOR THE YEAR TAXATION FOR THE YEAR
(PBT) -9.99 (PAT)
-20
PARTICULARS

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EXHIBIT 2.3

COMPARATIVE PROFIT & LOSS ACCOUNT OF ASHOK


LEYLAND LTD FOR THE YEAR ENDED
MARCH 31 2005-06
Rs. In Millions
Increase/(Decrease)
Particulars 2005-06 2004-05
Amount Percentage

INCOME
SALES 52476.57 41818.97 10657.60 25.49
OTHER 329.74 537.55 (207.81) (38.66)
52806.31 42356.52 10449.79 24.67

EXPENDITURE
MANUFACTURING &
OTHER EXPENSES 47075.87 37590.47 9485.40 25.23
DEPRECIATION 1260.06 1092.14 167.92 15.38
FINANCIAL EXPENSES 164.53 27.98 136.55 488.03
48500.46 38710.59 9789.87 25.29
PROFIT BEFORE EXTRA
ORDINARY EXPENSES 4305.85 3645.93 659.92 18.10
EXTRA ORDINARY
EXPENSE (217.15) 95.83 (312.98) (326.60)
PROFIT\(LOSS) FOR THE
YEAR (PBT) 4523.00 3550.10 972.90 27.40
PROVISION FOR 413.80 49.50
TAXATION 1249.80 836.00
PROFIT\(LOSS) FOR
THE YEAR (PAT) 3273.20 2714.10 559.10 20.60

 In 2005-06, the sales registered a growth of 25.49% over 2004-05


 Profit of year (2005-06) increase by 20.60%, which is less than the
last year. Increase in profit is less than increase in sales for the year
because of this year provision for taxation is increased by 49.50%
and in the last year it was decreased by 9.99%
 Decrease in the other income by 38.66% is due to one-time gain
earned from sale of shares of Indus Ind Bank during 2004-05.
 Expenditure increased by 25.23%, which is, less than increase in
sales by 25.49%. Because of steel price has been softened this
year.
 Reason for Increase in expenditure is increase in man power
expenditure by 14%.
 Extra ordinary expenses has been decreased by 326.60%

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EXHIBIT 2.3.1

Growth in year 2005-06


Figures in %

Particulars 2005-06
INCOME 24.67
EXPENDITURE 25.29
PROFIT\(LOSS) FOR THE YEAR (PBT) 27.40
PROVISION FOR TAXATION 49.50
PROFIT\(LOSS) FOR THE YEAR (PAT) 20.60

Chart 2.3.1
Growth in percentage of the year 2005-06

2005-06
60
49.5
50
GROWTH IN %

40
24.67 25.29
30 27.4
20.6
20

10

0
INCOME EXPENDITURE PROFIT\(LOSS) PROVISION FOR PROFIT\(LOSS)
FOR THE YEAR TAXATION FOR THE YEAR
(PBT) (PAT)
PARTICULARS

S V INSTITUTE OF MANAGEMENT, KADI 22


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 2.4

COMPARATIVE PROFIT & LOSS ACCOUNT OF ASHOK


LEYLAND LTD FOR THE YEAR ENDED
MARCH 31 06-07
Rs. In Millions
Increase/(Decrease)
Particulars 2006-07 2005-06
Amount Percentage

INCOME
SALES 71681.76 52476.57 19205.19 36.60
OTHER 708.03 329.74 378.29 114.72
72389.79 52806.31 19583.48 37.09

EXPENDITURE
MANUFACTURING &
OTHER EXPENSES 64654.91 47075.87 17579.04 37.34
DEPRECIATION 1505.74 1260.06 245.68 19.50
FINANCIAL EXPENSES 53.32 164.53 (111.21) (67.59)
66213.97 48500.46 17713.51 36.52
PROFIT BEFORE EXTRA
ORDINARY EXPENSES 6175.82 4305.85 1869.97 43.43
EXTRA ORDINARY
EXPENSE 130.76 (217.15) 347.91 160.22
PROFIT\(LOSS) FOR THE
YEAR (PBT) 6045.06 4523.00 1522.06 33.65
PROVISION FOR
TAXATION 1632.20 1249.80 382.40 30.60
PROFIT\(LOSS) FOR
THE YEAR (PAT) 4412.86 3273.20 1139.66 34.82

 In 2006-07, the sales registered a growth of 36.60% over 2005-


06.the reason for increase in the sale by this much is due to
company’s export grew by 23% and launch of new product.
 Profit of year 2006-07 increase by 34.82%, which is more than the
last year because of increase in sale.
 Expenditure increased by 36.52%, while last year it was increased
by 25.29%. the reason for increase in expenditure is due to
increase in R&D expense.
 In 2006-07 other income has been increased by 114.72% which is
mainly on account of income from investments, profit on sale
of Investments and profit on disposal of fixed assets.
 Extra ordinary expenses has been increased in this year is by
160.22%.

S V INSTITUTE OF MANAGEMENT, KADI 23


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 2.4.1

Growth in year 2006-2007


Figures in %

Particulars 2006-07
INCOME 37.09
EXPENDITURE 36.52
PROFIT\(LOSS) FOR THE YEAR (PBT) 33.65
PROVISION FOR TAXATION 30.60
PROFIT\(LOSS) FOR THE YEAR (PAT) 34.82

Chart 2.4.1
Growth in percentage of the year 2006-07

2006-07

40 37.09 36.52 33.65 34.82


35
30.6
GROWTH IN %

30
25
20
15
10
5
0
INCOME EXPENDITURE PROFIT\(LOSS) PROVISION FOR PROFIT\(LOSS)
FOR THE YEAR TAXATION FOR THE YEAR
(PBT) (PAT)
PARTICULARS

EXHIBIT 2.5

COMPARATIVE GROWTH OF LAST FOUR YEARS


Growth in percent (%)

Particulars 2003-04 2004-05 2005-06 2006-07


INCOME 26.59 24.12 24.67 37.09
EXPENDITURE 23.82 24.21 25.29 36.52
PROFIT\(LOSS) FOR THE YEAR
(PBT) 68.40 23.93 27.40 33.65
PROVISION FOR TAXATION 86.17 (9.99) 49.50 30.60
PROFIT\(LOSS) FOR THE YEAR
(PAT) 61.03 40.21 20.60 34.82

S V INSTITUTE OF MANAGEMENT, KADI 24


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 2.5

COMPARATIVE GROWTH OF LAST FOUR YEARS

100
86.17

80
68.4
61.03
GROWTH IN %

60
49.5
40.21 34.82
40 37.09 36.52
26.59 24.67 24.21 33.65 30.6
25.29 27.4
24.12 23.82 23.93
20.6
20

0
INCOME EXPENDITURE PROFIT\(LOSS) FOR PROVISION FOR PROFIT\(LOSS) FOR
THE YEAR (PBT) TAXATION
-9.99 THE YEAR (PAT)
-20
YEARS
2003-04 2004-05 2005-06 2006-07

 The difference in the growth of Ashok Leyland is very large in the


year 2003-04. In the year 2003-04 high growths is registered.
 In year 2005-06 sales & profit was 24.67% & 20.6% respectively
but in the current year 2006-07 sales & profit is increased by
37.09% and 34.82% respectively. Reason for this large difference in
growth are:
1. The company has renovated its production plant.
2. Introducing some engines.
 Here tax is decreased so that profit is increased

EXHIBIT 2.6

2.6 STATUS OF INCOME, EXPENDETURE AND PROFIT IN


FIVE YEARS
Rs. In Millions

Particulars 2003 2004 2005 2006 2007


INCOME 26956.6 34125.0 42356.5 52806.3 72389.7
8 4 2 1 9
EXPENDITURE 25168.9 31165.2 38710.5 48500.4 66213.9
7 5 9 6 7
PROFIT\(LOSS)(PAT 3273.20 4412.86
) 1202.12 1935.80 2714.10

S V INSTITUTE OF MANAGEMENT, KADI 25


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

STATUS OF INCOME, EXPENDETURE AND PROFIT IN FIVE


YEARS
Chart 2.6.1
80000
72389.79
70000 66213.97

60000
52806.31
48500.46
RS In Millions

50000
42356.52
38710.59
40000
34125.04
31165.25
30000 26956.68
25168.97

20000

10000
3273.2 4412.86
1202.12 1935.8 2714.1
0
2003 2004 2005 2006 2007
YEARS

INCOME EXPENDITURE PROFIT\(LOSS) FOR THE YEAR (PAT)

Chart 2.6.2
80000
72389.79
70000 66213.97

60000
52806.31
Rs. In Millions

48500.46
50000
42356.52
38710.59
40000
34125.04
31165.25
30000 26956.68
25168.97

20000

10000 1935.8
3273.2 4412.86
1202.12
2714.1
0
INC OME EXPENDITURE PROFIT\(LOSS) FOR THE YEAR (PAT)
PARTICULARS
2003 2004 2005 2006 2007

 From the above two graph, we can see that the income,
expenditure & profit of the Ashok Leyland Ltd are increasing every
year. It shows very progressive status of the company.
 The profit of Ashok Leyland is very Low in every year in compare to
sales or revenue low in every high level of expenditure.

S V INSTITUTE OF MANAGEMENT, KADI 26


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 The reason for that is the company is developing presently. Ashok


Leyland doing lots of expenditure for their product, quality
standards & expansion of its production and distribution.

2.7 SALES OF LAST FIVE YEARS

EXHIBIT 2.7
(Rs. In Millions)

Particulars 2003 2004 2005 2006 2007


SALES 26803.75 33938.84 41818.97 52476.57 71681.76

Chart 2.7

SALES

80000

70000 71681.76
Rs In Millions

60000
52476.57
50000

41818.97
40000
33938.84
30000
26803.75
20000

10000

0
2003 2004 2005 2006 2007
YEARS

 From the above graph, it clear that the sales of the Ashok Leyland
Ltd are increasing every year. This is favorable sign for the Co.
 In the year 2002-03 Turnover for the year at Rs.26803.75 million
has increased by 16.9% as compared to previous year, mainly due
to increase in sale of commercial vehicles by 22.8% and engines by
12.7%. However the sale of castings and spare parts and others
were lower by 31.0% and 13.1% respectively mainly due to lower
off take of castings by tractor industry and lower orders from
Defence.
 In the year the 2003- 04 Net Sales for the year at Rs.33939 Million
has increased by 26.62% as compared to previous year, contributed
mainly by the volume increases in commercial vehicles by 33.5%
and 65.1% increase in castings.
 In the year 2004-05 Net sales for the year, at Rs. 41,818 Million has
grown by 23.22% as compared to previous year, contributed mainly
by volume increases in vehicles by 13%, engines by 23% and 52%
increase in castings. Spare parts sales were up 22%.

S V INSTITUTE OF MANAGEMENT, KADI 27


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 In the year 2005-06 Net sales for the year, at Rs. 52477 million has
increased by 25.49% as compared to previous year, contributed
mainly by volume increases in vehicles by 13%, engines by 15%
and a 44% increase in sales revenue from Spare Parts.
 In the year 2006-07 Net sales for the year, at Rs 71,682 million, has
increased by 37% as compared to previous year, contributed mainly
by volume increases in vehicles by 35% and engines (including
traded) by 23%. The reduction in spare parts revenue by 30% is
mainly due to lower off take by Vehicle Factory, Jabalpur, compared
to the previous year.

2.8 COMPARISION OF SALES & PROFIT PERCENTAGE


EXHIBIT 2.8
Figures in %

Particulars 2003-04 2004-05 2005-06 2006-07


SALES (%) 26.62 23.22 25.49 36.60
PROFIT\ (LOSS) FOR
THE YEAR (PAT) (%) 61.03 40.21 20.60 34.82
Chart 2.8
70
61.03
60
GROWTH IN %

50
40.21
40 36.6 34.82
26.62 25.49
30 23.22 20.6
20

10

0
2003-04 2004-05 2005-06 2006-07
YEARS

SALES PROFIT\(LOSS) FOR THE YEAR (PAT)

 In year 2003-04 the sales is increased in large percentage i.e.


61.30% that is good sign for company. In year 2003-04 sales &
profit percentages ware maximum.
 Now in this year 2004-05 sales have little decrement that is 23.22%
because of expenses are more so that profit is decreased by
40.21%.
 In the year the 2005-06 the sales was increased to 25.49%
compare to last year i.e. 2004-05 but the profit has decreased to
20.6% compare to 2004-05. Reason for such decrement is due to
increase of research & development expenses in the year 2005-06.

S V INSTITUTE OF MANAGEMENT, KADI 28


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 In 2006-07, the Company’s exports grew by 23% with the sale of


6,025 vehicles. This improvement was derived from demand in the
export markets and the launch of new products. This is the reason
the sale & profit has increased compare to last years i.e. 2005-06

S V INSTITUTE OF MANAGEMENT, KADI 29


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 2.9

2.9 COMPARATIVE BALANCESHEET OF ASHOK LEYLAND


LTD AS ON MARCH 31 2003-04
Rs. In Millions
Increase/(Decrease)
Particular 2003 2004
Amount Percentage
SOURCE OF FUNDS
SHAREHOLDER’S FUND
SHARE CAPITAL 1189.29 1189.29 0.00 0.00
RESERVE & SURPLUS 8405.57 9328.68 923.11 10.98
9594.86 10517.97 923.11 9.62
LOAN FUNDS
SECURED LOANS 5045.62 3103.56 (1942.06) (38.49)
UNSECURED LOANS 2129.60 1885.52 (244.08) (11.46)
7175.22 4989.08 (2186.14) (30.47)
DEFERRED TAX LIABILITY 1684.99 1802.86 117.87 7.00
8860.21 6791.94 (2068.27) (23.34)
TOTAL: - 18455.07 17309.91 (1145.16) (6.21)
APPLICATION OF FUND
FIXED ASSETS
GROSS BLOCK 18120.69 18756.42 635.73 3.51
LESS: DEPRECIATION 9095.50 10008.13 912.63 10.03
NET BLOCK 9025.19 8748.29 (276.90) (3.07)
CAPITAL WORK IN PROGRESS 373.19 462.71 89.52 23.99
A 9398.38 9211.00 (187.38) (1.99)
INVESTMENTS B 1575.76 1466.02 (109.74) (6.96)
CURRENT ASSETS, LOANS &
ADVANCES
INVERTORIES 4104.56 5069.41 964.85 23.51
SUNDRY DEBTORS 5181.50 4056.19 (1125.31) (21.72)
CASH & BANK BALANCE 2219.23 3249.74 1030.51 46.44
LOANS & ADVANCES 1899.41 2261.33 361.92 19.05
13404.70 14636.67 1231.97 9.19
LESS: CURRENT LIAB & PROVI
LIABILITIES 4928.65 6856.71 1928.06 39.12
PROVISIONS 995.12 1470.31 475.19 47.75
5923.77 8327.02 2403.25 40.57
NET CURRENT ASSETS C 7480.93 6309.65 (1171.28) (15.66)
MISCELLANEOUS EXPENSES D 0.00 323.24 323.24 0.00

TOTAL (A+B+C+D) 18455.07 17309.91 (1145.16) (6.21)

S V INSTITUTE OF MANAGEMENT, KADI 30


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 The Reserve & Surplus has been increased by 10.98% of 923.11,


which is 47.68% of profit of the year 2003 – 04.
 The Loan Fund of the company has been decreased by 30.47%.
Secured Loans & Unsecured Loans have been decreased by 38.49%
& 11.46% respectively.
 The deferred tax liability – net is increased by 6.99%.
 The total fund of Ashok Leyland Ltd has been decreased by 6.20%.
 The Fixed assets decreased by 1.99% because of the addition in
fixed assets this year is very less & depreciation provided for year
2003 – 04 are more compare to last year.
 Net Current Assets as on 31.3.2004 stood at Rs. 6311 Million as
against the previous year level of Rs. 7481 Million.
 Inventories have gone up to Rs. 5069 Million compared to Rs. 4105
Million as at March 2003. The increase is in line with the activity
increase.
 Debtors have come down to Rs. 4056 Million from Rs. 5182 Million
mainly due to repayment of deferred receivables by Ashok Leyland
Finance Ltd.
 The high level of cash and bank balance is due to substantial
collections from Debtors / Bill Discounting during the last few days
of the financial year.
 Last year (2002 –03) miscellaneous expenses were zero but this
year (2003-04) is 323.24 reasons for that is renovation in
production plant.

S V INSTITUTE OF MANAGEMENT, KADI 31


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 2.10

2.10 COMPARATIVE BALANCESHEET OF ASHOK LEYLAND


LTD AS ON MARCH 31 2004-05
Rs. In Millions
Increase/(Decrease)
Particular 2004 2005
Amount Percentage
SOURCE OF FUNDS
SHAREHOLDER’S FUND
SHARE CAPITAL 1189.29 1189.29 0.00 0.00
RESERVE & SURPLUS 9328.68 10489.36 1160.68 12.44
10517.97 11678.65 1160.68 11.04
LOAN FUNDS
SECURED LOANS 3103.56 2634.96 (468.60) (15.10)
UNSECURED LOANS 1885.52 6169.10 4283.58 227.18
4989.08 8804.06 3814.98 76.47
DEFERRED TAX LIABILITY 1802.86 1708.48 (94.38) (5.24)
6791.94 10512.54 3720.60 54.78
TOTAL: - 17309.91 22191.19 4881.28 28.20
APPLICATION OF FUND
FIXED ASSETS
GROSS BLOCK 18756.42 20022.50 1266.08 6.75
LESS: DEPRECIATION 10008.13 11084.04 1075.91 10.75
NET BLOCK 8748.29 8938.46 190.17 2.17
CAPITAL WORK IN PROGRESS 462.71 851.55 388.84 84.04
A 9211.00 9790.01 579.01 6.29
INVESTMENTS B 1466.02 2291.90 825.88 56.33
CURRENT ASSETS, LOANS &
ADVANCES
INVERTORIES 5069.41 5680.81 611.40 12.06
SUNDRY DEBTORS 4056.19 4587.66 531.47 13.10
CASH & BANK BALANCE 3249.74 7966.82 4717.08 145.15
LOANS & ADVANCES 2261.33 3337.34 1076.01 47.58
14636.67 21572.63 6935.96 47.39
LESS: CURRENT LIAB & PROVI
LIABILITIES 6856.71 9611.87 2755.16 40.18
PROVISIONS 1470.31 2044.80 574.49 39.07
8327.02 11656.67 3329.65 39.99
NET CURRENT ASSETS C 6309.65 9915.96 3606.31 57.16
MISCELLANEOUS EXPENSES D 323.24 193.32 (129.92) (40.19)

TOTAL (A+B+C+D) 17309.91 22191.19 4881.28 28.20

S V INSTITUTE OF MANAGEMENT, KADI 32


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 The Reserve & Surplus is increased by 12.44%. This year also the
company has transferred all the profit to the reserve & surplus and
out of that company makes provision for taxation.
 The Loan Fund of the company increased by 76.47%. Secured
Loans decreased by 15.11% because of debentures is less than last
year.
 The total fund of Ashok Leyland Ltd has been increased by 28.20%
that is very good compare to last two years & also which shows the
efficient use of capital.
 During the year, the Company incurred Capital expenditure of Rs.
1,797 Million towards investments in capacity expansion/up
gradation and R& D. The capacity increased from 50,000 vehicles in
March’04 to 67,000 vehicles by October’04. Nearly 70 acres of land
was acquired for putting up state-of-art R&D facilities at the
Technical Centre.
 This year the Fixed assets increased at a lower than the sales
growth rate. This indicates the efficient assets utilization.
 Net Current Assets (excluding cash/ bank balances) as on March 31,
2005 stood at Rs. 1,949 Million, as against the previous year level
of Rs. 3,060 Million
 Inventories have gone up to Rs. 5,681 Million, as on March 31, 2005
compared to Rs. 5,069 Million, as at March 31, 2004.
 Debtors have increased to Rs. 4,588 Million, from Rs. 4,056 Million.
The increase in Debtors and Inventory is less than proportionate to
the activity increase.
 The high level of cash and bank balance is around 145.15% of
which 80% of the funds raised through foreign currency convertible
notes (FCCN) issue kept in bank deposits to be utilized in the
capital expenditure programmes during 2005-06.
 Miscellaneous expenses this year also get decreased by 40.19%
that is good control over expenses.

S V INSTITUTE OF MANAGEMENT, KADI 33


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 2.11

2.11 COMPARATIVE BALANCESHEET OF ASHOK LEYLAND


LTD AS ON MARCH 31 2005-06
Rs. In Millions
Increase/(Decrease)
Particular 2005 2006
Amount Percentage
SOURCE OF FUNDS
SHAREHOLDER’S FUND
SHARE CAPITAL 1189.29 1221.59 32.30 2.72
RESERVE & SURPLUS 10489.36 12902.94 2413.58 23.01
11678.65 14124.53 2445.88 20.94
LOAN FUNDS
SECURED LOANS 2634.96 1846.91 (788.05) (29.91)
UNSECURED LOANS 6169.10 5072.37 (1096.73) (17.78)
8804.06 6919.28 (1884.78) (21.41)
DEFERRED TAX LIABILITY 1708.48 1796.89 88.41 5.17
10512.54 8716.17 (1796.37) (17.09)
TOTAL: - 22191.19 22840.70 649.51 2.93
APPLICATION OF FUND
FIXED ASSETS
GROSS BLOCK 20022.50 21384.99 1362.49 6.80
LESS: DEPRECIATION 11084.04 11952.28 868.24 7.83
NET BLOCK 8938.46 9432.71 494.25 5.53
CAPITAL WORK IN PROGRESS 851.55 1414.17 562.62 66.07
A 9790.01 10846.88 1056.87 10.80
INVESTMENTS B 2291.90 3681.78 1389.88 60.64
CURRENT ASSETS, LOANS &
ADVANCES
INVERTORIES 5680.81 9025.61 3344.80 58.88
SUNDRY DEBTORS 4587.66 4243.37 (344.29) (7.50)
CASH & BANK BALANCE 7966.82 6028.76 (1938.06) (24.33)
LOANS & ADVANCES 3337.34 3026.39 (310.95) (9.32)
21572.63 22324.13 751.50 3.48
LESS: CURRENT LIAB & PROVI
LIABILITIES 9611.87 11468.95 1857.08 19.32
PROVISIONS 2044.80 2616.21 571.41 27.94
11656.67 14085.16 2428.49 20.83
NET CURRENT ASSETS C 9915.96 8238.97 (1676.99) (16.91)
MISCELLANEOUS EXPENSES D 193.32 73.07 (120.25) (62.20)

TOTAL (A+B+C+D) 22191.19 22840.70 649.51 2.93

S V INSTITUTE OF MANAGEMENT, KADI 34


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 The Reserve & Surplus is increased by 23.01%. This year also the
company has transferred all the profit to the reserve & surplus and
out of that company makes provision for taxation.
 The Loan Fund of the company decreased by 21.41%. Secured
Loans decreased by 29.91% because of debentures is less than last
year.
 During the year, the Company incurred capital expenditure of Rs.
2,434 million towards investments in capacity expansion / up
gradation and R & D. Capacity increased from 67,500 vehicles to
77,200 vehicles by August 2005.
 Net Current Assets (excluding cash / bank balances) as on 31st
March 2006 stood at Rs. 2,210 million as against the previous year
level of Rs. 1,949 million
 Inventories have gone up to Rs. 9,026 million as on 31st March
2006 compared to Rs. 5,681 million as at 31st March 2005 due to
increase in finished inventory levels to meet sudden increase in
market demand.
 Debtor’s level decreased to Rs. 4,243 million from Rs. 4,588 million
i.e. by 7.5% compare to last years
 The high level of cash and bank balance includes funds raised
through the FCCN issue kept in bank deposits pending utilization in
capital Expenditure programmes. As of 31st March 2006, this
amounted to Rs. 855 million.
 Miscellaneous expenses this year also get decreased by 62.20%
that is good control over expenses.

S V INSTITUTE OF MANAGEMENT, KADI 35


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 2.12

2.12 COMPARATIVE BALANCESHEET OF ASHOK LEYLAND


LTD AS ON MARCH 31 2006-07

Rs. In Millions
Increase/(Decrease)
Particular 2006 2007
Amount Percentage
SOURCE OF FUNDS
SHAREHOLDER’S FUND
SHARE CAPITAL 1221.59 1323.87 102.28 8.37
RESERVE & SURPLUS 12902.94 17621.81 4718.87 36.57
14124.53 18945.68 4821.15 34.13
LOAN FUNDS
SECURED LOANS 1846.91 3602.16 1755.25 95.04
UNSECURED LOANS 5072.37 2801.82 (2270.55) (44.76)
6919.28 6403.98 (515.30) (7.45)
DEFERRED TAX LIABILITY 1796.89 1969.29 172.40 9.59
8716.17 8373.27 (342.90) (3.93)
TOTAL: - 22840.70 27318.95 4478.25 19.61
APPLICATION OF FUND
FIXED ASSETS
GROSS BLOCK 21384.99 26201.97 4816.98 22.53
LESS: DEPRECIATION 11952.28 13131.64 1179.36 9.87
NET BLOCK 9432.71 13070.33 3637.62 38.56
CAPITAL WORK IN PROGRESS 1414.17 2374.91 960.74 67.94
A 10846.88 15445.24 4598.36 42.39
INVESTMENTS B 3681.78 2210.94 (1470.84) (39.95)
CURRENT ASSETS, LOANS &
ADVANCES
INVERTORIES 9025.61 10703.21 1677.60 18.59
SUNDRY DEBTORS 4243.37 5228.75 985.38 23.22
CASH & BANK BALANCE 6028.76 4349.39 (1679.37) (27.86)
LOANS & ADVANCES 3026.39 6695.79 3669.40 121.25
22324.13 26977.14 4653.01 20.84
LESS: CURENT LIAB & PROVI
LIABILITIES 11468.95 16516.25 5047.30 44.01
PROVISIONS 2616.21 1042.30 (1573.91) (60.16)
14085.16 17558.55 3473.39 24.66
NET CURRENT ASSETS C 8238.97 9418.59 1179.62 14.32
MISCELLANEOUS EXPENSES D 73.07 244.18 171.11 234.17

TOTAL (A+B+C+D) 22840.70 27318.95 4478.25 19.61

S V INSTITUTE OF MANAGEMENT, KADI 36


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 The Reserve & Surplus is increased by 36.57%. This year also the
company has transferred all the profit to the reserve & surplus and
out of that company makes provision for taxation.
 The Loan Fund of the company decreased by 7.5%. Secured Loans
increased by 95.04% because of Debentures and term loans are
secured by certain immovable properties and movable assets of the
Company. Cash credit facility is secured by certain movable assets
and goods-in-transit and book debts and also by a charge on the
immovable properties subordinate to the existing charge created in
favor of the lenders.
 During the year, the Company incurred capital expenditure of Rs.
6135 million. This expenditure covers investments in capacity
expansion / up gradation and R&D. During the year, the capacity
increased from 77,200 vehicles to 84,000 vehicles.
 Net Current Assets (excluding cash / bank balances) stood at Rs.
5,069 million as against the previous year level of Rs.2, 210 million.
FCCN funds parked in deposits in previous year were utilized for
capital expenditure in the current year.
 Inventories have gone up to Rs.10703 million as on 31st March
2007 compared to Rs.9026 million as on 31st March 2006. The
increase is due to increased activity levels.
 Debtor level increased to Rs.5229 million from Rs.4243 million due
to higher level of fully built vehicles supplied to Defence.

S V INSTITUTE OF MANAGEMENT, KADI 37


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CHAPTER 3
VERTICAL ANALYSIS
Vertical analysis is the proportional expression of each item on financial
statement to the statement total. The results of vertical analysis are
presented in the form of common number & always add up to 100. The
items in Profit & Loss a/c are usually expressed as % of sales, while the
balance sheet items are given as percentage of total shareholder’s fund &
Liabilities or of total assets. Vertical analyses help in making comparisons
of companies that differ in size since the financial statement is expressed
in comparable common – size format. Further a comparison of common –
size statements for several years may reveal important changes in the
components from one year to the next.

S V INSTITUTE OF MANAGEMENT, KADI 38


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 3.1
3.1 COMMON – SIZE PROFIT & LOSS ACCOUNT OF
ASHOK LEYLAND LTD FOR THE YEAR ENDED MARCH 31.
Figure in Percent (%)
PARTICULARS 2003 2004 2005 2006 2007

INCOME
SALES 99.43 99.45 98.73 99.38 99.02
OTHER 0.57 0.55 1.27 0.62 0.98
100.00 100.00 100.00 100.00 100.00

EXPENDITURE
MANUFACTURING & OTHER
EXPENSES 87.38 87.89 88.75 89.15 89.31
DEPRECIATION 3.82 2.83 2.58 2.39 2.08
FINANCIAL EXPENSES 2.17 0.61 0.07 0.31 0.07
93.37 91.33 91.39 91.85 91.47
PROFIT BEFORE
EXTRAORDINARY EXPENSES 6.63 8.67 8.61 8.15 8.53
EXTRA ORDINARY EXPENSE 0.32 0.28 0.23 (0.41) 0.18
PROFIT\(LOSS) FOR THE
YEAR (PBT) 6.31 8.39 8.38 8.57 8.35
PROVISION FOR TAXATION 1.85 2.72 1.97 2.37 2.25
PROFIT\(LOSS) FOR THE
YEAR (PAT) 4.46 5.67 6.41 6.20 6.10
Comment on Profit & Loss Account:
1. Sales: the common size statement shows that the main source of
income for the company is sales. In year 2003 sales in were
99.43% but in year 2004 it was highest up to 99.45%. Now in year
2005 it was decreased up to 98.73% and then it has been
decreased to 99.38% and 99.02% in the year 2006 & 2007
respectively.
2. Total Expenditure: The total expenditure of the company has
been found continuously increase up to year 2006-07. It has been
increased due to increase in the total amount of sales. Financial
expense is also decreased it is favorable sign for the company.
3. Profit before Tax: PBT in year 2003 is 6.31%. It was in year 2004,
2005, 2006 & 2007 it is little 8.39%, 8.38, 8.57 & 8.35 respectively.
4. Profit after Tax: According to common size statement PAT of the
company for the year 2003 is 4.46% & than it has been increased
to 6.41% in 2005 and than it has been reduced to 6.10%in the year
2007.

S V INSTITUTE OF MANAGEMENT, KADI 39


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 3.2
COMMON – SIZE BALANCE SHEETS OF ASHOK LEYLAND
LTD AS ON MARCH 31
Figure in Percent (%)
Particular 2003 2004 2005 2006 2007
SOURCE OF FUNDS

SHARE CAPITAL 4.88 4.64 3.51 3.31 2.95


RESERVE & SURPLUS 34.48 36.39 30.99 34.94 39.27
SECURED LOANS 20.70 12.11 7.78 5.00 8.03
UNSECURED LOANS 8.74 7.35 18.23 13.74 6.24
DEFERRED TAX LIABILITY 6.91 7.03 5.05 4.87 4.39
LIABILITIES 20.22 26.75 28.40 31.06 36.80
PROVISIONS 4.08 5.74 6.04 7.09 2.32
100.0 100.0 100.0 100.0
TOTAL 0 0 0 0 100.00

APPLICATION OF FUND

FIXED ASSETS 37.02 34.12 26.41 25.54 29.12


CAPITAL WIP 1.53 1.80 2.52 3.83 5.29
INVESTMENTS 6.46 5.72 6.77 9.97 4.93
INVERTORIES 16.84 19.77 16.78 24.44 23.85
SUNDRY DEBTORS 21.25 15.82 13.55 11.49 11.65
CASH & BANK BALANCEEE 9.10 12.68 23.54 16.33 9.69
LOANS & ADVANCES 7.79 8.82 9.86 8.20 14.92
MISC. EXP. 0.00 1.26 0.57 0.20 0.54
100.0 100.0 100.0 100.0
TOTAL 0 0 0 0 100.00
1. Sources of Fund: the common size statement shows that the
shareholder’s fund of the company in year 2002-03 was 39.36% & in
year 2003-04 it was also increased up to 41.03% but in year 2004-05
was decreased up to 34.5% & in the year 2005-06 it increase to
48.25% & in the year 2006-07 it was highest increase i.e. by 42.22%
the borrowed fund of the company goes on increasing in this year. It
indicates that the company is less dependent on borrowed funds than
shareholder’s fund.
2. Fixed Assets: According to common size statement, fixed assets of
the company in years 2002-03, 2003-04, 2004-05, 2005-06 it were
37.02%, 34.12%, 26.41% , 25.54% respectively. It is happening due
to sales has decreasing trend in this year. But in the year 2006-07 it
increase to 29.12%
3. Investments: The investments of the company in year 2002-03 was
6.46% but it was decreased by 5.72% in year 2003-04 but it has

S V INSTITUTE OF MANAGEMENT, KADI 40


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

increased by 6.77% in year 2004-05. In the year 2006-07 it was


highest increase of investment i.e. by 9.97%. But in the year 2006-07
it was decrease to 4.93%. It indicates that investments are stated at
cost. If investment is more then company get more return.

4. Current Liabilities & Current Assets: the current liabilities of the


company go on increasing every year. It means that there was
decrease in working capital that affect the liquidity position of the
company. The current assets has also increased every year that is
54.99%, 57.09%, 63.73% for the year 2002-03, 2003-04, 2004-05
accordingly.

The analysis of various figures shows that the company has satisfactory
long term & short-term financial position. It shows financial position of
company is sound.

S V INSTITUTE OF MANAGEMENT, KADI 41


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

3.3 COMPOSITION OF SHAREHOLDER’S FUNDS &


LIABILITIES IN DIFFERENT YEARS
EXHIBIT 3.3
SHAREHOLDER’S FUND &
LIABILITIES 2003 2004 2005 2006 2007
SHARE CAPITAL 4.88 4.64 3.51 3.31 2.95
RESERVE & SURPLUS 34.48 36.39 30.99 34.94 39.27
SECURED LOANS 20.70 12.11 7.78 5.00 8.03
UNSECURED LOANS 8.74 7.35 18.23 13.74 6.24
DEFERRED TAX LIABILITY 6.91 7.03 5.05 4.87 4.39
CURRENT LIABILITIES 20.22 26.75 28.40 31.06 36.80
PROVISIONS 4.08 5.74 6.04 7.09 2.32
TOTAL 100.00 100.00 100.00 100.00 100.00

Chart -3.3

SHAREHOLDER’S FUND & LIABILITIES

45
40
35
FIGURES IN %

30
25
20
15
10
5
0
SHARE RESERVE & SECURED UNSECURED DEFERRED TAX CURRENT PROVISIONS
CAPITAL SURPLUS LOANS LOANS LIABILITY LIABILITIES
PARTICULARS

2003 2004 2005 2006 2007

 Share Capital & Secured Loan decreasing in total funds.


 Reserve & surplus increases up to 36.39% in year 2003-04 but in
year 2004-05 it is decreased to 30.99%. Again it shows increase in
the year 2005-06 as well as in year 2006 i.e. 34.94% & 39.27
respectively.
 Unsecured Loan is increased up to year 2004-05 by 18.22% but it
decreased to 6.24% in 2006-07
 Proportion of C.L has increasing every year from 20.22% to 36.8%.
 Deferred tax liabilities decreased up to 2004-05 & than it remains
stable than after.

S V INSTITUTE OF MANAGEMENT, KADI 42


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

3.4 COMPOSITION OF ASSETS IN DIFFERENT YEARS

EXHIBIT 3.4

APPLICATION OF FUND 2003 2004 2005 2006 2007


FIXED ASSETS 37.02 34.13 26.41 25.55 29.12
CAPITAL WIP 1.53 1.80 2.52 3.83 5.29
INVESTMENTS 6.46 5.72 6.77 9.97 4.93
INVERTORIES 16.84 19.78 16.78 24.44 23.85
SUNDRY DEBTORS 21.26 15.82 13.55 11.49 11.65
CASH & BANK BALANCE 9.11 12.67 23.54 16.32 9.69
LOANS & ADVANCES 7.79 8.82 9.86 8.20 14.92
MISCELLANEOUS EXP 0.00 1.26 0.57 0.20 0.54
TOTAL ASSETS 100.00 100.00 100.00 100.00 100.00
Chart 3.4

COMPOSITION OF ASSETS

40

35
FIGURES IN %

30

25

20

15

10

0
FIX ED A SSETS C A PITA L WIP INV ESTM ENTS INV ER TOR IES SUNDR Y C A SH & B A NK LOA NS & M ISC ELLANEOUS
DEB TOR S B A LANC E A DV A NC ES EX P

PARTICULARS

2003 2004 2005 2006 2007

 Here % of Fixed Assets decreasing every year from 37.02% to


25.55% up to year 2005-06& than it increases to 29.12%
 Capital Work In Progress increases every year & Investment
decreased up to 5.72% in 2003-04 but it is increased to 9.97% in
2005-06. But it again decreases to 4.93% in the year 2006-07.
 Inventories have variation effects i.e. the values are fluctuating
every year.
 Debtors decreasing every year
 Cash & Bank balance increasing up to 2004-05 but decrease
thereafter up to 2006-07.
 Loan & Advances increases from 7.80% to 9.86% than decrease to
8.20% & it was highest in the year 2006-07 i.e. to 14.92%
 Misc. Exp. was zero in 2002-03 but it were increases up to 1.27% in
2003-04 again it is decreased to 0.20% in 2005-06 & again increase
to 0.54% in 2006-07.

S V INSTITUTE OF MANAGEMENT, KADI 43


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

3.5 ANALYSIS OF SOURCES OF FUNDS &


APPLICATION OF FUND
Particular 2002-03 2003-04 2004-05 2005-06 2006-07
SOURCE OF FUNDS
SHARE CAPITAL 6.44 6.87 5.36 5.35 4.85
RESERVE & SURPLUS 45.55 53.89 47.27 56.49 64.50
SECURED LOANS 27.34 17.93 11.87 8.09 13.19
UNSECURED LOANS 11.54 10.89 27.80 22.21 10.26
DEFERRED TAX
LIABILITY 9.13 10.42 7.70 7.87 7.21
TOTAL 100.00 100.00 100.00 100.00 100.00

APPLICATION OF
FUND
FIXED ASSETS 50.93 53.21 44.12 47.49 56.54
INVESTMENTS 8.54 8.47 10.33 16.12 8.09
NET CURRENT ASSETS 40.54 36.45 44.68 36.07 34.48
MISCELLANEOUS
EXPENSES 0.00 1.87 0.87 0.32 0.89
TOTAL 100.00 100.00 100.00 100.00 100.00

For the year 2002-2003

Source of Fund:
Chart 3.5.1
Sources of Fund For 2003

DEFERRED TAX
LIABILITY, 9.13 SHARE C APITAL, 6.44

UNSEC URED LOANS,


11.54

RESERVE & SURPLUS,


SEC URED LOANS, 45.55
27.34

SHARE CAPITAL RESERVE & SURPLUS SECURED LOANS


UNSECURED LOANS DEFERRED TAX LIABILITY

S V INSTITUTE OF MANAGEMENT, KADI 44


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Application of Fund:
Chart 3.5.2
APPLICATION OF FUND FOR 2003

MISCELLANEOUS
EXPENSES , 0.00
NET CURRENT
ASSETS ,
40.54

FIXED ASSETS, 50.93

INVESTMENTS
, 8.54

FIXED ASSETS INVESTMENTS


NET CURRENT ASSETS MISCELLANEOUS EXPENSES

For the year 2003-04:


Source of Fund:
Chart 3.5.3
SOURCE OF FUNDS FOR 2004

DEFERRED TAX
LIABILITY, 10.42 SHARE CAPITAL,
6.87
UNSECURED LOANS,
10.89

SECURED LOANS,
17.93 RESERVE & SURPLUS,
53.89

SHARE CAPITAL RESERVE & SURPLUS SECURED LOANS


UNSECURED LOANS DEFERRED TAX LIABILITY

Application of Fund:
Chart 3.5.4
APPLICATION OF FUND FOR 2004

MISCELLANEOUS
EXPENSES , 1.87
NET CURRENT
ASSETS ,
36.45

FIXED ASSETS, 53.21


INVESTMENTS
, 8.47

FIXED ASSETS INVESTMENTS


NET CURRENT ASSETS MISCELLANEOUS EXPENSES

S V INSTITUTE OF MANAGEMENT, KADI 45


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

For the year 2004-05


Source of Fund:
Chart 3.5.5
SOURCES OF FUNDS 2004-05

DEFERRED TAX SHARE CAPITAL,


LIABILITY, 7.70 5.36

UNSECURED LOANS,
27.80

RESERVE & SURPLUS,


SECURED LOANS, 47.27
11.87

SHARE CAPITAL RESERVE & SURPLUS SECURED LOANS


UNSECURED LOANS DEFERRED TAX LIABILITY

Application of Fund:
Chart 3.5.6
APPLICATION OF FUND FOR 2004-05

MISCELLANEOUS
EXPENSES , 0.87

NET CURRENT
ASSETS , FIXED ASSETS,
44.68 44.12

INVESTMENTS
, 10.33

FIXED ASSETS INVESTMENTS


NET CURRENT ASSETS MISCELLANEOUS EXPENSES

For the year 2005-06


Source of Fund:
Chart 3.5.7
SOURCE OF FUNDS FOR 2005-06

DEFERRED TAX SHARE CAPITAL,


LIABILITY, 7.87 5.35

UNSECURED LOANS,
22.21

SECURED LOANS, RESERVE & SURPLUS,


8.09 56.49

SHARE CAPITAL RESERVE & SURPLUS SECURED LOANS


UNSECURED LOANS DEFERRED TAX LIABILITY

S V INSTITUTE OF MANAGEMENT, KADI 46


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Application of Fund:
Chart 3.5.8
APPLICATION OF FUND FOR 2005-06
MISCELLANEOUS
EXPENSES
0.32
NET CURRENT
ASSETS
36.07
FIXED ASSETS
47.49

INVESTMENTS
16.12

FIXED ASSETS INVESTMENTS


NET CURRENT ASSETS MISCELLANEOUS EXPENSES

For the year 2006-07


Source of Fund:
Chart 3.5.9
SOURCE OF FUNDS FOR 2006-07

DEFERRED TAX
LIABILITY, 7.21 SHARE CAPITAL,
4.85
UNSECURED LOANS,
10.26

SECURED LOANS,
13.19 RESERVE &
SURPLUS, 64.50

SHARE CAPITAL RESERVE & SURPLUS SECURED LOANS


UNSECURED LOANS DEFERRED TAX LIABILITY

Application of Fund:
Chart 3.5.10
APPLICATION OF FUND FOR 2006-07
MISCELLANEOUS
NET CURRENT EXPENSES
ASSETS 0.89
34.48

INVESTMENTS FIXED ASSETS


8.09 56.54

FIXED ASSETS INVESTMENTS


NET CURRENT ASSETS MISCELLANEOUS EXPENSES

S V INSTITUTE OF MANAGEMENT, KADI 47


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 From the above pie graphs we can see that the portion of secured
loan is decreasing every year but it has increased in 2007 compared
to 2006 & unsecured loan is decreased up to 2004 but this is
increased to 27.80% in year 2005 and again decreased to 10.26%
in 2007.
 The portion of share capital which is 1189.29 has been same up to
2004-05 and increase to Rs. 1221.59 in 2005-06 & Rs. 1323.87 in
2006-07 but it shows decreasing trend in % due to increase in
other fund.
 Reserve & Surplus has been increase every year but in the year
2004-05 it is decreased but it again shows increasing trend.
 Deferred tax liability has fluctuation trend in all the years.
 Fixed assets increasing every year but it are decreased to 44% in
year 2004 – 05 but again it shows increasing trends up to current
year i.e. 2006-07.
 Net current assets in this year is 45% that means the working
capital of Ashok Leyland has efficient useful.
 Miscellaneous expenses are Nil in year 2003 but it has increased by
1.87% in year 2004 and shows decreasing trend till 2005-06 but
again it increases in the current year to 0.89% i.e. in 2006-07.

S V INSTITUTE OF MANAGEMENT, KADI 48


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CHAPTER 4
TREND ANALYSIS
For studying the trend of various items of financial statements, figures of
a single year are not enough. Comparative figures of some more years
are significant. Such comparative figures may be either absolute figure or
may be presented in % form. If the item of one year, which called base
year, is compared with similar items of one year in the form of Percentage
This method is known as trend percentage method or trend ratio method.

4.1 TREND OF PROFIT & LOSS ACCOUNT


EXHIBIT 4.1
Figure in (%)
Particulars 2003 2004 2005 2006 2007

INCOME
SALES 100.00 126.62 156.02 195.78 267.43
OTHER 100.00 121.76 351.50 215.61 462.98
100.00 126.59 157.13 195.89 268.54

EXPENDITURE
MANUFACTUREING & OTHER
EXPENSES 100.00 127.34 159.59 199.86 274.49
DEPRECIATION 100.00 93.67 106.06 122.37 146.23
FINANCIAL EXPENSES 100.00 35.53 4.78 28.12 9.11
100.00 123.82 153.80 192.70 263.08
PROFIT BEFORE
EXTRAORDINARY EXPENSES 100.00 165.56 203.94 240.86 345.46
EXTRA ORDINARY EXPENSE 100.00 109.81 110.54 (250.49) 150.84
PROFIT\(LOSS) FOR THE
YEAR (PBT) 100.00 168.40 208.70 265.90 355.38
PROVISION FOR TAXATION 100.00 186.17 167.57 250.51 327.16
PROFIT\(LOSS) FOR THE
YEAR (PAT) 100.00 161.03 225.78 272.29 367.09

S V INSTITUTE OF MANAGEMENT, KADI 49


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Trend analysis of profit & loss account

4.1.1 Trend Analysis of Sales (Base Year: 2003)

EXHIBIT 4.1.1
Particulars 2003 2004 2005 2006 2007
SALES 100.00 126.62 156.02 195.78 267.43

Chart 4.1.1
SALES
300
PERCENTAGE (%)

250
267.43
200
195.78
150
156.02
100 126.62
100.00
50

0
2003 2004 2005 2006 2007
YEARS SALES

 The above graph of sales shows continuously increase in the sales


compared to the base year 2002-03.
 In the year 2002-03 it was 100% it has been continuously increase
to 267.14% in the year 2006-07. It means it has been increased
167.14% in this period.
 In real it was 26803.75 (Rs In millions) in the year 2002-03 and
increased to 71681.76 (Rs In millions).
 So it is favorable for the company & increases the reputation of the
company.

4.1.2 Trend Analysis of Expenditure (Base Year: 2003)

EXHIBIT 4.1.2

Particulars 2003 2004 2005 2006 2007


EXPENDITURE 100.00 123.82 153.80 192.70 263.08

S V INSTITUTE OF MANAGEMENT, KADI 50


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 4.1.2

EXPENDITURE
300
PERCENTAGE (%)

250
263.08
200
192.70
150
153.80
100 123.82
100.00
50

0
2003 2004 2005 2006 2007
YEARS EXPENDITURE

 The above graph of expenditure shows continuously increase in the


expense compared to the base year 2002-03.
 In the year 2002-03 it was 100% it has been continuously increase
to 263.08% in the year 2006-07. It means it has been increased
163.08% in this period.
 It has increased only because of sales has increased and only
manufacturing expense has increased in total expense.
 In real it was 25168.97 (Rs In millions) in the year 2002-03 and
increased to 66213.97 (Rs In millions).
 It has been increased only due to increases in sales, so it is good for
the company.

4.1.3 Trend Analysis of PAT (Base Year: 2003)


EXHIBIT 4.1.3
Particulars 2003 2004 2005 2006 2007
PROFIT\(LOSS) FOR THE
YEAR (PAT) 100.00 161.03 225.78 272.29 367.09

EXHIBIT 4.1.3
PROFIT\(LOSS) AFTER TAX (PAT)
400
PERCENTAGE (%)

350
367.09
300
250
272.29
200
225.78
150
100 161.03
100.00
50
0
2003 2004 2005 2006 2007
YEARS PROFIT\(LOSS) AFTER TAX (PAT)

S V INSTITUTE OF MANAGEMENT, KADI 51


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 The above graph of PAT shows continuously increase in PAT


compared to the base year 2002-03.
 In the year 2002-03 it was 100% it has been continuously increase
to 367.09% in the year 2006-07. It means it has been increased
267.09% in this period. It is very favorable for the company.
 It has increased due to increase in sales over the years.
 In real it was 1202.12 (Rs In millions) in the year 2002-03 and
increased to 4412.86 (Rs In millions).
 It has been increased continuously, so by seeing the increase in
trend of PAT investors will increase. So it is favorable for the
company.

S V INSTITUTE OF MANAGEMENT, KADI 52


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 4.2
4.2 TREND OF BALANCE SHEET

Particular 2003 2004 2005 2006 2007


SOURCE OF FUNDS
SHARE CAPITAL 100.00 100.00 100.00 102.72 111.32
RESERVE & SURPLUS 100.00 110.98 124.79 153.50 209.64
SECURED LOANS 100.00 61.51 52.22 36.60 71.39
UNSECURED LOANS 100.00 88.54 289.68 238.18 131.57
DEFERRED TAX LIAB. 100.00 107.00 101.39 106.64 116.87
LIABILITIES 100.00 139.12 195.02 232.70 335.11
PROVISIONS 100.00 147.75 205.48 262.90 104.74
TOTAL FUNDS 100.00 105.16 138.84 151.47 184.08

APPLICATION OF
FUND

FIXED ASSETS 100.00 96.93 99.04 104.52 144.82


CAPITAL WIP 100.00 123.99 228.18 378.94 636.38
INVESTMENTS 100.00 93.04 145.45 233.65 140.31
INVERTORIES 100.00 123.51 138.40 219.89 260.76
SUNDRY DEBTORS 100.00 78.28 88.54 81.89 100.91
CASH & BANK BAL. 100.00 146.44 358.99 271.66 195.99
LOANS & ADVANCES 100.00 119.05 175.70 159.33 352.52
MISC. EXP 100.00 0.00 0.00 0.00 0.00

TOTAL ASSETS 100.00 105.16 138.84 151.47 184.08

S V INSTITUTE OF MANAGEMENT, KADI 53


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Trend analysis of Balance Sheet:-


4.2.1 APPLICATION OF FUND
4.2.1.1 Trend Analysis of Net Fixed Assets (Base Year: 2003)

EXHIBIT 4.2.1.1

Particular 2003 2004 2005 2006 2007


GROSS ASSETS 100.00 103.51 110.50 118.01 144.60
LESS: DEPRECIATION 100.00 110.03 121.86 131.41 144.38
NET FIXED ASSETS 100.00 96.93 99.04 104.52 144.82

Chart 4.2.1.1
PERCENTAGE (%)

160
NET FIXED ASSETS
140
120 144.82
100
80 100.00 96.93 99.04 104.52
60
40
20
0
2003 2004 2005 2006 2007
YEARS NET FIXED ASSETS

 The above graph of net fixed assets shows little fluctuation but net
fixed assets have been increased compared to the base year 2002-
03.
 In the year 2002-03 it was 100% it increases to 144.82 in the year
2006-07. It means it has been increased 44.82% in this period.
 In real it was 9025.19 (Rs In millions) in the year 2002-03 and
increased to 13070.33 (Rs In millions).
 Actually, gross fixed assets has been increased continuously but in
the year 2003-04 & 2004-05 it shows downward trend only due to
depreciation.

4.2.1.2 Trend Analysis of Investments (Base Year: 2003)

EXHIBIT 4.2.1.2
Particular 2003 2004 2005 2006 2007
INVESTMENTS 100.00 93.04 145.45 233.65 140.31

S V INSTITUTE OF MANAGEMENT, KADI 54


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 4.2.1.2
INVESTMENTS
250
PERCENTAGE (%)

200 233.65

150

145.45 140.31
100
100.00
93.04
50

0
2003 2004 2005 2006 2007
YEARS INVESTMENTS

 The above graph of trend of investments shows fluctuation but


investments have been increased compared to the base year 2002-
03.
 In the year 2002-03 it was 100% but in the year 2003-04 it has
been reduced to 93.04% but then it has been increased to 145.45%
& 233.65% in the year 2004-05 & 2005-06 respectively but than it
reduced to 140.31% in the year 2006-07 than to it has been
increased 40.31% in this period.
 In real it was 1575.76 (Rs In millions) in the year 2002-03 and
increased to 2210.94 (Rs In millions).
 It has reduced in the year 2006-07 because of sale of investments
in this year.

4.2.1.3 Trend Analysis of Inventories (Base Year: 2003)


EXHIBIT 4.2.1.3
Particular 2003 2004 2005 2006 2007
INVENTORIES 100.00 123.51 138.40 219.89 260.76
Chart 4.2.1.3
INVENTORIES
300
PERCENTAGE (%)

250
260.76
200
219.89
150
100 138.40
123.51
100.00
50

0
2003 2004 2005 2006 2007
YEARS INVENTORIES

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BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 The above graph of trend of inventories shows continuously increase


in the inventories compared to the base year 2002-03.
 In the year 2002-03 it was 100% it has been continuously increase
to 260.76% in the year 2006-07. It means it has been increased
160.76% in this period.
 In real it was 4104.56 (Rs In millions) in the year 2002-03 and
increased to 10703.21 (Rs In millions).

4.2.1.4 Trend Analysis of Sundry Debtors (Base Year: 2003)

EXHIBIT 4.2.1.4

Particular 2003 2004 2005 2006 2007


SUNDRY DEBTORS 100.00 78.28 88.54 81.89 100.91

Chart 4.2.1.4
SUNDRY DEBTORS
120
PERCENTAGE (%)

100
80 100.00 100.91
88.54 81.89
60 78.28

40
20
0
2003 2004 2005 2006 2007
YEARS SUNDRY DEBTORS

 The above graph of trend of sundry debtor’s shows huge fluctuation


over the years but sundry debtors has been increased compared to
the base year 2002-03.
 In the year 2002-03 it was 100% but in the year 2003-04 it has
been reduced to 78.28% but then it has been increased to 88.54 in
the year 2004-05 & again it reduced to 81.89% in the year 2005-06
but than it increased to 100.91% in the year 2006-07. It has been
increased only by 0.91% in this period.
 In real it was 5181.50 (Rs In millions) in the year 2002-03 and
increased to 5228.75 (Rs In millions).
 We can say that there is good control over the debtors, so it is
favorable for the company.

4.2.1.5. Trend Analysis of Cash & Bank Balance (Base Year:


2003)
EXHIBIT 4.2.1.5
Particular 2003 2004 2005 2006 2007

S V INSTITUTE OF MANAGEMENT, KADI 56


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CASH & BANK BALANCE 100.00 146.44 358.99 271.66 195.99

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BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 4.2.1.5
CASH & BANK BALANCE
400
350
PERCENTAGE (%)

300 358.99
250 271.66
200
150 195.99
100 146.44
50 100.00
0
2003 2004 2005 2006 2007
YEARS CASH & BANK BALANCE

 The above graph of trend of cash & bank balance shows huge
fluctuation over the years but cash & bank balance has been
increased compared to the base year 2002-03.
 In the year 2002-03 it was 100% but it has been increased to
146.44% & 358.99% in the year 2003-04 & 2004-05 respectively.
But then it has been reduced to 271.66% & 195.99% in the year
2005-06 & 2006-07 respectively. It means it has been increased
95.99% in this period.
 In real it was 2219.23 (Rs In millions) in the year 2002-03 and
increased to 4349.39 (Rs In millions).

4.2.1.6 Trend Analysis of Loans & Advances (Base Year: 2003)

EXHIBIT 4.2.1.6
Particular 2003 2004 2005 2006 2007
LOANS & ADVANCES 100.00 119.05 175.70 159.33 352.52

Chart 4.2.1.6
LOANS & ADVANCES
400
PERCENTAGE (%)

350
300 352.52
250
200
150
175.70 159.33
100
119.05
50 100.00
0
2003 2004 2005 2006 2007
YEARS LOANS & ADVANCES

 The above graph of trend of loans & advances shows increase in the
loans & advances compared to the base year 2002-03.

S V INSTITUTE OF MANAGEMENT, KADI 58


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 In the year 2002-03 it was 100% it has been increased to 119.05%


& 175.70% in the year 2003-04 & 2004-05 respectively but than it
has been decreased to 159.33% in the year 2008-06 & than it has
increased to 352.52% in the year 2006-07. It means it has been
increased 252.52% in this period.
 In real it was 1899.41 (Rs In millions) in the year 2002-03 and
increased to 6695.79 (Rs In millions).

4.2.2 SOURCES OF FUND:-

4.2.2.1 Trend Analysis of Share Capital (Base Year: 2003)

EXHIBIT 4.2.2.1
Particular 2003 2004 2005 2006 2007
SHARE CAPITAL 100.00 100.00 100.00 102.72 111.32

Chart 4.2.2.1
SHARE CAPITAL
114
112
PERCENTAGE (%)

110
108 111.32
106
104
102
100 102.72
98 100.00 100.00 100.00
96
94
2003 2004 2005 2006 2007
YEARS SHARE CAPITAL

 The above graph of trend of share capital shows stability & then
increase in the share capital.
 In the year 2002-03 it was 100% and than it has increased to
111.32% in the year 2006-07. It means it has been increased by
11.32% in this period.
 It has been increased due to further issue of share, it has lead to
increase the share capital.
 In real it was 1189.29 (Rs In millions) in the year 2002-03 and
increased to 1323.87 (Rs In millions).
 They have issued the share capital to meet the further requirement
of capital.

4.2.2.2Trend Analysis of Reserve & Surplus (Base Year: 2003)


EXHIBIT 4.2.2.2
Particular 2003 2004 2005 2006 2007
RESERVE & SURPLUS 100.00 110.98 124.79 153.50 209.64

S V INSTITUTE OF MANAGEMENT, KADI 59


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 4.2.2.2
RESERVE & SURPLUS
250
PERCENTAGE (%)

200
209.64
150

100 153.50
124.79
100.00 110.98
50

0
2003 2004 2005 2006 2007
YEARS RESERVE & SURPLUS

 The above graph of trend of reserve & surplus shows continuously


increase in reserve & surplus compared to the base year 2002-03.
 In the year 2002-03 it was 100% it has been continuously increase
to 209.64% in the year 2006-07. It means it has been increased
109.64% in this period. It is very favorable for the company.
 It has increased due to increase in PAT over the years.
 In real it was 8405.57 (Rs In millions) in the year 2002-03 and
increased to 17621.81 (Rs In millions).
 It is favorable for the company.

4.2.2.3 Trend Analysis of Shareholder’s Fund (Base Year: 2003)

EXHIBIT 4.2.2.3
Particular 2003 2004 2005 2006 2007
SHAREHOLDER’S FUND 100.00 109.62 121.72 147.21 197.46

Chart 4.2.2.3
SHAREHOLDER’S FUND
250
PERCENTAGE (%)

200
197.46
150
147.21
100 121.72
100.00 109.62
50

0
2003 2004 2005 2006 2007
YEARS SHAREHOLDER’S FUND

 The above graph of trend of share holder’s fund shows continuously


increase in the share holder’s fund compared to the base year
2002-03.

S V INSTITUTE OF MANAGEMENT, KADI 60


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 In the year 2002-03 it was 100% it has been continuously increase


to 197.46% in the year 2006-07. It means it has been increased
97.46% in this period.
 Share holder’s fund constitutes of share capital & reserves &
surplus. The one of the reason for increase in the share holder’s
fund is issue of new shares.
 In real it was 26803.75 (Rs In millions) in the year 2002-03 and
increased to 71681.76 (Rs In millions).
 So it is favorable for the company & increases the reputation of the
company.

4.2.2.4 Trend Analysis of Loan Funds (Base Year: 2003)

EXHIBIT 4.2.2.4
Particular 2003 2004 2005 2006 2007
LOAN FUNDS 100.00 69.53 122.70 96.43 89.25

Chart 4.2.2.4
LOAN FUNDS
140
PERCENTAGE (%)

120
100 122.70
80 100.00 96.43 89.25
60
69.53
40
20
0
2003 2004 2005 2006 2007
YEARS LOAN FUNDS

 The above graph of trend of loan funds shows huge fluctuation over
the years.
 In the year 2002-03 it was 100% but it has been reduced to
69.53% in the year 2003-04 & than increased to 122.70% in the
year 2004-05. But then it has been again reduced to 96.43% &
89.25% in the year 2005-06 & 2006-07 respectively. It means it
has been reduced 10.75% in this period.
 In real it was 7175.22 (Rs In millions) in the year 2002-03 and
increased to 6403.98 (Rs In millions).

4.2.2.5 Trend Analysis of Deferred Tax Liability (Base Year: 2003)

EXHIBIT 4.2.2.5
Particular 2003 2004 2005 2006 2007
DEFERRED TAX LIABILITY 100.00 107.00 101.39 106.64 116.87

S V INSTITUTE OF MANAGEMENT, KADI 61


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 4.2.2.5
DEFERRED TAX LIABILITY
120
PERCENTAGE (%)

115
116.87
110
105
107.00 106.64
100
100.00 101.39
95
90
2003 2004 2005 2006 2007
YEARS DEFERRED TAX LIABILITY

 The above graph of deferred tax liability shows fluctuation but


deferred tax liability has been increased compared to the base year
2002-03.
 In the year 2002-03 it was 100% but in the year 2003-04 it has
been increased to 107.00% but then it has been reduced to
101.39% in the year 2004-05 & than it has increased to 106.64% &
116.87% in the year 2005-06 & 2006-07 respectively. That means
it has been increased 16.87% in this period.
 In real it was 1684.99 (Rs In millions) in the year 2002-03 and
increased to 1969.29 (Rs In millions).

4.2.2.6 Trend Analysis of Current Liabilities & Provisions


(Base Year: 2003)

EXHIBIT 4.2.2.6
Particular 2003 2004 2005 2006 2007
CURRENT LIABILITIES &
PROVISIONS 100.00 140.57 196.78 237.77 296.41

Chart 4.2.2.6
CURRENT LIABILITIES & PROVISIONS
350
PERCENTAGE (%)

300
250 296.41
200 237.77
150 196.78
100 140.57
50 100.00
0
2003 2004 2005 2006 2007
YEARS CURRENT LIABILITIES & PROVISIONS

S V INSTITUTE OF MANAGEMENT, KADI 62


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 The above graph of trend of current liabilities & provisions shows


continuously increase in the current liabilities & provisions compared
to the base year 2002-03.
 In the year 2002-03 it was 100% it has been continuously increase
to 296.41% in the year 2006-07. It means it has been increased
196.41% in this period.
 Current liabilities & provisions constitutes of liabilities & provisions.
 In real it was 5923.77 (Rs In millions) in the year 2002-03 and
increased to 17558.55 (Rs In millions).

S V INSTITUTE OF MANAGEMENT, KADI 63


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CHAPTER 5
CASH FLOW ANALYSIS

The statement of Cash Flow respects an enterprise’s major sources of


cash receipts and cash payments. It reports the cash effects during a
period of an enterprise’s operation, its investing transactions, and its
financing transactions. The statement provides information to understand
the movements over the period in cash and cash equivalents.

Purpose and uses of the statement of Cash Flow:

The main purpose of the statement of cash flow is to provide relevant


information about the cash receipt and cash payments of an enterprise
during a period. The information will help users of financial statements to
assess the amounts, timing and uncertainty of prospective cash flow to
the enterprise.

Usefulness:

1. Predict Future cash flows.


2. Determine the ability to pay dividends & other commitments.
3. Show the relationship of net income to changes in the business
cash.
4. Efficiency in Cash Management.
5. Discloses the movement cash.
6. Discloses success or failure of Cash Planning.
7. Evaluate management decisions.

S V INSTITUTE OF MANAGEMENT, KADI 64


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 5.1

5.1 CASH FLOW STATEMENT FOR THE YEAR 2002 – 2003

PARTICULARS 2002-03

Profit before Tax 1701.02


ADJUSTMENTS FOR:
Depreciation 1029.69
Other Amortizations 100.25
Unrealized foreign exchange gains / losses (2.24)
Interest expense 810.42
Interest income (360.02)
Income from Investments (92.11)
Provision for diminution in value of Investments / Advances 20.72
(Profit)/Loss on disposal of Fixed Assets / Long Term (13.00)
Investments
Transfer from General Reserve - Employee benefits 0.00
Profit on sale of undertaking 0.00
OPERATING PROFIT BEFORE WORKING CAPITAL 3194.73
CHANGES
ADJUSTMENTS FOR CHANGES IN:
Inventories 1848.84
Debtors (254.16)
Advances (125.20)
Current Liabilities and Provisions 135.13
CASH GENERATED FROM OPERATIONS 4799.34
Income Tax (Paid) / Refund (558.78)
NET CASH FLOW FROM OPERATING ACTIVITIES
BEFORE EXTRAORDINARY ITEM 4240.56
Payments under Voluntary Retirement Scheme (627.86)
NET CASH FLOW FROM OPERATING ACTIVITIES AFTER
EXTRAORDINARY ITEM (A) 3612.70

CASH FLOWS FROM INVESTING ACTIVITIES


Payments for assets acquisition (1243.20)
Proceeds on sale of Fixed Assets 11.61
Proceeds on sale of undertaking 0.00
Purchase of Long Term Investments (671.00)
Sale/Redemption of Long Term Investments 48.04
Income from Investments - Interest 42.46
- Dividend 92.06
Changes in Advances 284.07
NET CASH FLOW FROM INVESTING ACTIVITIES (B) (1435.96)

S V INSTITUTE OF MANAGEMENT, KADI 65


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CASH FLOWS FROM FINANCING ACTIVITIES


Long term Borrowings - Raised 2321.17
- Repaid (3155.91)
Changes in Short term borrowings (871.42)
Debenture issue and Loan raising expenses paid (1.66)
Premium paid on Prepayment of Loan (65.18)
Interest paid - net (449.81)
Dividend Paid and tax thereon (535.18)
Interim dividend and tax thereon 0.00
NET CASH FLOW FROM FINANCING ACTIVITIES (C) (2757.99)

NET CASH INFLOW / (OUTFLOW) (A+B+C) (581.25)


OPENING CASH AND CASH EQUIVALENTS (D) 2842.98
CLOSING CASH AND CASH EQUIVALENTS (E) 2261.73
NET INCREASE IN CASH AND CASH EQUIVALENTS (581.25)
(E-D)

Interpretation:

• Operating activities:

The Ashok Leyland Ltd’s net cash flow from operations of 3612.70 (Rs In
Millions) is more than the sum of accrual based profit & depreciation that
equals Rs. 2231.81, showing that the profit has been fully realized in
cash. From the cash flow statements, the main positive item is the
depreciation charge of Rs. 1029.69. Thus the company’s earning can be
said to be of high quality. Increase in Inventories was 1848.84 and
increase in debtors is Rs. 254.16 resulted in strain on the cash generated
from generation.

• Investing Activities:

From the Investing Activities section; Ashok Leyland Ltd has incurred
capital expenditures of Rs. 1243.20. The expenditure has been financed
partly by:
a) Realizing Rs. 11.61 from the Sales of Plant.
b) Realizing Rs. 622.96 from the Sale Of Investments, Net OF
Purchase.
c) Interest Revenue Rs. 42.46. This has left a gap of Rs. 1435.96
to be financed from other sources.

• Financing Activities:

It is seen from the Financing Activities section that the Ashok Leyland Ltd
raised long-term borrowing Rs. 2321.17 & repaid long term borrowing Rs.

S V INSTITUTE OF MANAGEMENT, KADI 66


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

3155.91. Further, the company paid dividend Rs. 535.18 and interest of
Rs. 449.81 has been left, with net cash of Rs. 2757.99 from financing
activities.

• Net Cash Flow:

It is clear that the expansion in the plant & machinery during the period
was major drain on cash. The net cash out flow from investing activities of
Rs. 1435.96 was met from three sources:
1. Cash Flow from Operations, Rs. 3612.70.
2. Proceeds from Issuance of Share Capital, Rs. 2757.99 (after
repaying loans & disturbing interest and dividend).
3. Withdrawal from Cash Balance, Rs. 581.25.
That is Cash in Flow, which is good sign for company.

S V INSTITUTE OF MANAGEMENT, KADI 67


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 5.2

5.2 CASH FLOW STATEMENT FOR THE YEAR 2003 – 2004

PARTICULARS 2003-04

Profit before Tax 2864.60


ADJUSTMENTS FOR:
Depreciation 964.54
Other Amortizations 106.07
Unrealized foreign exchange gains / losses (0.26)
Interest expense 553.83
Interest income (377.43)
Income from Investments (103.48)
Provision for diminution in value of Investments / Advances 0.00
(Profit)/Loss on disposal of Fixed Assets / Long Term (28.96)
Investments
Transfer from General Reserve - Employee benefits 0.00
Profit on sale of undertaking 0.00
OPERATING PROFIT BEFORE WORKING CAPITAL 3978.91
CHANGES
ADJUSTMENTS FOR CHANGES IN:
Inventories (964.85)
Debtors 1121.67
Advances (104.38)
Current Liabilities and Provisions 2174.29
CASH GENERATED FROM OPERATIONS 6205.64
Income Tax (Paid) / Refund (520.37)
NET CASH FLOW FROM OPERATING ACTIVITIES
BEFORE EXTRAORDINARY ITEM 5685.27
Payments under Voluntary Retirement Scheme (278.44)
NET CASH FLOW FROM OPERATING ACTIVITIES AFTER
EXTRAORDINARY ITEM (A) 5406.83

CASH FLOWS FROM INVESTING ACTIVITIES


Payments for assets acquisition (986.79)
Proceeds on sale of Fixed Assets 26.26
Proceeds on sale of undertaking 0.00
Purchase of Long Term Investments (202.84)
Sale/Redemption of Long Term Investments 508.39
Income from Investments - Interest 0.59
- Dividend 103.48
Changes in Advances (285.92)
NET CASH FLOW FROM INVESTING ACTIVITIES (B) (836.83)

S V INSTITUTE OF MANAGEMENT, KADI 68


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CASH FLOWS FROM FINANCING ACTIVITIES


Long term Borrowings - Raised 1279.14
- Repaid (3392.37)
Changes in Short term borrowings (71.26)
Debenture issue and Loan raising expenses paid (5.08)
Premium paid on Prepayment of Loan (142.75)
Interest paid - net (346.68)
Dividend Paid and tax thereon (670.83)
Interim dividend and tax thereon 0.00
NET CASH FLOW FROM FINANCING ACTIVITIES (C) (3349.83)

NET CASH INFLOW / (OUTFLOW) (A+B+C) 1220.17


OPENING CASH AND CASH EQUIVALENTS (D) 2261.73
CLOSING CASH AND CASH EQUIVALENTS (E) 3481.90
NET INCREASE IN CASH AND CASH EQUIVALENTS 1220.17
(E-D)

Interpretation:
• Operating activities:

Profit before tax was of Rs. 2846.60. The net cash flow from Operating
Activities Rs. 2900.34 that includes the depreciation, other amortizations,
and interest expenses were 964.54, 106.07, and 553.83 respectively.
Increase in inventories, advances & current liabilities by 964.85, 104.38,
2174.29 respectively & decreases in debtors by 1121.67

• Investing Activities:
From the Investing Activities section; Ashok Leyland Ltd has incurred
capital expenditures of Rs. 836.83. The expenditure has been financed
partly by:
a) Realizing Rs. 26.26 from the Sales of Plant.
b) Realizing Rs. 509.39 from the Sale Of Investments, Net OF
Purchase.
c) Income from investments (including interest & dividend) Rs
104.08. This has left a gap of Rs. 836.83 to be financed from
other sources.
• Financing Activities:
Long-term borrowing raised was Rs. 1279.14 that was repaid Rs.
3392.37. Interest paid and dividend paid 346.68 & 670.83 that carried
out finance activities Rs. 3349.83.
• Net Cash Flow:

S V INSTITUTE OF MANAGEMENT, KADI 69


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

In year 2003 – 2004 Net Cash in Flow is the summation of Operating,


Investing & Financing that was [5406.83 + (836.83) + (3349.83)]
1220.17.

S V INSTITUTE OF MANAGEMENT, KADI 70


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 5.3

5.3 CASH FLOW STATEMENT FOR THE YEAR 2004 - 2005

PARTICULARS 2004-05

Profit before Tax 3550.10


ADJUSTMENTS FOR:
Depreciation 1092.14
Other Amortizations 152.81
Unrealized foreign exchange gains / losses (61.34)
Interest expense 236.94
Interest income (258.39)
Income from Investments (106.78)
Provision for diminution in value of Investments / Advances 0.00
(Profit)/Loss on disposal of Fixed Assets / Long Term (351.35)
Investments
Transfer from General Reserve - Employee benefits 0.00
Profit on sale of undertaking 0.00
OPERATING PROFIT BEFORE WORKING CAPITAL
CHANGES 4254.13
ADJUSTMENTS FOR CHANGES IN:
Inventories (611.40)
Debtors (120.32)
Advances (1013.00)
Current Liabilities and Provisions 2675.05
CASH GENERATED FROM OPERATIONS 5184.46
Income Tax (Paid) / Refund (693.29)
NET CASH FLOW FROM OPERATING ACTIVITIES
BEFORE EXTRAORDINARY ITEM 4491.17
Payments under Voluntary Retirement Scheme (17.71)
NET CASH FLOW FROM OPERATING ACTIVITIES
AFTER EXTRAORDINARY ITEM (A) 4473.46

CASH FLOWS FROM INVESTING ACTIVITIES


Payments for assets acquisition (1824.56)
Proceeds on sale of Fixed Assets 48.56
Proceeds on sale of undertaking 0.00
Purchase of Long Term Investments (92.60)
Sale/Redemption of Long Term Investments 154.16
Income from Investments - Interest 42.70
- Dividend 106.78
Changes in Advances 10.49
NET CASH FLOW FROM INVESTING ACTIVITIES (B) (1554.47)

S V INSTITUTE OF MANAGEMENT, KADI 71


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CASH FLOWS FROM FINANCING ACTIVITIES


Long term Borrowings - Raised 4975.34
- Repaid (1131.07)
Changes in Short term borrowings 76.79
Debenture issue and Loan raising expenses paid (112.86)
Premium paid on Prepayment of Loan 0.00
Interest paid - net 4.16
Dividend Paid and tax thereon (1008.54)
Interim dividend and tax thereon 0.00
NET CASH FLOW FROM FINANCING ACTIVITIES (C) 2803.82

NET CASH INFLOW / (OUTFLOW) (A+B+C) 5722.81


OPENING CASH AND CASH EQUIVALENTS (D) 3481.90
CLOSING CASH AND CASH EQUIVALENTS (E) 9204.71
NET INCREASE IN CASH AND 5722.81
CASH EQUIVALENTS (E-D)

Interpretation:
• Operating activities:

The Ashok Leyland Ltd’s net cash flow from operations of 4473.46 (Rs in
Millions) is more than the sum of accrual based profit & depreciation that
equals Rs. 3806.24, showing that the profit has been fully realized in
cash. From the cash flow statements, the main positive item is the
depreciation charge of Rs. 1092.14. Thus the company’s earning can be
said to be of low quality. Increase in Inventories was Rs. 611.40 and
increase in debtors is Rs.120.32 resulted in strain on the cash generated
from generation.

• Investing Activities:

Form the Investing Activities section; Ashok Leyland Ltd has payments for
assets acquisition of Rs. 1824.56. The expenditure financed partly by:
a) Realizing Rs. 48.56 from the Sales of Plant.
b) Realizing Rs. [154.16+ (92.60)] 61.56 from the Sale Of
Investments, Net of Purchase.
c) Interest Revenue Rs. 42.70 & dividend 106.78. This has left a
gap of Rs. 1554.47 to be financed from other sources.
• Financing Activities:
It is seen from the Financing Activities section that the Ashok Leyland Ltd
raised long-term borrowing Rs. 4975.34 & repaid long term borrowing Rs.
1131.07. Further, the company paid dividend Rs. 1008.54 and interest of
Rs. 4.16 has been left, with net cash of Rs. 2803.82 from financing
activities.

S V INSTITUTE OF MANAGEMENT, KADI 72


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

• Net Cash Flow:

It is clear that the expansion in the plant & machinery during the period
was major drain on cash. The net cash out flow from investing activities of
Rs. 5722.81 was met from three sources:
I. Cash Flow from Operations, Rs. 4473.46
II. Proceeds from Issuance of Share Capital, Rs. 1554.47 (after
repaying loans & disturbing interest and dividend).
III. Withdrawal from Cash Balance, Rs. 5772.81.
That is Cash in Flow, which is good sign for company.

S V INSTITUTE OF MANAGEMENT, KADI 73


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 5.4

5.4 CASH FLOW STATEMENT FOR THE YEAR 2005 - 2006

PARTICULARS 2005-06

Profit before Tax 4523.00


ADJUSTMENTS FOR:
Depreciation 1260.06
Other Amortizations 132.84
Unrealized foreign exchange gains / losses 102.05
Interest expense 288.33
Interest income (193.87)
Income from Investments (87.47)
Provision for diminution in value of Investments /Advances 0.00
(Profit)/Loss on disposal of Fixed Assets / Long Term
Investments (66.61)
Transfer from General Reserve - Employee benefits 0.00
Profit on sale of undertaking (301.66)
OPERATING PROFIT BEFORE WORKING CAPITAL 5656.67
CHANGES
ADJUSTMENTS FOR CHANGES IN:
Inventories (3477.99)
Debtors (179.55)
Advances 314.73
Current Liabilities and Provisions 2051.52
CASH GENERATED FROM OPERATIONS 4365.38
Income Tax (Paid) / Refund (1135.68)
NET CASH FLOW FROM OPERATING ACTIVITIES
BEFORE EXTRAORDINARY ITEM 3229.70
Payments under Voluntary Retirement Scheme (9.53)
NET CASH FLOW FROM OPERATING ACTIVITIES
AFTER EXTRAORDINARY ITEM (A) 3220.17

CASH FLOWS FROM INVESTING ACTIVITIES


Payments for assets acquisition (2646.86)
Proceeds on sale of Fixed Assets 54.34
Proceeds on sale of undertaking 620.00
Purchase of Long Term Investments (138.66)
Sale/Redemption of Long Term Investments 479.68
Income from Investments - Interest 48.95
- Dividend 56.93
Changes in Advances 189.77
NET CASH FLOW FROM INVESTING ACTIVITIES (B) (1335.85)

S V INSTITUTE OF MANAGEMENT, KADI 74


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CASH FLOWS FROM FINANCING ACTIVITIES


Long term Borrowings - Raised 186.69
- Repaid (1162.88)
Changes in Short term borrowings (76.79)
Debenture issue and Loan raising expenses paid 0.00
Premium paid on Prepayment of Loan 0.00
Interest paid - net (166.96)
Dividend Paid and tax thereon (1356.10)
Interim dividend and tax thereon 0.00
NET CASH FLOW FROM FINANCING ACTIVITIES (C) (2576.04)
NET CASH INFLOW / (OUTFLOW) (A+B+C) (691.72)
OPENING CASH AND CASH EQUIVALENTS (D) 9194.94
CLOSING CASH AND CASH EQUIVALENTS (E) 8503.22
NET INCREASE IN CASH AND CASH EQUIVALENTS (691.72)
(E-D)

Interpretation:

• Operating activities:

The Ashok Leyland Ltd’s net cash flow from operations of 3220.17 (Rs in
Millions) is less than the sum of accrual based profit & depreciation that
equals Rs. 4533.26, showing that the profit has not been fully realized in
cash. From the cash flow statements, the main positive item is the
depreciation charge of Rs. 1260.06. Thus the company’s earning cannot
be said to be of high quality. Increase in Inventories was Rs. 3477.99 and
increase in debtors is Rs.179.55 resulted in strain on the cash generated
from generation.

• Investing Activities:

Form the Investing Activities section; Ashok Leyland Ltd has payments for
assets acquisition of Rs. 2646.86. The expenditure financed partly by:
a) Realizing Rs. 54.34 from the Sales of Plant.
b) Realizing Rs. [479.68 + (138.66)] 341.02 from the Sale Of
Investments, Net OF Purchase.
c) Interest Revenue Rs. 48.95 & dividend 56.93. This has left a
gap of Rs. 1335.85 to be financed from other sources.

• Financing Activities:

It is seen from the Financing Activities section that the Ashok Leyland Ltd
raised long-term borrowing Rs. 186.69 & repaid long term borrowing Rs.

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BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

1162.88. Interest paid and dividend paid 166.96 & 1356.10 that carried
out finance activities Rs. 2576.04.

• Net Cash Flow:

It is clear that the expansion in the plant & machinery during the period
was major drain on cash. The net cash out flow from investing activities of
Rs. 691.72 was met from three sources:
1. Cash Flow from Operations, Rs. 3220.17
2. Proceeds from Issuance of Share Capital, Rs. 1335.85 (after
repaying loans & disturbing interest and dividend).
3. Withdrawal from Cash Balance, Rs. 691.72.
That is Cash in Flow, which is good sign for company.

S V INSTITUTE OF MANAGEMENT, KADI 76


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EXHIBIT 5.5

CASH FLOW STATEMENT FOR THE YEAR 2006 - 2007

PARTICULARS 2006-07

Profit before Tax 6045.06


ADJUSTMENTS FOR:
Depreciation 1505.74
Other Amortizations 164.76
Unrealized foreign exchange gains / losses (65.30)
Interest expense 196.46
Interest income (160.94)
Income from Investments (98.85)
Provision for diminution in value of Investments / Advances (168.13)
(Profit)/Loss on disposal of Fixed Assets / Long Term
Investments (323.15)
Transfer from General Reserve - Employee benefits (781.54)
Profit on sale of undertaking 0.00
OPERATING PROFIT BEFORE WORKING CAPITAL 6314.11
CHANGES
ADJUSTMENTS FOR CHANGES IN:
Inventories (1677.60)
Debtors (1005.76)
Advances (1047.41)
Current Liabilities and Provisions 4102.54
CASH GENERATED FROM OPERATIONS 6685.88
Income Tax (Paid) / Refund (1356.00)
NET CASH FLOW FROM OPERATING ACTIVITIES
BEFORE EXTRAORDINARY ITEM 5329.88
Payments under Voluntary Retirement Scheme (330.37)
NET CASH FLOW FROM OPERATING ACTIVITIES
AFTER EXTRAORDINARY ITEM (A) 4999.51

CASH FLOWS FROM INVESTING ACTIVITIES


Payments for assets acquisition (6812.87)
Proceeds on sale of Fixed Assets 108.49
Proceeds on sale of undertaking 0.00
Purchase of Long Term Investments (50.64)
Sale/Redemption of Long Term Investments 557.64
Income from Investments - Interest 44.78
- Dividend 129.39
Changes in Advances (1473.70)
NET CASH FLOW FROM INVESTING ACTIVITIES (B) (7496.91)

S V INSTITUTE OF MANAGEMENT, KADI 77


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CASH FLOWS FROM FINANCING ACTIVITIES


Long term Borrowings - Raised 2162.35
- Repaid (829.95)
Changes in Short term borrowings 0.00
Debenture issue and Loan raising expenses paid (2.47)
Premium paid on Prepayment of Loan 0.00
Interest paid - net (167.02)
Dividend Paid and tax thereon (1792.34)
Interim dividend and tax thereon (2264.32)
NET CASH FLOW FROM FINANCING ACTIVITIES (C) (2893.75)

NET CASH INFLOW / (OUTFLOW) (A+B+C) (5391.15)


OPENING CASH AND CASH EQUIVALENTS (D) 8503.22
CLOSING CASH AND CASH EQUIVALENTS (E) 3112.07
NET INCREASE IN CASH AND CASH EQUIVALENTS (5391.15)
(E-D)

Interpretation:

• Operating activities:

The Ashok Leyland Ltd’s net cash flow from operations of 4999.51 (Rs in
Millions) is less than the sum of accrual based profit & depreciation that
equals Rs. 5918.60, showing that the profit has not been fully realized in
cash. From the cash flow statements, the main positive item is the
depreciation charge of Rs. 1505.74 Thus the company’s earning cannot be
said to be of high quality. Increase in Inventories was Rs. 1677.60 and
increase in debtors is Rs. 1005.76 resulted in strain on the cash
generated from generation.

• Investing Activities:

Form the Investing Activities section; Ashok Leyland Ltd has payments for
assets acquisition of Rs. 1824.56. The expenditure financed partly by:
a) Realizing Rs. 48.56 from the Sales of Plant.
b) Realizing Rs. 61.56 from the Sale Of Investments, Net OF
Purchase.
c) Interest Revenue Rs. 42.70. This has left a gap of Rs. 1554.47
to be financed from other sources.

• Financing Activities:

It is seen from the Financing Activities section that the Ashok Leyland Ltd
raised long-term borrowing Rs. 6812.87& repaid long term borrowing Rs.

S V INSTITUTE OF MANAGEMENT, KADI 78


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

829.95. In effect, the net realization from long-term sources was Rs. 507.
Further, the company paid dividend Rs. 1792.34and interest of Rs. 167.02
has been left, with net cash of Rs. 2893.75 from financing activities.

• Net Cash Flow:

It is clear that the expansion in the plant & machinery during the period
was major drain on cash. The net cash out flow from investing activities of
Rs. 5391.15 was met from three sources:
I. Cash Flow from Operations, Rs. 4999.51
II. Proceeds from Issuance of Share Capital, Rs. 7496.91 (after
repaying loans & disturbing interest and dividend).
III. Withdrawal from Cash Balance, Rs. 5391.15
That is Cash in Flow, which is good sign for company.

S V INSTITUTE OF MANAGEMENT, KADI 79


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CHAPTER 6
RATIO ANALYSIS

The relationship of one item to another expressed in a simple


mathematical form is known as the “RATIO”. A ratio is a quotient to two
numbers. It must be interpreted against some standard. In assessing the
financial stability of a firm, a management should, part form profitability,
be interested in relative figures. A ratio is of major importance for
financial analysis; it engages qualitative measurement & shows precisely
how adequate is one key item in relation to another. To evaluate the
financial condition & the purpose of the firm the financial analyst needs
certain yardsticks. The yardsticks frequently used in ratio or an index
relating two pieces of financial data to each other’s.

UTILITY OF RATIO ANALYSIS:

1. Probability.
2. Liquidity.
3. Efficiency.
4. Inter – Firm Comparison.
5. Indicates Trend.
6. Useful of Budgetary Controls.
7. Useful for Decision Making.

This ratio analysis contains five types of ratio as below:

2. Profitability Ratios.
3. Liquidity Ratios.
4. Assets Turnover Ratios.
5. Finance Structure Ratios.
6. Valuation Ratios.

6.1 Profitability Ratios:


Profitability ratio measures the degree of operating success of a company
in an accounting period. Two types of profitability ratios are there.

1. Profit Margin Ratios.


2. Rate of Return Ratios.

A profit margin ratio shows the relationship between profit & sales. Three
popular profits margin ratios are:

S V INSTITUTE OF MANAGEMENT, KADI 80


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

• Gross Profit Margin Ratios.


• Net Profit Margin Ratios.
• Operating Profit Ratios.

• Gross Profit Margin Ratio:


It shows the margin left after meeting manufacturing costs. It measures
the efficiency of production as well as pricing.

Gross Profit Margin Ratio = Gross Profit/ Sales X 100.

EXHIBIT 6.1.1
(Rs in Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Net Sales 26803.75 33938.84 41818.97 52476.57 71681.76
Cost of Goods 47075.87 64654.91
Sold 23554.18 29992.80 37590.47
Gross Profit. 3249.57 3946.04 4228.50 5400.70 7026.85
Gross Profit 12.12% 11.63% 10.11% 10.29% 9.80%
Ratios.

Chart 6.1.1
GROSS PROFIT RATIO

14.00
PERCENTAGE (%)

12.12 11.63
12.00
10.11 10.29 9.80
10.00
8.00
6.00
4.00
2.00
0.00
2002 - 2003 2003 - 2004 2004 - 2005 2005-2006 2006-2007

YEARS
Gross Profit Ratios.

 The table shows that gross profit has been increased continuously
increased over the years.
 The reason for increase in the gross profit is due to increase in sale.
 Sale has been continuously increased over the years
 Although the gross profit has been increased over the years it has
been found that gross profit ratio has been decreased continuously.

S V INSTITUTE OF MANAGEMENT, KADI 81


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 In year 2002 – 2003 the GPR was at highest 12.12% but it was
again decrease up to 9.80% in year 2006 – 2007.
 It has been reduced continuously over the years
 This ratio shows the better profitability for company but gross profit
ratio has been decreased continuously over the year. So company
should take certain steps to increase it.

• Net Profit Margin Ratios:


It is most significant of all revenue ratios as it indicates the ultimate
profitability of the firm. This ratio is useful to the shareholders for
knowing the EPS and to investors in judging the prospects of return on
their investments higher ratio indicated higher profitability.

Net Profit Margin Ratio = Net Profit / Sales x 100.

EXHIBIT 6.1.2
(Rs in Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Net Profit. 1202.12 1935.80 2714.10 3273.20 4412.86
Sales. 26803.75 33938.84 41818.97 52476.57 71681.76
Net Profit 4.48% 5.70% 6.49% 6.24% 6.16%
Ratio.

Chart 6.1.2

NET PROFIT RATIO

7.00
PERCENTAGE (%)

6.00
5.00
4.00
5.70 6.49 6.24 6.16
3.00
4.48
2.00
1.00
0.00
2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007
YEARS

Net Profit Ratio.

 The table shows that there is fluctuation in Net Profit Ratio.


 In year 2002 – 2003, the NPR was at lowest 4.48% but it was again
increased up to 6.49% which is highest in the year 2004-2005. but
again it reduced to 6.16% in 2006-2007.

S V INSTITUTE OF MANAGEMENT, KADI 82


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 This ratio shows a better profitability of the firm, which suggests a


satisfactory position.

Operating Profit Ratio:

This ratio indicate the portion that the cost of sales bears to sales cost of
sales includes direct cost of good sold as well as operating expenses,
administrative, selling & distribution expenses which, have matching
relationship with sales. It is calculated as:

Operating Profit ratio = Operating Profit / Sales X 100.

EXHIBIT 6.1.3
(Rs. In Million)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Operating Profit. 1701.02 2864.60 3550.10 4523.00 6045.06
Sales. 26803.75 33938.84 41818.97 52476.57 71681.76
Operating 6.35% 8.44% 8.49% 8.62% 8.43%
Profit Ratio.

Chart 6.1.3

OPERATING PROFIT RATIO


10.00
9.00
PERCENTAGE(%)

8.00
7.00
6.00
5.00 8.43
8.49 8.62
4.00 8.44
6.35
3.00
2.00
1.00
0.00
2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007
YEARS

Operating Profit Ratio.

 The Operating Profit is equal to Sales minus Expenditure of the


company. The operating profit ratio goes increasing every year.
 In year 2002 – 2003, the OPR was at lowest 6.35% but it was again
increased up to 8.44% in year 2003 – 2004. In 2004 – 2005 OPR IS
8.49%, which is highest.
 From the year 2005-06 it started reducing & in the year 2006-07 it
reduced to 8.43% because the current year witnessed increase in
commodity prices and consequent price increase claims by

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BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

suppliers. In addition, there were cost increases on account of


compliance with statutory regulations, which has not been fully
passed on to the customers. The margin also suffered due to full
impact of previous year’s input cost increases. However the
introduction of VAT in Tamil Nadu effective January’07 will improve
future margins.
Rate of return ratios reflects the relationship between Profit &
Investments. Important rate of return ratios measures are:
• Return on assets or Return on investments.
• Return on equity.
• Earning power.
• Return on assets or Return on investments:
This is measure of profitability from a given level of investments. It is an
excellent indicator of overall performance of a company. It is also called
return on capital employed or return on investment. It measures how
efficiently the capital is employed.
Return on Assets = Net Profit / Average Total Assets X 100
EXHIBIT 6.1.4
(Rs in Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Profit After Tax. 1202.12 1935.80 2714.10 3273.20 4412.86
P Y Total Assets 21140.87 18455.07 17309.91 22191.19 22840.70
CY Total Assets 18455.07 17309.91 22191.19 22840.70 27318.95
Average Total 19797.97 17882.49 19750.55 22515.95 25079.83
Assets.
Return on
6.07% 10.83% 13.74% 14.54% 17.60%
Assets Ratio

Chart 6.1.4

RETURN ON ASSETS RATIO


20.00
PERCENTAGE(%)

18.00
16.00
14.00
12.00
10.00
8.00 14.54 17.60
13.74
6.00 10.83
4.00 6.07
2.00
0.00
2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007
YEARS
Return on Assets Ratio.

S V INSTITUTE OF MANAGEMENT, KADI 84


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Average Total Assets = C. Y. Assets + P. Y. Assets / 2

2002 – 2003 = 21140.87 + 18455.07 / 2 = 19797.97.


2003 – 2004 = 18455.07 + 17309.91 / 2 = 17882.49.
2004 - 2005 = 17309.91 + 22191.19 / 2 = 19750.55.
2005 - 2006 = 22191.19 + 22840.70 / 2 = 22515.95.
2006 - 2007 = 22840.70 + 27318.95 / 2 = 25079.83.

 The ROA goes increasing every year i.e. 6.07% to 17.60%.


 This is showing the efficiency in the use of capital. The company can
earn more profit by optimizing the use of assets.
 The ROA has increased every year because of increase in profit
every year.
 The ratio in year 2003 – 2004 is more than the year 2002 – 2003
because there is reduction in average total assets.

• Return On Equity:
It measures the profitability of equity funds invested in firm.

Return on Equity = Profit after Tax / Average Shareholder’s Equity x 100

EXHIBIT 6.1.5
(Rs. in Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
PAT or Equity 3273.20 4412.86
Earning. 1202.12 1935.80 2714.10
P Y Shareholder’s
Equity 10369.53 9594.86 10517.97 11678.65 14124.53
CY Shareholder’s
Equity 9594.86 10517.97 11678.65 14124.53 18945.68
Average 9982.20 10056.42 11098.31 12901.59 16535.11
Shareholder’s
Equity
Return on 12.04% 19.25% 24.46% 25.37% 26.69%
Equity Ratio

Average Shareholder’s Equity = C. Y Equity + P. Y Equity / 2.


2002 – 2003 = 10369.53 + 9594.80 / 2 = 9982.19.
2003 – 2004 = 9594.86 + 10517.97/ 2 = 10056.41.
2004 – 2005 = 10517.97 + 11678.65 / 2 = 11098.31.
2005 – 2006 = 11678.65 + 14124.53/2 = 12901.59
2006 – 2007 = 14124.53 + 18945.68/2 = 16535.11

S V INSTITUTE OF MANAGEMENT, KADI 85


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 6.1.5

RETURN ON EQUITY RATIO

30.00%
PERCENTAGE (%)

25.37% 26.69%
24.46%
25.00%
19.25%
20.00%
15.00% 12.04%
10.00%
5.00%
0.00%
2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007
YEARS

Return on Equity Ratio.

 Return on Equity is continuously increasing i.e. from 12.04% in the


year 2002-03 to 26.69% in 2006-07 that mean the equity funds
invested in the company/ firm is good which shows that the
profitability of the business is increasing year by year.
 Return of the equity of the company has been increased in 2004 –
2005 to 24.55% from 12.04% in 2002 – 2003. This means that per
Re.1. Of shareholder’s equity, company earning 12 paisa.
 In 2003 – 2004, Average shareholder’s equity (Owner’s Capital +
Reserve & Surplus) has been increased by 0.74% while the PAT has
been increased by 61.03% & in year 2004 – 2005 increase in
average shareholder’s equity is 10.36% & increase in PAT is
40.20%. So the return on equity has increased.

• Earning Power:
The earning power is a measure of business performance, which is not
affected by Interest & Tax. It is measure of operating profitability.
Earning Power = Earning before Profit & Tax / Average Total Assets x 100.
EXHIBIT 6.1.6
(Rs. in millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Profit Before Tax. 1701.02 2864.6 3550.1 4523 6045.06
P Y Total Assets 21140.87 18455.07 17309.91 22191.19 22840.70
CY Total Assets 18455.07 17309.91 22191.19 22840.70 27318.95
Average Total 19797.97 17882.49 19750.55 22515.95 25079.83
Assets.
Earning Power 8.59% 16.02% 17.97% 20.09% 24.10%
Ratio.
Chart 6.1.6

S V INSTITUTE OF MANAGEMENT, KADI 86


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

EARNING POWER RATIO

30.00%
PERCENTAGE (%)

24.10%
25.00%
17.97% 20.09%
20.00%
16.02%
15.00%
10.00% 8.59%

5.00%
0.00%
2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007
YEARS

Earning Power Ratio.

 The Earning Power of the company has been increased to 24.10% in


year 2006 – 2007 from 8.59% in year 2002 – 2003.
 This is because the increase in earning before interest & tax (EBIT)
is more than increase in average total assets.
 In 2003 – 2004 the EBIT is increased by 16.02% while PAT is
increased by 61.03% because interest & tax is less.
 In year 2004 – 2005 EBIT increased by 17.97% while PAT is
increased by 40.20% because interest & tax is only by 19%.
 In year 2005 – 2006 EBIT increased by 20.09% while PAT is
increased by 20.60% because interest & tax is less compares to last
year.
 In year 2006 – 2007 EBIT increased by 24.10% while PAT is
increased by 34.82% because interest & tax is less compares to last
year.

S V INSTITUTE OF MANAGEMENT, KADI 87


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

6.2 Liquidity Ratios:


Liquidity is the ability of a company to meet its short-term obligations
when fall due. A company should have enough cash % other current
assets, which can be converted in to cash so that it can pay its suppliers &
lenders on time.
In evaluating Ashok Leyland Ltd’s liquidity five ratios are presented.
• Current Ratio.
• Quick Ratio or Acid-test Ratio.
• Net Working Capital.
• Cash Generated Per Rupee of Sales.
• Bank Finance Gap Ratio.
• Current Ratio:
Current ratio indicates the firm’s ability to pay its current liabilities, i.e.
day-to-day financial obligations. It shows the strength of credit, strength
of working capital & capacity to carry on effective operations. Higher ratio
i.e. more than 2:1 indicates sound solvency position.
Current Ratio = Current Assets/ Current Liabilities.
Where,
Current Assets = Inventories + Debtors + Cash & Bank Balance + Loan &
Advances.
Current Liabilities = Liabilities + Provision
EXHIBIT 6.2.1
(Rs. In Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Current Assets. 13404.70 14636.67 21572.63 22324.13 26977.14
Current
Liabilities. 5923.77 8327.02 11656.67 14085.16 17558.55
Current Ratio 2.26 1.76 1.85 1.58 1.54
Chart 6.2.1
CURRENT RATIO

2.50

2.00
IN TIMES

1.50
2.26
1.00 1.76 1.85
1.58 1.54
0.50

0.00
2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007
YEARS

Current Ratio.

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BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 Composition of current ratio is very important at the time of


interpretation. Current ratio indicates the sound short term finance
from the creditor’s point of view. But on the other hand the higher
ratio indicates blocking of funds in current assets. As a conventional
rule, current ratio of 2:1 or more is considered satisfactory. To
through more light on the quality of current assets the percentage
of the current assets is to be calculated.
 However, an arbitrary standard of 2:1 should not be blindly
followed. Firm’s wit less then 2:1 current ratios may be doing well,
while firms with 2:1 or even higher may be finding great difficulties
in paying their bills. This is because the current ratio is a test of
quantity not quality.
 Current Ratio is 2.26 in 2002 – 2003 & decreased up to 1.54 in
2006 – 2007 because current liabilities increased rapid than the
increase in current assets.
 In the Current ratio it has been found decreasing than the base
year, so it is not a favorable sign for the company, it should take
certain measure to increase it.

• Quick Ratio or Acid Test Ratio:

The Quick Ratio is a more absolute test of a firm’s ability to meet its
immediate liabilities. It base on those current assets, which are highly
liquid inventories, is excluded from the numerators of this ratio because
inventories are deemed to be the least liquid component of current
assets.
Quick Ratio = Quick Assets / Liquid Liability.

EXHIBIT 6.2.2
(Rs. In Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Current Assets.
(A) 13404.7 14636.67 21572.63 22324.13 26977.14
Inventories (B) 4104.56 5069.41 5680.81 9025.61 10703.21
Quick Assets (A-B) 9300.14 9567.26 15891.82 13298.52 16273.93
Liquid Liabilities. 5923.77 8327.02 11656.67 14085.16 17558.55
Quick Assets 1.57 1.15 1.36 0.94 0.93
Ratio.

S V INSTITUTE OF MANAGEMENT, KADI 89


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 6.2.2
QUICK ASSET RATIO

1.80
1.57
1.60
1.36
1.40
1.15
1.20
IN TIMES

0.94 0.93
1.00
0.80
0.60
0.40
0.20
0.00
2002 - 2003 2003 - 2004 2004 – 2005 2005 - 2006 2006 - 2007
YEARS

Quick Assets Ratio.

 Generally a quick ratio of 1:1 is considered to represent a


satisfactory current financial condition. A quick ratio of 1:1 or more
does not necessarily imply sound liquidity position.
 A company with a high value of quick ratio can flounder if it has
slow-paying, doubtful and stretched out-in-age receivables. On the
other hand, a company with a low value of quick ratio may be
prospering and paying its current obligation in time, if it has been
managing its inventories very efficiently wit a continuous stability.
 It has same effect as Current Ratio.
 In year 2002–2003 the ratio was 1.57, which was highest & also
satisfactory level. But then in year 2006–2007, it was decreased to
0.93. Because of rapid increase in liquid liabilities.

• Net Working Capital:


This ratio represents that part of the long-term fund represented by the
net worth & long-term dept, which are permanently blocked in current
assets. Certain minimum level of safety stock, permanent customers
unpaid bills, compensatory minimum bank balance & minimum cash
balance are the example of permanent working capital.

Net Working Capital = Total Current Assets – Total Current Liabilities.

EXHIBIT 6.2.3
(Rs. In Million)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Current Assets. 13404.7 14636.67 21572.63 22324.13 26977.14
Current Liabilities. 5923.77 8327.02 11656.67 14085.16 17558.55
Net Working 7480.93 6309.65 9915.96 8238.97 9418.59
Capital

S V INSTITUTE OF MANAGEMENT, KADI 90


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 6.2.3

NET WORKING CAPITAL

12000
9915.96
RS. IN MILLION

10000 9418.59
8238.97
7480.93
8000
6309.65
6000
4000
2000
0
2002 2003 2003 2004 2004 2005 2005 2006 2006 2007
YEARS

Net Working Capital

 Net working capital has been found very fluctuating every year.
 Net Working Capital in this year (2004 – 2005) is very useful for
other purpose because it is highest i.e. 9915.96.

• Cash Generated Per Rupee of Sales:

This ratio shows that percentage (or Paisa per rupees) of sales which is
available in cash form

Cash Generated Per Rupee of Sales =


PAT + Depreciation + Non Cash Exp. /
Sales X 100

EXHIBIT 6.2.4
(Rs. In Million)
Particular 2002 - 2003 - 2004 - 2005 2006
2003 2004 2005 2006 2007
PAT 1202.12 1935.80 2714.10 3273.20 4412.86
Depreciation 1029.69 964.54 1092.14 1260.06 1505.74
Non Cash Items 671.79 303.10 123.81 (52.62) 184.08
PAT + Dep. +
Non Cash Exp 2903.60 3203.44 3930.05 4480.64 6102.68
Sales. 26803.75 33938.84 41818.97 52476.57 71681.76
Cash Generated 10.83% 9.44% 9.40% 8.54% 8.51%
Per Rupee Of
Sales Ratio

S V INSTITUTE OF MANAGEMENT, KADI 91


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 6.2.4

CASH GENERATED PER RUPEES OF SALES RATIO


10.83%
12.00%
PERCENTAGE (%)

9.44% 9.40%
10.00%
8.54% 8.51%
8.00%

6.00%

4.00%
2.00%

0.00%
2002 - 2003 2003 - 2004 2004 - 2005 2005 2006 2006 2007
YEARS

Cash Generated Per Rupee Of Sales Ratio

 The Cash Generated per Rupee of Sales Ratio includes PAT,


depreciation & non-cash expenses (interest).
 In the year 2002-2003 cash generated per rupee of sale was
highest i.e. 10.83% but it has been than continuously reduced to
8.51% in the year 2006-2007.

• Bank Finance Gap Ratio.

Bank Finance Gap Ratio = Total Current Assets – MPBF under Tandon
Committee
MPBF indicates maximum permissible bank finance under tandon
committee recommendations of 1975. The maximum permissible bank
finance was restricted to 75% of the working capital gap under three
successive methods of bank leading.
Method 1:
75% (Current Assets – Current Liabilities)
EXHIBIT 6.2.5.1
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Current Assets. 13404.70 14636.67 21572.63 22324.13 26977.14
Current
Liabilities. 5923.77 8327.02 11656.67 14085.16 17558.55
CA- CL 7480.93 6309.65 9915.96 8238.97 9418.59
75%(CA-CL) 5610.70 4732.24 7436.97 6179.23 7063.94

S V INSTITUTE OF MANAGEMENT, KADI 92


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Method 2:
75% (Current Assets) – Current Liabilities
EXHIBIT 6.2.5.2
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Current Assets. 13404.70 14636.67 21572.63 22324.13 26977.14
75% Current
Assets 10053.53 10977.50 16179.47 16743.10 20232.86
Current
Liabilities. 5923.77 8327.02 11656.67 14085.16 17558.55
75%(CA)-CL 4129.76 2650.48 4522.80 2657.94 2674.31
Method 3:
75% (Current Assets – Core Current Assets*) – Current Liabilities.

EXHIBIT 6.2.5.3
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Current Assets. 13404.70 14636.67 21572.63 22324.13 26977.14
Core Current
Assets 9300.14 9567.26 15891.82 13298.52 16273.93
(Quick Assets)
CA -CCA 4104.56 5069.41 5680.81 9025.61 10703.21
75% (CA- CCA) 3078.42 3802.06 4260.61 6769.21 8027.41
Current
Liabilities. 5923.77 8327.02 11656.67 14085.16 17558.55
75%(CA)-CL (2845.35) (4524.96) (7396.06) (7315.95) (9531.14)

Assets Turnover Ratios


Assets Turnover Ratios are basically Production ratios which measures the
output produced from the given input deployed. The relationship of
productivity is equal to output divided by input & assets turnover is equal
to sales divided by Assets.

• Assets Turnover Ratios are as follows:


• Total Assets Turnover.
• Net Fixed Assets Turnover.
• Net Working Capital Turnover.
• Inventory Turnover.
• Debtor’s Ratio.

S V INSTITUTE OF MANAGEMENT, KADI 93


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

• Total Assets Turnover:

It shows the relationship between total assets to sales. The sales are
affected through investment in fixed assets to earn profit. The higher ratio
show that with less amount of investment in total assets, the business
has capacity to sell more as such its probability is also more.

Total Assets Turnover = Sales / Total Assets

Where Total Assets = Fixed Assets + Investments + Net Current Assets + Misc.
Expenses.

EXHIBIT 6.3.1
(Rs. In Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Sales. 26803.75 33938.84 41818.97 52476.57 71681.76
Total Assets. 18455.07 17309.91 22191.19 22840.70 27318.95
Total Assets 1.45 1.96 1.88 2.30 2.62
Turnover Ratio. times times times times times

Chart 6.3.1

TOTAL ASSETS TURNOVER RATIO

3.00 2.62
2.50 2.30
1.96
IN TIMES

1.88
2.00
1.45
1.50
1.00
0.50
0.00
2002 - 2003 2003 - 2004 2004 – 2005 2005 2006 2006 2007
YEARS

Total Assets Turnover Ratio.

 Total assets turnover ratio has increased in 2003–2004 that shows


the efficient utilization of total assets of the company.
 But in year 2004–2005 ratios is decreased to 1.88 times which
shows companies has not utilized efficiently it’s total fixed assets in
sales as compared to 2002-2003.
 But after that it has been increased to 2.30 in 2005-2006 and 2.62
in the year 2006-2007.
 It is very good sign for the company that it is increasing its use of
fixed assets over sales.

S V INSTITUTE OF MANAGEMENT, KADI 94


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

• Net Fixed Assets Turnover Ratio:


The Fixed Assets Turnover shows the efficiency & profitability of business
by comparing the fixed assets with sales. The higher ratio shows that the
fixed assets are using efficient manner to increase the sales.

Fixed Assets Turnover Ratio = Sales / Net Fixed Assets.

EXHIBIT 6.3.2
(Rs. In Million)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Sales. 26803.75 33938.84 41818.97 52476.57 71681.76
Net fixed assets 9398.38 9211 9790.01 10846.88 15445.24
Fixed assets 2.85 3.68 4.27 4.84 4.64
turnover Ratio times times times times times

Chart 6.3.2

FIXED ASSETS TURNOVER RATIO

6
4.84 4.64
5
3.68 4.27
IN TIMES

4
2.85
3
2
1
0
2002 - 2003 2003 - 2004 2004 – 2005 2005 2006 2006 2007
YEARS

Fixed assets turnover Ratio

 A fixed assets turnover ratio has been increased. It indicates that


fixed assets utilized more efficient in business.
 In year 2003-04 the net fixed assets have been decreased by
3.07% and the net sales are increased by 26.62%. So the fixed
assets turnover ratio has increased by from 2.85 to 3.68 times.
 In 2004-05, the net fixed assets increased by 2.17% and the net
sales increased by 23.22%. so the net fixed assets turnover ratio
increased to 4.27 time
 In 2005-06, the net fixed assets increased by 5.53% and the net
sales increased by 25.49%. So the net fixed assets turnover ratio
increased to 4.84 times which is highest over the period.

S V INSTITUTE OF MANAGEMENT, KADI 95


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 In 2006-07, the net fixed assets increased by 38.56% and the net
sales increased by 36.60%. Net fixed asset has been increased
more than increase in sales. So the net fixed assets turnover ratio
decreased to 4.64 times from 4.84 times.

• Fixed Working capital turnover Ratio:


It shows the relationship between sales and working capital. It indicates
the liquidity strength of the company higher ratio high liquidity; it means
company has enough working capital due effective management.

Fixed working capital Turnover Ratio = Sales / Net working Capital.

EXHIBIT 6.3.3
(Rs in Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Sales. 26803.75 33938.84 41818.97 52476.57 71681.76
Current Assets. 13404.7 14636.67 21572.63 22324.13 26977.14
Current
Liabilities. 5923.77 8327.02 11656.67 14085.16 17558.55
Net Working 7480.93 6309.65 9915.96 8238.97 9418.59
Capital
Fixed Working 3.58 5.38 4.22 6.37 7.61
Capital times times times times times
Turnover Ratio

Chart 6.3.3
FIXED WORKING CAPITAL TURNOVER RATIO
8 7.61
6.37
7
5.38
6
IN TIMES

4.22
5
3.58
4
3
2
1
0
2002-2003 2003-2004 2004-2005 2005-2006 2006-2007
YEARS
Fixed Working Capital Turnover Ratio

 In the fixed working capital turnover ratio too much of fluctuation


has been found but then it has increased.

S V INSTITUTE OF MANAGEMENT, KADI 96


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 In 2002-03 the ratio was 3.58 times but in year 2003-04 it was
increased to 5.38 times but in the year 2004-05 it has been reduced
to 4.22 times but than it has increased to 6.37times & 7.61times in
the year 2005-06 & 2006-07 respectively. It indicates there is
proper utilization of working capital to increase sales.

 In 2004-05 net working capital increased by 57.16% but sales has


also increased by 23.22% but it is less than the percentage increase
in working capital. So Ratio bas been decreased.

• Inventory turnover Ratio:

It is also known as Stock Turnover Ratio. It is the number of times. Its


average inventories sold during the year. A high inventory turnover is an
indication good inventory management & favorable trading situation.

Inventory Turnover Ratio = Cost of Goods Sold / Average Stock.

EXHIBIT 6.3.4
(Rs. In Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Cost of Goods
23554.18 29992.80 37590.47 47075.87 64654.91
Sold.
Opening Stock
5953.40 4104.56 5069.41 5680.81 9025.61
(A)
Closing Stock(B) 4104.56 5069.41 5680.81 9025.61 10703.21
Average Stock
5028.98 4586.985 5375.11 7353.21 9864.41
(A+B)/2
Inventory 4.68 6.54 6.99 6.40 6.55
Turnover Ratio times times times times times

Chart 6.3.4

S V INSTITUTE OF MANAGEMENT, KADI 97


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

INVENTORY TURNOVER RATIO

8.00
7.00 6.54 6.99 6.40 6.55

6.00
4.68
IN TIMES

5.00
4.00
3.00
2.00
1.00
0.00
2002 - 2003 2003 - 2004 2004 - 2005 2005 2006 2006 2007
YEARS

Inventory Turnover Ratio

 This ratio indicates how many times in a year the stock’s turnover.
Higher the ratio better it is situation.
 The graph shows that the inventory turnover ratio of the company.
In year 2002 – 2003 the inventory turnover ratio was 4.68 times,
which was lowest. But in year 2003–2004 & 2004-2005 inventory
turnover ratios was increased to 6.54 times & 6.99 times
respectively. But then it reduced to 6.40 times in 2005-2006 & then
it was increased to 6.55 times in 2006-07
 It indicates the company has good inventory management &
favorable trading situation.
 In the year 2004 – 2005 it is increased to 6.99 times that indicates
good control over inventory.
• Average Age of Inventories:

This ratio indicates the waiting period of the investment in inventories &
is measured in days, weeks or months. Inventory turnover & average age
of inventories are inversely related. High Inventory Turnover Ratio is
goods but longer age of inventory is bad as it indicates idle blocking of
money in inventories.
Average Age of Inventories = 360 days / Inventory Turnover.
[

EXHIBIT 6.3.5
(Rs. In Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Days 360 360 360 360 360
Inventory turnover 4.68 6.54 6.99 6.40 6.55
Avg. Age of Inventory’s 76.92 55.05 51.50 56.25 54.96
Ratio Days Days Days Days Days

Chart 6.3.5

S V INSTITUTE OF MANAGEMENT, KADI 98


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

AVERAGE AGE OF INVENTORY'S RATIO


90
76.92
80
70
55.05 51.50 56.25 54.96
60
DAYS

50
40
30
20
10
0
2002 – 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007

YEARS
Avg. Age of Inventory’s Ratio

 This graph shows the very good situation for company.


 In Average Age of Inventories lower the ratio better the situation.
 In year 2002–2003 the average age for inventory was 76.92 days &
it has been reduced to 54.96 days in year 2006–2007.
 In year 2004 – 2005 Average Age of Inventories ratio was
minimum.
 It shows favorable situation of company as it has decreased.

• Debtor’s Ratio:

It indicates the effective of credit and the speed at which the debtors
are converted in to cash. It shows the equality of debtor’s also. I.e.
good, doubtful or bad etc

Debtor’s Ratio = (Debtors + Bills Receivable/Credit Sales*) x 365.

EXHIBIT 6.3.6
(Rs. In Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Debtors 5181.5 4056.19 4587.66 4243.37 5228.75
Bills Receivable 0 0 0 0 0
Total 5181.5 4056.19 4587.66 4243.37 5228.75
Credit Sales/ Net 52476.57 71681.76
Sales 26803.75 33938.84 41818.97
Debtor’s Ratio 70.56 43.62 40.04 29.51 26.62
Days Days Days Days Days

S V INSTITUTE OF MANAGEMENT, KADI 99


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 6.3.6

DEBTOR'S RATIO
80
70.56
70
60
43.62
IN DAYS

50
40.04
40
29.51 26.62
30
20
10
0
2002 - 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007
YEARS
Debtor’s Ratio

 The above table shows that every year debtor’s ratio has been
decreased continuously.
 The higher the ratio, the more unsatisfactory position it shows. It
suggests that the credit and collection policy is weak. This would
result into unsatisfactory state of working capital and weak liquid
position, but it has been reduced continuously here so it is a
favorable situation for the company.
 It indicates good collection from debtors.
 The ratio is decrease from 70.56 days to 26.62 days in 2006-2007.
• Debtor’s Turnover:
The debtor’s turnovers suggests the number of times the amount of credit
sales is collected during the year, while debtors ratio indicates the no. of
days during which the dues for credit sales are collected.
Debtor’s Turnover = Credit Sales / Average Debtors.
EXHIBIT 6.3.7
(Rs. In Million)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Credit Sales/ Net 26803.7 33938.8 41818.9 52476.5 71681.7
Sales 5 4 7 7 6
Previous Years
Debtors 4928.46 5181.50 4056.19 4587.66 4243.37
Current Years
Debtors 5181.50 4056.19 4587.66 4243.37 5228.75
Average Debtors 5054.98 4618.85 4321.93 4415.52 4736.06
Debtor’s 5.30 7.35 9.68 11.88 15.14
Turnover Days Days Days Days Days

S V INSTITUTE OF MANAGEMENT, KADI 100


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 6.3.7

DEBTOR'S TURNOVER
16
14
12
IN DAYS

10
8
9.68 11.88 15.14
6
7.35
4
5.30
2
0
2002 - 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007
YEARS
Debtor’s Turnover

 Debtors constitute an important constituent of current assets and


therefore the quality of debtors to a great extent determines a
firm’s liquidity.
 The higher the ratio the better it is, since it would indicate that
debts are being collected more promptly.
 Debtor’s Turnover ratio has been increased here continuously, so t is
a favorable situation for the company.
 In year 2002-03 shows that debtor’s turnover ratio was 5.30 days,
which was lowest, and it has continuously increased to 15.14 days,
so it good for the company

• Average Age of Debtors:

The average age of debtors is compared with “the credit period


allowed to the customers”

Avg. Age of Debtor’s Ratio = 360 Days / Debtors Turnover.

EXHIBIT 6.3.8
(Rs in Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Days 360 360 360 360 360
Debtors turnover 5.3 7.35 9.68 11.88 15.14
Avg. Age of Debtor’s Ratio 67.92 48.98 37.19 30.30 23.78
Days Days Days Days Days

S V INSTITUTE OF MANAGEMENT, KADI 101


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 6.3.8

AVERAGE AGE OF DEBTOR'S


80
67.92
70
60
48.98
IN DAYS

50
37.19
40
30.30 23.78
30
20
10
0
2002 – 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007
YEARS
Avg. Age of Debtor’s Ratio

 This ratio goes to decrease every year.


 In year 2002-03 Avg. Age of debtors was 67.92 days than it was
continuously reduced to 23.78 days in 2006-07.
 Here we can see that debtor’s turnover and avg. Age of debtors are
inversely related.

FINANCE STRUCTURE RATIOS:


It indicates the relative mix or blending of owner’s funds and outsider’s
debt funds in the total capital employed in the business. Financial
leverage refers to the use of debt finance. While debt capital is a cheater
source of finance, it is also a riskier source of finance.

Two types of ratio are commonly used to analyze financial leverage


1. Structural Ratios.
2. Converge

Structure ratio is base on the proportion of debt and equity in the


financial structure of the firm. Important structural ratios are: -

• Equity Ratio or proprietary Ratio


• Debt equity Ratio
• Debt Ratio

• Equity Ratio or Proprietary Ratio:


This ratio can be finding out by dividing net worth to total capital
employed. This ratio focuses the attention on the general financial
strength of the business enterprise.

Equity Ratio = Net Worth \ Total Capital Employed


Where,

S V INSTITUTE OF MANAGEMENT, KADI 102


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Net Worth = Equity Capital + Reserves – Misc. Expenses


Total Capital Employed = Net Worth + Long Term Debt
Exhibit 6.4.1
(Rs in Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Equity Capital (a) 1189.29 1189.29 1189.29 1221.59 1323.87
Reserves (b) 8405.57 9328.68 10489.36 12902.94 17621.81
Misc. Expenses (c) 0.00 323.24 193.32 73.07 244.18
Net Worth 9594.86 10194.73 11485.33 14051.46 18701.5
(a+b-c) A
Secured loans(d) 5045.62 3103.56 2634.96 1846.91 3602.16
Unsecured
loans (e) 2129.6 1885.52 6169.1 5072.37 2801.82
Long Term Debt 7175.22 4989.08 8804.06 6919.28 6403.98
(d+e) B
Total Capital 16770.08 15183.81 20289.39 20970.74 25105.48
Employed
(A+B) = C
Equity Ratio
0.57 0.67 0.57 0.67 0.74
(A/C)

Chart 6.4.1

EQUITY RATIO
0.80
0.70
0.60
IN TIMES

0.50
0.40 0.57 0.67 0.57 0.67 0.74
0.30
0.20
0.10
0.00
2002 – 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007
YEARS
Equity Ratio

 The higher the ratio, the stronger the financial position of the
company, as it signifies that the proprietors have provided larger
funds to purchase the assets.
 This ratio cannot exceed 100%. If it is 100%, it means that the
business does not use any outside funds or outsider’s liabilities.
 Here, the ratio has been found fluctuating every year.

S V INSTITUTE OF MANAGEMENT, KADI 103


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 In the year 2002-03 it was 0.57 but then in the year 2003-04it was
increased to 0.67 and again it has reduced to 0.57 in 2004-05 and
then it increased to 0.67 & 0.74 in 2005-06 & 2006-07 respectively.

• Debt equity ratio:

This ratio indicates the relationship between borrowed funds and owner’s
capital. It shows the proportion of long-term external equities and internal
equities. i.e. proportion of funds provided by long-term creditors and that
provided by shareholders or proprietors.

Debt Equity Ratio = (Total long term debt/Net worth) x 100.

EXHIBIT 6.4.2
(Rs in Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Debt 7175.22 4989.08 8804.06 6919.28 6403.98
Net worth 9594.86 10517.97 11678.65 14124.53 18945.68
Debt Equity 74.78% 47.43% 75.39% 48.99% 33.80%
Ratio

Chart 6.4.2

DEBT EQUITY RATIO


80%
PERCENTAGE (%)

70%
75.39%
60%
47.43% 48.99%
50%
74.78% 33.80%
40%
30%
20%
10%
0%
2002 – 2003 2003 - 2004 2004 – 2005 2005-2006 2006-2007
YEARS
Debt Equity Ratio

 The higher the ratio means that outside creditors have a larger
claim than the owners of the business. The pressure from creditors
would increase and their interference will also increase.
 The company with high-debt position will have to accept stricter
conditions from lenders, while borrowing the money.

S V INSTITUTE OF MANAGEMENT, KADI 104


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 In the year 2002-03 it was 74.78%andthen it reduced to 47.43% in


2003-04 and then again increased to 75.39% but then it decreased
to 48.99% & 33.80% in the year 2005-06 & 2006-07 respectively.
 In the year 2006-07 it is minimum that is favorable for the
company.

• Debt ratio:
It shows the relationship between long-term debt and total capital
employed. Equity ratio and debt ratio summation is always 1.

Debt ratio = long-term debt / total capital employed.

EXHIBIT 6.4.3
(Rs. In Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Long term debt 7175.22 4989.08 8804.06 6919.28 6403.98
Total capital
employed 16770.08 15507.05 20482.71 21043.81 25349.66
Debt ratio 0.43 0.32 0.43 0.33 0.25

Chart 6.4.3

DEBT RATIO
0.50
0.45 0.43 0.43
0.40
0.32 0.33
IN TIMES

0.35
0.30
0.25
0.25
0.20
0.15
0.10
0.05
0.00
2002 - 2003 2003 – 2004 2004 – 2005 2005-2006 2006-2007

YEARS
Debt ratio

 Debt ratio has been found very fluctuating


 In year 2002–2003 and in year 2004-2005 ratio is 0.44 that is
highest means more loan funds taken by company.
 It has been reduced to 0.25 in the year 2006-2007.

S V INSTITUTE OF MANAGEMENT, KADI 105


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Coverage ratio show the relationship between debt servicing


commitments and the sources for meeting these burdens important
coverage ratio is:-

 Interest coverage ratio.

 Interest coverage Ratio:

This ratio indicates the use of interest bearing debt funds in generating
higher operating profit. Higher is the ratio better is the utilization of dept
fund. Higher interest cover ratio, enhance the equity earning is passed
over to the equity finance portion of the capitalization.

Interest Coverage Ratio = EBIT / Interest.

EXHIBIT 6.4.4
(Rs. In Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
EBIT. 2286.12 3072.51 3578.08 4687.53 6098.38
Interest 585.10 207.91 27.98 164.53 53.32
Interest 3.91 14.78 127.88 28.49 114.37
Coverage Ratio

Chart 6.4.4

INTEREST COVERAGE RATIO


140
127.88
120 114.37

100
IN TIMES

80
60
28.49
40
20 14.78
3.91
0
2002-2003 2003-2004 2004-2005 2005-2006 2006-2007

YEARS
Interest Coverage Ratio

 The Interest Coverage Ratio is the better utilization of debt fund i.e.
debenture.
 The Interest Coverage Ratio is goes increasing every year but then
fluctuation has been found in it.
 The Interest Coverage Ratio is highest in year 2004 – 2005 & that is
127.88.

S V INSTITUTE OF MANAGEMENT, KADI 106


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Valuation Ratios:
Valuation ratios are the results of the management valuation ratio are
generally presented on a per share basis and that are more useful to the
equity invertors. The per share valuation are popular presented as

• Earning per share (EPS).


• Dividend pay out Ratio (DPS)
• Divided yield
• P/E Ratio.

• Earning per share (EPS).


Earning per Share is an important major of corporate performance for
shareholders & potential investor. EPS figures are commonly presented in
prospectus & other material send to investor, press reports & reports of
equity analyst. AS 20 sets out the requirements for computation of EPS*
EPS is reported only foe equity share capital.

Earning Per Share = Profit after Tax / No. Of Equity Shares

EXHIBIT 6.5.1
(Rs in Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Profit After Tax. 1202.12 1935.80 2714.10 3273.20 4412.86
No. Of Equity Shares. 1189.29 1189.29 1189.29 1221.59 1323.87
Earning Per Share. 1.01 1.63 2.28 2.68 3.33

Chart 6.5.1

EARNING PER SHARE


3.50

3.00
2.50
IN RS.

2.00
1.50
1.63 2.28 2.68 3.33
1.00
1.01
0.50
0.00
2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007

YEARS
Earning Per Share.

S V INSTITUTE OF MANAGEMENT, KADI 107


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

 The Earning per Share indicates the liquidity situation for company
that we can see in graph.
 The Earning per Share has been found continuously increasing
every year because of its profit has been increased continuously
over the years, so it is very good sign for the company.
 In year 2002–2003 the EPS was 1.01 but in year 2003–2004 it is
increased up to 1.63 & in 2004–2005 EPS achieves the 2.28 and it
has been increased to 2.68 & 3.33 per share in the year 2005-2006
& 2006-2007 respectively.
• Dividend pay out Ratio (DPS):
This ratio indicates the spilt of EPS between cash dividend & reinvestment
of profits. Ashok Leyland Ltd has profitable projects; show it is prefer to
D/P ratio lower, i.e. it will reinvest higher proportional profits in the
business.
Dividend pay out Ratio = Dividend per Share / Earning per Share.

EXHIBIT 6.5.2
(Rs. In Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Dividend Per Share. 0.50 0.75 1.00 1.20 1.50
Earning Per Share. 1.01 1.63 2.28 2.68 3.33
Dividend pay out Ratio 0.49 0.46 0.44 0.45 0.45

Chart 6.5.2

DIVIDEND PAY OUT RATIO


0.50 0.49
0.49
0.48
IN TIMES

0.47
0.46
0.46
0.45 0.45
0.45
0.44
0.44
0.43
0.42
0.41
2002 - 2003 2003 - 2004 2004 - 2005 2005 - 2006 2006 - 2007

YEARS
Dividend pay out Ratio

 In the DPS Ratio only minor fluctuation is found


 In the year 2002-2003 it was highest to 0.49 per share than it goes
decreasing every year from 2003–2004 i.e. 0.46 to 2004–2005 i.e.
0.44 and then it became stable to 0.45 for 2005-2006 & 2006-
2007.

S V INSTITUTE OF MANAGEMENT, KADI 108


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

• Dividend Yield:
The Dividend Yield represents the current cash return to share holders. It
is computed by dividing the dividend per share by the average market
price of share.
Dividend Yield = Dividend per Share / Average Market Price of Share X
100.
EXHIBIT 6.5.3
(Rs. In Millions)
Particular 2002 - 2003 - 2004 - 2005- 2006-
2003 2004 2005 2006 2007
Dividend Per Share. 0.50 0.75 1.00 1.20 1.50
Avg. Market Price. 98.20 187.00 21.92 29.18 41.82
Dividend Yield Ratio. 0.51 0.40 4.56 4.11 3.59

Chart 6.5.3

DIVIDEND YEILD RATIO


5.0
4.56
PERCENTAGE (%)

4.5
4.11
4.0
3.59
3.5
3.0
2.5
2.0
1.5
1.0
0.51 0.40
0.5
0.0
2002 - 2003 2003 - 2004 2004 - 2005 2005-2006 2006-2007

YEARS
Dividend Yield Ratio.

 The dividend yield ratio is highest in year 2004 – 2005 i.e. 4.56%
but this year is goes down to 3.59% that indicates less payment of
dividend to the shareholders.
 In the year 2002-2003 it was 0.51% & in the year 2003-2004 it has
reduced to 0.40% but in the next year it has been increased to
4.56% which is highest over the period.
 In the dividend yield ratio too much fluctuation has been found
during the period 2002 to 2007.

S V INSTITUTE OF MANAGEMENT, KADI 109


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

• P/E Ratio:

This is popular measure extensively used in investment analysis. In a


recent served, 40% of well-known institutional portfolio managers and
analysts in the U.S ranked P/E ratio as the key factor in picking stocks.

P/E ratio = current market price of share/Earning per share

EXHIBIT 6.5.4
(Rs. In Millions)
Particular 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Current market price 105.00 267.90 25.10 43.00 41.80
Earning Per Share. 1.01 1.63 2.28 2.68 3.33
P/E Ratio 103.96 164.36 11.01 16.04 12.55

Chart 6.5.4

P/E RATIO
180
164.36
160
140
IN TIMES

120
103.96
100
80
60
40
11.01 16.04 12.55
20
0
2002 - 2003 2003 - 2004 2004 - 2005 2005-2006 2006-2007
YEARS
P/E Ratio

 It is the ratio to know the profit earning per share.


 As p/e ratio is low so it is good profit earning per share is high
 It has been reduced compared to the past years. so, it is favorable
situation for the shareholders and the company.

S V INSTITUTE OF MANAGEMENT, KADI 110


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

6.6 Comparison of Ratio of five Years


Ratio Formula 2002 2003 2004 2005 2006
2003 2004 2005 2006 2007
Gross Gross Profit
Profit / Sales X
12.12% 11.63% 10.11% 10.29% 9.80%
margin 100
Ratio (%)
Net Profit Net Profit /
Margin Sales X 100 4.48% 5.70% 6.49% 6.24% 6.16%
Ratio (%)
Operating Operating
Profit Profit / Sales 6.35% 8.44% 8.49% 8.62% 8.43%
Ratio (%) X 100
Return on Net Profit /
assets (%) Average
6.07% 10.83% 13.74% 14.54% 17.60%
Total Assets
X 100
Return on PAT /
Equity (%) Average
shareholder’ 12.04% 19.25% 24.46% 25.37% 26.69%
s equity X
100
Earning EBIT /
power (%) Average
8.59% 16.02% 17.97% 20.09% 24.10%
total Assets
X 100
Current Current
Ratio Assets / 2.26 1.76 1.85 1.58 1.54
Current times times times times times
Liabilities
Quick ratio Quick Assets
1.57 1.15 1.36 0.94 0.93
/ Current
times times times times times
Liability
Net Total
working Current
capital Assets – 7480.9 6309.6 9915.9 8238.9 9418.5
Total 3 5 6 7 9
Current
Liabilities
Cash PAT+
Generated Depreciation
Per Rupee +Non Cash 10.83% 9.44% 9.40% 8.54% 8.51%
Of Sales Expenses /
Sales X 100
Total Sales / Total 1.45 1.96 1.88 2.30 2.62

S V INSTITUTE OF MANAGEMENT, KADI 111


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Assets Assets
Turnover times times times times times
ratio
Net fixed Sales / Net
Assets fixed Assets 2.85 3.68 4.27 4.84 4.64
Turnover times times times times times
Ratio
Fixed Sales / Net
working working
3.58 5.38 4.22 6.37 7.61
capital Capital
times times times times times
turnover
ratio
Inventory COGS / Avg.
4.68 6.54 6.99 6.40 6.55
Turnover Inventories
times times times times times
Ratio
Average 360 days /
Age of Inventory 76.92 55.05 51.50 56.25 54.96
Inventorie Turnover Days Days Days Days Days
s
Debtor’s (Debtors +
ratio Bills
70.56 43.62 40.04 29.51 26.62
(Days) receivable /
Days Days Days Days Days
Credit Sales)
x365
Debtors Credit Sales
5.30 7.35 9.68 11.88 15.14
turnover / Avg.
Days Days Days Days Days
ratio Debtors

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BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CHAPTER 7
DU PONT CHART
Profit margin & assets turnover are the two drivers of return on assets.
The Du Pont System of financial analysis clearly brings out the effects of
these two drivers on return on assets. A system is useful for analysis,
which considers important inter relationship based on information found in
financial statements.

Importance Of Du Pont Chart:

Any decision affecting the product price per unit costs, volume or
efficiency has an impact on the profit margin or turnover ratios. Similarly
any decision affecting the amount & ratio of debt or equity used will affect
the financial structure & the overall cost of capital of a company.
Therefore, these financial concepts are very important to evaluate as
every business is competing for Limited Capital Resources. Understanding
the inter relationship among the various ratios such as turnover ratio,
average & probability ratios helps companies to put their money areas
where the risk adjusted return is the maximum.

The chart used by “Du Pont Company” of U.S.A is known as Du Pont


Chart.

This is the Du Pont Chart applied to Ashok Leyland Ltd. At the left of the
Du Pont Chart is the return on the assets defined as the product of the
Net Profit Margin & the Total Assets Turnover Ratio.

Net Profit Total Assets = Net Profit / Sales X Net Sales / Avg. Total Assets.

Such decomposition helps in understanding how the Net Profit Margin &
Total Assets Turnover Ratio influences the Return on Total Assets.

Chart 7.1

S V INSTITUTE OF MANAGEMENT, KADI 113


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

DU PONT CHART FOR THE YEAR 2002 – 2003

Return on
Assets 6.07%

Total Assets Net Profit


Turnover 1.35 % X Margin 4.48 %

Net Sales Average total Net Profit Net Sales


/ Assets 19797.97 1202.12 / 26803.75
26803.75

Average Average Avg. Net sales


Average
fixed + + net + Misc. +/ - -
Investment
Assets current Exp. Non- Total
1674.57
9446.03 assets 24.53 Operating Cost
8652.84 Surplus / 25754.56
Deficit
26956.68

S V INSTITUTE OF MANAGEMENT, KADI 114


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 7.2

DU PONT CHART FOR THE YEAR 2003 – 2004

Return on
Assets 10.83 %

Total Assets Net Profit


Turnover 1.90 % X Margin 5.70 %

Net Sales Average total Net Profit Net Sales


/ Assets 17882.49 1935.80 / 33938.84
33938.84

Average Average Avg. Net sales


Average
fixed + + net + Misc. +/ - -
Investment
Assets current Exp. Non- Total
1520.89
9304.69 assets 161.62 Operating Cost
6895.29 Surplus / 32189.20
Deficit
34125.04

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BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 7.3

DU PONT CHART FOR THE YEAR 2004 – 2005

Return on
Assets 13.74%

Total Assets Net Profit


Turnover 2.12 % X Margin 6.49 %

Net Sales Average total Net Profit Net Sales


/ Assets 19750.55 2714.10 / 41818.97
41818.97

Average Average Avg. Net sales


Average
fixed + + net + Misc. +/ - -
Investment
Assets current Exp. Non- Total
1878.96
9500.51 assets 258.28 Operating Cost
8112.81 Surplus / 39642.40
Deficit
42356.52

S V INSTITUTE OF MANAGEMENT, KADI 116


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 7.4

DU PONT CHART FOR THE YEAR 2005 – 2006

Return on
Assets 14.54%

Total Assets Net Profit


Turnover 2.33 % X Margin 6.24 %

Net Sales Average total Net Profit Net Sales


/ Assets 22515.95 3273.20 / 52476.57
52476.57

Average Average Avg. Net sales


Average
fixed + + net + Misc. +/ - -
Investment
Assets current Exp. Non- Total
2986.84
10318.40 assets 133.20 Operating Cost
9077.47 Surplus / 49533.10
Deficit
52806.31

S V INSTITUTE OF MANAGEMENT, KADI 117


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

Chart 7.5

DU PONT CHART FOR THE YEAR 2006 – 2007

Return on
Assets 17.60%

Total Assets Net Profit


Turnover 2.86 % X Margin 6.16 %

Net Sales Average total Net Profit Net Sales


/ Assets 25079.83 4412.86 / 71681.76
71681.76

Average Average Avg. Net sales


Average
fixed + + net + Misc. +/ - -
Investment
Assets current Exp. Non- Total
2946.36
13146.10 assets 158.63 Operating Cost
8828.78 Surplus / 67976.90
Deficit
72389.79

S V INSTITUTE OF MANAGEMENT, KADI 118


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CHAPTER 8
Suggestions & Recommendations
1. The balance sheet figures are showing the declining trend since last
few years. It should be the reason for higher inventory level which
unnecessary blocked the money. For higher the profitability ratio of the
firm, it is required to increase the sales along with:
 New advertising techniques through latest media which are more
effective and prestigious.
 To increase the work efficiency of the workers as well as of the
staff members, arrangement of different training programmes
like meetings, seminars, conferences, coaching classes etc. is
required.
 For the innovation of new market, select capable market
representatives who are more efficient to recover the more
market share.
 Try to maintain the quality level as per the market demand which
satisfies the customers more.
2. In order to increase the profit the firm should keep proper control over
the expenses retaliating to the purchase of goods, manufacturing and
lab ours for that, proper supervision and timely comparison of actual
with budgeted overheads should be taken. This will help the
management to know the causes and taking competitive actions to
reduce the expenses.
In order to reduce the expenses relating to payment of interest, the
firm should rely more on its share capital rather than borrowing
loans and funds. Firm should also try to maintain proper balance
between debt and equity.
3. To improve the liquidity position of the firm, proper working capital is
necessary to recover the daily cash requirement. For that, the firm
should:
 Try to reduce the debt collection period which should be main
sources for working capital.
 Use more credit facility which is given by the creditors.
 Firm should also use more short term loans to recover the
working capital requirement because the interest rate for short
term loans is less and it should be flexible to use.
4. In order to maximize wealth under uncertainty, the firm must pay
enough dividends to satisfy investors. It should help to increase the
moral of the investors and side by side also helps in long term financial
strength of the firm. So, by increasing profits, the firm should pay
dividends regularly.

S V INSTITUTE OF MANAGEMENT, KADI 119


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

CHAPTER 9
CONCLUSION
We are making the financial analysis from its techniques that we are
concluding as follows:

Horizontal Analysis:
Ashok Leyland Ltd has made good growth in last five years in sales as
well as profit. Here growth in sales is increasing every year against that
expenditure has also increased but lower than sales. In 2006-07, the
Company’s exports grew by 23% with the sale of 6,025 vehicles. This
improvement was derived from demand in the export markets and the
launch of new products. This is the reason the sale & profit has increased
compare to last years i.e. 2005-06
Vertical Analysis:
It shows that the expenditure of the company is accounting for higher
percentage of sales around 99% every year & because of the every year
profit has increased but a decreasing rate. So for the increment of profit
in future, the company is requiring to optimize its expenditure on the side
of operating as well as administrative.
Trend Analysis:
It shows good trend in sales & profit but as above said, expenditure also
rising that depends the profit of the company. Reserve & Surplus also
shows good trend.
Cash Flow
In Cash Flow Analysis all the activities i.e. operating, investing, financing
maintain this year (2006 – 2007).
Ratio Analysis:
We are discussing about mainly 5 kinds of ratio. All the ratios performs
very well in last five years that gives better profitability & liquidity position
to the company.
Ashok Leyland Limited is confident that it can meet the challenges
passed by the deregulation scenario with its strength in refining. Its
strategic scenario with its strength in refining its strategic alliance with
Ashok Leyland Limited marketing and in house productivity
improvement, profitability maximization and cost reduction exercises,
which have already been launched in right earnest. These measures
would place the company in a position of comfort to meet the real
challenges of the future and we also wish them “Best of Luck” for their
bright future. So that Ashok Leyland Limited will be a world clean
Automotive Company. Now a day, key customer rates company among
the top 5 companies. At last, company is financial healthy.

S V INSTITUTE OF MANAGEMENT, KADI 120


BATCH 2007-09
FINANCIAL ANALYSIS OF ASHOK LEYLAND LIMITED

BIBLIOGRAPHY
1. Narayanaswamy R.: “Financial Accounting “, 2nd Edition, Prentice
Hall Publication (India), 2005. pg no
2. Shah Sudhir B.: “Advance Accounting & Auditing – 4”, 16th
Edition, Sudhir Publication, 2006. pg no 142 – 337.
3. Mathur Satish B.: “Understanding Balance sheets”, 3rd Edition,
Macmillan India Limited Publication, 2007. Pg NO 113 - 194

WEB LINKS

• http://www.ashokleyland.com/performance report.jsp

• http://www.ashokleyland.com/products.jsp

• http://www.ashokleyland.com/mediakit.jsp

DATABASE

• Prowess Database

S V INSTITUTE OF MANAGEMENT, KADI 121


BATCH 2007-09

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