This action might not be possible to undo. Are you sure you want to continue?
SUBMITTED BY-JIVESH ROLL NO-75, SEC -B
ANALYSIS OF FINANCIAL STATEMENTS OF HERO MOTOCORP
TABLE OF CONTENTS :: (1) INTRODUCTION TO AUTOMOBILE INDUSTRY (2) PROFILE OF HERO MOTOCORP LTD. (3) OBJECTIVE OF ANALYSIS AND METHODOLOGY (4) FINANCIAL ANALYSIS USING RATIO ANALYSIS (5) INTERPRETATIONS OF THE RATIOS (6) REFERENCES
INTRODUCTION TO AUTOMOBILE INDUSTRY
India is the second largest manufacturer and producer of two-wheelers in the world. It stands next only to Japan and China in terms of the number of two-wheelers produced and domestic sales respectively. This distinction was achieved due to variety of reasons like restrictive policy followed by the Government of India towards the passenger car industry, rising demand for personal transport, inefficiency in the public transportation system etc. The Indian two-wheeler industry made a small beginning in the early 50s when Automobile Products of India (API) started manufacturing scooters in the country. Until 1958, API and Enfield were the sole producers. Under the regulated regime, foreign companies were not allowed to operate in India. The motorcycles segment was no different, with only three manufacturers via Enfield, Ideal Jawa and Escorts. The two-wheeler market was opened to foreign competition in the mid-80s. And the then market leaders - Escorts and Enfield - were caught unaware by the onslaught of the 100cc bikes of the four Indo-Japanese joint ventures The industry had a smooth ride in the 50s, 60s and 70s when the Government prohibited new entries and strictly controlled capacity expansion. The industry saw a sudden growth in the 80s. The industry witnessed a steady growth of 14% leading to a peak volume of 1.9mn vehicles in 1990. In 1990, the entire automobile industry saw a drastic fall in demand. This resulted in a decline of 15% in 1991 and 8% in 1992, resulting in a production loss of 0.4mn vehicles. The total number of registered two-wheelers and three-wheelers on road in India, as on March 31, 1998 was 27.9mn and 1.7mn respectively. The two-wheeler population has almost doubled in 1996 from a base of 12.6mn in 1990. The last few years have seen a fundamental shift in preference from scooters and mopeds towards motorcycles. Motorcycle sales have grown at a CAGR of 27% for the last 6 years Vs Two Wheelers, which have grown at a CAGR of 11% over the same period. In 02-03, motorcycle sales have grown at 30% vs. 17% for two-wheelers. The faster growth rate of motorcycles has seen its share doubling from 38% in 97-98 to 76% in 02-03. A total of of 2,968,201 vehicles were sold in India during the first two months of the financial year 2013-14, thus registering a feeble decrease of 0.64% as against same period of 2012-13. The sales stood at 2,987,438 in April-May for 2012. One of the key highlights of the year so far is the dip in sales of LCV Trucks by 2.38% as against the previous year. Slight growths were registered in two and three wheelers while the other segments posted declines. In terms of production two wheeler production increases by 18.10%, while passenger vehicle segment decreases by 10.25%. The two wheeler export segment is forced down to 16.50% due to weak demands while commercial vehicle suffered further blow as their exports decreased by 19.47% The recent fall of Rupee against Dollar, the increase in price for crude oil and fear of inflation will install bigger hurdles to the Indian automobile industry in the coming months. 2
For the period April-May 2013, the two and three wheeler segments show slight growths while passenger vehicle segment grows by 8.56% in comparison with the same period last year. The turmoil of commercial vehicle segment continues as it slips at a negative 5.28% at the periodic year-to-year comparison.
Two Wheelers hold 79% of the total automobile sales during the period AprilMay 2013 and passenger vehicle takes up 15% of sales share for the same.
So far in this financial year, a total of 3,422,144 vehicles were produced which is 3.14% less than what was during the same period in 2012. The production of three wheelers had increased by 18.10% and commercial vehicles by 6.64%. Meanwhile, there is a decline in the production of passenger vehicles during the April-May period of 2013 as against the same period 2012. Two wheeler production has also decreased by 2.97%.
There is an 8.62% decline in cumulative exports of vehicles from India in April to May 2013, as against the same period last year. Notable the three wheeler exports are on the up with a 26.53% increase during this financial year so far against the same period in 2012. Passer vehicle exports has also increased by 7.34% this financial year so far, as against April-May 2012.Commercial Vehicle exports had declined by 19.47% while two 4
50% in April-May period for 2013. Three wheeler segments good demand has gained them 13% segment share in the AprilMay period of current fiscal against 9% during the same period previous year. Two Wheeler segment has lost 6% segment share due to weak demands in South East Asia. 5 . Passenger vehicles has gained a few number from 16% during April-May 2012 to stay at 19% in the April-May period of current fiscal. as against same period 2012. Latin America and Africa.wheelers suffered a decline of 16. Concerns for the Automobile sector: • Weak global markets • Growing competition • Poor industrial growth in recent months.
Strategy Hero MotoCorp's key strategies are to build a robust product portfolio across categories. styling and quality so that it converts its customers into its brand advocates.the vision of a mobile and an empowered India. continuously improve its operational 6 . continues to maintain this position till date. The Company will provide an engaging environment for its people to perform to their true potential.1' two-wheeler Company in terms of unit volume sales in a calendar year. the 'World No.wheelers. It will continue its focus on value creation and enduring relationships with its partners. Hero MotoCorp Ltd.) is the world's largest manufacturer of two . Hero MotoCorp Ltd. reflects its commitment towards providing world class mobility solutions with renewed focus on expanding company's footprint in the global arena.PROFILE OF HERO MOTOCORP LTD. In 2001. Mission Hero MotoCorp's mission is to become a global enterprise fulfilling its customers' needs and aspirations for mobility. powered by its bikes. the Company achieved the coveted position of being the largest two-wheeler manufacturing Company in India and also. setting benchmarks in technology. (Formerly Hero Honda Motors Ltd. Hero MotoCorp Ltd. explore growth opportunities globally. based in India. company's new identity. Vision The story began with a simple vision ..
Manufacturing Hero Honda bikes are manufactured across three globally benchmarked manufacturing facilities. will continue to innovate and develop cutting edge products and processes. Hero MotoCorp. The Company also started manufacturing scooter in 2005. with the launch of the Glamour FI in June 2006. continue to invest in brand building activities and ensure customer and shareholder delight. in the hill state of Uttarakhand. aggressively expand its reach to customers. 7 . in its endeavour to remain technology pioneer. Two of these are based at Gurgaon and Dharuhera which are located in the state of Haryana in northern India. Hero Honda offers large no. Products Hero Honda's product range includes variety of motorcycles that have set the industry standards across all the market segments. Technology In the 1980's the Company pioneered the introduction of fuel-efficient. of products and caters to wide variety of requirements across all the segments. It became the first Company to launch the Fuel Injection (FI) technology in Indian motorcycles. Its plants use world class equipment and processes and have become a benchmark in leanness and productivity. The third and the latest manufacturing plant is based at Haridwar.efficiency. environment friendly four-stroke motorcycles in the country.
Brand The new Hero is rising and is poised to shine on the global arena. Hero MotoCorp's extensive sales and service network now spans over to 5000 customer touch points. Hero MotoCorp Limited was incorporated in the year 1984 with the name Hero Honda Motors Ltd. Gurgaon at Haryana and Haridwar at Uttarakhand. In the year 1983. entertainment and ground. The company is engaged in the manufacture of two wheelers motorcycles and its parts. Hero MotoCorp Limited is the World's single largest two-wheeler motorcycle company. The company has three manufacturing facilities namely Dharuhera. These comprise a mix of authorized dealerships." is truly reflective of its vision to strengthen focus on mobility and technology and creating global footprint. Company's new identity "Hero MotoCorp Ltd. they signed a joint collaboration agreement and formed the company.level activation. Building and promoting new brand identity will be central to all its initiatives.Distribution The Company's growth in the two wheeler market in India is the result of an intrinsic ability to increase reach in new geographies and growth markets. Service & Spare Parts outlets. The company is based in New Delhi. and dealerappointed outlets across the country. India. The company was established as a joint venture company between Honda Motor Company of Japan and Hero Group. The joint venture between India's Hero Group and 8 . utilizing every opportunity and leveraging its strong presence across sports.
the Indian Promoter Group of the company now comprises of HIPL and BCIPL owned and controlled entirely by the Munjal Family headed by Brijmohan Lall Munjal. Japan (Honda) entered into a Share Transfer Agreement (the Agreement) on January 22. 2011. As per the terms of the Agreement. During the year 2010-11. During the year 2009-10. The company launched nine new models during the year. 2010. Hero Cycles transferred its shareholding in the company to HIPL on May 28. Bahadur Chand Investment Pvt Ltd (BCIPL) and Hero Cycles Limited (Hero Cycles) re-aligned the shareholding in the company. following a family agreement. bringing an end to the joint venture between the two promoter groups of the company. the Indian Promoter Group of the company. The company launched the new upgraded versions of CBZ Xtreme and Karizma. Also. 2011. As a result. during the year. assemble. the right and license to manufacture. They refreshed Glamour and Glamour FI. As a result of these transactions. Also. During the year. They introduced the New Hunk. sell and distribute certain products and their service parts under their Intellectual Property Rights. Honda had agreed to transfer its entire shareholding of 26% in the Company to the Indian Promoter Group. the company changed their name from Hero Honda Motors Ltd to Hero MotoCorp Ltd. Honda has given to the company. As per this agreement. 9 . The acquisition was completed on March 22. the Indian Promoter Group and Honda Motor Co Ltd. Japan has not only created the world's single largest two wheeler company but also one of the most successful joint ventures worldwide. In February 2012. they breached the landmark 5 million figure cumulative sales in a single year. which comprised of Hero Investments Pvt Ltd (HIPL). the company entered into a strategic partnership with Erik Buell Racing (EBR) of USA for contemporary technology and design inputs to enable the company to launch high end bikes for the domestic and international market. In addition to the Agreement. Super Splendor and Splendor Pro. In July 2011. the company increased the installed capacity of Motorised 2 wheelers upto 350CC engine by 200000 Nos to 5400000 Nos. the Indian Promoter Group and Honda also entered into a License Agreement on January 1. 2011 and the shares held by Honda were transferred to the Indian joint venture partner.Honda Motor Company. the company launched six new models including variants of existing models successfully.
A ratio is a statistical yardstick by means of which relationship between two or various accounting figures can be compared or measured. The performance levels of the firm over the years compared with the industy and its competitor. This assistance in decision-making reduces reliance on guesswork and intuition and establishes a basis for sound judgement. METHODOLOGY USED :: (1) Source of data : The data extracted for the purpose of analysis is from a secondary but reliable source. The analysis is used to provide indicators of past performance in terms of critical success factors of a business. Why only ratio analysis is used for financial analysis? • Simplifies financial statements 10 . The future prospects of the firm in terms of overall growth in the industry. That is : FY08 : 1/4/2008 to 31/3/2009 FY09 : 1/4/2009 to 31/3/2010 FY10 : 1/4/2010 to 31/3/2011 FY11 : 1/4/2011 to 31/3/2012 FY12 : 1/4/2012 to 31/3/2013 (3) Technique used for analysis : The technique used for the financial analysis is ratio analysis.OBJECTIVE OF ANALYSIS AND METHODOLOGY OBJECTIVE OF THE STUDY :: The objective of the study is to analyze the financial statements of Hero MotoCorp Ltd using the technique of ratio analysis so as to determine :: • • • • The financial position that is strength and weakness of the firm over the past years. The efficiency of management policy framework and its execution levels. (2) Period of analysis : The period taken into consideration for the purpose financial analysis is from financial years ranging from 2009 to 2013. It is essentially concerned with the calculation of relationships which after proper identification and interpretation may provide information about the operations and state of affairs of a business enterprise.
It is calculated by dividing the total of the current assets by total of the current liabilities. control and communications. Current Ratio = Current Assets / Current Liabilities This ratio is a general and quick measure of liquidity of a firm. in its basic functions of forecasting. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future. On the 11 . Ratios can assist management. It is also an index of technical solvency and an index of the strength of working capital. The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. Failure to do this will result in the total failure of the business. • • • • The type of ratios analyzed :: (a) LIQUIDITY RATIOS : Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. Makes inter-firm comparison possible: Ratios analysis also makes possible comparison of the performance of different divisions of the firm. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time and when they become due. Ratios highlight the factors associated with with successful and unsuccessful firm. Provides sufficient insight to appraise the future prospect of the firm. It is an index of the firms financial stability. They also reveal strong firms and weak firms. It represents the margin of safety or cushion available to the creditors. It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. co-ordination. This ratio is also known as "working capital ratio". Help in investment decisions: It helps in investment decisions in the case of investors and lending decisions in the case of bankers etc. overvalued and undervalued firms. Planning. • Current Ratio : Current ratio may be defined as the relationship between current assets and current liabilities.• Facilitates inter-firm comparison: It provides data for inter-firm comparison. as it would be forced into liquidation. Helps in planning: It helps in planning and forecasting.
On the other hand. An increase in the current ratio represents improvement in the liquidity position of the firm while a decrease in the current ratio represents that there has been a deterioration in the liquidity position of the firm. Hence. In the same manner. A ratio equal to or near 2 : 1 is considered as a standard or normal or satisfactory. The idea of having double the current assets as compared to current liabilities is to provide for the delays and losses in the realization of current assets. a firm having a high liquidity ratio may not have a satisfactory liquidity position if it has slow-paying debtors. the current ratio may be high but it does not represent a good liquidity position. Though this ratio is definitely an improvement over current ratio. examines the ability of the business to cover its short-term obligations from its “quick” assets only (i. Although liquidity ratio is more rigorous test of liquidity than the current ratio . a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time without facing difficulties. It is used as a complementary ratio to the current ratio. 12 . A liquid ratio of 1:1 does not necessarily mean satisfactory liquidity position of the firm if all the debtors cannot be realized and cash is needed immediately to meet the current obligations. generally. the rule of 2 :1 should not be blindly used while making interpretation of the ratio. Usually a high liquid ratios an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the firm's liquidity position is not good. also referred to as acid test ratio. As a general rule of thumb suggests that the quick ratio should be around 1. it ignores stock & prepaid expenses).e. a low liquid ratio does not necessarily mean a bad liquidity position as inventories are not absolutely non-liquid. Firms having less than 2 : 1 ratio may be having a better liquidity than even firms having more than 2 : 1 ratio. a quick ratio of "one to one" (1:1) is considered to be satisfactory. It measures the firm's capacity to pay off current obligations immediately and is more rigorous test of liquidity than the current ratio. This is because of the reason that current ratio measures the quantity of the current assets and not the quality of the current assets. yet it should be used cautiously and 1:1 standard should not be used blindly. Quick Ratio = Quick Assets / Current Liabilities The quick ratio/acid test ratio is very useful in measuring the liquidity position of a firm. However. Liquid ratio is more rigorous test of liquidity than the current ratio because it eliminates inventories and prepaid expenses as a part of current assets. As a convention. If a firm's current assets include debtors which are not recoverable or stocks which are slow-moving or obsolete. the interpretation of this ratio also suffers from the same limitations as of current ratio. • Quick Ratio : The quick ratio. A firm having a low liquid ratio may have a good liquidity position if it has a fast moving inventories.other hand.
The purpose of this ratio is to indicate the percentage of the owner's funds invested in fixed assets. Absolute Liquid Ratio = Absolute Liquid Assets / Current liabilities (b) SOLVENCY RATIOS : The ratios indicate the degree to which the activities of a firm are supported by creditors’ funds as opposed to owners. The following ratios can be used to identify the financial strength and risk of the business. A relatively high proportion of funds contributed by the owners indicates a cushion (surplus) which shields creditors against possible losses from default in payment. A standard of 0. Note: The greater the proportion of equity funds. surpluses and retained earnings. Equity Ratio = Shareholders funds / Total Assets • Fixed Assets to Shareholders fund Ratio : This ratio establishes the relationship between fixed assets and shareholders funds. Higher the ratio or the share of shareholders in the total capital of the company. from the point of view of absolute liquidity. This ratio relates the shareholder's funds to total assets. The relationship of owner’s equity to borrowed funds is an important indicator of financial strength. This ratio throws light on the general financial strength of the company. The ratio of fixed assets to net worth indicates the extent to which shareholder's funds are sunk into the fixed assets. better is the longterm solvency position of the company. Financial leverage will be to the advantage of the ordinary shareholders as long as the rate of earnings on capital employed is greater than the rate payable on borrowed funds. It is also regarded as a test of the soundness of the capital structure. If the ratio is less than 100%. marketable securities. cash at bank. • Equity Ratio : It is also known as equity ratio or net worth to total assets ratio. Generally. The debt requires fixed interest payments and repayment of the loan and legal action can be taken if any amounts due are not paid at the appointed time. it implies that 13 . the purchase of fixed assets should be financed by shareholder's equity including reserves. the greater the degree of financial strength. That is. fixed deposits) of the firm against the current liabilities. A low equity ratio will include greater risk to the creditors.• Absolute Liquid Ratio : The absolute liquid ratio is the measure of absolute liquid assets (cash-in-hand.5: 1 absolute liquidity ratio is considered an acceptable norm. Proprietary/Equity ratio indicates the long-term or future solvency position of the business. fifty paisa worth of absolute liquid assets are considered sufficient for one rupee worth of current liabilities . This ratio gains much significance only when it is used in conjunction with the current and liquid ratios.
When the ratio is more than the 100%. Fixed Assets to Shareholders’ Fund = Fixed Assets / Shareholder’s Fund • Current Assets to Shareholders Fund Ratio : This ratio establishes the relationship between current assets and shareholder's funds. Different industries have different norms and therefore. The purpose of this ratio is to calculate the percentage of shareholders funds invested in current assets. It indicates whether the business has earned sufficient profits to pay periodically the interest charges. Debt to equity ratio indicates the proportionate claims of owners and the outsiders against the firm’s assets. It is determined to ascertain soundness of the long term financial policies of the company.owners funds are more than fixed assets and a part of the working capital is provide by the shareholders. the interpretation of the ratio depends upon the financial and business policy of the company. The outsider creditors on the other hand. it implies that owners funds are not sufficient to finance the fixed assets and the firm has to depend upon outsiders to finance the fixed assets. The debt service ratio is very important from the creditor’s point of view. The purpose is to get an idea of the cushion available to outsiders on the liquidation of the firm. the financial position is highly solvent. Current Assets to Proprietors Funds = Current Assets / Proprietor's Funds • Debt-Equity Ratio of Hero MotoCorp: Debt-to-Equity ratio indicates the relationship between the external equities or outsiders funds and the internal equities or shareholders funds. this ratio should be studied carefully taking the history of industrial concern into consideration before relying too much on this ratio. It is also known as external . want that shareholders (owners) should invest and risk their share of proportionate investments. There is no rule of thumb to interpret this ratio. Debt Equity Ratio = External Equities / Internal Equities • Debt-Service Ratio of Hero MotoCorp : This ratio relates the fixed interest charges to the income earned by the business. It indicates the number of times interest is covered by the profits available to pay interest charges.internal equity ratio. Theoretically if the owner’s interests are greater than that of creditors. It is an index of the financial strength of an enterprise. However. A ratio of 1:1 is usually considered to be satisfactory ratio although there cannot be rule of thumb or standard norm for all types of businesses. In analysis of the long-term financial position it enjoys the same importance as the current ratio in the analysis of the short-term financial position. A high debt service ratio assures the creditors a regular and periodical interest 14 . The owners want to do the business with maximum of outsider's funds in order to take lesser risk of their investment and to increase their earnings (per share) by paying a lower fixed rate of interest to outsiders.
• Gross profit ratio: It is the ratio of gross profit to net sales expressed as a percentage. But the weakness of the ratio may create some problems to the financial manager in raising funds from debt sources. As the gross profit is found by deducting cost of goods sold from net sales. It expresses the relationship between gross profit and sales. the gross profit earned should be sufficient to recover all operating expenses and to build up reserves after paying all fixed interest charges and dividends. Lower operating ratio shows higher operating profit and vice versa. Moreover. It may vary from business to business. The profitability ratios show the combined effects of liquidity. in 15 . as already pointed out. profitable companies can still fail for a lack of cash. Gross Profit Ratio = (Gross profit / Net sales) × 100 • Operating Ratio: Operating ratio is the ratio of cost of goods sold plus operating expenses to net sales. -A company should earn profits to survive and grow over a long period of time. Note: Without profit. Profitability is a result of a larger number of policies and decisions. It reflects efficiency with which a firm produces its products. Although the profit figure is the starting point for any calculation of cash flow. asset management (activity) and debt management (gearing) on operating results. there is no cash and therefore profitability must be seen as a critical success factors. This is closely related to the ratio of operating profit to net sales Operating ratio shows the operational efficiency of the business. but it would be wrong to assume that every action initiated by management of a company should be aimed at maximising profits. Debt-Service Ratio = Net Profit Before Interest and Tax / Fixed Interest Charge (c) PROFITABILITY RATIOS : Profitability is the ability of a business to earn profit over a period of time. irrespective of social consequences. However. -Profits are essential. There is no standard GP ratio for evaluation. higher the gross profit better it is. This ratio is considered to be a yardstick of operating efficiency but it should be used cautiously because it may be affected by a number of uncontrollable factors beyond the control of the firm. It is generally expressed in percentage. It measures the cost of operations per rupee of sales.income. Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. The overall measure of success of a business is the profitability which results from the effective use of its resources.
The two basic components of this ratio are net profits and shareholder's funds. This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. low demand. But while interpreting the ratio it should be kept in mind that the performance of profits also be seen in relation to investments or capital of the firm and not only in relation to sales.some firms. As the ratio reveals how well the resources of the firm are being used. It is the relationship between net profit (after interest and tax) and share holder's/proprietor's fund. The net profits are obtained after deducting income-tax and. profit on sales of fixed assets and losses on sales of fixed assets. etc are excluded. NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. It compares the quality of a company’s operations to its competitors. This pricing flexibility provides an added measure of safety during tough economic times. This ratio establishes the profitability from the share holders' point of view. this ratio indicates the extent to which this primary objective of businesses being achieved. generally. which gives management more flexibility in determining prices. This ratio also indicates the firm's capacity to face adverse economic conditions such as price competition. non-operating expenses from a substantial part of the total expenses and in such cases operating ratio may give misleading results. Thus. The ratio is very useful as if the net profit is not sufficient. (preference share capital) and all reserves and surplus belonging to shareholders. Shareholder's funds include equity share capital. higher the 16 . incomes such as interest on investments outside the business. Net Profit Ratio = (Net profit / Net sales) × 100 • Return On Investment : It is the ratio of net profit to share holder's investment. This ratio is of great importance to the present and prospective shareholders as well as the management of the company. higher the ratio the better is the profitability. The two basic components of the net profit ratio are the net profit and sales. Obviously. The ratio is generally calculated in percentage. A business that has a higher operating margin than its industry’s average tends to have lower fixed costs and a better gross margin. It is expressed as percentage. Net profit means net income after payment of interest and income tax because those will be the only profits available for share holders. Operating Ratio = [(Cost of goods sold + Operating expenses) / Net sales]×100 • Operating profit ratio: The operating profit ratio is another measurement of management’s efficiency. As the primary objective of business is to maximize its earnings. • Net profit ratio: Net profit ratio is the ratio of net profit (after taxes) to net sales. non-operating expenses and incomes are excluded from the net profits for calculating this ratio. the firm shall not be able to achieve a satisfactory return on its investment. etc.
It also helps in knowing whether the share of a company are under or over valued. Interpretation of the ratio is similar to the interpretation of return on investments and higher the ratio better is. Return on investment = [Net profit (after interest and tax) / Net worth] × 100 • Return on Equity Capital : In real sense. They assume the highest risk in the company. EPS ratio calculated for a number of years indicates whether or not the earning power of the company has increased. the management should look into the causes that have resulted into the fall of this ratio. If the P/E ratio falls. higher the price earning ratio the better it is.ratio. ordinarily shareholders are the real owners of the company. The earnings per share is a good measure of profitability and when compared with EPS of similar companies. of equity shares (common shares)] • Price Earning Ratio: Price earning ratio (P/E ratio) is the ratio between market price per equity share and earning per share. (Preference share holders have a preference over ordinary shareholders in the payment of dividend as well as capital. This ratio is more meaningful to the equity shareholders who are interested to know profits earned by the company and those profits which can be made available to pay dividends to them. Return on Equity Capital = [(Net profit after tax − Preference dividend) / Equity share capital] × 100 • Earning Per Share ratio: EPS Ratio is a small variation of return on equity capital ratio and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. P/E ratio = market price per share/earning per share 17 . The ratio is useful in financial forecasting. Preference share holders get a fixed rate of dividend irrespective of the quantum of profits of the company). it gives a view of the comparative earnings or earnings power of the firm. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company. Generally. [Earnings per share (EPS) Ratio = (Net profit after tax − Preference dividend) / No. The interfirm comparison of this ratio determines whether the investments in the firm are attractive or not as the investors would like to invest only where the return is higher. Price earnings ratio helps the investor in deciding whether to buy or not to buy the shares of a particular company at a particular market price. better are the results. The rate of dividends varies with the availability of profits in case of ordinary shares only. Thus ordinary shareholders are more interested in the profitability of a company and the performance of a company should be judged on the basis of return on equity capital of the company.
Sometimes. accumulation of obsolete and slow moving goods and low profits as compared to total investment. the higher will be the amount of earnings ploughed back in the business and vice versa. Stock turn over ratio/Inventory turn over ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. the lesser amount of money is required to finance the inventory. dull business. The lower the payout ratio. The payout ratio is the indicator of the amount of earnings that have been ploughed back in the business. As turnover increases more working capital and cash is required and if not. • Stock Turnover Ratio : Every firm has to maintain a certain level of inventory of finished goods so as to be able to meet the requirements of the business. Note: Increased turnover can be just as dangerous as reduced turnover if the business does not have the working capital to support the turnover increase. A low inventory turnover implies over-investment in inventories. It is expressed in number of times. stock accumulation. This ratio indicates whether investment in stock is within proper limit or not. poor quality of goods. But the level of inventory should neither be too high nor too low. assets will be idle as it is impossible to buy and sell fixed assets continuously as turnover changes. The inventory turnover ratio is also an index of profitability. Unless the business continues to generate high turnover. a low ratio signifies low profit. a high inventory turnover ratio may not 18 . It is very essential to keep sufficient stock in business. A too high inventory means higher carrying costs and higher risk of stocks becoming obsolete whereas too low inventory may mean the loss of business opportunities. A low inventory turnover ratio indicates an inefficient management of inventory.• Dividend Payout Ratio : It is calculated to find the extent to which earnings per share have been used for paying dividend and to know what portion of earnings has been retained in the business. the business needs a high turnover.This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. Dividend Payout Ratio = Dividend per Equity Share / Earnings per Share (d) ACTIVITY RATIOS : If a business does not use its assets effectively. Activity ratios are therefore used to assess how active various assets are in the business. In order for the assets to be used effectively. overtrading occurs. Stock turnover ratio measures the velocity of conversion of stock into sales. Usually a high inventory turnover/stock velocity indicates efficient management of inventory because more frequently the stocks are sold. investors in the business would rather take their money and place it somewhere else. where a high ratio signifies more profit. It is an important ratio because ploughing back of profits enables a company to grow and pay more dividends in future. A lower payout ratio or higher retained earnings ratio means a stronger financial position of the company.
Trade debtors are expected to be converted into cash within a short period of time and are included in current assets. This ratio indicates the number of times the debtors are turned over a year. • Stock Turnover Ratio = Cost of goods sold / Average inventory at cost Debtor’s Turnover Ratio: A concern may sell goods on cash as well as on credit. This ratio represents the number of times the working capital is turned over in the course of year. However the study of the comparative or trend analysis of inventory turnover is still useful for financial analysis. But a very high working capital turnover ratio may also mean lack of sufficient working capital which is not a good situation. The effect of a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors (or receivables). Similarly. The higher the value of debtor’s turnover the more efficient is the management of debtors or more liquid the debtors are.The working capital turnover ratio measures the efficiency with which the working capital is being used by a firm. The norms may be different for different firms depending upon the nature of industry and business conditions. Lower ratio means under-utilization of fixed assets. Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors • Working Capital Turnover ratio: It indicates the velocity of the utilization of net working capital. If the information about cost of sales is not available the figure of sales may be taken as the numerator. Debtor’s turnover ratio indicates the velocity of debt collection of a firm. Credit is one of the important elements of sales promotion. The ratio is calculated by using following formula: Fixed Assets Turnover Ratio = Cost of goods sold / Net Fixed Assets 19 .be accompanied by relatively high profits. Similarly a high turnover ratio may be due to under-investment in inventories. Working Capital Turnover Ratio = Cost of goods sold / Net Working Capital • Fixed Assets Turnover Ratio: It is also known as sales to fixed assets ratio. low debtors turnover ratio implies inefficient management of debtors or less liquid debtors. It may also be mentioned here that there are no rule of thumb or standard for interpreting the inventory turnover ratio. Higher the ratio. The ratio is calculated by dividing the cost of goods sold by the amount of average stock at cost. It is the reliable measure of the time of cash flow from credit sales. greater is the intensive utilization of fixed assets. There is no rule of thumb which may be used as a norm to interpret the ratio as it may be different from firm to firm. Hence. This ratio measures the efficiency and profit earning capacity of the concern. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. the liquidity position of concern to pay its short term obligations in time depends upon the quality of its trade debtors. The volume of sales can be increased by following a liberal credit policy. A high ratio indicates efficient utilization of working capital and a low ratio indicates otherwise.
in the data interpreted for the current ratio will be shown in this manner : Industry Hero MotoCorp Bajaj Auto Mar '09 0.95 0.84 (5) Data of Industry : For arriving at a rational interpretation the industry’s data is imperative. The performance of the firm’s ratios with respect to industrial ratios for the period FY08 to FY12 is a relevant yardstick for gauging the firm’s overall performance.82 0.32 Mar '10 0. for calculating the industrial ratios.58 0.69 Mar '13 0.42 Mar '11 0.46 (ii) The firm’s performance pitched with the industrial performance and competitor (BAJAJ AUTO).24 0.8 Mar '12 0.68 0. For example.67 1.42 0. the cumulative data of the following firms are taken into consideration :: • • • • • Hero MotoCorp Bajaj Auto TVS motors Mah scooters Atul Auto (6) Profile of BAJAJ AUTO : 20 .67 Mar '10 0. For example. Now.24 Mar '12 0.67 0.58 Mar '13 0.(4) Method used for interpretation : The interpretation of the various ratios are done at two levels : (i) The individualistic firm’s performance from financial years 2008-09 to 2012-13.88 Mar '11 0.46 0.8 0. in the case of interpreting the current ratio the data interpreted will be shown in this manner : Mar '09 0.
000 Nos to 5. The company's vehicle assembly plant at Akurdi was shut down from September 3. The company is the largest exporter of two and three-wheelers in the country with exports forming 18% of its total sales. KTM Duke 125. The holding company operated in the segments.000 Nos to 4. 2007. the plant produced over 275. The 4 wheel vehicle development work is under progress and commercial launch of the first product from this platform is scheduled for 2012.040.000 million in cash and cash equivalents also transferred to Bajaj Investment & Holding Ltd.000 numbers per annum during the year ending 31 March 2012. The company launched Avenger 220 DTS-i.040. (7) Why Bajaj Auto is chosen to be a competitor for comparison : 21 .51% equity stake in KTM Power Sports AG of Austria. the company expanded the production capacity of Motorised Two & Three Wheelers by 300. Europe's second largest sport motorcycle manufacturer for Rs 345 crore. The company launched Pulsar 220 F. The Chakan plant completed the cumulative production of over 2 million Pulsar.000 vehicles. Pulsar 150 UG. During the year 2007-08. In addition a total of Rs 15. The company was incorporated on April 30. Discover 150 and Discover 125 in the market. a wholly owned subsidiary company acquired 14. The appointed date of this de-merger was closing hours of business on March 31. 2007 due to higher cost of production.Bajaj Auto Ltd is one of the leading two & three wheeler manufacturers in India. insurance and finance sectors. insurance and investment. The company has two subsidiaries. In the first year of operations. such as automotive. and others. As the part of the scheme. namely Bajaj Auto International Holdings BV and PT Bajaj Indonesia. The auto business of the holding company along with all assets and liabilities pertaining thereto including investments in PT Bajaj Auto Indonesia and in a few vendor companies transferred to Bajaj Investment & Holding Ltd. the company inaugurated their green field plant at Pantnagar in Uttarakhand. each of which can focus on their core businesses and strengthen competencies. the company launched XCD 125 DTS-Si and the Three-wheeler Direct Injected auto rickshaw. 2007 as a wholly owned subsidiary of erstwhile Bajaj Auto Ltd (the holding company) with the name Bajaj Investment& Holding Ltd. the holding company de-merged their activities into three separate entities. In April 9.260. During the year 2010-11. Considering the growth opportunities in the auto. The company is well known for their R&D. During the year 2009-10. windenergy. 2007. In November 2007. Pulsar 180 UG. Bajaj Holdings and Investment Ltd were renamed as Bajaj Auto Ltd. The company plans to maintain the capacity of two and three-wheelers at the current level of 5. the company expanded the production capacity of Motorised Two & Three Wheelers by 780. product development. Pulsar 135 LS and Discover DTS-si in the market.000 Nos. 2007. process engineering and low-cost manufacturing skills. The company received the certificate of commencement of business on May 7.000 Nos. Bajaj Auto International Holdings BV.
The firm has greater exposure to the market. FINANCIAL ANALYSIS USING RATIO ANALYSIS 22 . the managerial framework over Bajaj Auto. Additionally. Hence. It also has 2 more manufacturing plants than its competitor. Hero MotoCorp can maintain and improve the position. Hero MotoCorp will have slightly more market capitalization as Bajaj Auto because of their low price skill sets and R&D techniques. . so as to improve its operations. Therefore comparing Hero MotoCorp with Bajaj Auto. that it has substantial presence in India as well as it is trying to expand globally. will provide us with a rationale of appraising the futuristic position of Hero MotoCorp in the industry as it tries to extend its advantage over Bajaj Auto. In the future. They can curtail each and every negative aspect and follow some of the positives of Bajaj Auto. Hero MotoCorp also is in a phase of sales that is going neck to neck with Bajaj Auto.As we can reckon from the above profile of BAJAJ AUTO. the policies followed. market capitalization and revenue centers than Hero MotoCorp.
it was 64. In FY11.46 As per the rule of thumb.7 which is lower than the standard.LIQUIDITY RATIOS :: Current ratio of Hero MotoCorp : Mar '09 0. The firm was having a weakest 23 .07% compared with FY10 and with the substancial removal of the funds locked up in the fixed deposits. In FY10 also. This major correction was experienced with further more introduction of current liabilities which increased with 34. the current ratio should be atleast 2 that is the current assets should meet current liabilities at least twice.18% less than in FY09. it had a weak liquid figure and there was an increase in current liabilities by 136% from FY09 and hence the current ratio decreased to a low of 0.24 Mar '12 0. As we can observe that the firm was having a low current ratio in FY09. the current ratio was corrected with a quantum dip. by seeing the current ratios of Hero MotoCorp from 2008-09 to 2012-13 we can easily examine that there is decreasing trend apart from 2011-12.58 Mar '13 0.4 in FY09.67 Mar '10 0.42 Mar '11 0. Now. This figure can be explained with the fact that the firm was trading with more current liabilities in its books. as we compare the current liabilities of all the years. that is 0.
current ratio as compared with the others i.58.e. In FY12.24 and it could not manage to sweep through its current liabilities.46 0.69 in FY12.24 0.8 Mar '12 0. 0.3%. COMPARISON OF CURRENT RATIO WITH INDUSTRY AND BAJAJ AUTO Industry Hero MotoCorp Bajaj Auto Mar '09 0.88 Mar '11 0.32 in FY09 to . Quick Ratio of Hero MotoCorp :: 24 . This shows need of proper management of working capital as per current ratio performance.69 Mar '13 0.58 0.84 As we can observe from the above chart that Hero MotoCorp has always been underperforming and not being able to maintain a high current ratio above the industry benchmark.68 0.42 0.67 0. the current ratio showed an improving positive sign and the firm managed to attain a current ratio of 0. Again substantial decrease in the investments which declined by 29.32 Mar '10 0. Its current ratio position has been decreasing from 1.82 0.95 0. Bajaj Auto has been managing to fulfill its current liabilities and trying to match the industry standards and is above the levels of Hero MotoCOrp. On the otherhand.67 1.8 0. It just managed to cover up its current liabilities in FY09 and has to improve on its current ratio.
But it is a bit low than the standards and shows that the firm is dependent on its inventories for clearing its current liabilities and the firm needs to have an efficient inventory management. Now.31 As the quick ratio represents the ability of the firm to cover its current liabilities without considering its inventories and it also provides us with an insight much clear and deeper than the current ratio.15 Mar '12 0.3 mark in FY13.49 Mar '13 0. as we can observe from the chart above that the quick ratio of Hero MotoCorp has showed a decreasing trend from FY09 to FY11 and then stabilized around the 0.Mar '09 0. 25 .28 Mar '11 0.52 Mar '10 0. It shows the performance of quick assets in compensating the current liabilities and presents us with weight of funds blocked in inventories.
55 Mar '13 0.This chart above in-depth interprets that the quick ratio of Hero MotoCorp is always following the same trend as that of the current ratio and the there is a slight difference between the two ratios.483 0.573 0.31 0.49 0.6 0.52 1.7 0. The difference reflects a need for improvement in the liquidity front for Hero MotoCorp as it should clear its current liabilities without liquidating its inventories.72 Mar '11 0. This also reflects in a need for efficient planning in investing funds into its inventory and having 26 .71 Mar '12 0.48 0.28 0.06 Mar '10 0. COMPARISON OF QUICK RATIO WITH INDUSTRY AND BAJAJ AUTO Industry Hero MotoCorp Bajaj Auto Mar '09 0.15 0.73 As we can observe from the chart above that Hero MotoCorp has always performed below the industry standards and has displayed it with moderate quick ratios.
which means the firm could not easily overcome its current liabilities from its absolute liquid assets. from the point of view of absolute liquidity. Absolute Liquid Ratio of Hero MotoCorp :: Mar '09 0. In FY11. fixed deposits) of the firm against the current liabilities.015 Mar '11 0.008 and has to depend on its other liquid assets to clear out its current liabilities. which is below than the industrial standards.47 Mar '13 0. which was higher than the total current liabilities of that year. A standard of 0. As we can examine from the above chart that in FY09 the firm was having a low liquid ratio of 0. That is.06 which was lower than that of standard norms of 0.129 The absolute liquid ratio is the measure of absolute liquid assets (cash-in-hand. cash at bank.5: 1 absolute liquidity ratio is considered an acceptable norm. It was as low as 0. the firm was having a low absolute liquid ratio.6 % of the current liabilities of FY09 in FY11. This figure can be explained by 27 .008 Mar '12 0. marketable securities. the firm was having the weakest absolute liquid ratio of .015.This figure can explained by the fact that the firm was not having the high cash position and increased current liabilities as compared with consequent years. This low figure can explained by the fact that the firm had removed a quantum amount from fixed deposits.062 Mar '10 0.5 .least dependency on inventory for clearing its current liabilities. The current liabilities increased by 216. In FY10. fifty paisa worth of absolute liquid assets are considered sufficient for one rupee worth of current liabilities.
008 0.(prompt in keeping making short term investment in deposits) On the other hand.098 As we can observe from the chart that Hero MotoCorp is at higher than the industrial standards. The total current liabilities decreased by 27.152 Mar '11 0. This can explained by introduction of heavy amount into fixed deposits and increase in cash balances as compared with FY11.045 Mar '13 0. Bajaj Auto has been always an outperformer in its absolute liquid ratio. In FY12. it can be assumed that the firm has covered up its current liabilities by using its advances and loans. the firm again striked with a high absolute liquid ratio recovering back from its lows and gaining a respectful absolute liquid position of 0.the fact that the firm was trading with heavy current liabilities which were 34.The firm had low absolute liquid assets in FY12. COMPARISON OF ABSOLUTE LIQUID RATIO WITH INDUSTRY & BAJAJ AUTO Industry Hero MotoCorp Bajaj Auto Mar '09 0.05 0.5 standard norm in FY09.014 0.05% higher than the previous year and there was a quantum removal of fixed deposits and low cash balances.836 Mar '10 0.Its above the industrial standard and was able to fulfill the 0. this means the firm depended upon its other sources of current assets.015 0.469 0.04 0. It recovered its strong absolute liquidity integrity in FY12.011 0. 28 .47.9% of the firm.062 0.005 0. And through analyzing the balance sheet. which is not a healthy sign for its liquidity front. This year was the worst in case of absolute liquid ratio as the firm had to depend upon its liquid assets to cover up its current liabilities.129 0.059 Mar '12 0. it was only weak in its absolute liquid assets in FY10 which was still higher than the industry.
979 As we can from the chart above. therefore the difference had to be compensated by introducing more debt.Lets a take close look on the factors effecting the equity ratio.7% which was much greater than the rate at which shareholders fund increased. 29.59% from FY11 and there was a quantum increase in the total assets i.58% in FY11 .2% compared with the previous year.811 Mar '11 0. therefore the firm covered up the substantial difference through inducing more debt into its capital structure.e. 29 .12% from FY10 and the total assets decreased by 47.943 Mar '10 0. The increase in shareholders stake was nothing in comparison with quantum increase in total assets.SOLVENCY RATIOS :: Equity Ratio of Hero MotoCorp: Mar '09 0. In FY10.98 Mar '13 0. In FY12. the shareholders stake decreased by 13. This means on an overview.99% from FY09 but the total assets increased by 182.664 Mar '12 0.3% in the total assets of the firm reflecting a strong solvent position with respect to equity ratio. the shareholders fund decreased by 18. In FY09.55%. In FY11. the stake of the shareholders in the total assets has been increasing and the percentage of debt contributing in the total assets has been decreasing. the equity ratio has been decreasing and it was strong in in FY09 and drove down by 29. the shareholders stake increased by 47. the shareholders of the firm were contributing 94.
8117 0. This reflects that it is not highly leveraged and the equity funds are utilized in its total assets. In case of Bajaj Auto which is maintaining a weak equity ratio position in FY12 and FY13 as compared with Hero MotoCorp and is not following the industrial standards.664 0.02 30 .943 0.5 Mar '12 0.4% of the total assets.02 Mar '13 0.98 0.937 Mar '12 0. The firm has to put more emphasis on its sales turnover so as to cover-up the increased debt-burden.979 0.709 0. which in turn entails lesser risk for the creditors in the long term.72 0.984 Mar '11 0. It has introduced a large amount of debt in its capital structure so as to finance its increasing total assets needs.686 Mar '13 0.665 0. Further we have to analyze ratios relating to the composition of total assets more carefully.23 Mar '11 0.3% in FY09 but after then started to deteriorate and in FY11 reached the level of 66.809 0.This reflects a strong sign for the solvency of the firm as it has introduced less debt into its capital structure.543 As we can observe from the chart above that Hero MotoCorp has always been with the industrial standards as well as outperforming sometimes. COMPARISON OF EQUITY RATIO WITH INDUSTRY AND BAJAJ AUTO: Industry Hero MotoCorp Bajaj Auto Mar '09 0. Debt-Equity Ratio of Hero MotoCorp : Mar '09 0.06 Mar '10 0. This shows that the firm’s total assets have increased quantumly and it outperforms the percentage increase in its networth.849 Mar '10 0.805 0. It had a strong equity position 94. It does not renders greater risk to its creditors.
This means that the proportion of debt increased substantially because of the secured loans which were around Rs 1458. leaving the shareholders to the major portion of the total liabilities.02 and reached to a minimum level. the debt-equity ratio decreased to 0. analyzing the total debt. This presents us a fact that the proportion of the debt in the firm’s capital structure has not been increasing than compared with shareholder’s equity.2% and the unsecured amount reduced to zero. The firm is in a state where the majority of funds are raised for its total assets from the shareholder’s fund and not from creditors.03 crores in FY09. The portion of creditor’s contribution is less in its capital structure.5 in FY11 with a percentage increase of 733. In FY12.3% compared with the previous year. the debt-equity ratio increased to 0. This year experienced a decrease in unsecured loan fund by 15. Let's take a closer look: In FY09. the debt-equity ratio of 0. In FY10.23 showing a percentage change of 283.3%. the secured loan amount decreased by 33.5 showing a percentage increase of 117. This figure represents the fact that contribution of creditors in the capital structure of the firm has not increased from that of the shareholders. In FY11. it has increased from 0. Further.06 in FY09 to 0. The shareholder funds were contributing more in the total liabilities of the firm as compared to the debt portion.06 was showing a strong solvency figure with more funds invested by the shareholders than the creditors.But still the shareholders funds were 2 times the external equity and showed a good solvency position. The total debt decreased by a quantum 33.39% compared with FY10.15 crores in FY11. the debt-equity ratio increased to 0.3%.87% contributing 100% in the total debt which was at Rs 66.As we can observe from the above chart there is increasing trend in the debt-equity ratio. COMPARISON WITH INDUSTRY AND BAJAJ AUTO 31 .
It seems that it is following a policy to do the business with maximum of outsider's funds in order to take lesser risk of their investment and to increase their earnings (per share) by paying a lower fixed rate of interest to outsiders.5 0.23 0.173 0. The advantage for Hero MotoCorp is that the firm will not experience a high debt-interest burden and will not have to generate the extra sales to cover-up the extra burden of debt.75 32 .656 0.81 Mar '11 11. By seeing this position. PROFITABILITY RATIOS :: Gross profit ratio of Hero MotoCorp : Mar '09 9.01 Mar '10 0.84 As we can observe from the chart that Hero MotoCorp is all together on a different level in its debt-equity ratio.07 Mar '12 0. But Bajaj Auto is highly leveraged in the industry and enjoys the advantages of a highly leveraged firm. The firm has no need to perform in each and every aspect to keep its creditors satisfied on their nominal investment. we can say that Hero MotoCorp has a strong solvency position as far as debt-equity ratio is concerned.453 0.33 Mar '12 16.546 0.06 0.02 0.01 Mar '10 10.Industry Hero MotoCorp Bajaj Auto Mar '09 0.286 0.02 0.11 Mar '13 12. its not following the industrial standards and is way below its peer.02 Mar '11 0.46 Mar '13 0. The creditors are liable to lesser risk than the shareholders.
18 11. the cost of goods sold decreased from FY09 to FY13.5% from FY09 to FY13 and on the other hand.1 12. COMPARISON WITH INDUSTRY AND BAJAJ AUTO: Industry Hero MotoCorp Bajaj Auto MAR'09 10.11 20.As we can observe from the above chart that the gross profit ratio of Hero MotoCorp has shown a more over steady growth from 9.1 9. This steady growth in gross profit ratio can be explained from the fact that as the net sales increased by 41.03 MAR'012 12.81 18.86 16.35 MAR'10 11.75% of net sales in FY13.03 MAR'13 8.33 19.01 17.39 MAR'11 11.37 10. The company has been able to generate sufficient growth rate in nets sales to maintain its high gross profit ratio in the industry. 33 .08 As we can observe from the chart above that Hero MotoCorp has always performed with gross profit ratios similar as compared with the industrial standards.01% of net sales in FY09 to 12.75 11.
43 17.81% of net sales in FY09 to 14.22% of net sales in FY13. This increase in the operating profit ratio can be explained by the fact that the gross profit and the operating expenses increased more.19 MAR'13 10.32 MAR'13 14.17 MAR'10 13.81 18.72 15.22 12.This is a positive sign for Hero MotoCorp in case of general profitability position as it maintain its high gross profit margins from FY09 to FY13.4 MAR'12 17. which gives a strong numerator number for the ratio and for the denominator side the net sales increased by 7.02 14.58 13. The trend of increase and decrease continued every alternate financial year.57 34 . Operating profit Ratio of Hero MotoCorp :: MAR'09 13.46 19.32 21.81 MAR'10 15.46 MAR'11 13. COMPARISON WITH INDUSTRY AND BAJAJ AUTO:: Industry Hero MotoCorp Bajaj Auto MAR'09 12.7 13.22 As we can observe from the above chart that the operating profit ratio followed an increasing trend from 13.78 MAR'12 14.4 19.1% from FY09 to FY13.14 MAR'11 12.
This shows that the company has kept its operating expenses in control in an efficient manner for generating greater operating profits. Net sales increased by only 35 .As we can reckon from the chart above that Hero MotoCorp is a good performer in its operating profit ratio. The firm is above the industrial performance. This is again a positive sign for the firm’s general profitability as operating profit ratio is concerned.04 MAR'11 9.3 As we can examine from the above chart that the net profit ratio which is represented by the percentage of net sales has shown an increasing trend from 8.89 MAR'12 14 MAR'13 10.82% from FY09 to FY12 which is much higher than the increase in net sales.76 MAR'10 10. This can be explained by the fact that net profit increased by 59.76 in FY09 to 14 in FY12. Net profit ratio of Hero MotoCorp: MAR'09 8.
04 15. the ratio showed a dip and decreased by 12% from 33.41 MAR'13 33.2% of net sales in FY08.3 7.92 9.43 MAR'11 65.21 MAR'12 64.63 MAR'10 9. But in FY08.2% in FY07 to 29.76 14.48.11 MAR'11 10.72 36 . This can be explained by the fact that the net sales increased by a higher rate of 26% and the net profit increased by only 16% which is lower than the percentage increase of the net sales. Return On Investment of Hero MotoCorp :: MAR'09 42.4 As we can examine from the chart above that Hero MotoCorp has shown a stable performance in maintaining a good overall net profit ratio as compared with the industry as well as with its peer in FY13.89 19.54 10.31 MAR'10 55.4% from FY05 to FY07.23 MAR'13 6.07 14 14. COMPARISON WITH INDUSTRY AND BAJAJ AUTO:: Industry Hero MotoCorp Bajaj Auto MAR'09 8.8 MAR'12 10.34 8.17 10.
72% of networth in FY13.35% but the networth decreased at a greater rate.85% but the networth increased at a greater rate.89 65. COMPARISON WITH INDUSTRY AND BAJAJ AUTO:: Industry Hero MotoCorp Bajaj Auto MAR'09 30.43 49.43% of networth in FY10 to 65.64% from 55.01 MAR'12 44.41%.41% of networth in FY12 to 33.22% from 65.64% from 64.72 38.31% of networth in FY09 to 65. This can be explained by the fact that the net profit decreased by only 10.14 MAR'13 25. This can be explained by the fact that the net profit decreased by 15.72 MAR'11 50. In FY10.21% of networth in FY11.21% of networth in FY11. the ratio increased by 17. In FY11.21% of networth in FY11 to 64. the ratio decreased by 47.92 37 .73% and the networth increased at a greater rate.41 58.61 33.36 64.15 55. In FY12. the ratio decreased by 1.31 38.As we can observe from the above chart that the return on investment ratio for Hero MotoCorp follows an increasing trend from 42.41% of networth in FY12. This can be explained by the fact that the net profit increased by 23.09 42. This increasing trend can be explained by the fact that the net profits of the firm increased by percentage of 50.21 68.51 MAR'10 42.
The ratio has followed a stable and steady path like its peer and then followed a downward trend.77 MAR'13 64. In FY13. Earning Per Share ratio of Hero MotoCorp: MAR'09 106. Hero MotoCorp finished above the industrial standards but ended up just below its peer.55 MAR'12 111.07 MAR'10 119. By analyzing the following we can say that Hero MotoCorp might be having a high return on investment in the industry but has a stable and steadily increasing return on investment. This represents that the firm is less volatile in its returns and has shown a stable sustained growth in case of R.O.O.19 38 .09 MAR'11 96.I. This is a positive sign from the point of investment in case of long-term investments as per R. which means that the shareholders fund are not entangled in high variable returns and hence they bare the least risk on their investment.From the chart we can observe that the return on investment ratio of Hero MotoCorp has been always above the industry.I is concerned.
S is a positive sign for the profitability of the firm but we have to compare it with its peers to have a rational projection of the profitability. which in turn is a positive sign.07 105. The increasing E.As we can observe from the above chart that EPS of ht.72 111.95 64. as Bajaj Auto operates on same levels in respect to net sales as compared to Hero MotoCorp and hence has same amount of net profit after preference share dividend at its disposal. This means that both the firms have earning power in the industry and they contribute positively to the earnings of the whole industry as well as to the return to their respective shareholders.07 in FY09 to 119. 39 .P.P.This represents a strong earning power of the firm as the ratio has followed a stable trend and has followed the same path as that of return on equity. as we can observe that Hero MotoCorp is almost the same as its peer in its E.81 MAR'11 72.42 MAR'12 77.69 MAR'13 36.09 103.77 117.S.55 115. Now.37 As we can observe from the above chart that both firms have followed a stable trend in their respective earning per share ratio. COMPARISON WITH INDUSTRY AND BAJAJ AUTO:: Industry Hero MotoCorp Bajaj Auto MAR'09 71. increasingly over the years and the firm along with its peer has the scope of increasing its earning power. we can say that Hero MotoCorp has the potential of earning and has performed in its E.19 45.09 in FY10 with a change of 12. leela has followed an increasing trend from 106.04 119.27% .02 96. Hence.P.18 MAR'10 76.23 106. despite the fact that it has followed a stable and steady increasing trend and hence it is able to match the earning potential of Bajaj Auto.S ratio.
The ratio also shows the markets response on the firm’s earnings that if the earnings of the firm are within the expectation of the market then the firm will trade on higher multiples of P/E ratio but if the firm’s earnings are under the expectations of the market then the firm will trade on lower multiples of the P/E ratio. In FY06.3 that is the market price of the firm was trading at a levels of 36 times that of the actual earnings of the firm.30/03/11.09. This upward movement in P/E ratio of the firm suggests that the market responded positively and optimistically with the earnings.43 MAR'12 17.S of the firm was 1. As we can observe from the chart that the price-earning ratio has followed an overall decreasing trend from 22. 31/03/13.4 in FY05 to 36. The P/E ratio represents the change in the market price with every increase or decrease in the earning of the firm. Now.4 in FY05 to 10.25 MAR'13 14.91 and the P/E ratio was 36. leela the market price per share is the closing price registered at NSE on the following dates : 31/03.P.3%. from the period FY06 to FY08 the ratio has followed a decreasing trend. the ratio experienced an increase firm 22. This represents that the 40 .P.31/03/12.S of the firm just increased by 40. Also we can observe that the E.2 in FY08 with a change of 72%.67 MAR'10 17. it has fallen from 36.31/03/10.5% change. performance of the firm and also anticipates better earnings in the future.2 in FY08 with a 54. Similar procedure is followed for Bajaj Auto and the industry.53 Now for calculating the P/E ratio of Ht.3 in FY06 with a change of 38. This shows that in FY06 the E.Price Earning Ratio of Hero MotoCorp:: MAR'09 16.4% from FY05 to FY06.3 in FY06 to 10.37 MAR'11 16. This represents that the market was so optimistic with the firm’s performance that it anticipated much more higher earnings from the firm in the coming years.
2.96 in FY13 with a change of 39. the market expected more earnings than the firm reported. Also we can observe during this period the E.53 17.68%.64 MAR'12 13.S raised from 1.81 MAR'10 12. which shows that how the market price and P/E ratio follow with a change in the firm’s E. Hero MotoCorp has always exceeded and performed above the levels of the industry and has shown stable growth in terms of P/E ratio.market’s anticipation and expectation from the firm were not fulfilled completely. This represents that overall market expectation from the automobile industry was either neutral or under-valued the over the years it has increased and stabilised to its realistic figure.P.7% but such a increase in the earnings during these years were not sufficient to maintain that high P/E ratio of 36. COMPARISON WITH INDUSTRY AND BAJAJ AUTO:: Industry Hero MotoCorp Bajaj Auto MAR'09 10.P. which we can term as over hyped state or the market had over-valued the firm’s performance and hence was expecting more.71 16.43 12.71 in FY09 to 14. Bajaj auto showed an increasing trend and the outperformed the industry as a whole. 41 .56 16.32 17.74 17. The P/E ratio of the firm of FY08 which has been reduced to 10.67 6. This explanation can be viewed in the data and the chart given below. The market was expecting better results from the firm. which presents us with a scenario of the future that the market is not expecting or anticipating any quantum growth in its earnings and is coming to its realistic valuation.25 16.54 MAR'11 14.S.16 MAR'13 14.06 As we can observe from the chart that the overall industrial P/E ratio has shown a steady increasing trend from 10.37 8.93 in FY08 with a change of 105.96 14.3 in FY06.91 in FY06 to 3.
352 0.311 0.311 As we can observe from the above chart that the dividend payout ratio of Hero MotoCorp has followed a mixed trend of 1st increasing from 0.377 MAR'11 1. it provides us with an insight that the earnings for the coming years will not discounted with higher multiples of P/E and hence the market position of the industry is under pressure. Dividend Payout Ratio of Hero MotoCorp: MAR'09 0. The chart reflects that after FY11.056 MAR'10 0. A clear analysis about this ratio can be made after comparing it with its peer and industry.087 MAR'12 0.567 1.056% of EPS in FY09 to 1. the firm started to payout less percent of dividend and retained the rest to build its retained earnings block for its long term/expansion objectives.And for the future overview as the industry is trading at low levels of P/E in FY08.485 42 .984 MAR'13 0. COMPARISON WITH INDUSTRY AND BAJAJ AUTO:: Industry Hero MotoCorp Bajaj Auto MAR'09 0.325 0.427 MAR'10 0.548 0.346 MAR'12 0.377 0.087% of in FY11 with a quantum increase of just 455.339 MAR'13 0.443 0.087 0.433 MAR'11 0. This can be overhauled by better performance in the earnings of the peers of the industry which is a tough task for the industry as per the current market conditions.984 0.056 0.35% over 4 years and then decreasing in FY12 and FY13.
Hence we can comment that the firm is building up its ‘retained earning’ block with a greater rate as compared with its peer but can be more restrictive in its dividend paying out policy. Hence we can depict from this phenomena that the automobile industry in India is at its expansion. so as to build their respective ‘retained earning’ block for utilizing the retained funds in its long term/expansion objectives. has not followed the industrial trend and is always below the levels of Hero MotoCorp. which means that the every player in the industry is trying to retain its earning to maximum and give the least dividend.88 MAR'12 42. This means that the firm is paying out dividend at a lower rate as compared with the industry and that of its peer.33 MAR'10 40.As we can observe from the above chart that the industry has a stable trend in its dividend payout ratio. Hero Moto Corp has done well as it has been above the industrial standards and has paid more dividend than its peer.53 43 .8 MAR'13 47.84 MAR'11 43. Bajaj auto’s dividend payout ratio. Now. ACTIVITY RATIOS :: Stock Turnover Ratio of Hero MotoCorp: MAR'09 37.
97 37.64 As we can observe from the chart above that Hero MotoCorp is very good in respect to the stock-turnover ratio with an average stock velocity less than that of its peer and the industry. This is a positive sign for Hero MotoCorp in its management activity as far as the stock turnover ratio is concerned.43 MAR'10 28.8 MAR'12 29.88 32.72 MAR'10 117.08 MAR'12 122.09 MAR'11 162.82 47.8 28.83 43. The firm has great efficiency in their inventory management and overall sales policies. The ratio has followed an increasing trend from 37. This is a positive sign for the management and their effective implementation of their efficient sales and inventory management policies as per stock turnover ratio is concerned.53 28.97 MAR'11 29.63 MAR'13 55.As per the chart the firm has shown a respectable performance in converting its inventory into stock.59 42.32% increase in efficiency of converting its stock into sales.84 30.1 44 .87 MAR'13 29.53 in FY13 with a 27. COMPARISON WITH INDUSTRY AND BAJAJ AUTO:: Industry Hero MotoCorp Bajaj Auto MAR'09 27. Debtor’s Turnover Ratio of Hero MotoCorp :: MAR'09 50.33 31.33 40.33 in FY09 to 47.
1 27.67 162. Hero MotoCorp has better average debtor’s turnover ratio of 101.6 55. COMPARISON WITH INDUSTRY AND BAJAJ AUTO:: Industry Hero MotoCorp Bajaj Auto MAR'09 57.08 51.As we can observe from the above chart that the debtor’s turnover ratio has followed an overall increasing trend from 50.63 37.543 vs 45 .77 MAR'12 60.45 As we can observe from the above chart that Hero MotoCorp has followed the respective trend of the industry but in an amplified manner and is way above its peer.41 MAR'13 36.66 MAR'11 79. Hero MotoCorp has a better debtor’s turnover ratio performance as compared with the industry and its peer.63 in FY13 and then decreased by 55.99 117. This represents that the management is following.06% from FY12 to FY13.72 in FY09 to 122. It has maintained an average debtor’s turnover ratio of 101.58 122.72 94.09 49.524 over FY09 to FY13.51 MAR'10 64. maintaining and implementing an optimum credit policy for its debtor’s.22 50.
816 -16.95 MAR'10 -16. This shows that the management has implemented an optimum credit policy for generating sales as well as converting the debtors into cash as soon as possible in the industry.76 -17.903 -10.85 MAR'10 -10.82 MAR'13 -13.82 -8.04 -13.81 of industry and 52. Also the Hero MotoCorp has superior average debtor’s velocity.15 MAR'12 -11.03% and the settling down to -13.76% in FY13 with an increase of 18.03 MAR'11 -4.51 -11.76 in FY13.16 of Bajaj Auto. The firm does not have positive working capital turnover ratio and means that the majority percent of net working capital requirements are not covered by the sales.59.86 MAR'11 -14. COMPARISON WITH INDUSTRY AND BAJAJ AUTO:: Industry Hero MotoCorp Bajaj Auto MAR'09 0.33%.51 with an increase of 55.08 46 .41 -4.51 MAR'12 -10.47% to -10.38 -10.03 and then peaking up to -4.03 -14. The ratio has travelled a reverse path from FY09 to FY13 with firstly increasing in FY10 by 40.76 As we can observe from the above chart that the working capital turnover ratio has performed in an overall increased trend from -16.689 MAR'13 -16.85 37.85 in FY09 to -13. This shows a positive sign for the management’s activity as per debtor’s turnover ratio is concerned. Working Capital Turnover ratio of Hero MotoCorp : MAR'09 -16.
32 MAR'10 4. This is a sign of improvement for the management of Hero MotoCorp with respect to the working capital turnover ratio. The firm may not have high working capital ratio as that of the industry but has a sustained its turnover ratio in a stable manner. The chart also represents that Hero MotoCorp has got out off its working capital and has not managed its working capital requirements in an efficient manner. unlike its peer which has shown volatile performance of working capital ratio. Fixed Assets Turnover Ratio of Hero MotoCorp: MAR'09 7.05 MAR'11 3.7 MAR'12 6.As we can observe from the chart that Hero MotoCorp has followed the pattern of the industrial standards in case of working capital turnover ratio.29 MAR'13 5.34 47 .
75 MAR'11 3.23 7. INTERPRETATIONS OF THE RATIOS 48 . This is a positive aspect as per the trend analysis is concerned with respect to the fixed assets turnover ratio of the firm and will have a better insight after comparing the firm with its peer and the industry.34 2.89 3. The firm has to stabilise in the coming years. leela has a good performance in its fixed assets turnover ratio.As we can observe from the chart that the fixed assets turnover ratio as shown an decreasing trend from 7.3 5.38 4. This represents that the sales of the firm are doing well and the fixed assets are utilized efficiently. This shows that the management of the firm has worked in generating more volumes of sales and utilized its fixed assets in a more efficient manner.05%.02 6.32 in FY09 to 5.05 5.32 5.22 MAR'10 4. This is a positive sign for the firm as per the ratio is concerned and the management has worked forward efficiently. The firm is operating at a high fixed assets turnover ratio.34 in FY13 with a change of 27. COMPARISON WITH INDUSTRY AND BAJAJ AUTO:: Industry Hero MotoCorp Bajaj Auto MAR'09 5. The ratio is way above the industrial standards and it has done well in terms of its peer.6 As we can observe from the chart.7 4. which means that the firm has high volume of sales as compared to the value of its fixed assets.85 MAR'12 4. This means that the fixed assets of the firm are utilized and the sales volumes of the firm are under pressure.5 MAR'13 3. Hero MotoCorp is an outperformer in its fixed assets turnover ratio.29 3. By analyzing the chart we can now reckon distinctly that Ht.
OVERALL SOLVENCY PERFORMANCE OF HERO MOTOCORP:: 1. 2.OVERALL LIQUIDITY PERFORMANCE OF HERO MOTOCORP :: 1.accounting-simplified.5:1 except for FY11 and shows the greater amount of current liabilities as compared to the absolute liquid assets of the company. 4. The net profit ratio is between 9 to 14 and indicates that the net profit after taxes is greater than the net sales.moneycontrol. 2. The ROI is also good and indicates that the returns on shareholder’s investments are high REFERENCES: The following are the references from where the relevant information and data for analysis purposes have been extracted :: • • • • • • • Annual Report of Hero MotoCorp Ltd 2012-2013 www.economictimes. 2. 3.HeroMotoCorp. OVERALL PROFITABILITY PERFORMANCE OF HERO MOTOCORP :: 1. This involves lesser risk to the creditors. Debt equity ratio is well below the standard of 1:1 and it means that the external equity is very less as compared to internal equity.com www.ndtvprofit.nseindia.com www.com www.com www.com 49 . Current ratio is below the standard of 2:1 and that means the current liabilities are more and the company might plan to expand in future. Quick ratio is below the standard of 1:1 and it indicates that there are less quick assets at the company’s disposal as compared to current liabilities. Absolute liquid ratio is below standard of 0. Equity ratio is nearer to 1:1 and that indicates that the shareholder’s funds and the total assets are almost being used in the same proportion. 3. The operating ratio is between 14 to 17 and indicates that the company has operational efficiency.com www. The Gross Profit Ratio is varying between 9 to 16 and this means that there is more of net sales than the cost incurred on the goods.