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Ratio Analysis of Hero Honda

Ratio Analysis of Hero Honda

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Published by: Vinod on Oct 11, 2009
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Company Analysis Report

Of

HERO HONDA

LOGO

COMPANY PROFILE & INTRODUCTION:
 “Hero”

is the brand name used by the Munjal brothers in the year 1956 with the flagship company Hero Cycles.  The joint venture between India's Hero Group and Honda Motor Company, they are related to Jagdish Lal Munjal.  During the 80s, Hero Honda became the first company in India to prove that it was possible to drive a vehicle without polluting the roads.  As Brijmohan Lall Munjal, the Chairman, Hero Honda Motors succinctly points out.  'Fill it - Shut it - Forget it‘.

Over 20 million Hero Honda two wheelers tread Indian roads today. These are almost as many as the number of people in Finland, Ireland and Sweden put together!.

Hero Honda has consistently grown at double digits since inception; and today, every second motorcycle sold in the country is a Hero Honda. Every 30 seconds, someone in India buys Hero Honda's top -selling motorcycle – Splendor. Hero Honda bikes currently roll out from its three globally benchmarked manufacturing facilities. Two of these are based at Dharuhera and Gurgaon in Haryana and the

These plants together are capable of churning out 3.9 million bikes per year. Hero Honda is worlds third largest two wheeler maker. By 2002 Hero Group had sold 86 million bicycles producing 16000 bicycles a day. Today Hero Honda has an assembly line of nine different models of motorcycles available. It holds the record for most popular bike in the world by sales for Its Splendor model.

PRODUCTS:

HERO HONDA CD DAWN HERO HONDA JOY

HERO HONDA CD100

HERO HONDA SLPENDOR

HERO HONDA SLPENDOR PLUS

HERO HONDA PASSION PLUS

HERO HONDA PASSION

CBZ EXTREME

CBZ

KARIZMA

RATIO ANALYSIS

Liquidity Ratio’s.
1)CURRENT RATIO:

CURRENT ASSETS CURRENT LIABILITIES
2005 0.31 2006 0.51 0.62 2007 0.57 2008

Interpretation:
The ideal ratio 2:1 . The liquidity position of the company is not satisfactory because it is not reached the ideal ratio 2:1 . The company should increase the current assets and decrease the current liabilities.

Quick Ratio:
Current assets –inventories. Current liabilities
2005 0.11 2006 0.30 2007 0.36 2008 0.33

Interpretation:
the liquidity position of the company is not satisfactory because the ratio is decrease and not reached the ideal ratio 1:1 the company should increase quick assets such as cash and bank balance and decrease the current liabilities.

LEVERAGE RATIO’S:
1)Debt equity Ratio 2)Proprietary Ratio 3)Fixed Asset Ratio

4)Interest Coverage RatiO

Debt Equity Ratio:
Long term debts/Equity share holder funds.

2005 0.14

2006 0.09

2007 0.07

2008 0.04

Interpretation: Interpretation The Ideal Ratio is 2:1.The solvency position of the company is satisfactory but it should decrease the loans such as secured and unsecured. It should increase the reserves and share capital also.

Proprietary Ratio:
Net Worth /Total Assets
2005 0.83 2006 0.87 2007 0.89 2008 0.92

Interpretation: These ratio is the indicative of strong financial position of business . The higher the ratio , the better it is. but the company Should increase the shareholders funds.

Fixed Assets Ratio:
Fixed Assets Net worth
2005 0.42 2006 0.45 2007 0.51 2008 0.50

Interpretation:
This ratio is satisfactory and the ideal ratio is 0.67 and it will never be more than 1 , the long term funds are used to buy or acquire the fixed assets.

Interest coverage Ratio: PBIT/Fixed Interest Charges
2005 117.74 2006 231.38 2007 55.20 2008 40.38

Interpretation:

The ideal ratio is 6. This Ratio indicates whether a business is earning sufficient profits to pay the interest charges. This ratio is not satisfactory and company should increase the sales and profits , to pay the interest charges for the long term debts.

Turn Over Ratios

1)inventory holding periods 2)working capital turnover 3)inventory turnover ratio 4)fixed assets turnover ratio

Inventory Holding Period:
No . Of Days In Years/S.T.R

2005 11.38days

2006 10.58

2007 10.42

2008 11.93

Interpretation: The Inventory turnover ratio also be expressed in terms of no. of days (or) months it takes for the stock to get converted into sales. Here the company is satisfactory and company has to work hard to have more sales

Working Capital TurnOver Ratio
Capital
2005 -7.85

Net Sales/Working
2006 -11.75 2007 -17.49 2008 -11.64

Interpretation: The Company should increase the sales and also increase the working capital i.e., increase the current assets and decrease current liabilities .

Inventory TurnOver Ratio:
CGS/Avg. Inventory
2005 31.80 2006 34.02 2007 34.56 2008 30.17

Interpretation:
The ideal ratio is 8. the company should control the cost of goods sold expenses and increase the sales in order to increase the ratio.

Fixed Assets Turn Over Ratio: TurnOver/ Fixed Assets
2005 10.38 2006 8.77 2007 7.30 2008 6.67

Interpretation:
The ideal ratio is 5. the ratio is decreasing from year to year and we should increase the sales up to the maximum level and we should use the fixed assets up to full 100% capacity.

Profitability Ratio’s:
1)Gross Profit Ratio 2)Operating Ratio 3)Earning per share

EARNING PER SHARE:
PAT-Preference dividends No. of Equity shares 2005
RS.40.59 2006 RS.48.64 2007 RS.42.96 2008 RS.48.47

Interpretation : The profits of the company are increasing slightly and we should increase the sales and we should decrease the cost of goods sold , operating expenses. The shareholders returns on their investment is increasing year to year

Gross profit ratio:
gross profit X 100 Sales
2005 15.91% 2006 15.91% 2007 12.34% 2008 13.46%

Interpretation:
The profitability position of the company is satisfactory because of the Gross profit ratio is increasing from year to year but it is not enough the company should control the cost of goods sold expenses and increase the sales.

Operating Ratio: CGS + Operating Exp X 100 Net Sales
2005 85.30% 2006 85.40% 2007 89.07% 2008 88.09%

Interpretation: The company had controlled the operating expenses that’s why the ratio is decreased ,the lower the ratio the better it is, the company should continue this performance in the future also. It is satisfactory .

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