CASH FLOW INTERPRETATION OF HERO

MOTO CORP FOR THE YEAR 2011-12

Submitted By:
Varun Kabaria (221061)
Navya Purwar (221075)
Priyanka Charaya (221099)
Rajat Gupta (221112)
Rithik S. Chandran (221116)
Romil Goel (221118)

NET CASH FLOW

FOCUS AREAS
Why

did the cash balance decrease when the company made a net profit for
the period?

How

did the company finance the acquisition of fixed assets?

How

did the company utilize the proceeds of the equity issue?

Is

the capacity expansion straining the companys cash?

Does

What

the company enjoy a fair degree of financial flexibility?

inferences can we draw from the statement about companys ability to

generate future cash flows, to repay its borrowings and to pay dividends?

Why did the cash balance decrease when the company made a net profit for
the period?

Despite of getting a good profit and amortization value

and depreciation, the net cash balance has decreased.
Paid off liabilities of Rs.540.99 crores.
Paid dividends of approximately 73% of profit.
Investing activities not affecting decrease in net cash
balance.

How did the company finance the acquisition of fixed

assets?

The acquisition of investments and fixed assets and the

advances paid for the future acquisition of fixed assets
has been financed through the sale of investments.

Sales/Purchases(NET) of investments generates an

inflow of Rs Rs.1443.02 crores which is much higher
than the amount spent on acquisition and advances of
fixed assets i.e. Rs.565.05 crores.

How did the company utilize the proceeds of the equity issue?

No application by the company for issuing shares.

Indicates the ability of the company to finance their

investing activities on their own.

Is the capacity expansion straining the companys cash?

No. The scale of expansion not too large to adopt any

external sources of financing and thus has been covered
by the companys own operating and investing activities.

Does the company enjoy a fair degree

of financial flexibility?
No

loan pressures or restrictions.

No issuing of shares in the current or last fiscal.
Thus company has the flexibility to go for these options in
the future.
Net

cash from operating activity large enough to:

Pay off debtors, loans.

Carry day to day activities.
Also,

in case of contingent liabilities, the company:

Can rely on its cash from operating activities or

Rely on external sources of funding.

What inferences can we draw from the statement about companys ability to
generate future cash flows, to repay its borrowings and to pay dividends?

Has paid huge dividends as compared to its operational cash flow.

This indicates company is confident about future flows.

Investing activities show large advances for acquiring fixed assets.

This is likely to reduce future cash requirements for investing into fixed assets. These
advances also indicate expansion which is likely to increase the yields in future.

We see company paying dividends to shareholders, indicating strong

confidence in its operations
High operational profits also indicate strong operations.
All of this indicates company is capable to generate cash.

Cash flows also indicate that the company has made substantial
investments in current assets, which may reap benefits in future.

Comparison
Net cash

March 31,2012

March 31,2011

Operating activity

2358.78

2254.16

Investing Activity

82.78

(1322.31)

Financial Activity

(2458.18)

(955.23)

March
31,2012

March
31,2011

Difference

Net Profit before tax

2864.71

2404.76

459.95

Sale/purchase of investment

1443.02

(999.40)

2442.42

Dividend paid

2096.72

599.06

1497.66

Payment to deferred creditors

816.66

816.66

CONCLUSION

Financing policy indicates low levels of debt.

Company has been debt free for 5 years (2001 to 2005).
Policies skewed towards meeting financing requirements through
internal sources, reason why cash flow shows low interest costs.
Thus current cash flows are very much aligned with companies
financing policies.
Also it has liberal dividend policies.
Company rolled out 5250% dividend in 2010-11.
As per Mr. Ravi Sood (CFO, Hero Honda), company generates Rs.2000
crores every year, enough to maintain their liberal dividend policy.
He is of the opinion that the two wheeler industry is not very capital
intensive and hence the liberal dividend policy.
The same policy followed this year as well, with dividends forming 73%
of companys profits.

THANK
YOU!!!