A

PROJECT REPORT
ON
BAJAJ AUTO LTD.

ON
TH
25 NOVEMBER,2008.
IN PARTIAL FULFILLMENT OF THE REQUIREMENT
IN SEMISTER I
MASTER OF BUSINESS ADMINISTRATION

SUBMITTED TO:
MS. NEHA SHUKLA
N.S.V.K.M.S. MBA COLLEGE,
VISNAGAR

SUBMITTED BY:
PRATIK DEVANI (20)
DILIP KHUNT (31)
PUNIT LIMBACHIYA (34)
TEJAS PANDYA (49)
PREFACE
Life is full of efforts and struggles and, success and failures. But the sincere
efforts done in right direction and at right time will give us fruits of success
as a student of management faculty we are expected with something more
i
organized specific and effective efforts with desire results towards the work
entrusted to us.

Now a day’s cut throat competition prevails in each and every area of
management. So with the intension to teach the students how to merge the
theoretical knowledge with the actual practice give to the students of M.B.A.
Hemchandracharya north Gujarat university has compulsory for each group
of student to prepare a project on some topic covered under circulation of
Hemchandracharya north Gujarat university. So as per the requirements we
the student of Nootan Sarva Vidhyalaya Kelvani Mandal Sanchalit MBA
department have tried our level best to prepare the project report and
submitting to the college. This report involves collective participation of each
and every student of our group.

As a part of MBA 1st year syllabus in managerial accounting, we have to

prepare a financial report on particular company for getting practical
knowledge from that report.

This report is prepared on the financial analysis of BAJAJ AUTO LTD. The
financial part contains brief introduction of the company and other part
contains the financial analysis. The most important thing required for
analyzing the financial statement is the annual report of the company.

ACKNOWLEDGEMENT
Gratitude is the noble response of one’s soul to kindness or help
generously rendered by another and its acknowledgment is a duty and
joyance. So it is that We express briefly our debt to those who have made
the creation of this project possible.
ii
 We thank the almighty, Lord on whom we believe and depend on. Our
each and every achievement is nothing but a look of the God on us.

We thankful to Dr. Jayashish Sethi, Head of Department of

N.S.V.K.M.S. MBA College, for giving the guidelines about how to make the
project report.

We thankful to Ms. Neha Shukla, Lecturer of N.S.V.K.M.S. MBA College,

for helping nicely in preparing a Project Report.

We extends our thankfulness to all my friends and all my well wishers

who had helped in the completion of this project. Last but never the least I
extend my wholehearted thankfulness to the librarian Ms. Pallavi Khatri and
to the Lab Assistant Mr. Chandrakant Patel and Mr. Kalpesh Patel.

Thank you,

BY
PRATIK DEVANI (20)
DILIP KHUNT (31)
PUNIT
LIMBACHIYA (34)
TEJAS PANDYA (49)

EXECUTIVE SUMMARY
Competing with Everyone from Everywhere for Everything, Bajaj has grown
operations in 50 countries by creating a line of value-for-money bikes
targeted to the different preferences of entry-level buyers with quality such
that Kawasaki buys Bajaj products for some of its markets. Bajaj Auto is a

iii
major Indian automobile manufacturer. It is India's largest and the world's
4th largest two- and three-wheeler maker.

Over the last decade, the company has successfully changed its image from
a scooter manufacturer to a two wheeler manufacturer. Its product range
encompasses Scooterettes, Scooters and Motorcycles. Its real growth in
numbers has come in the last four years after successful introduction of a
few models in the motorcycle segment.

This project report is prepared on financial analysis of BAJAJ AUTO LTD. This
report containing mainly two parts – General information and main theme of
the report that is financial analysis.

The second part of this report containing financial analysis of BAJAJ. The
financial analysis part containing Horizontal analysis, Vertical analysis, Trend
analysis, Average analysis, Ratio analysis, Cashflow analysis, Du Pont Chart
and their interpretations.

Horizontal analysis containing comparative Profit & Loss account and

comparative Balance Sheet of three financial years 2005-06, 2006-07 &
2007-08. This part also containing various graphs of growth and sales. Some
of the graphs are based on Profit & Loss A/C and some are on Balance Sheet.

The vertical analysis part of this report containing common-size Profit & Loss
A/C and common-size Balance Sheet of three years.

Trend analysis part containing trend analysis of various components of Profit

& Loss A/C and Balance Sheet of three years.

1. COMPANY PROFILE
The Bajaj Group was formed in the first days of India's independence from
Britain. Its founder, Jamnalal Bajaj, had been a follower of Mahatma Gandhi,
who reportedly referred to him as a fifth son. 'Whenever I spoke of wealthy
men becoming the trustees of their wealth for the common good I always
had this merchant prince principally in mind,' said the Mahatma after
Jamnalal's death.

Jamnalal Bajaj was succeeded by his eldest son, 27-year-old Kamalnayan, in

1942. Kamalnayan, however, was preoccupied with India's struggle for
independence. After this was achieved, in 1947, Kamalnayan consolidated
and diversified the group, branching into cement, ayurvedic medicines,
electrical equipment, and appliances, as well as scooters.

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The precursor to Bajaj Auto had
Bachraj Trading Ltd. It began
vehicles in 1948 and obtained a
11 years later. The next year,
company.
been formed on November 29, 1945 as M/s
selling imported two- and three-wheeled
manufacturing license from the government
1960, Bajaj Auto became a public limited

Rahul Bajaj reportedly adored the famous Vespa scooters made by Piaggio of
Italy. In 1960, at the age of 22, he became the Indian licensee for the make;
Bajaj Auto began producing its first two-wheelers the next year.

Rahul Bajaj became the group's chief executive officer in 1968 after first
picking up an MBA at Harvard. He lived next to the factory in Pune, an
industrial city three hours' drive from Bombay. The company had an annual
turnover of Rs 72 million at the time. By 1970, the company had produced
100,000 vehicles. The oil crisis soon drove cars off the roads in favor of two-
wheelers, much cheaper to buy and many times more fuel-efficient.

A number of new models were introduced in the 1970s, including the three-
wheeler goods carrier and Bajaj Chetak early in the decade and the Bajaj
Super and three-wheeled, rear engine Autorickshaw in 1976 and 1977. Bajaj
Auto produced 100,000 vehicles in the 1976-77 fiscal year alone.

The technical collaboration agreement with Piaggio of Italy expired in 1977.

Afterward, Piaggio, maker of the Vespa brand of scooters, filed patent
infringement suits to block Bajaj scooter sales in the United States, United
Kingdom, West Germany, and Hong Kong. Bajaj's scooter exports plummeted
from Rs 133.2 million in 1980-81 to Rs 52 million ($5.4 million) in 1981-82,
although total revenues rose five percent to Rs 1.16 billion. Pretax profits
were cut in half, to Rs 63 million.
New Competition in the 1980s Japanese and Italian scooter companies began
entering the Indian market in the early 1980s. Although some boasted
superior technology and flashier brands, Bajaj Auto had built up several
advantages in the previous decades. Its customers liked the durability of the
product and the ready availability of maintenance; the company's
distributors permeated the country.

The Bajaj M-50 debuted in 1981. The new fuel-efficient, 50cc motorcycle was
immediately successful, and the company aimed to be able to make 60,000
of them a year by 1985. Capacity was the most important constraint for the
Indian motorcycle industry. Although the country's total production rose from
262,000 vehicles in 1976 to 600,000 in 1982, companies like rival Lohia
Machines had difficulty meeting demand. Bajaj Auto's advance orders for one
of its new mini-motorcycles amounted to $57 million. Work on a new plant at
Waluj, Aurangabad commenced in January 1984.

The 1986-87 fiscal year saw the introduction of the Bajaj M-80 and the
Kawasaki Bajaj KB100 motorcycles. The company was making 500,000
vehicles a year at this point.
v
Although Rahul Bajaj credited much of his company's success with its focus
on one type of product, he did attempt to diversify into tractor-trailers. In
1987 his attempt to buy control of Ahsok Leyland failed.

The Bajaj Sunny was launched in 1990; the Kawasaki Bajaj 4S Champion
followed a year later. About this time, the Indian government was initiating a
program of market liberalization, doing away with the old 'license raj'
system, which limited the amount of investment any one company could
make in a particular industry.

A possible joint venture with Piaggio was discussed in 1993 but aborted.
Rahul Bajaj told the Financial Times that his company was too large to be
considered a potential collaborator by Japanese firms. It was hoping to
increase its exports, which then amounted to just five percent of sales. The
company began by shipping a few thousand vehicles a year to neighboring
Sri Lanka and Bangladesh, but soon was reaching markets in Europe, Latin
America, Africa, and West Asia. Its domestic market share, barely less than
50 percent, was slowly slipping.

By 1994, Bajaj also was contemplating high-volume, low-cost car

manufacture. Several of Bajaj's rivals were looking at this market as well,
which was being rapidly liberalized by the Indian government.

Bajaj Auto produced one million vehicles in the 1994-95 fiscal year. The
company was the world's fourth largest manufacturer of two-wheelers,
behind Japan's Honda, Suzuki, and Kawasaki. New models included the Bajaj
Classic and the Bajaj Super Excel. Bajaj also signed development agreements
with two Japanese engineering firms, Kubota and Tokyo R & D. Bajaj's most
popular models cost about Rs 20,000. 'You just can't beat a Bajaj,' stated the
company's marketing slogan.

The Kawasaki Bajaj Boxer and the RE diesel Autorickshaw were introduced in
1997. The next year saw the debut of the Kawasaki Bajaj Caliber, the Spirit,
and the Legend, India's first four-stroke scooter. The Caliber sold 100,000
units in its first 12 months. Bajaj was planning to build its third plant at a cost
of Rs 4 billion ($111.6 million) to produce two new models, one to be
developed in collaboration with Cagiva of Italy.

New Tools in the 1990s

Still, intense competition was beginning to hurt sales at home and abroad
during the calendar year 1997. Bajaj's low-tech, low-cost cycles were not
faring as well as its rivals' higher-end offerings, particularly in high-powered
motorcycles, since poorer consumers were withstanding the worst of the
recession. The company invested in its new Pune plant in order to introduce
new models more quickly. The company spent Rs 7.5 billion ($185 million) on
advanced, computer-controlled machine tools. It would need new models to
vi
comply with the more stringent emissions standards slated for 2000. Bajaj
began installing Rs 800 catalytic converters to its two-stroke scooter models
beginning in 1999.

Although its domestic market share continued to slip, falling to 40.5 percent,
Bajaj Auto's profits increased slightly at the end of the 1997-98 fiscal year. In
fact, Rahul Bajaj was able to boast, 'My competitors are doing well, but my
net profit is still more than the next four biggest companies combined.' Hero
Honda was perhaps Bajaj's most serious local threat; in fact, in the fall of
1998, Honda Motor of Japan announced that it was withdrawing from this
joint venture.

Bajaj Auto had quadrupled its product design staff to 500. It also acquired
technology from its foreign partners, such as Kawasaki (motorcycles), Kubota
(diesel engines), and Cagiva (scooters). 'Honda's annual spend on R & D is
more than my turnover,' noted Ruhal Bajaj. His son, Sangiv Bajaj, was
working to improve the company's supply chain management. A marketing
executive was lured from TVS Suzuki to help push the new cycles.

Several new designs and a dozen upgrades of existing scooters came out in
1998 and 1999. These, and a surge in consumer confidence, propelled Bajaj
to sales records, and it began to regain market share in the fast-growing
motorcycle segment. Sales of three-wheelers fell as some states, citing
traffic and pollution concerns, limited the number of permits issued for them.

In late 1999, Rahul Bajaj made a bid to acquire ten percent of Piaggio for $65
million. The Italian firm had exited a relationship with entrepreneur Deepak
Singhania and was looking to reenter the Indian market, possibly through
acquisition. Piaggio itself had been mostly bought out by a German
investment bank, Deutsche Morgan Grenfell (DMG), which was looking to sell
some shares after turning the company around. Bajaj attached several
conditions to his purchase of a minority share, including a seat on the board
and an exclusive Piaggio distributorship in India.

In late 2000, Maruti Udyog emerged as another possible acquisition target.

The Indian government was planning to sell its 50 percent stake in the
automaker, a joint venture with Suzuki of Japan. Bajaj had been approached
by several foreign car manufacturers in the past, including Chrysler
(subsequently DaimlerChrysler) in the mid-1990s.

Employment fell from about 23,000 in 1995-96 (the year Bajaj suffered a
two-month strike at its Waluj factory) to 17,000 in 1999-2000. The company
planned to lay off another 2,000 workers in the short term and another 3,000
in the following three to four years.

vii
Principal Subsidiaries: Bajaj Auto Finance Ltd.; Bajaj Auto Holdings Ltd.; Bajaj
Electricals Ltd.; Bajaj Hindustan Ltd.; Maharashtra Scooters Ltd.; Mukand Ltd.

Principal Competitors: Honda Motor Co., Ltd.; Suzuki Motor Corporation;

Piaggio SpA.

viii
ix
1.4 MANAGEMENT PROFILE
Rahul Bajaj Chairman
Madhur Bajaj Vice Chairman
Rajiv Bajaj Managing Director
Sanjiv Bajaj Executive Director

Abraham Joseph Vice President (Research & Development)

Pradeep Shrivastava President (Engineering)
S Sridhar CEO (2WH)
R C Maheshwari CEO (Commercial Vehicles)
Rakesh Sharma CEO (International Business)
C P Tripathi Vice President (Corporate)
N H Hingorani Vice President (Commercial)
Kevin P D'sa Vice President (Finance)
S Ravikumar Vice President (Business Development)
K Srinivas Vice President (Human Resources)
J. Sridhar Company Secretary

Rahul Bajaj
Chairman
Rahul Bajaj is an Honours Graduate in Economics and Law and a Business
Graduate from the Harvard Business School. He was appointed Chief
Executive Officer of Bajaj Auto in 1968 and took over later as Head of the
Bajaj Group of companies.

Madhur Bajaj
Vice Chairman
After graduating in Commerce, Mr Bajaj did his MBA from Lausanne,
Switzerland. Joined as DGM in March 1983, took over as General Manager -
Aurangabad Division in June 1986, as its Chief Executive in October 1988,
became President of Bajaj Auto in September 1994, Executive Director in
May 2000 and is Vice Chairman since July 2001.

Rajiv Bajaj
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Managing Director
Rajiv Bajaj, who took charge as Managing Director on 1 st April 2005, is a
Mechanical Engineer from Pune University. He later did his Masters in
Manufacturing Systems Engineering from the University of Warwick. He
Joined as Officer on Special Duty in 1990, took over as General Manager
(Products) in February 1993, Vice President (Products) in June 1995,
President in May 2000, President & Whole Time Director in March 2002 and
as Joint Managing Director in March 2003.

Sanjiv Bajaj
Executive Director
Mr. Sanjiv Bajaj, who took charge as the Executive Director in April 2004, is a
Mechanical Engineer from Pune University. He obtained a Masters Degree in
Manufacturing Systems from the University of Warwick and an MBA degree
from Harvard Business School. Mr. Sanjiv Bajaj joined as an Officer on
Special Duty in 1994, took over as the General Manager (CF) in 1997 and
Vice President (Finance) in April 2001.

Abraham Joseph
Vice President (Research & Development)
Mr. Joseph started his tenure in Bajaj in July 1989 as a Graduate Trainee
Engineer, took over as General Manager (R&D) in April 2005 and is currently
the Vice President (R&D) since April 2007. He is a Mechanical Engineer from
the National Institute of Technology, Bhopal.

Pradeep Shrivastava
President (Engineering)
Mr.Pradeep Shrivastava joined Bajaj in April 1986. He took over as Vice
President (Engineering) in April 2005 and is currently the President
(Engineering) since July 2007. After receiving a degree in Mechanical
Engineering from IIT - Delhi, Mr. Shrivastava obtained a graduate diploma in
Production and Finance from IIM – Bangalore in 1986.

S Sridhar
CEO (2 Wh)
Mr. Sridhar joined Bajaj in March 2001 as GM (Sales) for two wheelers, took
over as Vice President (Marketing & Sales – 2W) in April 2005 and is currently
the CEO (2WH) since July 2007. He holds an Engineering Graduate degree in
Agriculture.

R C Maheshwari
CEO (Commercial Vehicles)
Mr. Maheshwari joined Bajaj in July 2007 as CEO (CV). He is a gold medallist
Mechanical engineer from BITS, Pilani.

xi
Rakesh Sharma
CEO (International Business)
Mr. Sharma joined Bajaj in October 2007 as CEO (IB). He holds a Post
Graduate Diploma in Management from IIM – Ahmedabad

C P Tripathi
Vice President (Corporate)Mr. C.P. Tripathi started in Bajaj in January 1996 as
the Vice President (Waluj Plant ), took over as Vice President (Operations) in
April 2001 and is Vice President (Corporate) since July 2007. A Science
Graduate from Agra University, Mr. Tripathi also holds a degree in
Mechanical Engineering from the Indian Institute of Technology, Kharagpur.

N H Hingorani
Vice President (Commercial)
Mr. N.H. Hingorani joined Bajaj in 1997 as the General Manager (Materials),
took over as the Vice President (Purchase) in 1998 and is Vice President
(Commercial) since February 2006. Mr. Hingorani holds a degree in
Mechanical Engineering from the Malaviya Regional Engineering College,
Jaipur.

Kevin P D'Sa
Vice President (Finance)
Mr. Kevin D’sa began his career with Bajaj in September 1978 and is
presently the Vice President (Finance). After acquiring a Bachelor’s degree in
Commerce, he completed his CA in 1978 and ICWA in 1981.

S Ravikumar
Vice President (Business Development)
Mr. Ravikumar joined Bajaj in June 1984 as an Accounts Officer and is now
the Vice President (Business Development). He is an active member of the
Institute of Chartered Accountants of India.

K Srinivas
Vice President (Human Resources)
Mr. Srinivas joined Bajaj in January 2000 as the DGM (HRD) and is now the
Vice President (HR). He holds a Bachelors Degree in Electrical Engineering
from VJTI, Mumbai.

J. Sridhar
Company Secretary
Mr. J Sridhar is the Company Secretary since July 2001. A graduate in
Commerce and Law, Mr. Sridhar also did his FCA, FCS and MMS. Prior to
joining Bajaj, he was the Controller of Finance and Company Secretary,
Maharashtra Scooters Ltd., a Bajaj Auto joint venture.

xii
2.1 Trend analysis of profit and loss account

xiii
particulars 2008- 2007- 2006-
09 08 07
INCOME

Net sales 115.98 124.40 100

Othe income 79.37 123.05 100

Total 113.11 124.30 100

EXPENDITURE

Materials 124.34 129.61 100

Other Expenses 114.18 122.00 100

Interest 1517.6 1570.5 100

5 9
Depriciation 90.81 95.20 100

121.97 127.62 100

Compansation paid under voluntary 452.12 216.25 100

Total 123.12 127.93 100

Profit before tax 71.78 109.32 100

Current tax 76.48 97.46 100

Deffered tax 43.91 34.00 100

Fringe benefit tex 67.00 60.00 100

Net tax 79.06 102.29 100

profit after tax 68.62 112.38 100

xiv
INTERPRETATION:
By the above graph we can see that the sales and other income is increasing
in the year 2006-07 but in 2007-08 it is decreasing around 10 %.

INTERPRETATION:
In 2006-07 the profit before tax is increasing but suddenly in the year of
2007-08 it decrease largely and reaches at 71.78 %.

xv
INTERPRETATION:
In the year of 2006-07 the profit after tax is increasing but suddenly because
of recession period the profit is increasing 50% compare to last year.

2.2 TREND ANALYSIS OF BALANCE

SHEET

xvi
 Sources of funds 200 20 2005
7-08 06-07 -06
1. shareholder's fund
a) share capital 142.99 100 100
b) Reserves and Surplus 30.90 116.35 100
total 33.28 116.01 100
2. Loan Fund
a) Secured loan 34750 112300.00 100
b) unsecured loan 90.48 109.26 100
total 90.95 110.79 100
3. Deferred Tax Adjustments
a) Deferred Tax Liability 74.62 96.99 100
b) Deferred Tax Assets 127.60 107.49 100
total 46.37 114.36 100
1. Fixed Assets
a) Gross Block 103.15 109.73 100
b) less-Depreciation 97.04 108.08 100
c) Net Gross Block 112.92 112.37 100
d) Lease Adjustment Account 0 100.00 100
Plant & Machinary
e) Capital Work in Progress 143.67 111.33 100
total 111.85 106.97 100
2. Technical know-how 785.82 308.21 100
3. Investments 31.71 110.08 100
4. Current Assets, Loans and
Advances
a) inventories 127.36 113.47 100
b) Sundry Debtors 91.30 175.70 100
c) Cash and Bank Balance 68.30 101.69 100
d) Other Current Assets 110.84 50.21 100
e) Loans and Advances 41.78 134.41 100
total 57.76 133.70 100
less- current liabilities and
provisions
a) liabilities 84.90 121.98 100
b) provisions 36.01 122.36 100
net current assets 33.05 74.65 100
total 46.37 114.36 100

xvii
INTERPRETATION:
From the above graph we can see that the sources of funds are increasing in
the year of 2006-07 but because of recession period the sources of funds are
decreasing in the year of 2007-08.

INTERPRETATION:
From the above graph we can see that the applications of funds are
increasing in the year of 2006-07 but because of recession period the
applications of funds are decreasing in the year of 2007-08.

.3 Vertical analysis of profit and loss account

xviii
particulars 2007- 2006- 2005-
08 07 06
INCOME

Net sales 94.51 92.22 92.14

othe income 5.51 7.78 7.86

total 100.00 100.00 100.00

EXPENDITURE

materials 72.21 68.49 65.68

other expenses 12.60 12.25 12.48

interest 0.06 0.05 0.00

depriciation 1.65 1.57 2.05

86.51 82.36 80.22

compansation paid under voluntary 1.12 0.49 0.28

total 87.62 82.85 80.50

profit before tax 12.38 17.15 19.50

current tax 4.28 4.97 6.34

deffered tax -0.19 -0.13 -0.49

fringe benefit tex 0.04 0.03 0.06

net tax 4.13 4.86 5.91

profit after tax 8.24 12.29 13.59

xix
INTERPRETATION:
xx
In the vertical analysis we have taken sales and other income as 100 %

INTERPRETATION:
The profit after tax is increasing every year that we can see that. In the year
of 2005-06 the PAT is 14 %, in the next year it is 12.29 % and in the year of
2007-08 PAT is 8.24 % because of recession period.

xxi
 2.4 Vertical analysis of Balance Sheet

Sources of funds 2007- 2006- 2005-06

08 % 07 % %
1. shareholder's fund
a) share capital 4.93 1.40 1.60
b) Reserves and Surplus 49.20 75.11 73.82
total 54.13 76.51 75.42
2. Loan Fund
a) Secured loan 0.24 0.31 0.00
b) unsecured loan 45.26 22.16 23.19
total 45.50 22.47 23.19
3. Deferred Tax Adjustments
a) Deferred Tax Liability 4.84 2.55 3.01
b) Deferred Tax Assets -4.47 -1.53 -1.62
total 100.00 100.00 100.00
1. Fixed Assets
a) Gross Block 101.75 43.88 45.73
b) less-Depreciation 58.85 26.58 28.12
c) Net Gross Block 42.90 17.31 17.61
d) Lease Adjustment Account Plant & 0.00 0.24 0.28
Machinary
e) Capital Work in Progress 1.18 0.37 0.38
total 44.08 17.09 18.27
2. Technical know-how 0.36 0.06 0.02
3. Investments 63.32 89.13 92.59
4. Current Assets, Loans and Advances
a) inventories 11.85 4.28 4.31
b) Sundry Debtors 9.39 7.32 4.77
c) Cash and Bank Balance 1.91 1.15 1.30
d) Other Current Assets 2.73 0.50 1.14
e) Loans and Advances 30.30 39.53 33.63
total 56.25 52.79 45.15
less- current liabilities and provisions
a) liabilities 35.57 20.72 19.43
b) provisions 28.44 39.17 36.61
net current assets -7.76 -7.11 -10.89
total 100.00 100.00 100.00

xxii
INTERPRETATION:
From the above graph we can see that in the year 2007-08 from the whole
Sources of funds 54.13 % are shareholder’s fund,45.5 % are loan fund,0.37
% are deferred loans.

As compare to the year of 2007-08 shareholder’s funds are more in 2005-06

and 2006-07.

2. RATIO ANALYSIS

xxiii
The relationship of one item to another expressed in simple mathematical
form is known as the ratio. A company keeps fit by ensuring that among
another things, its various financial propositions are kept healthy. Its
business performance can be measured the use of ratio. A ratio is quotient of
two numbers. It must be interpreted against some standards. In assessing
the financial stability of firm, a management should apart from profitability,
be interested in relative figures rather than in absolute figures. In fact an
analysis of financial statements is possible only when figures are express as
percentages or ratios. There is growing body of evidence that ratio can be
directly helpful as basis for making predication. A ratio is a mathematical
relationship between two quantities. It is of major important for financial
analysis. It engages qualitative measurement and shows precisely how
adequate is one key item in relation to another. To evaluate the financial
condition and purpose of a firm the financial analyst need certain yardsticks.
The yardsticks frequently used are ratio or an index relating to pieces of
financial data to each other. Not only those who manage a company but also
its shareholders and creditors are interested in knowing about the financial
position or earning capacity of that concern.

ADVANTAGES:

I. Lee observed that the process of producing financial ratio is

essentially concerned with the identification of the significant
accounting data relationships, which give the decision makers
insights into the company that is assessed.

II. A ratio analysis involves the study of total financial picture. By

basing conclusions upon thorough understanding of the
important of each ratio, the analyst can recommend and indicate
positive action with confidence.

III. One of the most fruitful areas for the use of traditional financial
ratio seems to be that of predication company failures.

IV. Ratio are tool which enables management to analysis business

situation and to monitor their performance as well as that of their
competitors.

xxiv
 V. Ratio analysis helps the management to diagnose the situations,
monitor the performance and help plan forward.

VI. There are certain priority ratios for chief executives. These are
related to key areas, which are common to nearly all businesses
and with which top management is seriously concerned. These
priority ratios enable the chief executive to understand the
relationship between his organization, at one end, and the
market, investors, suppliers and employees. He is also in a
position to watch how well is the organization using its assets
and how well it is providing for the future.

VII. There are ratios which help the marketing manager, the
purchasing manager, the financial manager and other
representing the middle management to know the what positions
are like how to make a way in typical situations, from time to
time.

The integrated relationships of various functions ratio can be presented as

under:

• Liquidity ratio
• Profitability ratio
• Asset turnover ratio
• Finance structure ratio
• Valuation ratio.

(1) LIQUIDITY RATIO:

Liquidity is the ability of a company to meets in short term obligations

when they fall due. A company should have enough cash and other
current assets. This can be converted into cash, so that it can pay its
suppliers and lenders on time.

xxv
 (1.1) Current Ratio:
Current ratio is an indicator of the firm’s commitment to meet it
short term liabilities. It is calculated to establish a relationship
between current asset and current liabilities. it is also called as
working capital ratio.

Current Ratio = Current Assets

Current Liabilities

Generally the current assets should be least twice the current liabilities for a
comfortable liquid positions, i.e. current ratio be 2:1 which is referred to as
excepted standard of liquidity.

TABLE-1.1 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
CURRENT ASSETS 9592.3 7287 7609.4
CURRENT LIABILITY 14989.7 12288.7 10432.5
CURRENT RATIO 0.64 0.59 0.73

Interpretation:
A current ratio of less than 1.0 indicates that a company does not have
enough current assets to cover current liabilities. Most analysts expect a
company to have a current ratio of at least 1.5. In the year of 2007-08 The
Current Ratio is 0.73 that was 0.14 less in the year 2006-07 and in the year
of 2005-06 the Current Ration was 0.64. We can say that with this
comparison that in the year of 2006-07 the level of Current Assets was
xxvi
decreased as compare to Current Liability. But in the next year we can see
the change.

(1.2) Quick Ratio:

Quick Ratio is base on those current assets which are highly liquid-
inventories are excluded from the numerator of this ratio because
inventories are deemed to be the least liquid component of current
assets.

Quick Ratio = Quick Assets / Liquid Liabilities

Quick Assets = Current Assets – Stock – Debtors

Quick Liabilities = Current Liabilities – Bank Overdraft

Quick ratio is also known as Liquid Ratio or Acid Test Ratio. Ideally quick
assets should be at least equal to the current liability. i.e. quick ratio should
be 1 is ideal.

TABLE-1.2 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
QUICK ASSETS 834.8 820.9 560.7
QUICK LIABILITY 14989.7 12288.7 10432.5
QUICK RATIO 0.056 0.067 0.054

Interpretation:
The company’s liquidity position is not good. In future crises may come.
From the above ratio we can see that in the year of 2005-06 the Quick Ratio
is 0.056 that increase by 0.011 in the next year. But again in the year of
2007-08 the Ratio is 0.054.

xxvii
(1.3) Net working capital:
Net working capital is the difference between current assets and
current liabilities. It is useful in day to day business transactions.

Net Working Capital = Total Current Assets – Total Current Liabilities

TABLE-1.3 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
CURRENT ASSETS 9592.3 7287 7609.4
CURRENT LIABILITY 14989.7 12288.7 10432.5
CURRENT RATIO (5394.4) (5001.7) (2823.1)

Interpretation:
The position of the company is decreasing year by year. Company should
decrease its noncash expenses. In this ratio the Company is Fully Negative.
in comparison of three years its is good but overall that is very bad for
company. In the year 2005-06 the Net Working Capital is -5394.4. that is
recovered in next year with 392.7 point and in the year the recovery rate is
very high. In the year of 2007-08 the Net Working Capital is -2823.1

(1.4) Cash Generated Per Rupee Of Sale:

Cash Generated Per Rupee of Sales =

xxviii
 (Profit After Taxes + Depreciation + Non cash Expenses) × 100
Sales
TABLE-1.4 (IN MN.)
PARTICULARS 2005-06 2006-07 2007-08
PAT + Depreciation + Non 28803.5 31604 24820.2
Cash Exp
Sales 74693.8 92922.3 86632.9
Cash Generated Per Rupee 38.56 % 34.01 % 28.65 %
Of Sales Ratio

Interpretation:
Cash Generated Per Rupee Ratio for the year 2005-06 is 38.56 % and that is
decrease in the next year by 4 %. In the year of 2007-08 the ratio is 28.65.
so its shows the good cash position for the company.

(2) PROFITABILITY RATIO:

Profitability ratio measure the degree of operating success of a

company in an accounting period. Failure to earn an adequate rate of
profit over a period will also drain the company’s cash and impair
liquidity.

(2.1) Gross Profits Ratio:

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 Gross Profits Ratio = Gross Profits × 100
Sales

Gross Profits = Sales – Total Factory Cost

TABLE-2.1 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
GROSS PROFIT 17133.7 18994.4 15560.7
SALES 74693.8 92922.3 86632.9
GROSS PROFIT RATIO 22.94 % 20.44 % 17.96 %

Interpretation:
Company should maintain its position in profitability. Year by year its
decreasing, that’s not good for the company. In the year of 2005-06 the
Gross Profit was 22.94 % that decreased 2 % in the next year. In last year
the Gross Profit is 17.96 %. For increasing Gross Profit the company should
increase the sales.

(2.2) Rate Of Return On Investment:

This is measure of profitability from the given level of investment.

Rate of Return on Investment = EBIT × 100

Total Assets

Total Assets = Net Fixed Assets + Investment +Net Working Capital

TABLE-2.2 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
EBIT 15804 17227.1 11295.7
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 TOTAL ASSETS 63241.2 72028.7 28876.4
RETURN ON INV. 24.99 % 23.91 % 39.12 %

Interpretation:
On the investment on Assets company is making good return. And company
should maintain that. Return on Investment is very high for Bajaj Auto. In the
year of 2005-06 ROI was 24.99 % that decrease by 1 % in the next year. But
in the year of 2007-08 the ROI is 39.12 % that is very good as compare to
last year.

(2.3) Rate Of Return On Equity:

This is a measure of profitability from the standpoint of the

shareholders. The ratio measures the efficiency with which
shareholders’ funds are employed.

ROE = Profit for the Equity × 100

Net Worth

Profit for the Equity = Net Profits – Preference Dividend

TABLE-2.3 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
PROFIT FOR EQUITY 4398.6 4743.5 3387.2
NET WORTH 55343.2 47707.3 15875.9
RETURN ON EQT. 7.95 % 9.94 % 21.34 %

xxxi
Interpretation:
Company is highly profitable with the help of equity shares. The Company is
profitable in every year. And every year the margin of profit is increasing. In
the year 2005-06 the ratio is 7.95 %. That increase by 2 % in next year. The
return on equity ratio is very high in the yerar of 2007-08. That is 21.34 %.

3) ASSET TURNOVER RATIO:

(3.1) Total Asset Turnover Ratio:

This is measure of the efficiency with which assets are utilized. It
indicates how many times the assets were turned over in a period.

Total Assets Turnover Ratio = Sales

Total Assets

TABLE-3.1 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
SALES 74693.8 92922.3 86632.9
TOTAL ASSETS 63241.2 72028.7 28876.4
ASSET TURNOVER 1.18 1.29 3.01

xxxii
Interpretation:
In the last year the demand is increasing. The sales is increased by 2 times
as compare to the last year. The efficiency also increased. The Asset
Turnover Ratio is constant increasing in each year. In the year of 2005-06
the ratio was 1.18. It increases by 0.11 in the next year. And in the year of
2007-08 the ratio increase highly and reaches at 3.01.

(3.2) Net Fixed Asset Turnover ratio:

This ratio measures sales per rupee of investment in fixed assets. This
ratio supposed to measure the efficacy with which fixed assets are
employed. A high ratio indicates a high degree of efficacy in assets
utilization and vice versa.

Net fixed assets turnover Ratio = Sales

Net fixed assets

TABLE-3.2 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
SALES 74693.8 92922.3 86632.9
NET FIXED ASSETS 11141.6 12519.7 12580.5
NET FIXED ASSET 6.70 7.42 6.89
TURNOVER

xxxiii
Interpretation:
Increase in the fixed assets in lower than increasing in sales. In the year of
2006-07 the ratio of Net Fixed Asset Turnover is high as compare with last
year but in the year of 2007-08 it decrease around 0.60 and reaches at 6.89.

(3.3) Net Working Capital Turnover Ratio:

Net Working Capital Turn Over = Sales

Net Working Assets

TABLE-3.3 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
SALES 74693.8 92922.3 86632.9
NET WORKING 9592.3 7287 7609.4
ASSETS
NET WORKING 7.79 11.93 11.38
CAPITAL

Interpretation:
xxxiv
The rate of working capital is declining but it is not bad as compare to the 1 st
year. Because of company’s efforts company increased its sales in 2006-07
as compare with last year. But in the year 2007-08 that decrease around
0.50.

(3.4) Inventory Turnover Ratio:

This ratio shows the number of times a company’s inventory is turned
into sales. The lesser the inventory, the greater the cash available for
meeting operating needs.

Inventory Turn Over = Cost of Goods Sold

Average Inventories

TABLE-3.4 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
COST OF GOODS SOLD 57560.1 73927.9 71072.2
AVG. INVENTORIES 2485.52 2913.16 3296.55
INVNTR. TURNOVER 19.95 25.38 21.56
RATIO

Interpretation:
In the last year the inventory turnover ratio is decreasing and that is good for
company. The company has to maintain this downward slopping.
xxxv
(4) FINANCE
STRUCTURE RATIO:
Finance structure ratio indicates the relative mix or blending of
owner’s funds and outsider data funds in the total capital employed in
business. It should be noted that equity funds are the prime fund which
increase progressively through reinvestment of profit, while outside debt
funds are supplementary funds and the added at the discretion of the
management. Management prefers to choose debt only when it helps in
enhancing the earning of equity. The debt fund carry fixed committed
interest rate.
(4.1) Equity Ratio:

Equity Ratio = net worth

Total capital employed
Net worth = Share capital + reserve and surplus – miscellaneous expense
Total capital employed = net worth + long term debt
TABLE-4.1 (IN MN.)
PARTICULARS 2005-06 2006-07 2007-08
NET WORTH 9592.3 7287 7609.4
TOTAL CAPITAL 62378.8 71597.5 29219.3
EMPLOYED
EQUITY RATIO 0.15 0.10 0.26

xxxvi
Interpretation:
Company is reliable on equity shares. Instead of paying 100 % dividend to
shareholder its retaining. In the second year the Equity Ratio decreased by
0.14 but in the next year its increase with high rate and reaches at 0.26.

(4.2) Debt Ratio:

Relationship between creditors’ fund and owners’ capital can also be
expressed in terms of another ratio. The outside liabilities are related
to the total capitalization of the firm and not merely to the
shareholder’s equity.

Debt Ratio = Long term Debt

Total capital employed
TABLE-4.2 (IN MN.)
PARTICULARS 2005-06 2006-07 2007-08
LONG TERM DEBT 14671.5 16254.3 13343.4
TOTAL CAPITL EMPLD. 62378.8 71597.5 29219.3
DEBT RATIO 0.24 0.23 0.46

Interpretation:
The company is increasing loans from market. The long term debt is highly
increasing. This ratio shows us the company’s Debt. We can see that the
debt is increasing every year. In the year of 2005-06 it was 0.23 and in the
year of 2007-08 the debt ratio is 0.46.

xxxvii
(4.3) Debt Equity Ratio:

The Debt Equity Ratio measures the relationship of the capital

provided by creditors to the amount provided by shareholders. Debt
includes both short term and long term debt. The ratio indicates the
extent of use of financial leverage.
Debt Equity Ratio = Total Long Term Debt
Net Worth

TABLE-4.3 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
LONG TERM DEBT 14671.5 16254.3 13343.4
NET WORTH 55343.2 47707.3 15875.9
DEBT EQUITY RATIO 0.27 0.34 0.84

Interpretation:
Long term debt is increasing as compare to net worth. The Debt Equity Ratio
is constantly increasing every year. In the first year the ratio was 0.27 its
increase by 0.7 and reaches at 0.34 in the year of 2006-07. In the third year
also its increases highly and reaches at 0.84.

xxxviii
(4.4) Interest Coverage Ratio:

This ratio is also known as “Time interest earned ratio”. It measures

the debt servicing the capacity of firm in so far as fixed interest on
long term is concerned.

Interest coverage ratio = E.B.I.T.

Interest
TABLE-4.4 (IN MN.)
PARTICULARS 2005-06 2006-07 2007-08
EBIT 15804 17227.1 11295.7
INTEREST 3.4 53.4 51.6
Int. Coverage Ratio 4648.24 322.60 218.90

Interpretation:
In the first year the Interest Coverage Ratio is very high. its fall highly and
reaches at 322.6 and constantly in the year 2007-08 its reaches at 218.9.

(4.5) Earning per Share (E.P.S.):

xxxix
 It measures the earning per equity shares.

Earning Per Share = Net Profit for Equity Share

Number of Equity Shares

TABLE-4.5 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
NET PROFIT FOR EQT. 4398.6 4743.5 3387.2
NO. OF EQT. SHARES 1012 1012 1447
EPS 4.35 4.69 2.34

Interpretation:
On every 1 share the company is given 2.34 shares in 2007-08 but it is low.
Because of decreasing EPS may be the trust of the shareholder decrease.
This ratio shows the company’s performance. The ratio is 4.35 in 2005-06. Its
increase and reaches at 4.69 in the next year. But in the year of 2007-08 its
decrease and reaches at 2.34.

(5) VALUATION RATIOS:

Valuation Ratios are the result of the management of above four
categories of the functional ratios. Valuation Ratios are generally presented
on a per share basis and thus are more useful to the equity investors.

(5.1) Dividend pays out Ratio:

xl
 Dividend pay out share is the dividend paid to the equity share holders
on a per share basis.

Dividend Pay Out Ratio = Dividend per Share

Earning Per Share

TABLE-5.1 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
DIVIDEND PER SHARE 3.99 3.99 2.86
EPS 4.35 4.69 2.34
DIVIDEND PAY OUT 0.91 0.85 1.22

Interpretation:
The company should decrease retained earning and start give more
dividend. This ratio is good for the company. As compare with first year the
ratio decrease 0.6 and reaches at 0.85 but in the year of 2007-08 effectively
increase and reaches at 1.22. So we can tell that company is giving good
dividend to its shareholders, but company can give more.

(5.2) Dividend yield Ratio:

The ratio represents the current cash returns to the share holders.

Dividend Yield Ratio = Dividend per Share

Average Market Price

TABLE-5.2 (IN MN.)

PARTICULARS 2005-06 2006-07 2007-08
DIVIDEND PER SHARE 3.99 3.99 2.86
xli
 AVG. MARKET PRICE 945.20 840.8 639.5
DIV. YIELD RATIO 0.0042 0.0047 0.0045

Interpretation:
Because of recession period in the year of 2007-08 the average market price
highly decreased. The market condition is not good in this year because of
recession in America.

xlii
 Cash Flowstatement

particulars 2006 2007 2008

1. Cash from operation
a.Profit before taxation 100 91.46 139.28
b.Adjustment 100 -53.21 -249.72
c.Increase/(decrease) in current assets 100 11.74 167.88
Net Cash From Operation 100 62.07 166.12
2.Investment activities
a.Increase/(decrease) in subsidiary 100 -4.55 14.13
b.Increase/(decrease) in other investment 100 -72.88 1613.84
c.Capital Expenditure 100 -12.79 51.63
d.Sales Proceeds of Assets 100 0.86 46.57
e.Technical Know how 100 0.05 21.03
f.Increase/(decrease) with Joint Companies 100 0.83 61.12
Deposites
g.Investment and \Other non Operating 100 25.64 70.85
Income
Net Cash From Investment 100 62.93 -770.21
3.Finaning Activities
a.Cash Credit Fom Banks 100 0.00 0.01
b.Intrest On Cash Credit 100 0.00 -1.43
c.Repayment of Fixed Deposites 100 -0.05 76.00
d.Interest on Fixed Deposites 100 0.00 77.78
e.Increase in Unsecure Loans 100 13.95 198.85
Dividend Paid 100 -14.56 38.55
Net Cash From Financing 100 -0.68 2.26

Opening Balance 100 6.29 193.74

Closing Balance 100 4.75 185.72

xliii
Interpretation
Here we have analyzed the cash flow statement in the part as following.

1. Operating activities
2. Investing activities
3. Financing activities

Analysis of cash flow from operating activities

xliv
As compare to the year of 2006-07 in the next year the operating income is
highly increasing.
On the other hand, invests significantly in research and development,
advertising, training and working capital to support its future growth may
able to generate positive cash flow from operation so the cash flow from
operating activities increased in the year 2007-08.

xlv
ANALYSIS CASH FLOW FROM INVESTING ACTIVITES

Cash flow is analyzed from investing activities to understand the company’s

strategies for long term growth. It also helps to understand whether
increases/ decreases in current asset and current liabilities is normal, and
whether adequate explanation is available for those changes. As compare to
the year of 2006-07 year its highly decreased in the year of 2007-08.

xlvi
ANALYSIS OF CASH FLOW FROM FINANCING ACTIVITIES

Financing
activities involve obtaining resource from owners and providing them with a
return on, and return of, their investment, borrowing money and repaying
amounts borrowed, and obtaining and paying for other resources obtain from
creditors on long term credit. As compare to the last year It is increased in
the next year 2007-08.

LIMITATIONS OF THE ANALYSIS

1) This financial analysis carried out does not consider the effect of the
opportunity cost of money. It ignores the present value and the future
value of money.

2) The standards for comparison data of the other companies are not
available easily. So an overall view of the analysis cannot be brought
about through this analysis.

3) No information related to the effects of the external factors on the

business conditions and the company policy can be obtained through
this analysis.

xlvii
 4) The analysis carried out is based only on the past information. No one
can successfully predict the future conditions and strategies based on
this data.

5) Moreover at times there exists a confusion to record some of the

expenses or financial terms into both different categories. So one
cannot be 100 percent accurate in such analysis.

CONCLUSION

A current ratio of less than 1.0 indicates that a company does not have
enough current assets to cover current liabilities. The company should
improve this situation. Because of liquidity problem crises may come. The
gross profit of the company is good. It’s decreasing but not bad at all.
Considering the liquidity position the major contributors to the company
current assets are the debtors and the inventories. So a high current ratio or
quick ratio does not mean that the company has sufficient liquidity. The
company needs to focus more on the cash and other current assets.

The EPS rate of the company is decreasing. Because of decreasing in EPS the
trust of the investors may be decrease. The company should decrease the
retained earning and give more dividends to the shareholders. The company
is not giving 100 % dividend to the shareholders. The company is also
reliable with equities.

From investment on profit the company is making good returns. In the last
year, company’s sales increased by 3 times.

xlviii
 BIBLIOGRAPHY
BOOKS AND ANNUAL REPORT:
• Annual Reports of Bajaj Auto Ltd.
• Book: Financial Management
By: M.Y. Khan & P.K. Jain
3rd Edition
The Mac-Grow Hill Publication

WEB-SITES:
• www.bajajauto.com
• www.bseindia.com

WEBLINKS:
• Annual Report 2007-08:
http://www.bajajauto.com/1024/download/BAJAJ_Auto.pdf
• Annual Report 2006-07:
http://www.bajajauto.com/1024/download/AR_2006-07.pdf
• Average Market Price:
http://gujarati.bseindia.com/stockreach/index.aspx?
scripcd=&myScrip=bajaj

xlix