CHAPTER – I

INTRODUCTION AND DESIGN OF THE STUDY

1.1 TRANSPORT INDUSTRY IN INDIA

Transportation in India is a large and varied sector of the economy.

Despite the various initiatives undertaken by the government over the past

few years, the transport sector remains very inefficient. The reason for this

sorry state of affairs eventually boils down to policies that inhibit completion

in and across the various sub-sectors.

The central government has ministries to handle civil aviation,

railways, marine transport and surface transportation. Counterpart agencies

are found at the state and union territory level. In contrast several countries

have a single ministry of transport, covering all the modes of transport. Since

this would be difficult in a large country like India, a permanent forum for

ensuring inter-model co-ordination could be setup where the policy makers of

all these modes of transport come together to learn from, and respond to, the

latest developments in transportation in the country and abroad.

1
 Although there is a large private-sector involvement in transportation in

India, the government continues to play a large regulatory and development

role, and is also the major service provider in ease of certain sub-sectors.

This leads to ‘conflicts of interest’, as brought in the cases aviation, ports, and

railways.

Regulation in transport sector has been tried in several countries. In

India, we need to consider if all competition issues in the transport sector can

be addressed as policy initiatives with the competition commission of Indian

playing an active role with government or in addition, we need a transport

regulator to address all the regulatory issues.

1.2 IMPORTANCE OF FINANCIAL PERFORMANCE

 It helps the creditors to assess the current financial position in relation

to debtors.

 These performance helps to determine the amount of securities to be

receive against loans, and the capacity of the concern to pay interest to

repay the loans.

 It helps investors to assess the long term and short term financial

position of a concern to enable them to the invested and government.

2
 Tax liability of business enterprise to know whether it follows rules and

regulations are not and make amencements in various acts.

 This statement helps the trade association to provide service and

protection to the members.

 These performances enable the stock brokers to judge financial position

of different concern regarding the fixation of prices for securities.

1.3 OBJECTIVES OF THE STUDY

1. To study the profitability position of Ashok Leyland Ltd.

2. To analysis the solvency position of Ashok Leyland Ltd.

3. To study about the working capital performance of Ashok Leyland Ltd.

4. The study period 2004-05 to 2008-09.

1.4 RESEARCH METHODOLOGY

Research methodology is adopted to systematically solve to research

problem. The researcher puts various steps forward in analysis to research

problem.

1.5 SOURCE OF DATA

The study has used secondary data. The secondary data collected for

the study from magazines, journals, books etc.

3
1.6 TOOLS AND ANALYSIS

The collected data were classified into suitable ratios for analysis and

interpretation. The statistical tools like mean, co-efficient of variation,

compound annual growth rate and trend analysis were used.

1.7 LIMITATIONS OF THE STUDY

This study is subject to the following limitations.

1. The data taken for analysis covers a period of five years i.e., from

2004-05 to 2008-09. So the study is about the past only, it need not to

be indicate of the future.

2. The study covered only financial performance of Ashok Leyland Ltd..

So the findings may not be generalized to other performances as a

whole.

3. As the study is mainly based on the quantitative data obtained from the

published annual reports of the Ashok Leyland Ltd., it is subject to

inherent limitations of financial performance.

4
1.8 CHAPTER SCHEME

This dissertation is presented into 5 chapters.

Chapter-I : Deals with introduction, importance of the financial

performance, objectives of the study and limitations of the

study.

Chapter-II : Deals with the profile of Ashok Leyland Ltd.

Chapter-III : Describes the financial statements introduction and ratio

observations.

Chapter-IV : Recapitulates the findings of the study and suitable

suggestions for the important of the Ashok Leyland Ltd.

5
 CHAPTER – II

PROFILE OF ASHOK LEYLAND LIMITED

Ashok Leyland Ltd (Ashok Leyland), the flagship company of Hinduja

Group is a leading manufacturer of commercial vehicles in India. Ashok

Leyland incorporated in 1948 as Ashok Motors started business as assembler

of Austin Car in India. In 1955, the company entered into an agreement with

Leyland Motors, UK, to manufacture Leyland vehicles and changed its name

to Ashok Leyland Ltd. The Hinduja Group and IVECO, Italy (a subsidiary of

fiat) acquired Leyland, UK in 1987 thus making land Rover Leyland

International Holding Ltd (LRLIH), UK as the holding company of Ashok

Leyland. Since July 2006 Hinduja Group is 100% holder of LRLIH. The

Holding company holds 39.21% of stake in Ashok Leyland’s equity.

Ashok Leyland Ltd. is the second-largest manufacturer of medium /

heavy-duty vehicles in India today. And the company is also into manufacture

of industrial marine engines. Ashok Leyland’s manufacturing facilities are

located at Ennore (Chennai, TN), Ambattur (Chennai, TN), Hosur (TN),

Bhandara (Maharashtra) and Alwar (Rajasthan).

6
 Ashok Leyland gives lot of thrust to new range of Intermediate

commercial vehicles, which fall between the light and heavy ranges of

commercial vehicles, with the technical assistance from IVECO. Commercial

production of the 709 and 909 models has commenced under the first phase of

expansion cum modernization, a substantial sum has been invested. The

company planned to further expand and modernize capacities over the next

four years, for which is raised Rs. 436 or through a GDR issue in 1995.

The company supplies both to state transport undertakings (STUs) and

defence. The company and ministry of defence’s vehicle factory in Jabalpur

has signed manufacturing agreements, which facilitate manufacturer of a new

bree of commercial vehicles for defence applications. Ashok Leyland is to

provide technology for the manufacture 5/7.2 – tonne commercial vehicles

fitted with an all wheel drive under one deal signed recently. The company

has supplied specially developed light recovery vehicles (LRVs) to the Indian

Army. The company has also pioneered buses running on CNG fuel in India

and this type of buses running successfully in Bombay and Delhi.

Ashok Leyland and Sundaram industries have together joined hands

with Irizar of Spain, an internationally acclaimed luxury bus manufacturer, to

float a joint venture company, Irizar TVS, to manufacturer, bus bodies in

7
India. The assets of TVS coach, which owns two bus body building factories

in TN will be transferred to the new IV company Irizar TVS in which all the

three partners will have equal share holdings.

The company has obtained contemporary rear cocles technology

support from Dana crop US and Arvinmeritor, US. The gear box proposed to

be manufactured and its Bhandara Plant is a transmission designed for

medium and heavy duty commercial vehicle application to permit both the

higher torque output demanded of drive lines evolving in India as well as

higher reliability and durability.

In the journey towards global standards of quality, Ashok Leyland Ltd.

reached a major milestone in 1993 when it became the first in India’s

automobile history to win the ISO 9002 certification. The more

comprehensive ISO 9001 certification came in 1994, QS 9000 in 1998 and

ISO 14001 certification for all vehicle manufacturing units in 2002. It has

also become the first Indian auto company to receive the latest ISO/TS 16949

corporate certification which is specific to the auto industry.

In 2002-03, the company has successfully developed indigenously, the

upgraded versions of 5 and 6 speed gear boxes and this will be offered for

select vehicle applications. The company has successfully upgraded IT

8
infrastructure at its manufacturing units and marketing offices. The new

technology has been obtained from ZF Friedrichshafen, Germany, for a new

6-speed synchromesh gear box and this was introduced during 2003-04 in the

company’s products. The company has set up its centralized R & D facility

near Chennai to cater to all chasis engineering activities.

The company has promoted a new company called Ashley Transport

Ltd (ATSL) during November 2004 to provide information exchange and

integrated logistic services to handle the business of freight contractors etc. It

has subscribed Rs. 7 crores to the equity capital of ATSL and shares were

allotted during November 2004 which represent 70% of the paid up capital of

ATSL, thus making it a subsidiary of Ashok Leyland Ltd. with effect from

16.11.2004. The shareholding of the company in its subsidiary Ashley

Transport Services Ltd. (ATSL) has come down to 40% during February

2005 due to transfer of shares to associate companies. Consequently ATSL

ceased to be the subsidiary of the company with effect from 23.02.2005.

Access to international technology enabled the company to set a

tradition to the first with technology. Be it full air brakes, power steering or

rear engine busses, Ashok Leyland Ltd. pioneered all these concepts.

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

company made its vehicles strong, over-engineering them with extra metallic

9
muscles. “Designing durable products that make economic sense to the

consumer, using appropriate technology”, became the design philosophy of

the company, which in turn has moulded consumer attitudes and the brand

personality.

Ashok Leyland Ltd. vehicles have built a reputation for reliability and

ruggedness. The 5,00,000 vehicles we have put on the roads have

considerably eased the additional pressure placed on roads transportation in

independent India. In the population Indian metros, four out of the five state

transport undertakings (STU) buses come from Ashok Leyland Ltd. Some of

them like the double-ducker and vestibule buses are unique models from

Ashok Leyland Ltd., tailor-made for high-density routes.

In 1987, the overseas holding by land Rover Leyland International

Holdings Limited (LRLIH) was taken over by a joint venture between the

Hinduja Group, the Non-Resident Indian transactional group and IVECO. The

blue prepared for the future reflected the global ambitions of the company,

captured in four words: Global standards, Global Markets. This was at a time

when liberalization and globalization were not yet in the air. Ashok Leyland

Ltd. embarked on a major product and process up gradation to match world

class standards of technology. During 2004-05 the company has decided to

10
sell its Ductron Castings unit at Hyderabad as a ‘going concern’ to Ennore

Foundries Ltd for a consideration of Rs.620 Million and this sale would be

effective from April 1, 2005, The company has also subdivided its equity

share face value from Rs.10/- per share to Re.1/- per share with effect from

2004.

The company has enhanced its installed capacity of commercial

vehicles and Ferrous castings by 17500 Nos and 7500 Tonnes respectively

during 2004-05. With this expansion the total installed ‘capacity of

commercial vehicles and Ferrous castings has increased to 67500 Nos and

24000 Tonnes respectively. The company has promoted M/s. Gulf Ashley

Motor Ltd. jointly with M/s. Gulf Oil Corporation Ltd. to consolidate and

improve the company’s market share and customer reach in the Eastern

Region of India.

The company has planned to launch 260hp rear engine intercity coach

during 2005-06. Further the company has also planned to launch newgen

series of trucks in 2005-06. During the year 2005-06, the company has

increased its installed capacity of commercial vehicles by 9700 Nos. with this

expansion the total installed capacity of commercial vehicles increased to

77200 Nos.

11
 In 2006-07, Ashok Leyland has entered the knowledge business space

by offering of Design and Engineering Services. The company is building up

Ashley Design and engineering Services (ADES), a division focused on

provision of design and engineering services to the automobile, power

engineering and aerospace sectors and the company has also entered into a

Joint Venture with Ras Al Khaimah Investment Authority (RAKIA) in the

U.A.E. to put up a plant for building bus bodies in the U.A.E. Ashok Leyland

acquired the Truck Business Unit of AVIA a.s. in Prague, Czech Republic in

October 2006. During the year 2007 Ashok Leyland noticed a share purchase

agreement with Defiance Testing and Engineering Services, Inc, Michigan,

USA to acquire the entire equity capital for a consideration of $17 million and

the company has pierced into a Joint Venture with the Alteams Group,

Finland to manufacture High Pressure Die Castings (HPDC) aluminum

products predominantly for the automotive and telecommunications sector.

Ashok Leyland has announced its entry into the pre-owned commercial

vehicles market with Altrux would be marketed through TVS & Sons Ltd. in

Kerala. Ashok Leyland and automotive supplier Siemens VDO Automotive

AG, Germany, have signed an harmony for a joint venture to propose, grow

and settle in infotronics products and services for the transportation sector.

12
 Ashok Leyland and Nissan Motor, Japan comes under an agreement for

development, manufacture and marketing of LCV products. In January 2008

Hinduja group flagship Ashok Leyland has developed the country's first

1-litre-per cylinder, 6-cylinder CNG engine for buses, employing multi-point

fuel injection (MPFI) and it may conform to Euro IV emission standards. As

on May 2008, the company made the legal formation of the three JV

companies for the Light Commercial Vehicle (LCV) business in India for

vehicle manufacturing, power train manufacturing and technology

development. Such three companies are Ashok Leyland Nissan Vehicles Pvt.

Ltd, Nissan Ashok Leyland Power train Pvt Ltd and Nissan Ashok Leyland

Technologies Pvt Ltd. Ashok Leyland decided to double investment in

Uttaranchal from Rs 1,000 cr to Rs 2,000 cr as a part of its expansion plan

and (Ashok Leyland) is ramping up investments in its commercial vehicle

(CV) business by investing close to Rs 6,000 cr in the next few years for

attain the leadership quality in the same field. The company's production

capacity planned by the year 2010 will be additionally 100,000 vehicles.

13
 CHAPTER – III

ANALYSIS OF PROFITABILITY, SOLVENCY AND

WORKING CAPITAL PERFORMANCE

A. Profitability

Profitability is an indication of the efficiency with which the operations

of the business are carried on. Poor operational performance may indicate

poor sales and hence poor profits. A lower profitability may arise due to the

lack of control over the expenses. Banker’s financial institutions and other

creditors look at the profitability ratios as an indicator whether or not the firm

earns substantially more than it pays interest for the use of borrowed funds

and whether the ultimate repayment of their debt appears reasonably certain.

Owners are interested to know the profitability as it indicates the return which

they can get on their investments. The following are the important

profitability ratios.

14
i) Gross Margin Ratio

Sometimes referred to as the gross profit ratio, this measures the profit

margin over sales. The gross profit is a result of the ‘mark-up’ on the cost of

goods sold. It will be influenced by price changes with no change in costs or

by cost changes without a compensating changes in price. If a firm has a

regular mark-up on all goods sold, the gross profit margin on sales should be

consultant. As a result, this ratio can be used as a control device to expose

such things as excessive sales discounts or stock losses.

Gross profit
Gross margin = Sales
x 100

Table 3.1
Percentage of Gross margin ratio
(in Percentage)
Gross margin
Year Gross profit Sales
ratio
2004-2005 382.91 3440.57 11.12
2005-2006 464.22 4247.65 11.12
2006-2007 578.31 5329.81 11.12
2007-2008 755.08 7320.37 10.31
2008-2009 815.51 7922.02 10.29
Mean 10.84
CV 12.70
CAGR 27.04

Source: Computed from Annual accounts of Ashok Leyland

15
INTERPRETATION

It is evident from the table that the Gross margin of Ashok Leyland Ltd

registered an decreasing trend during the study period (2006-07 to 2008-09).

It decreased from Rs. 11.12 crores to 10.29 crores. The mean value of gross

margin of Ashok Leyland Ltd during the study period is Rs. 10.84 crores. The

analysis of CV is 12.70. The gross margin of Ashok Leyland Ltd showed

positive compound annual growth rate is 27.04.

16
 Chart 3.1
Percentage of Gross margin ratio

11.2 11.12 11.12 11.12

11
Gross margin ratio (%)

10.8

10.6

10.4 10.31 10.29

10.2

10

9.8
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

17
ii). Percentage of Net profit ratio

The net profit after tax is shown as a percentage of sales. This

calculation provides the “bottom line” on sales and is useful in profit

planning. The rate of net profit on sales indicates the efficiency with which

operating costs are cord rolled, and is this measure of management

performance.

Net profit after tax

Net profit ratio = Sales
X100

Table 3.2
Percentage of Net profit ratio

(in Percentage)
Net profit after Net profit
Year Sales
Tax ratio
2004-2005 196.61 3440.57 5.7
2005-2006 250.42 4247.65 5.89
2006-2007 302.47 5329.81 5.89
2007-2008 425.77 7320.37 5.89
2008-2009 450.76 7922.02 5.89
Mean 6
CV 16.4
CAGR 4.3
Source: Computed from Annual accounts of Ashok Leyland

INTERPRETATION

18
 It is observed from the table that the percentage of Net profit of Ashok

Leyland Ltd registered an increasing trend during the study period (2004-05

to 2008-09). It increased from the 5.7% to 5.89%. The mean value of net

profit of Ashok Leyland Ltd during the study period is Rs. 6 crores. The

analysis of CV is 16.4. The Net profit of Ashok Leyland Ltd showed positive

compound annual growth rate is 4.3.

19
 Chart 3.2

Percentage of Net profit ratio

5.95

5.9 5.89 5.89 5.89 5.89

5.85
Net profit ratio (%)

5.8

5.75
5.7
5.7

5.65

5.6
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

20
iii) Return on capital employed

It also called as Return an investment. It indicates the percentage of

return on the total capital employed in the business.

Operating profit
= Capital employed
X100

Table 3.3
Return on Capital employed

(in Percentage)
Return on
Operating Capital
Year capital
profit employed
employed
2004-2005 442.32 1525.47 28.99
2005-2006 494.62 2023.69 24.44
2006-2007 618.96 2080.44 29.75
2007-2008 783.92 2512.02 31.21
2008-2009 891.82 3014.1 29.59
Mean 28.80
CV 8.91
CAGR 2.04
Source: Computed from Annual accounts of Ashok Leyland

21
INTERPRETATION

From the above table shows return on capital employed of Ashok

Leyland Ltd registered on decreasing trend during the study period (2007-08

to 2008-09). It decreased from 31.21% to 29.59%. The mean value of return

on capital employed on Ashok Leyland Ltd during the study period is

Rs. 28.80. The analysis of CV is 8.91. The return on capital employed of

Ashok Leyland Ltd showed positive compound annual growth rate is 2.04.

22
 Chart 3.3
Return on Capital employed

35
31.21
28.99 29.75 29.59
30
Return on capital employed (%)

24.44
25

20

15

10

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

23
iv) Return on share holds fund

In case it is desired to workout the profitability of the company from

the share holders point of view, it should be computed as follows.

Net profit after interest and tax

= Share holders fund
x 100

Table 3.4

Return on Shareholders fund

(in Percentage)
Return on
Profit after Shareholders
Year shareholders
Tax fund
fund
2004-2005 196.61 1051.8 18.69
2005-2006 250.42 1167.87 21.44
2006-2007 302.47 1412.45 21.41
2007-2008 425.77 1894.57 22.47
2008-2009 450.76 2148.98 20.97
Mean 21.00
CV 6.68
CAGR 12.21
Source: Computed from Annual accounts of Ashok Leyland

24
INTERPRETATION

Table 3.4 it shows that the return on shareholders fund of Ashok

Leyland Ltd. Registered an decreasing trend during the study period (2007-08

to 2008-09). It decreased from the 22.47% to 20.97%. The mean value at

return on shareholders fund of Ashok Leyland Ltd. during the study period is

Rs. 21 crores. The analysis of CV is 6.68. The return on shareholders fund at

Ashok Leyland Ltd. showed positive compound annual growth rate is

12.21%.

25
 Chart 3.4

Return on Shareholders fund

25
22.47
21.44 21.41 20.97
Return on shareholders fund (%)

20 18.69

15

10

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

26
v) Return on total assets

This ratio is an attempt to measures the rate of return earned by

management through operations and is determined by dividing the EBIT by

total assets.

EBIT
Return on total assets = Total Assets

Table 3.5
Return on Total Assets

(Rs. in crores)
Total Return on
Year EBIT
Assets total Assets
2004-2005 345.87 1550.7 0.22
2005-2006 385.41 2048.28 0.18
2006-2007 492.95 2104.38 0.23
2007-2008 633.35 2534.97 0.25
2008-2009 714.46 3036.48 0.23
Mean 0.23
CV 10.28
CAGR 5.49
Source: Computed from Annual accounts of Ashok Leyland

27
INTERPRETATION

It is evident from the table that the return on total assets at Ashok

Leyland Ltd., registered an decreasing trend during the study period (2007-08

to 2008-09). It decreased from Rs. 0.25 crores to Rs. 0.23 crores. The mean

value of return on total assets of Ashok Leyland Ltd. during the study period

is Rs. 0.23 crores. The analysis of C.V. is 10.28. The return on total assets of

Ashok Leyland Ltd. showed positive compound annual growth rate is 5.49.

28
 Chart 3.5
Return on Total Assets

0.3
Return on total Assets (Rs. in crores)

0.25
0.25 0.23 0.23
0.22

0.2 0.18

0.15

0.1

0.05

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

29
vi) Earning per share Ratio

Earnings per share (EPS) on ordinary share is a commonly quoted and

widely published ratio calculated from a firms financial statements. The ratio

is the conversion of the dollar amount of profit to a per share basis.

Net profit after tax & preference dividends

EPS = Number of ordinary shares

Table 3.6
Earning per share

(Rs. in crores)
Profit after tax
Number of
Earning
Year & preference ordinary
per share
dividend shares
2004-2005 193.58 118.93 1.63
2005-2006 271.41 118.93 2.28
2006-2007 327.32 122.16 2.68
2007-2008 441.29 132.39 3.33
2008-2009 469.31 133.03 3.53
Mean 2.69
CV 28.86
CAGR 116.74
Source: Computed from Annual accounts of Ashok Leyland

INTERPRETATION

30
 It indicates the percentage of earning per share of Ashok Leyland Ltd.

registered on increasing trend from the year (2007-08 to 2008-09). It

increased from 3.33 to 3.53. The mean value at percentage of earning per

share of Ashok Leyland Ltd. during the study period is Rs. 269 crores. The

analysis at CV is 28.86. The percentage of earning per share of Ashok

Leyland Ltd. showed positive compound growth rate 116.74.

31
 Chart 3.6
Percentage of earning per share

4
3.53
3.5 3.33
Earning per share (Rs. in crores)

3
2.68
2.5 2.28

2
1.63
1.5

0.5

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

32
B) SOLVENCY RATIO

Solvency ratios indicate about the financial position of the company. A

company is deemed to be financially sound if it’s a position to carry on its

business smoothly and meet its obligations, both short-term as well as long

term, without strain. It is a sound principle of finance that the short-term

requirement of fund should be met out of short-term funds and long-term

requirement should be met out of long-term funds.

The solvency ratio classified into two categories.

i. Short term solvency

ii. Long term solvency

The following are the important long term and short-term solvency

ratios.

33
i) Current Ratio

The current ratio is calculated by dividing the current assets by current

liabilities. This ratio is used to indicate the capacity of business to meet short-

term financial commitments. This is obtained by the generation of cash funds

through of stock and debtors (accounts receivable) to pay current creditors

(accounts payable) and other short-term liabilities.

Current Assets
Current ratio = Current Liabilitie s

Table 3.7
Current Ratio
(Rs. in crores)
Current Current
Year Current Ratio
Asset Liabilities
2004-2005 1463.67 832.7 1.76
2005-2006 2157.27 1165.67 1.85
2006-2007 2232.41 1408.52 1.58
2007-2008 2697.71 1755.85 1.53
2008-2009 2875.71 2271.94 1.26
Mean 1.60
CV 14.11
CAGR -27.99
Source: Computed from Annual accounts of Ashok Leyland

INTERPRETATION

34
 The table 3.7 it shows that the current ratio of Ashok Leyland Ltd.

registered an decreasing trend during the study period (2006-07 to 2008-09).

It decreased from Rs. 158 crores to Rs. 1.26 crores. The mean value of current

ratio of Ashok Leyland Ltd. during the study period is Rs. 1.60. The analysis

of CV is 14.11. The current ratio of Ashok Leyland Ltd., showed negative

compound annual growth rate is -27.99.

35
 Chart 3.7
Current Ratio

2
1.85
1.8 1.76
1.58 1.53
Current Ratio (Rs. in crores)

1.6
1.4
1.26
1.2

0.8
0.6

0.4

0.2

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Year

36
ii) Liquid ratio

This ratio is also known as the quick (or) acid test ratio. It is calculated

by deducting stock from current assets and bank overdraft from currently

liabilities. Stock is the least liquid of current assets and the ability of the

business to pay off current debts without relying on the sales of stock is

important. The liquid ratio will provide a measure of the firm’s ability to meet

its short-term financial obligations from the realisation of debtors, short-term

securities and cash.

Current Assets - Stock

Liquid ratio = Current Liabilitie s - Overdraft

Table 3.8
Liquid Ratio
(Rs. in crores)
Current
Current
Year Liabilities – Liquid Ratio
Asset – Stock
Overdraft
2004-2005 956.73 832.7 1.15
2005-2006 1589.19 1165.67 1.36
2006-2007 1329.85 1408.52 0.94
2007-2008 1627.39 1755.85 0.93
2008-2009 1651.35 2271.94 0.73
Mean 1.02
CV 23.71
CAGR -36.74
Source: Computed from Annual accounts of Ashok Leyland

37
INTERPRETATION

It is observed from the table 3.8 that the liquid ratio of Ashok Leyland

Ltd. registered an decreasing trend during the study period (2005-06 to 2008-

09). It decreased from Rs. 1.36 crores to 0.73 crores. The mean value of

liquid ratio of Ashok Leyland Ltd. during the study period is 1.02 crores. The

analysis of C.V. is 23.71. The liquid ratio of Ashok Leyland Ltd. showed

negative compound annual growth rate is -36.74.

38
 Chart 3.8

Liquid Ratio

1.6
1.36
1.4
Liquid Ratio (Rs. in crores)

1.2 1.15

1 0.94 0.93

0.8 0.73

0.6

0.4

0.2

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

39
LONG-TERM SOLVENCY

i) Debt Equity ratio

The calculation of this ratio indicates the proportion of long-term debt

to shareholder’s funds.

Long - term debt

Debt to equity = Equity

Table 3.9
Debt equity ratio

(Rs. in crores)
Long term Debt equity
Year Equity
debts ratio
2004-2005 498.9 118.93 4.19
2005-2006 880.41 118.93 7.40
2006-2007 691.93 122.16 5.66
2007-2008 640.4 132.39 4.83
2008-2009 887.5 133.03 6.67
Mean 5.75
CV 22.72
CAGR 59.04
Source: Computed from Annual accounts of Ashok Leyland

40
INTERPRETATION

From the above table shows that the debt equity ratio of Ashok Leyland

Ltd. registered an increasing trend during the study period (2007-08 to 2008-

09). It increased from Rs. 4.83 crores to 6.67 crores. The mean value of debt-

equity during the study period is Rs. 5.75 crores. The analysis of C.V. is

22.72. The debt-equity of Ashok Leyland Ltd. showed positive compound

annual growth rate is 59.04.

41
 Chart 3.9
Debt equity ratio

8.00 7.40
6.67
7.00
Debt equity ratio (Rs. in crores)

5.66
6.00
4.83
5.00
4.19
4.00

3.00

2.00

1.00

0.00
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

42
ii) Proprietory ratio

It is variant of debt-equity ratio. It establishes relationship between the

proprietor’s funds and the total tangible assets. It may be expressed as

Long term funds

= Total assets

Table 3.10
Proprietory ratio

(Rs. in crores)
Long term Proprietory
Year Total assets
funds ratio
2004-2005 1051.8 1550.7 0.68
2005-2006 1167.87 2048.28 0.57
2006-2007 1412.45 2104.38 0.67
2007-2008 1894.57 2534.97 0.75
2008-2009 2148.98 3036.48 0.71
Mean 0.67
CV 9.75
CAGR 4.34
Source: Computed from Annual accounts of Ashok Leyland

43
INTERPRETATION

The table 3.10 shows that the proprietory ratio of Ashok Leyland Ltd.

registered an increasing trend during the study period (2006-07 to 2008-09). It

increased from Rs. 0.67 crores to Rs. 0.71 crores. The mean value of

propritory ratio of Ashok Leyland Ltd. during the study period is Rs. 0.67

crores. The analysis of C.V. is 9.75. The proprietory ratio of Ashok Leyland

Ltd showed positive compound annual growth rate is 4.34.

44
 Chart 3.10
Proprietory ratio

0.8 0.75
0.71
0.68 0.67
0.7
Proprietory ratio (Rs. in crores)

0.57
0.6

0.5

0.4

0.3

0.2

0.1

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Year

45
iii) Fixed interest coverage

The ratio is very important from the lender’s point of view. It indicates

whether the business would earn sufficient profits to pay periodically the

interest charges. The higher the number, the more secure the lender is in

respect of his periodical interest income.

Income before interest and tax

= Interestch arg es

Table 3.11
Percentage of fixed interest coverage

(Rs. in crores)
Before Int. & Fixed Fixed interest
Year
Tax interest coverage ratio
2004-2005 345.87 59341 5.82
2005-2006 385.41 30.4 12.68
2006-2007 492.95 40.65 12.13
2007-2008 633.35 28.84 21.96
2008-2009 714.46 76.31 9.36
Mean 12.39
CV 12.46
CAGR 61.05
Source: Computed from Annual accounts of Ashok Leyland

INTERPRETATION

46
 It indicates that the fixed interest coverage of Ashok Leyland Ltd

registered an decreasing trend during the study period (2007-08 to 2008-09).

It decreased from Rs. 21.06 crores to Rs. 9.36 crores. The mean value of fixed

interest coverage of Ashok Leyland Ltd during the study period is Rs. 12.39

crores. The analysis of C.V. is 48.48. The fixed interest coverage of Ashok

Leyland Ltd showed positive compound annual growth rate is 61.05

respectively.

47
 Chart 3.11
Percentage of fixed interest coverage

25
21.96
Fixed interest coverage ratio (Rs. in

20

15
crores)

12.68 12.13

9.36
10

5.82
5

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

48
C) WORKING CAPITAL PERFORMANCE

This is also termed as gross working capital. It refers to the firm’s total

current or circulating assets. Current assets are those assets that are usually

converted into cash within an accounting year. Thus, they are cash or near-

cash resources of the firm.

The working capital performance is defined in two different ways:

(i) It is the excess of current assets over current liabilities. This is, as

a matter of fact, the most common and accepted definition. Some

people define it as only the difference between current assets and

current liabilities. The former seems to be a better definition as

compared to the latter.

(ii) It is that portion of a firm’s current assets which is financed by

long-term funds. The following are the important working capital

performance ratios.

49
i) Percentage of current asset to total assets

Current assets to total assets measure the gross working capital per

rupee at capital employed. This ratio indicates the proportion of current asset

to total assets.

Current Asset
Current asset to total asset = Total asset
x 100

Table 3.12
Percentage of current asset to total assets

(In percentage)
Current asset to
Year Current asset Total Asset
total asset
2004-2005 1463.67 1550.7 94.38
2005-2006 2157.27 2048.28 105.32
2006-2007 2232.41 2104.38 106.08
2007-2008 2697.71 2534.97 106.41
2008-2009 2375.71 3036.48 94.70
Mean 101.38
CV 6.17
CAGR 0.34
Source: Computed from Annual accounts of Ashok Leyland

50
INTERPRETATION

It observed from the table that the percentage of current asset to total

asset of Ashok Leyland Ltd registered an decreasing trend during the study

period (2007-08 to 2008-09). It decreased from 106.41% to Rs. 94.70%. The

mean value of percentage of current assets to total assets during the study

period is Rs. 101.38 crores. The analysis of C.V. is 6.17. The percentage of

current asset to total asset of Ashok Leyland Ltd showed positive compound

annual growth rate is 0.34 respectively.

51
 Table 3.12
Percentage of current asset to total assets

108.00 106.08 106.41

105.32
106.00
Current asset to total asset (%)

104.00
102.00
100.00
98.00
96.00 94.70
94.38
94.00
92.00
90.00
88.00
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

52
ii) Percentage of current asset to fixed asset

It indicates the relationship between the current assets and fixed assets

of the company. This ratio will differ from industry to industry and therefore,

no standard can be laid down.

Current Assets
Current asset to fixed assets = Fixed Assets
x 100

Table 3.13
Percentage of current asset to fixed assets

(In Percentage)
Current asset to
Year Current asset Fixed assets
fixed asset
2004-2005 1463.67 874.83 167.31
2005-2006 2157.27 893.84 241.35
2006-2007 2232.41 943.27 236.67
2007-2008 2697.71 1307.04 206.40
2008-2009 2375.71 1525.55 188.50
Mean 208.05
CV 15.15
CAGR 12.67
Source: Computed from Annual accounts of Ashok Leyland

53
INTERPRETATION

It is evident from the table that the percentage of current asset to fixed

asset of Ashok Leyland Ltd registered an decreasing trend during the study

period (2007-08 to 2008-09). It decreasing from the 206.4% to 188.50%. The

mean value of percentage of current assets to fixed assets during the study

period is Rs. 208.05 crores. The analysis of C.V. is 15.15. The current asset

to fixed asset of Ashok Leyland Ltd showed positive compound annual

growth rate is 12.67 respectively.

54
 Chart 3.13
Percentage of current asset to fixed assets

241.35 236.67
250.00
206.40
188.50
Current asset to fixed asset (%)

200.00
167.31

150.00

100.00

50.00

0.00
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Year

55
iii) Inventory Turnover Ratio

This ratio measures the speed with which business can sell its average

stock level. The calculation is made by dividing the cost of goods sold by the

average stock levels held. This higher the result, the shorter the time stock is

held awaiting sale. As a substitute, total sales can be instead of the cost of

goods sold.

Cost of goods sold

Inventory turnover = Average Stock

Table 3.14
Inventory turnover ratio

(Rs. in times)
Cost of goods Inventory
Year Average stock
sold turnover ratio
2004-2005 3057.66 458.7 6.67
2005-2006 3783.43 537.51 7.04
2006-2007 4751.5 735.32 6.46
2007-2008 6565.29 986.44 6.65
2008-2009 7106.51 1147.11 6.19
Mean 6.61
CV 4.67
CAGR -7.06
Source: Computed from Annual accounts of Ashok Leyland

INTERPRETATION

56
 The table 3.14 shows that the inventory turnover ratio of Ashok

Leyland asset of Ashok Leyland Ltd registered an decreasing trend during the

study period (2007-08 to 2008-09). It decreased from the Rs. 6.65 crores to

Rs. 6.19 crores. The mean value of inventory turnover ratio of Ashok

Leyland Ltd during the study period is Rs. 6.61 crores. The analysis of C.V. is

4.67. If the table shows the negative compound annual growth rate is -7.06

respectively.

57
 Chart 3.14
Inventory turnover ratio

7.2
7.04
7
Inventory turnover ratio (in times)

6.8
6.67 6.65
6.6
6.46
6.4
6.19
6.2

5.8

5.6
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

58
iv) Receivables Turnover Ratio

This ratio refers to the time it takes an average days credit sales to be

collected. This is calculated by dividing the net sales revenue by the average

accounts receivables (debtors) balance. It is important for a business to find

the right balance between increasing sales through the offer of credit terms to

customers, and the time taken for debtors to pay, while debts are uncollected,

cash funds are not available to pay creditors.

Net sales revenue

Receivable turnover = Average receivable s balance

Table 3.15
Receivables turnover ratio
(Rs. in times)
Average
Net sales Receivables
Year receivables
revenue turnover
balance
2004-2005 3440.54 405.62 8.48
2005-2006 4247.65 458.77 9.26
2006-2007 5329.81 424.34 12.56
2007-2008 7320.37 522.88 14.01
2008-2009 7922.02 375.84 21.07
Mean 13.08
CV 38.40
CAGR 148.50
Source: Computed from Annual accounts of Ashok Leyland

59
INTERPRETATION

It is evident from the table that the receivable turnover ratio of Ashok

Leyland Ltd registered an increasing trend during the year (2007-08 to 2008-

09). It increased from the Rs. 14.01 crores to Rs. 21.07 crores. The mean

value of receivable turnover ratio of Ashok Leyland Ltd during the study

period is Rs. 13.08 crores. The analysis of C.V. is 38.40. The receivable

turnover ratio of Ashok Leyland Ltd showed positive compound annual

growth rate is 148.50 respectively.

60
 Table 3.15
Receivables turnover ratio

25
21.07
Receivables turnover (in times)

20

14.01
15 12.56

9.26
10 8.48

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

61
v) Working capital turnover ratio

This is also known as working capital leverage ratio. This ratio

indicates whether or not working capital has been effectively utilised in

making sales. In case a company can achieve higher volume of sales with

relatively small amount of working capital, it is an indication of the operating

efficiency of the company.

Net Sales
= Working Capital

Table 3.16
Working capital turnover ratio
(Rs. in times)
Working Working capital
Year Sales
capital turnover ratio
2004-2005 3440.54 630.87 5.45
2005-2006 4247.65 991.6 4.28
2006-2007 5329.81 823.89 6.47
2007-2008 7320.37 941.86 7.77
2008-2009 7922.02 603.32 13.13
Mean 7.42
CV 46.36
CAGR 140.81
Source: Computed from Annual accounts of Ashok Leyland

INTERPRETATION

62
 It is observed from the table that the working capital turnover ratio of

Ashok Leyland Ltd registered as increasing trend during the year (2007-08 to

2008-09). It increased from the Rs. 7.77 crores to Rs. 13.13 crores. The mean

value of working capital turnover ratio of Ashok Leyland Ltd during the study

period is Rs. 7.42 crores. The analysis of C.V. is 46.36. The working capital

turnover ratio of Ashok Leyland Ltd showed positive compound annual

growth rate is 140.81 respectively.

63
 Chart 3.16
Working capital turnover ratio

13.13
14
Working capital turnover ratio (in times)

12

10
7.77
8 6.47
5.45
6 4.28

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Year

64
vi) Cash turnover ratio

Cash turnover ratio indicates the cash requirements to the company.

Higher the turnover loss will be cash required for a given level of sales and

other things remaining constant which implies greater efficiency. This ratio

says how the cash balance is dealt with

Sales
Cash turnover ratio = Cash

Table 3.17
Cash turnover ratio

(Rs. in times)
Cash turnover
Year Sales Cash
ratio
2004-2005 3440.54 324.98 10.59
2005-2006 4247.65 796.68 5.33
2006-2007 5329.81 602.87 8.34
2007-2008 7320.37 434.94 16.83
2008-2009 7922.02 451.37 17.55
Mean 11.83
CV 44.42
CAGR 65.78
Source: Computed from Annual accounts of Ashok Leyland

INTERPRETATION

65
 From the above table 3.17 that the cash turnover ratio of Ashok

Leyland Ltd registered an increasing trend during the study period (2007-08

to 2008-09). It increased from Rs. 16.83 crores to Rs. 17.55 crores. The mean

value of cash turnover ratio of Ashok Leyland Ltd. is Rs. 11.83 crores. The

analysis of C.V. is 44.42. The cash turnover ratio of Ashok Leyland Ltd

showed positive compound annual growth rate is 65.78 respectively.

66
 Chart 3.17
Cash turnover ratio
20
17.55
18 16.83
Cash turnover ratio (in times)

16

14
12 10.59
10
8.34
8
6 5.33

4
2

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Year

67
 Table 3.18
Working capital trend analysis

(Rs. in crores)
Working Capital
Year (X) (X2) XY YC
(y)
2004-2005 630.97 -2 4 -1261.94 819.328
2005-2006 991.60 -1 1 -991.6 808.824
2006-2007 823.89 0 0 0 798.32
2007-2008 941.86 1 1 941.86 787.816
2008-2009 603.32 2 4 1206.64 777.312
N=5 Σ y = 3991.64 Σ x= Σ x2 = Σ xy = 3991.600
0 10 -105.04

YC = a+bx

Σy 3 9 9 .16 4
a = = = 7 9 8.3 2
N 5

Σy − 1 0 .50 4
a = = = − 1 0.5 0 4
Σ x2 10

Since YC = 798.32 – 10.504x

The estimated working capital of for the year 2009 is 3, 2010 is 4, 2011

is 5.

Y2009 = 798.32 – 10.504(3)

= 798.32 – 31.512 = 766.808 lakhs

Y2010 = 798.32 – 10.504(4)

68
 = 798.32 – 42.016= 756.304 lakhs

Y2011 = 798.32 – 10.504(5)

= 798.32 – 52.52 = 745.80 lakhs

Business is a dynamic process. Hence, it is very difficult to find

complete information about the direction of the business. For this purpose of

determining the direction, the trend is calculated. Trend analysis makes it easy

to understand the changes in data relating to a business.

69
 Chart 3.18
Working capital trend analysis

1200

1000

800
Trend

600

Working Capital
400
Trend Value

200

0
2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Year

70
 CHAPTER – IV

FINDINGS, SUGGESTIONS AND CONCLUSION

This is the last section of the study. It is conclude with a short resume

of summary restating the whole performance. It is the most widely read part

of a study because it recapitulates the entire information that has been

presented already and many reader scan the summary which to presented in

the last chapter first to obtain an overview of the problem and to determine

the usefulness of the study to them.

The Ashok Leyland Ltd. is one of the Leading Transport Company

which was established in the year 1948.

In the present study, an attempt has made to study the financial

performance of the Ashok Leyland Ltd.

71
 4.1 SUMMARY OF FINDINGS

This chapter presents the summary of findings of the study.

 The gross margin ratio of the company has been shown downward

trend (i.e.) 11.12, 11.12, 11.12, 10.31, 10.29. But in the year 2007-08 it has

reduced to a value below 11. The mean value of the company is Rs. 10.84.

The analysis of CV is 12.70 and the CAGR is 27.04.

 Net profit ratio was at satisfactory trend in the study period 2004-05 to

2008-09 it was not reduced to a value 5.89. The mean 6, the analysis of CV

16.4 and CAGR 4.3.

 The return on capital employed is our study was fluctuating (i.e.) in

2004-05 ratio was 28.99%, 2005-06 ratio was 24.44%, 2006-07 ratio was

29.75%, 2007-08 ratio was 31.21% and 2008-09 ratio was 29.59%. The mean

28.80, the analysis of CV 8.91 and CAGR 2.04.

 The return on shareholders fund decreasing trend during the 2004-05

ratio was 18.69%, 2005-06 ratio was 21.44%, 2006-07 ratio was 21.41%,

2007-08 ratio was 22.47%, 2008-09 ratio was 20.97%. The mean value is 21,

the analysis of CG 6.68 and CAGR 12.21.

72
 The return on total assets in our study was fluctuating (i.e.) in 2004-05

ratio was 0.22% 2005-06 ratio was 0.18%, 2006-07 ratio was 0.23%, 2007-08

ratio was 0.25%, 2008-09 ratio was 0.23%. The mean value is Rs.023, the

analysis of CV 10.28 and CAGR 5.49.

 Earning per share of Ashok Leyland Ltd, was satisfactory level. During

the year 2004-05 to 2008-09. Hence the company earning per share ratio is

good. The mean value is Rs. 269, the analysis of CV 28.86 and CAGR

116.74.

 The current ratio of the company has been show satisfactory trend (i.e)

1.76, 1.85, 1.58, 1.53, 1.26). But in the year 2006-07 to 2008-09 it has not

reduced to value below 1. The mean value 1.60, analysis of CV 14.11

and CAGR -27.99.

 The liquid ratio of the company has been shown the downward trend

(i.e.) 1.15, 1.36, 0.94, 0.93, 0.73). But in the year 2006-07 to 2008-09 it has

reduced to a value below 1. The mean value 1.02, analysis of CV 23.71

and CAGR -36.74.

73
 Debt equity ratio was at satisfactory level upto the study satisfactory

level study period in 2004-05 to 2008-09. The mean value is Rs. 5.75,

analysis of CV 22.72 and CAGR 59.04.

 Proprietary ratio was found to be satisfactory level study period in

2004-05 to 2007-08. But present condition is not satisfactory level. The mean

value is 0.67, the analysis of CV is 9.75 and CAGR 4.34.

 Fixed interest coverage ratio was found to be increasing trend for study

period 2004-05 to 2007-08. But, during the current year 2008-09 it decreased.

The mean value is Rs. 12.39, the analysis of CV 48.46 and CAGR 61.05.

 The position of current asset to total asset was increasing trend. In the

year 2004-05 to 2007-08. But the last year of the study period it decreased

(94.70 percentage). The mean value is Rs. 101.38, the analysis of CG 6.17

and CAGR 0.34.

 The position of current asset to fixed asset in our study was highly

fluctuating (i.e.) in 2004-05 ratio was 167.31% 2005-06 ratio was 241.35%,

2006-07 ratio was 236.67%, 2007-08 ratio was 206.4% and 2008-09 ratio was

188.50%. The mean value is 208.05, the analysis of CV 15.15 and CAGR

12.67.

74
 The inventory ratio was at satisfactory level upto the study satisfactory

level study period in 2004-05 to 2005-06. But present condition is not

satisfactory level. The mean value is Rs. 6.61. The analysis of CV is 4.67 and

the CAGR is -7.06.

 The receivable turnover ratio was found to be better position. In the

year 2004-05 ratio was 8.48, 2008-09 ratio was 21.07. The mean value is Rs.

13.08, the analysis of CV 38.48, and CAGR 148.50.

 Working capital turnover ratio was indicated a increasing trend it is

efficient in the study period 2004-05 to 2008-09. Hence the working capital is

properly utilized by the company. The mean value is Rs. 7.42, the analysis of

CV 46.36 and CAGR is 140.81.

 Cash turnover ratio is found to be increasing trend for the study period

2005-06 to 2008-09. Hence it the company cash turnover position is good.

The mean value is Rs. 11.83, the analysis of CV is 44.42 and CAGR is 65.78.

4.2 SUGGESTIONS

75
 Based on these findings, the following suitable suggestions are offered

for the improvement of the performance of the Ashok Leyland Ltd.

 Current ratio of 2:1 is ideal, but it has only 1.26, so company wants to

increase the current assets.

 Quick ratio of 1:1 considered satisfactory, but during the study period,

it has only less than 1. Hence it has to improve the liquidity position.

 It is suggested that it has to reduce its operating expenses, then, only, it

can earn more profit in future.

 The relationship between sales and net profit is good. So the company

wants to maintain the same in the future period.

 The working capital of the company is satisfactory. Working capital in

very good in the year 2008-09. Thus the company must maintain the stability

and profitability.

76
 Earning per share in the study period 2004-05 to 2008-09 it was

increased. There is a continues growth of earning per share of Ashok Leyland.

So in future the earning per of the Ashok Leyland Ltd. So in future the

earning per of the Ashok Leyland Limited, will increased.

 Market price as compare to previous year. There is a possibility of

increasing market price high per in future.

It concluded that overall position of the Ashok Leyland Ltd, during the

study period 2004-05 to 2008-09 is satisfactory.

77
4.3 CONCLUSION

Finance is the life blood and nerve centre of a business, just as

circulation of blood is essential in the human body for maintaining life,

finance is a very essential to smooth running of the business. Finance is

needed to promote or establish the business, acquire fixed assets, make

investigations such as market surveys, etc., develop, product, keep men and

machine at work, encourage management to make progress and create values.

So, the management with regular intervals, make some analysis about their

finance strength and weakness.

Financial statement analysis is one of the basis analysis which helps to

understand the financial, operational and liquidity position of the business

concern. Ratio analysis one of the important tools of the financial statement

analysis leads to measure the various financial structure and position of the

industries. The Ashok Leyland Ltd. is of the leading transport industries in

South India.

78
 The ratio analysis of Ashok Leyland Ltd. provides various information

about the financial position. Financial statement analysis of the Ashok

Leyland Ltd gives the entire result of the comparable figures for the past 5

years. Finally concludes that the financial position of the Ashok Leyland Ltd

is satisfactory. Still it has to improve its business increased to achieve good

margin of regularly improve its profit and financial position.

79
 BIBLIOGRAPHY

REFERENCE BOOKSF

1. Jain P. Narang, K.L., Financial Accounting, Kalyani Publishers, New

Delhi, 1997.

2. Ramachandran, R. and Srinivasan, R. Management Accounting, Sri Ram

Publications, Trichy.

3. Maheswari, S.N. Principles of Management Accounting, Sultan Chand &

Sons, New Delhi, 1999, Sixth Revised Edition.

4. Sharma, R.K. and Shasi Gupta, K. Financial Management Accounting.

WEBSITES

www.google.com

www.transportindustryinindia.com

www.ashokleyland.com

80