Index

(write everyone’s name and roll no)

Add tmims logo
Introduction to the Project
The term “Ratio analysis” refers to the analysis of the financial statement with the
interpretations of financial results of a particular time of operations, derived with the help of
‘ratio’. Ratio analysis is used to determine
The financial soundness of a business.
A common way to evaluate financial statements is through ratio analysis. A ratio is a
relationship between two numbers of the same form. Financial ratios are effective tools for
measuring the financial performance of a company because they provide a common basis for
evaluation. It is used as one analytic tool, which, when combined with informed judgment,
offers insight into the financial performance of a business.
INTRODUCTION TO INDUSTRY

The Indian Automobile industry includes two-wheelers, trucks, cars, buses and
three-wheelers which play a crucial role in growth of the Indian economy. India has emerged
as Asia's fourth largest exporter of automobiles, behind Japan, South Korea and Thailand.

Size of the Industry​: ​2.6 Million Units

Percentage in world market​: ​6-8%
Output per annum​: ​Rs 2,000 crore per annum
Market Capitalization​: ​5% of the share
INTRODUCTION TO COMPANIES.

1) BAJAJ AUTO

Bajaj Auto​ was created on 29 November 1945 as M/s Bachraj Trading Corporation Private
Limited. It started off by selling imported two- and three-wheelers in India. ... In 1995, it
rolled out its ten millionth vehicles and produced and sold 10 lakh (one million) vehicles in a
year.

Founders: ​Jamnalal Bajaj

Parent: ​Bajaj Group
Date founded: ​29 November 1945
Organization type: ​Company, Limited company

2) HERO MOTOCORP.
Hero Motocorp Ltd., formerly Hero Honda, is an Indian motorcycle and scooter manufacturer
based in New Delhi, India. The company is the largest two-wheeler manufacturer in the
world, and also in India, where it has a market share of about 46% in the two-wheeler
category.

Headquarters​: ​New Delhi

Founder​: ​BrijmohanLall Munjal

Founded​: ​19 January 1984, ​Dharuhera

Profitable Ratio:

1. Gross Profit Margin Ratio​: It is a financial metric used to assess a

company’s financial health and business model by revealing the
proportion of money left over from revenues after accounting for the cost
of goods sold. Its formula is as under:
Gross P rof it Or EBIT
= Sales

Year BAJAJ AUTO HERO MOTOCORP

2017 23.50 15.25

2018 23.17 16.28

2019 21.51 15.13

Interpretation The profit of the company was
HIGH​ ​in 2017 it then
DECREASED​ ​in 2018 which
resulted in DECREASE in the
gross profit ratio of the
company. BUT again in 2019,
the profit REDUCED​ ​and thus
the gross profit also reduced.
The GP ratio of the company
was more in 2018 than in 2019
This shows a POOR​ f​ inancial
position of the company. The
DECREASE in GP ratio was due
to DECREASE in the profit
earned by the company in
2019.
2. NET Profit Margin Ratio​: It is the percentage of the revenue remaining
after all operating expenses; interest, taxes and preferred stock dividend
have been deducted from company’s total revenue. Its formula is as
under:
P rof it Af ter Interest and T ax
= Sales

Year BAJAJ AUTO HERO MOTOCORP

2017 16.86 11.84

2018 16.16 11.47

2019 15.81 10.05

Interpretation As we can see from the
balance sheet that the
company’s profit was very low
during 2017. It again
decreased in 2018 and thus
decreased the company’s net
margin ratio. Again, the profit
reduces in 2019 and thus the
net profit margin ratio
decreases.
The profit was low of the
company in 2017. This caused
low net margin ratio of the
company. In 2018, the profit
decreased which didn’t show
improvement in the net gain
ratio. But again, due to fall in
profit in 2019, the net margin
also reduced in 2019.
3. Operating Profit Ratio​: Operating Profit Ratio is a measure of what it
costs to operate a piece of property compared to the income that the
property brings in.

OP ERAT IN G P ROF IT
REV EN U E

Year BAJAJ AUTO HERO MOTOCORP

2017 19.48 16.26

2018 19.05 16.83

2019 16.84 14.89

Interpretation A low operating ratio means a The company shows a

high net profit. The company
has a relatively low operating
ratio which shows that the
company have a high net profit
ratio. The operating ratio of
the company is relatively
stable throughout three years.
decreasing trend in operating
profit ratio. The ratio was less
in 2017 which increased
slightly in 2018 but decreased
a lot in 2019.
Leverage Ratio:

4. ​DEBT Ratio​: Debt ratio is a financial ratio that measures the extent of a
company’s leverage. The company with higher level of liabilities compared
with assets are considered highly leveraged and more risky for lenders.
T OT AL DEBT
= CAP IT AL EM P LOY ED

Year BAJAJ AUTO HERO MOTOCORP

2017 0.662 0.924

2018 0.676 0.94

2019 0.715 0.94

Interpretation The company has low debt
ratio in 2017. It further
increased in 2018 and 2019 as
the company was not able to
reduce its debts to a great
extent.
The debt ratio increased in
2018 as compared to 2017.
But in 2019, it remained same
as 2018 as there was no
increase in company’s total
debts.
5​. DEBT Equity Ratio​: It indicates the relative proportion of share holders
equity and debt used to finance a company’s assets.
N ET W ORT H
= T OT AL DEBT

Year BAJAJ AUTO HERO MOTOCORP

2017 29.98 20.65

2018 31.6 18.78

2019 2.99 19.67

Interpretation LOW ratios indicate the
portion of assets provided by
the share holders is greater
than the portion of assets
provided by the creditors. The
company’s balance sheet has
such kind of situation. The
ratio increased in 2018 but
further it decreased drastically
in 2019.
The ratio was less in 2017 and
it decreased in 2018 which
means that in 2018 the portion
of assets provided by
shareholders as less than
those provided by the
creditors. But in 2019 the ratio
increased.
 ​Liquidity Ratio:
6​. Current Ratio​: It is a liquidity ratio which measures whether or not a firm
has enough resources to meet its short-term obligations.
Current Asset
= Current Liability
Year BAJAJ AUTO
2017 2.92
2018 2.25
2019 1.45
Interpretation The company shows adequate
current ratio which shows that
the company has adequate
current assets to settle its
current liabilities. The
company’s current ratio
decreased in 2018 because its
current assets got reduced. In
2018 the current ratio
decreased again because the
company’s assets decreased.
HERO MOTOCORP
1.82
2.03
1.96
The company’s current ratio
shows an increasing trend
which means that the
company is not having enough
assets to overcome its
liabilities. The current asset
ratio decreased in 2018. And
again it increased in 2019.
7​. Quick Ratio​: This ratio shows the ability of a company to use its near cash or
quick assets to extinguish its current liabilities immediately.
Current Asset−Inventory
= Current Liability
Year BAJAJ AUTO
2017 2.70
2018 2.07
2019 1.25
Interpretation The company shows low quick
ratio in all 3 years which may
mean that the company may
have fast moving inventories.
The company’s quick ratio
reduced in 2018 as compared
to 2017 because the
proportion of inventory was
much larger in year 2018.
While in 2019 the proportion
of inventory in current asset
was quite low which resulted
in increase in the quick ratio of
the company.
HERO MOTOCORP
1.66
1.84
1.70
The company shows low quick
ratio in all 3 years which may
mean that the company may
have fast moving inventories.
The company’s quick ratio
reduced in 2018 as compared
to 2017 because the
proportion of inventory was
much larger in year 2018. The
proportion of inventory
further decreased in 2019
which increased the quick ratio
in 2019.
8​. Net Working Capital Ratio​:

N ET W ORKIN G CAP IT AL
= T OT AL ASSET S

Year BAJAJ AUTO HERO MOTOCORP

2017 29.68 22.86

2018 21.5 26.91

2019 7.99 22.59

Interpretation The working capital was very
much in 2017 which reduce in
2018. It again reduced
drastically in 2019 which
shows the company has low
working capital.
The working capital was
adequate in 2017 which
increased in 2018. In 2019, the
working capital ratio reduced
and became same 2017. It
shows the company’s working
capital is reducing in recent
years.
Active Ratio:
9. ​Inventory Turnover Ratio​: The inventory turnover ratio shows how
effectively the inventory is managed by comparing the COGS or sales with the
inventory for a period.
COGS or Sales
= Inventory

Year BAJAJ AUTO HERO MOTOCORP

2017 23.83 39.44

2018 25.97 32.76

2019 24.135 26.22

Interpretation A high ratio indicates fast Here the company have

moving inventories and low
rate indicate slow moving
inventory or it may also result
due to maintaining excessive
inventories needlessly. The
company’s inventory turnover
ratio does not changes much
during the period of 2017 to
2019.
decreasing inventory turnover
ratio. It is caused due to slow
moving inventory. The
company’s turnover decreased
due to less inventory and high
sales.
10​. Debtor’s Turnover Ratio​: This ratio is used to measure how effective a
company is in extending credit as well as collecting debts.
Credit Sales or Sales
= Debtors

Year BAJAJ AUTO HERO MOTOCORP

2017 23.8 19.68

2018 16.82 21.2

2019 11.55 11.74

Interpretation High ratio indicates that The debtor’s ratio of the

receivables are more liquid company is decreasing which
and low ratio indicates less shows that the company’s
liquid receivables. The receivables are more liquid.
company shows both high and
low debtor turnover ratio. The
ratio decreased to great extent
in 2019 due to good debtors.
11​. Assets Turnover Ratio​: This ratio measures company’s ability to generate
sales from its assets by comparing net sales with average total assets.
Sales
= average asset

Year BAJAJ AUTO HERO MOTOCORP

2017 1.22 2.26

2018 1.12 2.05

2019 1.15 1.92

Interpretation Higher turnover ratio shows The turnover ratio of the

company is using its assets
more efficiently, while low
turnover ratio indicates
company is not using its assets
properly and may have
management or production
problem. The company’s ratio
decreases in 2018. But due to
company changed i.e. it
decreased in 2018, as
compared to 2017 due to
decreasing efficiency of the
assets. It again decreased in
2019 showing a decreasing
trend.
 efficient usage of assets the
ratio increases in 2019.

12. ​Working Capital Turnover Ratio​: This ratio indicates a company’s

effectiveness in using its working capital.
Sales
= N et W orking Capital

Year BAJAJ AUTO HERO MOTOCORP

2017 3.67 9.09

2018 4.89 7.15

2019 13.51 8.31

Interpretation High turnover ratio indicates
that the company has done
efficient utilization of working
capital during the period. The
company’s working capital
ratio has been increasing from
2017 to 2019.
The working capital ratio was
high in 2017 which decreased
in 2018. But due to efficient
utilization of working capital
the company’s ratio again
increased in 2019.
Management Related Ratio
13. ​Return on Equity​: This ratio measures the ability of a firm to generate
profits from its shareholders investment in the company.
P rof it Af ter T ax
= N et W orth
Year BAJAJ AUTO
2017 22.46
2018 21.29
2019 21.46
Interpretation High ratio indicates that the
company is using its investors
fund effectively. The ratio in
2018 decreased as compared
to 2017 because the company
did not earn huge profits in
2018. While in 2019 the ratio
HERO MOTOCORP
33.39
31.41
26.32
The return on equity of the
company was reducing year by
year which means that the
company is not generating
much profit from the
shareholders investment.
 increased slightly due to the
profits made by the company.

14​. Return on Investment​: This ratio measure the amount of return on a

particular investment, relative to the investment’s cost.
Earnings Bef ore Interest T ax(EBIT )
= N et Asset Or Capital Employed

Year BAJAJ AUTO HERO MOTOCORP

2017 6.22 8.80

2018 6.50 7.87

2019 6.26 7.23

Interpretation The greater the ratio, the The company shows a

greater the benefits earned.
The company’s return on
investment increased in 2018
due to increase in profit
earned. The return reduced
due to less profit earned in
2019.
decreasing trend in this ratio
as the profit earned by the
company reduces. The ratio
was 8.8 in 2017 which reduced
in 2018. This ratio again
reduced in 2019.
15. ​Earnings Per Share​: It is the ratio which measures the amount of net
income earned per share of stock outstanding. Its formula is as under:
P rof it Af ter T ax
= N umber Of Shares

Year BAJAJ AUTO HERO MOTOCORP

2017 132.27 177.6

2018 140.59 186.4

2019 161.57 169

Interpretation Higher earnings per share are
always better than a lower
ratio because this means the
company is more profitable
and the company has more
profits to distribute to its
shareholders. The company
The company was having high
earning per share in 2017, but
it gradually increased in 2018
and in 2019 due to reducing
profit of the company it
decreased. The company must
take steps to increase its
 have relatively high ratio profitability so that more
which is good for the investors will be attracted
shareholders. towards investing in the
company.

16​. DIVIDEND PER SHARE​ = It is the sum of declared dividends issued by a

company for every share outstanding. Its formula is:
Annual Dividend
N o of Shares

Year BAJAJ AUTO HERO MOTOCORP

2017 55 85

2018 60 95

2019 60 87

Interpretation This ratio indicates how The company’s DPS ratio

profitable a company is over a
fiscal period. A decrease in DPS
can cause investors to sell
their stake in the company,
resulting in driving down the
market value of the company.
increases in 2018 than it 2017.
But again in 2019 it decreases.
However, a decrease in ratio
does not always signal a
company is not financially
stable. It is possible that the
 In this company DPS has company uses its profit to
increased in 2018 than in reinvest into the company.
2017. It remained same in
2019.

17​. PRICE EARNING RATIO​: It is the measure of the share price relative to
the annual net income earned by the firm per share. It shows the current investor
demand for a company share. Its formula is as under:
share price
earning per share

Year BAJAJ AUTO HERO MOTOCORP

2017 7.56 1.13

2018 7.11 1.08

2019 6.19 1.18

Interpretation This ratio is used find out The company’s ratio decreases
whether a company is in the year 2018 which again
 overvalued or undervalued. A increases slightly in the year
high P/E ratio indicates that 2019. The company should
the investors are anticipating take steps to improve its P/E
higher growth in future. This ratio.
company show a decreasing
trend of P/E ratio from 2017 to
2019.

Conclusion