Professional Documents
Culture Documents
SUBMITTED BY
15P35H0256
ASSISTANT PROFESSOR,
BHARATHIAR UNIVERSITY
2015-2017
STUDENT’S DECLARATION
I also declare that this project report is original and genuine and has not
been submitted to any other university of the award of any degree, diploma or
other similar titles or purposes.
Bangalore 15P35H0256
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We are satisfied with the project report and appreciate the commitment
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Signature
Date:
GUIDE CERTIFICATE
Bangalore
PRINCIPAL’S CERTIFICATE
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ACKNOWLEDGEMENT
While presenting the report of my project, I have great pleasure in
acknowledging the help rendered and guidance to me by various people during
the course of my project.
The study is mainly based on the secondary data. Ratios and statement of
changes in working capital are the tools used for the study. The interpretations
are summarized and suggestions are provided based on it.
CHAPTER 1
INTRODUCTION
CHAPTER 2
RESEARCH DESIGN
CHAPTER 4
ANALYSIS AND INTERPRETATION OF
DATA
CHAPTER 5
FINDINGS, SUGGESTIONS & CONCLUSION
BIBLIOGRAPHY
ANNEXURE
Working capital management
1. INTRODUCTION
The major current assets are cash, marketable security, account receivable
and inventory. Current liabilities are those liabilities which are intended, at their
inception, too be paid in the ordinary course of business, within a year, out of
the current assets or earning of the concern. The basic current liabilities are
account payable, bills payable, bank overdraft and outstanding expenses.
The term working capital is commonly used for the capital required for
day-to-day working in a business concern, such as for purchasing raw material,
for meeting day-to-day expenditure on salaries, wages, rents rates, advertising
etc. But there is much disagreement among various financial authorities
(Financiers, accountants, businessmen and economists) as to the exact meaning
of the term working capital.
(a) outstanding factory payments e.g. rent, wages, interest and dividend;
(c) short-term loans and advances and sundry debtors comprising amounts due
to the factory on account of sale of goods and services and advances towards tax
payments‖.
Typical current assets that are included in the net working capital
calculation are cash, accounts receivable, inventory, and short-term investments.
The current liabilities section typically includes accounts payable, accrued
expenses and taxes, customer deposits, and other trade debt.
A negative net working capital, on the other hand, shows creditors and
investors that the operations of the business aren‘t producing enough to support
the business‘ current debts.
1.2 CLASSIFICATION OF WORKING CAPITAL
1. Manufacturing cycle i.e. time required for converting the raw material into
finished product.
2 Credit policy i.e. credit period given to Customers and credit period
allowed by creditors.
Thus, the sum total of these times is called an ―Operating cycle‖ and it consists
of the following six steps:
cash
Sales
I. Internal factors
II. External factors
1. Business fluctuations,
2. Changes in the technology,
3. Infrastructural facilities,
4. Import policy and
5. The taxation policy etc.
I. INTERNAL FACTORS
4. Availability of credit
1. Business fluctuations
3. Import policy
Import policy of the Government may also effect the levels of working
capital of a firm since they have to arrange funds for importing goods at
specified times.
4. Infrastructural facilities
The firms may require additional funds to maintain the levels of inventory
and other current assets, when there is good infrastructural facilities in the
company like, transportation and communications.
5. Taxation policy
The tax policies of the Government will influence the working capital
decisions. If the Government follow regressive taxation policy, i.e. imposing
heavy tax burdens on business firms, they are left with very little profits for
distribution and retention purpose. Consequently, the firm has to borrow
additional funds to meet their increased working capital needs. When there is a
liberalised tax policy, the pressure on working capital requirement is minimised.
2. Goodwill:
3. Easy loans:
A company which has ample working capital can make regular payment
of salaries, wages and other day-to-day commitments which raises the morale of
its employees, increases their efficiency, reduces wastages and costs and
enhances production and profits.
Every business concern should have adequate working capital to run its
business operations. It should have neither redundant or excess working capital
nor inadequate or shortage of working capital. Both excess as well as short
working capital positions are bad for any business. However, out of the two, it is
the inadequacy of working capital which is more dangerous from the point of
view of the firm.
1. A concern which has inadequate working capital cannot pay its short-term
liabilities in time. Thus, it will lose its reputation and shall not be able to get
good credit facilities.
2. It cannot buy its requirements in bulk and cannot avail of discounts, etc.
3. It becomes difficult for the firm to exploit favourable market conditions and
undertake profitable projects due to lack of working capital.
4. The firm cannot pay day-to-day expenses of its operations and its creates
inefficiencies, increases costs and reduces the profits of the business.
6. The rate of return on investments also falls with the shortage of working
capital.
1.4 RATIO ANALYSIS
Ratio analysis is one of the most powerful tool and widely used technique
of analyzing financial statements. It is the process of computing and interpreting
relationship between the items of the financial statements for arriving at
conclusions about the financial position and performance of an enterprise. With
the help of ratios, the financial statements can be analyzed more clearly and
scientific decisions are made from such analysis.Ratio analysis can also be
defined as the yard stick that provides a measure of relationship between two
accounting figures. Ratio analysis can be used both in the trend or dynamic
analysis and statistical analysis.
Financial ratio analysis groups the ratio into categories which tell us
about different facets of a company‘s finances. Some ratios which are most
importance are listed below
1. Liquidity Ratio.
2. Leverage Ratio
3. Profitability Ratio.
4. Activity Ratio
LIQUIDITY RATIO
Current Ratio
Liquid Ratio
It is also known as acid test ratio. Liquid ratio is more rigorous test of
liquidity than the current ratio. The term liquidity refers to the ability of a firm
to pay its short term obligations as and when they become due. An asset is said
to be liquid if it can be converted into cash within a short period without loss of
value. Liquid ratio may be defined as the relationship between liquid assets and
current liabilities.
Some authors are of the opinion that the absolute liquid ratio should also be
calculated together with current ratio and acid test ratio so as to exclude even
receivables from the current assets and find out the absolute liquid assets.
LEVERAGE RATIOS
The short term creditors like the bankers and the suppliers of the raw
materials are more concerned with the firm‘s current debt paying ability. On the
other hand long-term creditors like debenture holders, financial institutions, etc
are more concerned with the firm‘s long term financial position. To judge the
long term financial position of the firm, financial leverage or capital structure
ratio is used. The shareholders, debenture holders and other long term creditors
like financial institutions are more interested in the long term financial position
or long term solvency of the firm. Leverage or solvency ratios are used to
analyze the capital structure of a company; it is also known as capital structure
ratios. The term solvency generally refers to the firm‘s ability to pay the interest
regularly and repay the principal amount of debt on due date.
Accordingly, there are two types of leverage ratios. The first type of
leverage ratio is based on the relationship between owned capital and borrowed
capital. These ratios are calculated from the balance items. The second type of
leverage ratio is coverage ratio. These are computed from profit and loss
account.
Debt-equity ratio
Primarily Interpretation of this ratio depends upon the financial policy of the
firm and the firm‘s nature of business. A ratio of 1:1 may be usually considered
to be satisfactory ratio although there cannot be any rule of thumb or standard
norm for all types of business.
Profit reflects the final result of the business operations. There is two
types of profitability ratios namely margin ratio and ratio on returns rates. Profit
margin ratios show the relation between sales and profits.
The management of the company should know how efficiently they carry
out business operation. In other words, the management of the company is very
much interested in the profitability of the company. Beside management,
creditors and owners are also interested in the profitability of the firm, as they
want to get interest and repayment of principal amount regularly. Owners want
to get a reasonable return on their investment. The profitability ratio measures
the ability of the firm to earn and on sales, total assets and invested capital.
Profitability ratios are generally calculated either in relation to sales or in
relation to investment.
Gross profit ratio measures the relationship of gross profit to net sales and
is usually represented as percentage. Thus it is calculated by dividing gross
profit by sales.
Net profit ratio establishes the relationship between net profit (after taxes)
and sales, and it indicates the efficiency of the management in manufacturing,
selling, administrative and other activities of the firm. This ratio is the overall
measure of firm‘s profitability and is calculated as:
ACTIVITY RATIOS
Debtors turnover ratio = Net credit annual sale / Average trade debtors
Creditors turnover ratio
This ratio indicates the velocity with which the creditors are turned over
the relation to purchases.
This ratio indicates the extent to which the investments in fixed assets
contribute towards sales. If it is compared with a previous period, it indicates
whether the investment in fixed assets has been judicious or not. The ratio is
calculated as follows:
It indicates the velocity of the utilization of net working capital. This ratio
indicates the number of times the working capital is turned over in the course of
a year. It measures the efficiency with which the working capital is being used
by a firm.
HISTORY
In 1807, Francois Isaac de Rivaz designed the first car powered by an internal
combustion engine fueled by hydrogen.
At the turn of the 20th century electrically powered automobiles appeared but
only occupied a niche market until the turn of the 21st century.
After World War II, the U.S. produced about 75 percent of world's auto
production. In 1980, the U.S. was overtaken by Japan and became world's
leader again in 1994. In 2006, Japan narrowly passed the U.S. in production and
held this rank until 2009, when China took the top spot with 13.8 million units.
In 1897, the first car ran on an Indian road. Through the 1930s, cars were
imports only, and in small numbers. Hindustan Motors was launched in 1942,
long-time competitor Premier in 1944, building Chrysler, Dodge, and Fiat
products respectively.
In 1952, the government appointed the first Tariff Commission, and one
of the purpose was to come out with the feasible plan for indigenization of the
Indian automobile industry.
ECONOMY
Around the world, there were about 806 million cars and light trucks on
the road in 2007, consuming over 980 billion litres of gasoline and diesel fuel
yearly.The automobile is a primary mode of transportation for many developed
economies. The Detroit branch of Boston Consulting Group predicts that, by
2014, one-third of world demand will be in the four BRIC markets (Brazil,
Russia, India and China). Meanwhile, in the developed countries, the
automotive industry has slowed down. It is also expected that this trend will
continue, especially as the younger generations of people (in highly urbanized
countries) no longer want to own a car anymore, and prefer other modes of
transport. Other potentially powerful automotive markets are Iran and
Indonesia. Emerging auto markets already buy more cars than established
markets. According to a J.D. Power study, emerging markets accounted for 51
percent of the global light-vehicle sales in 2010. The study, performed in 2010
expected this trend to accelerate. However, more recent reports (2012)
confirmed the opposite; namely that the automotive industry was slowing down
even in BRIC countries. In the United States, vehicle sales peaked in 2000, at
17.8 million units.
In 1897, the first car ran on an Indian road. Through the 1930s, cars were
imports only, and in small numbers. in 1954, General Motors, Ford and Roots
Group who has assembly plants in Mumbai to India decided to move out of
India.
The automotive industry in India is one of the largest in the world with an
annual production of 23.37 million vehicles in FY 2014-15, following a growth
of 8.68 per cent over the last year. India is also a prominent auto exporter and
has strong export growth expectations for the near future. In FY 2014-15,
automobile exports grew by 15 per cent over the last year.
In 1952, the government appointed the first Tariff Commission, and one
of the purpose was to come out with the feasible plan for indigenization of the
Indian automobile industry.
known as Bajaj Chetak, by Bajaj became the largest sold scooter in the world
Many of the two-wheelers manufacturers were granted licenses in early 60's
well after the tariff commission was enabled.
Royal Enfield (India), Madras - technical collaboration with Royal Enfield,
UK to manufacture the Enfield Bullet range of motorcycles.
Bajaj Auto, Poona - technical collaboration with Piaggio, Italy to
manufacture their best-selling Vespa range of scooters and three wheelers
with commercial option as well.
Automobile Products of India, Bombay (Better known for API Lambretta -
technical colloboration with Innocenti of Milan, Italy to manufacture their
Lambretta range of mopeds, scooters adn three-wheelers. This company was
actually the Rootes Group car plant that was bought over by M. A.
Chidambaram family.
Mopeds India Limited, Tirupathi - technical collaboration with Motobecane,
France to manufacture their best-selling Mobility mopeds.
Escorts Group, New Delhi - technical collaboration with CEKOP of Poland
to manufacture the Rajdoot 175 motorcycle whose origin was DKW RT 125
Ideal Jawa, Mysore - in technical collaboration with CZ - Jawa of
Czechoslovakia for its Jawa and Yezdi range of motorcycles.
2.2 COMPANY PROFILE
Hero MotoCorp Ltd. (Formerly Hero Honda Motors Ltd.) is the world's
largest manufacturer of two - wheelers, based in India.
In 2001, the company achieved the coveted position of being the largest
two-wheeler manufacturing company in India and also, the 'World No.1' two-
wheeler company in terms of unit volume sales in a calendar year. Hero
MotoCorp Ltd. continues to maintain this position till date.
VISION
The story of Hero Honda began with a simple vision - the vision of a
mobile and an empowered India, powered by its two wheelers. Hero MotoCorp
Ltd., company's new identity, reflects its commitment towards providing world
class mobility solutions with renewed focus on expanding company's footprint
in the global arena.
MISSION
Hero MotoCorp's mission is to become a global enterprise fulfilling its
customers' needs and aspirations for mobility, setting benchmarks in
technology, styling and quality so that it converts its customers into its brand
advocates. The company will provide an engaging environment for its people to
perform to their true potential. It will continue its focus on value creation and
enduring relationships with its partners.
STRATEGY
BRAND
The new Hero is rising and is poised to shine on the global arena.
Company's new identity "Hero MotoCorp Ltd." is truly reflective of its vision to
strengthen focus on mobility and technology and creating global footprint.
Building and promoting new brand identity will be central to all its initiatives,
utilizing every opportunity and leveraging its strong presence across sports,
entertainment and ground-level activation.
MANUFACTURING
DISTRIBUTION
The Company's growth in the two wheeler market in India is the result of an
intrinsic ability to increase reach in new geographies and growth markets. Hero
MotoCorp's extensive sales and service network now spans over to 6000
customer touch points. These comprise a mix of authorized dealerships, service
& spare parts outlets, and dealer-appointed outlets across the country.
SPORTS ASSOCIATION
Hero MotoCorp began its association with the prestigious Indian Open
Golf tournament in 2005.
EMPLOYEES
As on 31 March 2014, the company had 6,782 employees, out of which
66 were women (1.1%). It also had approx. 13,800 temporary employees on that
date. The company had an attrition rate of 5.1% in the FY 2012-13. The
company spent ₹8.21 billion (US$120 million) on employee benefits during the
FY 2012-13.
HIERARCHY
STAKEHOLDERS NOMINATION
RISK AUDIT AND REMUNERATION COMMITTEE
CSR
' RELATIONSHIP COMMITTEE
MANAGEMENT COMMITTEE COMMITTEE
COMMITTEE
Gen. (Retd.)
Mr. Pradeep
V. P. Malik Member Mr. Pradeep
Mr. M. Dinodia Member
Non- executive & Independent Director Dinodia
Damodaran MemberNon- executive & Independent Director
Member
Non- executive & Independent Director
Non-executiv e & Independent Director
Mr.M.
Damodaran Member
Non- executive & Independent Director
OPERATIONS
Hero MotoCorp has four manufacturing facilities based at Dharuhera,
Neemrana and Gurgaon in Haryana and at Haridwar in Uttarakhand. These
plants together have a production capacity of 7.6 million 2-wheelers per year.
Hero MotoCorp has a sales and service network with over 6,000
dealerships and service points across India. It has a customer loyalty program
since 2000, called the Hero Honda Passport Program which is now known as
Hero GoodLife Program.
The company has a stated aim of achieving revenues of $10 billion and
volumes of 10 million two-wheelers by 2016–17. This in conjunction with new
countries where they can now market their two-wheelers following the
disengagement from Honda.
COMPETITION
86277.67
90000
71663.28
80000
70000
60000
50000
Rs. Cr
30700.88
40000
23883.2
30000
16074.57
11243.87
12454.14
20000
3161.52
7944.5
3929.67
432.14
3588.7
1485.45
2981.6
2695.26
1697.66
432.35
10000
338.35
979.27
65.598
8.97
531.04
156.13
312101
47.4
0
-78.36
-662.45
-10000
Company
MANAGEMENT
At Ambica Hero, they believe in a customer centric approach towards
their business. This has enabled us to provide the very best after sales services.
they determination to achieve the highest standards has led us to be one of the
leading Hero MotoCorp dealers in India.
They state of the art service centre with modern equipment and their team
of dedicated staff are there to provide a satisfying experience to their customers.
AWARDS
In 2010 at the Hero Inter School Athletic Meet, Hero MotoCorp awarded a
Certificate of Appreciation to Kumar Hero.
A Certificate of Excellence was awarded to Mr. Jayant Shah as a winner for his
overall performance in the 'HH' Contest for the year 2007-08.
The first runner-up trophy was awarded to Ambica Hero, Baroda for the west
zone in 1987.
The Top 10 Technicians Award was presented to Mr. Gautam Shah of Ambica
Hero, for his excellence in the National Technician's Contest.
EMPLOYEES
At Ambica Hero, we draw on each other‘s capabilities and experiences, to
inspire and motivate one another. We are a tight knit family of professionals
with the expertise to help us meet and surpass the expectations of our customers.
Key functional heads are ably supported by a team of more than 65 people in
the areas of sales , servicing , spare parts and administration.
CAREERS
Ambica Hero is a dynamic, growth-oriented environment that provides
exciting opportunities to grow as a professional. We have , from time to time ,
across multiple departments such as :-
Sales
Customer Care
Administration
Accounting Finance
Spare Parts Accessories
SERVICES
GENERAL SERVICES
Washing
Throttle Inspection
Carburetor Inspection
Air Cleaner Inspection
Valve Inspection
Battery Inspection
Suspension Check
Steering Inspection
Brake Inspection
Engine Overhauling
Ignition Systems
Gearbox Repairs
Accident Repairs
EVENTS
Cricket Tournament
Diwali Sweets Distribution
Doodh Mandli Activity
Service Har Jagah Activity
This project deals with the study about ―Working Capital Management‖
in Hero MotoCorp Ltd. AMBICA MOTORS authorized representative of
dealer kumar hero.
The main scope of the study was to put into practical the theoretical
aspect of the study into real lifework experience.
2. Secondary data
PRIMARY DATA:
Most of the information is collected from internal discussion with various
officials in the finance department and concerned executive of other department.
SECONDARY DATA:
The information collection from:
Annual reports, published records and reference books, official websites.
Executive and staff of financial accounting department.
There are some of the tools, which are relevant for the study of ration
analysis and performance of Hero MotoCorp Ltd. AMBICA MOTORS.
The change in the amount of any current asset or current liability in the
current balance sheet as compared to that of previous balance sheet either results
in increase or decrease in working capital. The difference is recorded for each
individual current asset and current liability.
In case, current assets in the current period are more than in the previous
period, the effect is an increase in working capital and it is recorded in the
increase column. If a current liability in the current period is more than in the
previous period, the effect is decrease in working capital and it is recorded in
the decrease column.
4.1 STATEMENT OF CHANGES IN WORKING CAPITAL
FOR THE YEAR 2013-14
Increase or decrease in
working capital 348007.7 348007.7
1757041 1757041 428707.6 428707.6
Source: balance sheet of Ambica motors
INTERPRETATION
The above table clearly shows the increase in the working capital for the
year 2013 to 2014. All the Current assets except cash in hand have decreased in
year 2014 as compared to year 2013. The end result of the statement of changes
in working capital after comparing all the increases and decreases is the net
increase in the amount of working capital. The above table focuses on the fact
that the increase in working capital is Rs.348007.7
4.2 STATEMENT OF CHANGES IN WORKING CAPITAL
FOR THE YEAR 2014-15
Increase or decrease in
working capital 667550.8 667550.8
2424592 2424592 1073159 1073159
Source: balance sheet of Ambica motors
INTERPRETATION
The above table clearly shows the increase in the working capital for the
year 2014 to 2015. All the Current assets except bank account and value added
tax A/C have decreased in year 2015 as compared to year 2014. The end result
of the statement of changes in working capital after comparing all the increases
and decreases is the net increase in the amount of working capital. The above
table focuses on the fact that the increase in working capital is Rs.667550.8
4.3 STATEMENT OF CHANGES IN WORKING CAPITAL
FOR THE YEAR 2015-16
Particulars 31/3/2015 31/3/2016 Increase Decrease
Current assets
stock 90485 78143 12342
deposits 1193568 2290545 1096977
sundry debtors 549272 565969 16697
cash in hand 31116.68 5787.29 25329.39
bank accounts 669936.3 811997.8 142061.5
TDS A/C 146221 169068.8 22847.8
value added tax A/C 5883.24 12249.33 6365.09
A= total current assets 2686482 3933760
Current liabilities
duties & taxes 5000 4500 500
sundry creditors 256890 327989 71099
B= total current
liabilities 261890 332489
NET WORKING
CAPITAL(A-B) 2424592 3601271 1285448 106770.4
Increase or decrease in
working capital 11176679 1176678
3601271 3601271 1285448 1285448
Source: balance sheet of Ambica motors
INTERPRETATION
The above table clearly shows the increase in the working capital for the
year 2015 to 2016. All the Current assets except stock and cash in hand have
decreased in year 2016 as compared to year 2015. The end result of the
statement of changes in working capital after comparing all the increases and
decreases is the net increase in the amount of working capital. The above table
focuses on the fact that the increase in working capital is Rs.11176679.
4.2 RATIO ANALYSIS
A ratio is a relationship expressed in mathematical terms between two
individual groups of data connected with each other in some logical manner.
Ratio analysis is widely used tool of financial analysis. This systematic method
helps to interpret the financial statement so that the strengths and weakness of a
firm as well as the historical performance and current financial condition can be
determined.
A ratio can be used as a yardstick for evaluating the financial position and
performance of a concern, because the absolute accounting data cannot provide
meaningful understanding and Interpretation. A ratio is the relationship between
two accounting items expressed mathematically. Ratio analysis helps the analyst
to make quantitative judgment with regard to concern's financial position and
performance.
ANALYSIS
From the above table, we can observed that current ratio in 2013-2014 it is 2.41,
in 2014-2015 it is 4.99, in 2015-2016 it is 6.28. This is higher than ideal ratio.
The ideal value of current ratio is 2:1
CHART NO: 4.1
CURRENT RATIO
current ratio
7
6.283334216
4.99441254
5
Current ratio
3 current ratio
2.41992389
0
2013-14 2014-15 2015-16
Year
INTERPRETATION
The chart shows that current ratio in 2013-2014 is 2.41, in 2014-2015 it is
4.99 and in 2015-2016 it is 6.28. The current ratio of all the above three years is
above the standard, so the society can meet its short term obligation. The
company is able to generate enough from operations to pay for its current
obligations with current assets.
4.5 LIQUID OR QUICK RATIO
The liquidity ratios are a result of dividing cash and other liquid assets by the
short term borrowings and current liabilities. They show the number of times
the short term debt obligations are covered by the cash and liquid assets. If the
value is greater than 1, it means the short term obligations are fully covered.
Liquidity refers to the ability of a concern to meet its current obligations and
when these become due.
The ideal value of quick ration is 1:1.
OR
ANALYSIS
From the above table, we can observed that Liquid or quick ratio in 2013-2014
it is 2.29, in 2014-2015 it is 4.64, in 2015-2016 it is 6.04
Above all the value of that Liquid or quick ratio is greater than standard form of
absolute liquid ratio.
CHART NO: 4.2
LIQUID OR QUICK RATIO
Quick Ratio
7
6.048309869
4.648904884
5
Quick ratio
Quick Ratio
3
2.299023822
0
2013-14 2014-15 2015-16
Year
INTERPRETATION
The chart shows that that Liquid or quick ratio in 2013-2014 is 2.29, in
2014-2015 it is 4.64, and in 2015-2016 it is 6.04. The Liquid or quick ratio of all
the above three years is above the standard, so the society can meet its short
term obligation. The company is able to generate enough from operations to pay
for its current obligations with current assets.
4.6 ABSOLUTE LIQUID RATIO
Absolute Liquid Assets include cash in hand and at bank and marketable
securities or temporary investments.
ANALYSIS
From the above table, we can observed that Absolute Liquid Ratio in 2013-2014
it is 4.23, in 2014-2015 it is 9.33, in 2015-2016 it is 11.05
Above all the value of Absolute Liquid Ratio is greater than standard form of
absolute liquid ratio.
CHART NO: 4.3
10
9.331750964
8
Absolute quick ratio
6
Quick Ratio
4.230278164
4
0
2013-14 2014-15 2015-16
Year
INTERPRETATION
ANALYSIS
From the above table, we can observed Gross profit ratio in 2013-2014 it is
41.1%, in 2014-2015 it is decrease to 31.9%, and in 2015-2016 it is decrease to
23.7%
There is no norm or standard to interpret gross profit ratio (GP ratio). Generally,
a higher ratio is considered better.
CHART NO: 4.4
45 41.1
40
35 31.9
Percentage (%)
30
23.7
25
Gross profit ratio
20
15
10
INTERPRETATION
The chart shows that Gross profit ratio in 2013-2014 it is 41.1%, in 2014-2015 it
is decrease to 31.9%, and in 2015-2016 it is decrease to 23.7%. Therefor by
comparing all the three years ratio, the chart shows that its keep decreasing from
2013-14 to 2015-16. The ratio can be used to test the business condition by
comparing it with past years ratio. The gross profit ratio from the chart, over the
past three years is the indication that there is no improvement in this firm.
4.8 OPERATING PROFIT RATIO
Operating profit ratio is a profitability ratio that measures what
percentage of total revenues is made up by operating income. This ratio shows
what proportion of revenues is available to cover non-operating costs like
interest expense. This ratio is important to both creditors and investors because it
helps show how strong and profitable a company's operations are.
OR
ANALYSIS
From the above table, we can observed operating profit ratio in 2013-2014 it is
7.91%, in 2014-2015 it is increase to 14.6%, and in 2015-2016 again it is
decrease to 13.88% . A higher operating margin is more favorable compared
with a lower ratio.
CHART NO: 4.5
OPERATING PROFIT RATIO
16 14.6
13.88
14
12
Percentage (%)
10
7.91
8
Operating profit ratio
0
2013-14 2014-15 2015-16
year
INTERPRETATION
The chart shows that operating profit ratio in 2013-2014 it is 7.91%, in 2014-
2015 it is increase to 14.6%, and in 2015-2016 again it is decrease to 13.88%. A
higher operating margin is more favorable compared with a lower ratio. The
graph shows that last two years operating profit ratio is higher than 2013-14
year ratio. But it is also shows that 2015-16 operating profit ratio is less than
2014-15. Also 2014-15 operating ratio is highest compare to 2013-14 and 2015-
16.therefore operating profit is more favorable in 2014-15.
4.9 NET PROFIT RATIO
It is the ratio that shows relationship between net profit after tax and net
sales. It is computed by dividing the net profit (after tax) by net sales. The
measure is commonly reported on a trend line, to judge performance over time.
The formula for the net profit ratio is to divide net profit by net sales, and then
multiply by 100. The formula is:
ANALYSIS
From the above table, we can observed Net profit ratio in 2013-2014 it is
48.24%, in 2014-2015 it is increase to 48.36%, and in 2015-2016 again it is
increase to 56.34% .
CHART NO: 4.6
58.00%
56.34%
56.00%
Percentage(%)
54.00%
52.00%
48.00%
46.00%
44.00%
2013-14 2014-15 2015-16
Year
INTERPRETATION
The chart shows that net profit ratio in 2013-2014 it is 48.24%, in 2014-2015 it
is increase to 48.36%, and in 2015-2016 again it is increase to 56.34%. A higher
net profit ratio is more favorable compared with a lower ratio. The graph shows
that last year net profit ratio is higher than both 2013-14 and 2014-15 year ratio.
So it is satisfactory to the society.
ACTIVITY RATIOS
Sometimes a very high inventory ratio could result in lost sales, as there is not
enough inventory to meet demand. It is always important to compare the
inventory turnover ratio to the industry benchmark to asses if a company is
successfully managing its inventory.
ANALYSIS
From the above table, we can observed Inventory turnover ratio in 2013-2014 it
is 12.48, in 2014-2015 it is increase to 12.83, and in 2015-2016 again it is
increase and reached to 14.47. Last year (2015-16) inventory ratio is higher,
satisfactory to the society.
CHART NO: 4.7
14
13.5
13 12.833635
12
11.5
11
2013-14 2014-15 2015-16
Year
INTERPRETATION
The chart shows that inventory turnover ratio in 2013-2014 it is 12.48, in 2014-
2015 it is increase to 12.83 and in 2015-2016 again it is increase to 14.47. A
higher inventory turnover ratio is more favorable compared with a lower ratio.
The graph shows that last year net profit ratio is higher than both 2013-14 and
2014-15 year ratio. So it is satisfactory to the society.
4.11 FIXED ASSETS TURNOVER RATIO
Fixed-asset turnover is the ratio of sales to the value of fixed assets. It
indicates how well the business is using its fixed assets to generate sales. This
ratio measures the efficiency with which a firm is utilizing its fixed assets in
generating sales.
ANALYSIS
From the above table, we can observed Fixed-asset turnover ratio in 2013-2014
it is 1.39, in 2014-2015 it is decrease to 1.14, and in 2015-2016 again it is
increase and reached to 1.35.
CHART NO: 4.8
1.144733052
1.2
0.8
0.4
0.2
0
2013-14 2014-15 2015-16
Year
INTERPRETATION
The chart shows that Fixed-asset turnover ratio in 2013-2014 it is 1.39, in 2014-
2015 it is decrease to 1.14 and in 2015-2016 again it is increase and reached to
1.35. A higher Fixed-asset turnover ratio is more favorable compared with a
lower ratio. Analysis of fixed assets turnover ratio reveals that it is increasing in
the last year signifying that there is an improvement in the utilization of
resources, so it is satisfactory.
4.12 CURRENT ASSETS TURNOVER RATIO
ANALYSIS
From the above table, we can observed current asset turnover ratio in 2013-2014
it is 1.06, in 2014-2015 it is increase to 1.12, and in 2015-2016 it is decrease to
0.82.
CHART NO: 4.9
1.2 1.127294337
Current assets tturnover ratio
1.060483979
0.821907293
0.8
0.6
Current assets turnover ratio
0.4
0.2
0
2013-14 2014-15 2015-16
Year
INTERPRETATION
The chart shows that current asset turnover ratio in 2013-2014 it is 1.06, in
2014-2015 it is increase to 1.12, and in 2015-2016 it is decrease to 0.82.
Analysis of current assets turnover ratio reveals that it is increasing during
2014-15 and a decreasing in the 2015-16. A higher ratio is always more
favorable. Higher turnover ratios mean the company is using its assets more
efficiently. This chart shows that the company isn't using its assets efficiently.
4.13 WORKING CAPITAL TURNOVER RATIO
The working capital turnover ratio is also referred to as net sales to
working capital. It indicates a company's effectiveness in using its working
capital. The working capital turnover ratio is calculated as follows.
A high working capital turnover ratio shows a company is running
smoothly and has limited need for additional funding. Money is coming in and
flowing out on a regular basis, giving the business flexibility to spend capital on
expansion or inventory. A high ratio may also give the business a competitive
edge over similar companies.
However, an extremely high ratio, typically over 80%, may indicate a
business does not have enough capital supporting its sales growth. Therefore,
the company may become insolvent in the near future.
ANALYSIS
From the above table, we can observed that working capital turnover ratio in
2013-2014 it is 1.80, in 2014-2015 it is decrease to 1.40, and in 2015-2016,
again it is decrease to 0.97.
CHART NO: 4.10
2
1.807343338
working capital turnover ratio
1.8
1.6
1.409512142
1.4
1.2
0.977473317
1
working capital turnover ratio
0.8
0.6
0.4
0.2
0
2013-14 2014-15 2015-16
year
INTERPRETATION
The chart shows that working capital turnover ratio in 2013-2014 it is 1.80,
in 2014-2015 it is decrease to 1.40, and in 2015-2016, again it is decrease to
0.97. A low ratio shows that this business is investing in too many accounts
receivable (AR) and inventory assets for supporting its sales. This may lead to
an excessive amount of bad debts and obsolete inventory. This chart shows that
the company isn't using its working capital efficiently, so it isn‘t satisfactory.
5. FINDINGS, SUGGESTIONS & CONCLUSION
5.1 FINDINGS
The end result of the statement of changes in working capital after
comparing all the increases and decreases is the net increase in the amount of
working capital is Rs.348007.7 during year 2013-14.
The end result of the statement of changes in working capital after
comparing all the increases and decreases is the net increase in the amount of
working capital is Rs.667550.8 during year 2014-15.
The end result of the statement of changes in working capital after
comparing all the increases and decreases is the net increase in the amount of
working capital is Rs.11176679 during year 2015-16.
Current ratio in 2013-2014 is 2.41, in 2014-2015 it is 4.99 and in 2015-2016
it is 6.28. The current ratio of all the above three years is above the standard
current ratio, which is 2:1.
Liquid or quick ratio in 2013-2014 is 2.29, in 2014-2015 it is 4.64, and in
2015-2016 it is 6.04. The Liquid or quick ratio of all the above three years is
above the standard liquid or quick ratio, which is 1:1.
Absolute quick ratio in 2013-2014 is 4.23, in 2014-2015 it is 9.33, and in
2015-2016 it is 11.05. The Absolute quick ratio of all the above three years is
above the standard absolute quick ratio, which is 0.5:1 or 2:1.
Gross profit ratio in 2013-2014 it is 41.1%, in 2014-2015 it is decrease to
31.9%, and in 2015-2016 it is decrease to 23.7%. Comparing all the three
years ratio, the chart shows that its keep decreasing from 2013-14 to 2015-
16. That indicates there is no improvement in this firm.
Operating profit ratio in 2013-2014 it is 7.91%, in 2014-2015 it is increase to
14.6%, and in 2015-2016 again it is decrease to 13.88%. A higher operating
margin is more favorable compared with a lower ratio.
Net profit ratio in 2013-2014 it is 48.24%, in 2014-2015 it is increase to
48.36%, and in 2015-2016 again it is increase to 56.34%. A higher net profit
ratio is more favorable compared with a lower ratio.
Inventory turnover ratio in 2013-2014 it is 12.48, in 2014-2015 it is increase
to 12.83 and in 2015-2016 again it is increase to 14.47. A higher inventory
turnover ratio is more favorable compared with a lower ratio.
Fixed-asset turnover ratio in 2013-2014 it is 1.39, in 2014-2015 it is decrease
to 1.14 and in 2015-2016 again it is increase and reached to 1.35. A higher
Fixed-asset turnover ratio is more favorable compared with a lower ratio.
Current asset turnover ratio in 2013-2014 it is 1.06, in 2014-2015 it is
increase to 1.12, and in 2015-2016 it is decrease to 0.82. Analysis of current
assets turnover ratio reveals that it is increasing during 2014-15 and a
decreasing in the 2015-16. A higher ratio is always more favorable.
Working capital turnover ratio in 2013-2014 it is 1.80, in 2014-2015 it is
decrease to 1.40, and in 2015-2016, again it is decrease to 0.97. it shows that
the company isn't using its working capital efficiently, so it isn‘t satisfactory.
5.2 SUGGESTIONS
The company should concentrate on the current ratio by utilizing current asset
for productive purpose in order to achieve the standard ratio.
The society should take necessary steps to make use of the quick asset for the
development of the society and should balance with the standard ratio.
Current assets turnover ratio is fluctuating. It‘s not good for society so in order
to increase the current assets turnover ratio a society need to increase its sales.
Gross profit ratio is not stable. So in order to increase the gross profit the society
wants to increase the production.
The working capital turnover ratio is decreasing year by year. It is not good for
the society so in order to increase the working capital turnover the society needs
to increase its sales.
5.3 CONCLUSION
During the period of study, there were a few up and downs in the working
capital and ratio analysis it will affect the operations of the society but it is
observed that the overall financial position is good. The AMBICA MOTORS
Hero MotoCorp Ltd. resources utilization has been very low. The society has to
take necessary steps to utilize current asset for improve profitability. It is
anticipated that the profitability will improve in the coming years.
WEBSITE
https://en.wikipedia.org/wiki/hero_motocrop#company_timeline
https://en.wikipedia.org/wiki/Automotive_industry
http://www.heromotocorp.com/en-in/about-us/key-policies.html
http://www.investopedia.com/terms/w/workingcapitalturnover.asp
http://www2.aku.edu.tr/~icaga/kitaplar/working-capital-management.pdf