"A Study On Capital Budgeting of Honda Co PVT LTD": Title NO. Executive Summary

“A Study On Capital Budgeting Of Honda Co Pvt Ltd”
CHAPTER TITLE PAGE

NO.
EXECUTIVE SUMMARY 1
Chapter 1 INTRODUCTION 2-8
Chapter 2 RESEARCH MEATHODOLOGY 9-11
Chapter 3 COMPANY PROFILE 12-19
Chapter 4 DATA ANALYSIS AND INTERPRETATION 20-32
Chapter 5 FINDIINGS, CONCLUSION AND 33-35

SUGGESTIONS
BIBLIOGRAPHY 36
ANNEXURE 37-41
LIST OF TABLES AND GRAPH
Table No. Particulars PageNo
4.1 Table and Graph showing Net present value 20

4.2 Table and Graph showing Payback period 21
4.3 Table and Graph showing Account rate of return 22
4.4 Table and Graph showing Cash flow statement 23-26
4.5 Table and Graph showing Return on net worth 27
4.6 Table and Graph showing Return on capital and employed 28
4.7 Table and Graph showing Return on asset 29
4.8 Table and Graph showing Cash earnings rent ion ration 30
4.9 Table and Graph showing Valuation of ratio 31
4.10 Table and Graph showing Retention ratio 32
EXECUTIVE SUMMARY
The summer projects that doare to get an experience of how the corporate world
functions and how the theory is different from the practical aspects of the
industry. For the same purpose got an opportunity for my project at sahukar
motors pvt ltd located at sindhanur.
The first chapter of the project report, the basic information regarding the
industry like t about the conceptual background it comprises information
regarding capital budgeting, and its various technique like NPV, ARR, PBP and
IRR etc. The second chapter consist data regarding research design and its
products. Information collected from both primary and secondary sources. Third
chapter tells about company profile vision, mission, and goals. Chapter fourth
comprises data analysis and interpretation in which financial statement of the
company is analyzed by using various ratios. And last chapter will tells about
findings suggestion and conclusion regarding the project.
Government First Grade Degree College Page 1

CHAPTER-1
INTRODUCTION
1.1INTRODUCTION TO CAPITAL BUDGETING:
1.1 Introduction In competitive business environment in order to sustain in the

competition organization continuously needs to expand its business to new
dimensions. For this it has to go for expansion, replacement and renewal of its
capital assets. For this organization needs to deploy long term capital and it have to
decide in which of the alternative they should fund.
This initiates the concept of capital Budgeting. One of the most important decisions
for a financial manager is investment decision.
Investment decisions are of two types-
1. Short term investment decision

2. Long term investment decision.
Capital budgeting is primarily concerned with sizable investments in long-term

assets. These assets may be tangible items such as property, plant or equipment or
intangible ones such as new technology, patents or trademarks.
Investments in processes such as research, design, development and testing –

through which new technology and new products are created – may also be viewed
as investments in intangible assets. Irrespective of whether the investments are in
tangible or intangible assets, a capital investment project can be distinguished from
recurrent expenditures by two features.
One is that such projects are significantly large. The other is that they are generally
long-lived projects with their benefits or cash flows spreading over many years.
Sizable, long-term investments in tangible or intangible assets have long-term
consequences.

An investment today will determine the firm’s strategic position many years hence.
These investments also have a considerable impact on the organization’s future
cash flows and the risk associated with those cash flows.
Capital budgeting decisions thus have a long range impact on the firm’s
performance and they are critical to the firm’s success or failure. Capital is the
financial resources available for use.
In some literature Capital is the firm’s total assets. It includes all tangible and
intangible assets. These assets include physical assets (such as land, buildings,
equipment, and machinery), as well as assets that represent property rights (such as
accounts receivable, securities, patents, copyrights). On the other hand, Budgeting
is the estimation of revenue and expenditure over a specified future period of time.
In short capital budgeting Is the process of evaluating and selecting long-term
investment consistent with the firm’s goal of owner’s wealth maximization.
Capital Budgeting
Capital budgeting, which is also called “investment appraisal,” is the planning

process used to determine which of an organization’s long term investments such
as new machinery, replacement machinery, new plants, new products, and research
development projects are worth pursuing. It is to budget for major capital
investments or expenditures.
Major Methods
Many formal methods are used in capital budgeting, including the techniques as
followed:
1. Traditional method
2. Discounted cash flow method
Traditional
This technique has two methods. They include:

1. Payback period
The payback period method is the simplest way to budget for a new project. It
measures the amount of time it will take to earn enough cash inflows from your
project to recover what you invested.
When using this method, a shorter payback period makes a project more appealing
because it means you will recover your investment cost in a shorter amount of time.
The payback period method is popular for those people who have a limited amount
of funds to invest in a project and need to recover their initial investment cost
before they can start another project.
For example, you are using the payback period method to help your company
choose between a project that has an initial investment cost of $50,000 with a
payback period of 10 years and one that has an initial investment cost of $70,000
with a payback period of eight years. Using the payback period method, you would
likely recommend the project with a payback period of eight years.
2. Average rate of return (ARR):The accounting rate of return (ARR)

method is also known as the return on investment (ROI) method. It uses
accounting information obtained from financial statements to measure the
profitability of a possible investment. Some companies prefer the ARR
method since it considers the project’s earnings over its entire economic life.
Discounted cash flow methods
Discounted methods are also known as “time-adjusted techniques.” They consider

the time value of money while evaluating the costs and benefits of a project. The
cash flows associated with the project are discounted at the cost of capital. These
methods also take into account all benefits and costs occurring during the project’s
life cycle.
 Net present value

 Internal rate of return
 Payback period
 Profitability index
 Equivalent annuity
 Real options analysis
Net Present Value
Net present value (NPV) is used to estimate each potential project’s value by using
a discounted cash flow (DCF) valuation.
This valuation requires estimating the size and timing of all the incremental cash
flows from the project. The NPV is greatly affected by the discount rate, so
selecting the proper rate sometimes called the hurdle rate–is critical to making the
right decision.
This should reflect the riskiness of the investment, typically measured by the
volatility of cash flows, and must take into account the financing mix. Managers
may use models, such as the CAPM or the APT, to estimate a discount rate
appropriate for each particular project, and use the weighted average cost of
capital(WACC) to reflect the financing mix selected.
A common practice in choosing a discount rate for a project is to apply a WACC

that applies to the entire firm, but a higher discount rate may be more appropriate
when a project’s risk is higher than the risk of the firm as a whole.
Internal Rate of Return
The internal rate of return (IRR) is defined as the discount rate that gives a net
present value (NPV) of zero. It is a commonly used measure of investment
efficiency.
The IRR method will result in the same decision as the NPV method for non-
mutually exclusive projects in an unconstrained environment, in the usual cases
where a negative cash flow occurs at the start of the project, followed by all
positive cash flows. Nevertheless, for mutually exclusive projects, the decision rule
of taking the project with the highest IRR, which is often used, may select a project
with a lower NPV.
One shortcoming of the IRR method is that it is commonly misunderstood to

convey the actual annual profitability of an investment. Accordingly, a measure
called “Modified Internal Rate of Return (MIRR)” is often used.

Payback Period
Payback period in capital budgeting refers to the period of time required for the
return on an investment to “repay” the sum of the original investment. Payback
period intuitively measures how long something takes to “pay for itself. All else
being equal, shorter payback periods are preferable to longer payback periods.
The payback period is considered a method of analysis with serious limitations and
qualifications for its use, because it does not account for the time value of money,
risk, financing, or other important considerations, such as the opportunity cost.
Profitability Index
Profitability index (PI), also known as profit investment ratio (PIR) and value
investment ratio (VIR), is the ratio of payoff to investment of a proposed project. It
is a useful tool for ranking projects, because it allows you to quantify the amount of
value created per unit of investment.
Equivalent Annuity
The equivalent annuity method expresses the NPV as an annualized cash flow by
dividing it by the present value of the annuity factor. It is often used when
comparing investment projects of unequal lifespans.
For example, if project A has an expected lifetime of seven years, and project B has
an expected lifetime of 11 years, it would be improper to simply compare the net
present values (NPVs) of the two projects, unless the projects could not be
repeated.
Real Options Analysis
The discounted cash flow methods essentially value projects as if they were risky
bonds, with the promised cash flows known. But managers will have many choices
of how to increase future cash inflows or to decrease future cash outflows. In other
words, managers get to manage the projects, not simply accept or reject them. Real
options analysis tries to value the choices–the option value–that the managers will
have in the future and adds these values to the NPV.
These methods use the incremental cash flows from each potential investment or
project. Techniques based on accounting earnings and accounting rules are
sometimes used. Simplified and hybrid methods are used as well, such as payback
period and discounted payback period.

Advantages of Capital Budgeting:
 Capital budgeting helps a company to understand the various risks involved

in an investment opportunity and how these risks affect the returns of the
company.
 It helps the company to estimate which investment option would yield the
best possible return.
 A company can choose a technique/method from various techniques of
capital budgeting to estimate whether it is financially beneficial to take on a
project or not.
 It helps the company to make long-term strategic investments.
 It helps to make an informed decision about an investment taking into
consideration all possible options.
 It helps a company in a competitive market to choose its investments wisely.
 All the techniques/methods of capital budgeting try to
increase shareholders wealth and give the company an edge in the market.
 Capital budgeting presents whether an investment would increase the
company’s value or not.
 It offers adequate control over expenditure for projects.
 Also, it allows management to abstain from over investing and under-
investing.
Disadvantages of Capital Budgeting:
 Capital budgeting decisions are for long-term and are majorly irreversible in
nature.
 Most of the times, these techniques are based on the estimations and
assumptions as the future would always remain uncertain.
 Capital budgeting still remains introspective as the risk factor and the
discounting factor remains subjective to the manager’s perception.
 A wrong capital budgeting decision taken can affect the long-term durability
of the company and hence it needs to be done judiciously by professionals
who understand the project well.
Process of Capital Budgeting

Following are the steps of capital budgeting process:
 Idea Generation:
The most important step of the capital budgeting process is generating good
investment ideas. These investment ideas can come from a number of sources like
the senior management, any department or functional area, employees, or sources
outside the company.
 Analyzing Individual Proposals:

A manager must gather information to forecast cash flows for each project in order
to determine its expected profitability. This is because the decision to accept or
reject a capital investment is based on such an investment’s future expected cash
flows.
 Planning Capital Budget:

An entity must give priority to profitable projects as per the timing of the project’s
cash flows, available company resources, and a company’s overall strategies. The
projects that look promising individually may be undesirable strategically. Thus,
prioritizing and scheduling projects is important because of the financial and other
resource issues.
 Monitoring and Conducting a Post Audit:

It is important for a manager to follow up or track all the capital budgeting
decisions. He should compare actual with projected results and give reasons as to
why projections did not match with actual performance. Therefore, a systematic
post-audit is essential in order to find out systematic errors in the forecasting
process and hence enhance company operations.
CHAPTER-2
RESEARCH DESIGN
2.1. Title of the study

“A study on Capital Budgeting of Honda Co Pvt Ltdfor preference of
SAHUKAR MOTORS PVTLtd SINDHANUR'’
2.2Statement of the Problem:
Capital planning is a well ordered proceeding that business used to decide the
benefits of a speculation venture the choice ofwhether to acknowledgment our
everyday and ventures extends as a major aspects of an organization speculation
side of the arrival that such a is regarded satisfactory are worthy is explicit to
the organization just as to undertaking.
2.3 NEED FOR THE STUDY
Capital Planning is critical on the grounds that it makes responsibility and

another was to put its assets in a undertaking without understanding the hazard
and return involved would be considered as mindful by its vary own investors
for the more if an individual as no chance to get of exempting the viability and
its speculation choices chances are that business will have minimal possibility
of getting by in the aggressive commercial center.
2.4 Objectives of the study:
• To evaluate the cash inflows and out flows of the company

• To determine the average rate of return
• To analyze the company’s investment decisions by Applying
capital budgeting techniques
• To determine the net cash available for the investment purpose.
2.5Scope of the study :

The study has been conducted from information over a period of 5 years from
financial year 2016 to 2020
2.6RESEARCH METHODOLOGY :
The method I used for research methodology was
 Primary Data
 Secondary data
PRIMARY DATA:
The primary data is the data which is collected fresh and first hand and for the
first time which is originals nature. Primary data can collect through personal
interview questionnaire etc. To support the secondary data
SECONDARY DATA:
The secondary data for the project regarding investment and various investment
analysis were collected from websites, textbooks and magazines.
Sources of data collection:
Company yearly Reports.
Company audited financial statements.

Tools used
Following techniques are used to make decision regarding capital budgeting.
• Payback period.
• Accounting rate of return.
• Net present value.
• Internal rate of return.
2.7Limitations
• A strong unwillingness on the part of the company officials, to participate

and aid the research.
• The study was limited to the geographical region of sindhanur.
• The study is limited only to one company sahukar Motorspvt ltd.
CHAPTER-3
COMPANY PROFILE
3.1 INDUSTRY PROFILE
Capital planning is the apparatus for amplifying an organization future benefit

since most of the organizations can oversee just a set no of vast activities at one-
time industry profile in 1948 by the Soichiro Honda vehicle business is growing
rapidly in India. As, of now, Honda has been the world's largest motorcycle
manufacturer since 1959, reaching a production of 400 million by the end of
2019, as well as the world's largest manufacturer of internal combustion engines
measured by volume, producing more than 14 million internal combustion
engines each year. Honda became the second-largest Japanese automobile
manufacturer in 2001. Honda was the eighth largest automobile manufacturer in
the world in 2015.
The pattern of responsibility for wheeled vehicles oversees India's novel
decent variety. The most critical part of numerous pieces of India is poor open
transport. Moreover, bicycles have a lot of adaptability and versatility for the
Indian family.
Bajaj Auto began exchanging the imported Vespa bike in 1948. In the interim,
Automobile Products of India (APII) began delivering bikes in the nation in the
mid50s. Until 1958, the API and Enfield was the bike creator in India. Be that as
it may, Bajaj marked a specialized organization with Piaggio in Italy during the
1960s to deliver bikes. The understand in finished in 1971.
The state of bike makers was not extraordinary. Until the mid-80s, just three
noteworthy bike producers in India were Rajdoot, Escorts, and Enfield. In the
mid-80s a two-wheeled bicycle was opened to outside makers. The business,
which originally observed a delicate ride, confronted an extreme outside
challenge.
Honda is headquartered in Minato, Tokyo, Japan. Their shares trade on the

Tokyo Stock Exchange and the New York Stock Exchange, as well as
exchanges in Osaka, Nagoya, Sapporo, Kyoto, Fukuoka, London, Paris, and
Switzerland.
The company has assembly plants around the globe. These plants are located in
China, the United States, Pakistan, Canada, England, Japan, Belgium, Brazil,
México, New Zealand, Malaysia, Indonesia, India, Philippines, Thailand,
Vietnam, Turkey, Taiwan, Perú and Argentina. As of July 2010, 89 percent of
Honda and Acura vehicles sold in the United States were built in North
American plants, up from 82.2 percent a year earlier. This shields profits from
the yen’s advance to a 15-year high against the dollar. [32]
American Honda Motor Company is based in Torrance, California. Honda
Racing Corporation (HRC) is Honda’s motorcycle racing division. Honda

Canada Inc. is headquartered in Markham, Ontario, [33] it was originally
planned to be located in Richmond Hill, Ontario, but delays led them to look
elsewhere. Their manufacturing division, Honda of Canada Manufacturing, is
based in Alliston, Ontario. Honda has also created joint ventures around the
world, such as Honda Siel Cars and Hero Honda Motorcycles in India,
[34]Guangzhou Honda and Dongfeng Honda in China, Boon Siew Honda in
Malaysia and Honda Atlas in Pakistan. The company also runs a business
innovation initiative called Honda Xcelerator, in order to build relationships
with innovators, partner with Silicon Valley startups and entrepreneurs, and
help other companies work on prototypes. Xcelerator had worked with
reportedly 40 companies as of January 2019. Xcelerator and a developer studio
are part of the Honda Innovations group, formed in Spring 2017 and based in
Mountain View, California. [35] Following the Japanese earthquake and
tsunami in March 2011, Honda announced plans to halve production at its UK
plants. [36] The decision was made to put staff at the Swindon plant on a 2-day
week until the end of May as the manufacturer struggled to source supplies
from Japan. It’s thought around 22,500 cars were produced during this period.
Some of the automobiles that Honda makes include the:

• Honda Accord, sold as a four-door sedan, a two-door coupe, and

a station wagon.
• Honda Civic, sold as a four-door sedan, a two-door coupe, and a
hatchback (but only in some countries). The Honda Civic is
smaller than the Honda Accord.
• Honda Insight, a small sedan. The Insight is about the size of a
Civic, but it is built mostly for fuel economy.
• Honda Jazz, a automobile that is smaller than the Civic. Also
known as the Honda Fit.
• Honda City, is an automobile that is smaller as [Honda Jazz] but
bigger in space as like [Honda Civic]. It is a premium sedan that
is selling like anything in Indian Market. It is an affordable
premium sedan.
• Honda CR-V which is a small SUV.
• Honda HR-V, a subcompact SUV.
• Acura NSX, a sports car
• Honda Pilot which is a medium size SUV.
• Honda Ridgeline, a four-door pickup truck
• Honda Odyssey Minivan. There are two versions of the
Odyssey. The car sold in North America is longer and
wider than the Odyssey sold in Japan. The Japanese Odyssey is
actually a compact MPV.
• Honda S2000, a sports car with two seats.
Some of the cars Honda has made in the past are:

• Honda Prelude, a sport coupe also built from the Civic
• Honda Integra
• Honda S500, a two-door roadster convertible

Honda also makes ATVs. Honda is also known for participating in

a very wide range of motorsport events, including Formula One, MotoGP,
Lemans, IRL and others.
Year Revenue in mil. Net income in mil. Total assets in Employees

US$ US$ mil. US$
2016 118,425 5,741 56,220 198,368
2017 121,286 4,636 167,765 204,730
2018 121,190 2,860 151,303 208,399
2019 130,193 5,734 176,311 211,915
2020 138,250 9534 174,143 215,638

Honda also makes small engines for chainsaws, lawnmowers and leaf blowers.
Honda does a lot of research on humanlike robots. Honda built Asimo, a robot
that can walk, talk, dance, carry things and answer questions. These are not yet
for sale in the United States.
Honda also creates a, jet, known as the Honda Jet. It is not often seen in the
United States. For the fiscal year 2020, Honda reported earnings of US$9.534
billion, with annual revenue of US$138.250 billion, an increase of 6.2% over by
the previous fiscal cycle. Honda’s shares traded at over $32 per share, and its
market Capitalization was valued at US$50.4 billion in October 2020.
3.2 COMPANY PROFILE

The Honda Group was first presented in 1948 by Mr. Soichiro Honda
established. The TVS assemble has a solid nearness in the production of
bicycles, auto parts, and PC peripherals. In 2016-17, the Honda Motor Company
was the Second biggest car maker in India, with more than 13,000 ($ 2 billion)
income. The main organization of Honda Group is the yearly limit of 3 million
units every year and 4 million vehicles every year. Honda Motor Company is
the 2th biggest exporter in India with fares to 60 nations.
The main dispatch of the Honda Motor Company was in August 2006 with 50
cc. The sulked Honda was 50. It's 100 cc. The principal Indian organization to
present Indo-Japanese. Business creation of cruisers began in 1984. It was
additionally the principal Indian organization to dispatch nearby participation in
India in 1994. It's developing quickly since it began to end up one of India's
driving bike makers.
Honda Motor Company Limited (Honda Motor), an individual from the Honda
Group, is the biggest gathering based on size and exchange, with more than 3
crore (30 million) clients riding a Honda bicycle
3.3 PROMOTORS:
•Sundaram clayton ltd

•Insurance company’s
•Financial institutions
Vision:
Honda Motor Driven by the customer:

Honda will be responsive to customer requirements consonant with its
core competence and profitability. Honda will provide total customer
satisfaction by giving the customer the right product, at the right price,
at the right time
Mission:
We are committed to being a highly profitable, socially responsible,
and leading manufacturer of high value for money, environmentally
friendly, life time personal transportation products under the Honda
brand, for customers predominantly in Asian markets and to provide
fulfillment and prosperity for employees, dealers and suppliers.
QUALITY POLICY:
The company began its TQM journey in the year 1987. During 2002 the
company won the internationally coveted Deming Application Prize; it was the
first two-wheeler company in the world to get that prize.
3.4 Product /services profile:

Honda motors Organization restricted is occupied with assembling of bike mono
parts three with assembling of bike and embellishments incorporates Honda
ActivaScooty and Honda Dio and Honda CT125.
• Motorcycles:(Honda CB650R, Honda CBR650R, Honda Navi, Honda

Activa I)
• Scooters: (Honda Activa 6G, Honda Dio, Honda Activa125, Honda

Grazia)
3.5 Infrastructure facilities:

Manufacturing Excellence Begin 7 vehicle in a solitary day - Product

magnificence makes this possibility: In the core of the new item launcher, the
creation group permits dream development in front of innovative work.
Five mainstays of the TQM were directed:

The executives’ standard depends on five mainstays of TQM (Total Quality
Management), considering complete worker association, day by day the board,
and kaizen (propelled improvement).
Absolute Employee Involvement:

The Total Employee Involvement Program guarantees that obligation regarding
the organization's execution oversees all dimensions of representatives. It
furnishes all workers with the chance to take part in dynamic exercises and
different enhancements regular.
Every day Work Management:

Every day work the executives Defines and regulates key procedures,
guaranteeing they meet set objectives, distinguishing abnormalities and keeping
their repeat. Cross-Functional Teams (CFT), Supervisory Improvement Teams
(SIT) energizes consistent upgrades in all parts of TVS engine work utilizing
quality control zones (QCC) and counseling plans.
Five columns start with approach the executives, which is utilized to achieve the
yearly dynamic targets. There are typically no three organization expectations,
which come after point by point work out, which are intermittently doled out
and explored. The organization conducts complete scope of preparing programs,
using the inward aptitudes and advocate everywhere throughout the world.
Projects for all workers a tall dimension.
The Inspiration Moment:When we won the Deming title in 2002, we are

the world's solitary bike producer to win the honor. Be that as it may, we keep

on being supportive of the nature of kyzien standards (Japanese for constant

improvement) and TQM (absolute quality administration)
Honda Motor Company Limited (Honda Motor) - The

individuals from the Honda assemble are the gathering's biggest
organization as far as size and business.
3.6 COMPETITORS
• Bajaj Auto Limited

• Hero Motor Corp (Hero Honda)
• Yamaha
• Suzuki
• Harley Davidson
• Royal Enfield
• Dependence on government approaches and rising fuel costs
• Affects offers of good open transportation bicycles
CHAPTER-4
DATA ANALYSIS AND INTERPRETATION
Table No. 4.1

Table showing Comparison of NET PRESENT VALUE for five years from 2016
to 2020
Year 2020 2019 2018 2017 2016
Initial Investment 2,408.33 1,936.80 1,645.36 1,415.28 1,224.6

7
Net Cash Flow per annum -96.89 25.49 -77.61 65.57 173.38
NPV -2144.33 -2,339.33 -1434.36 -1236.28 -752.67
Graph No. 4.1:Graphs showing Comparison of NET PRESENT VALUE for five
years from 2016 to 2020
NPV
0
Year 2020 2019 2018 2017 2016
-500
NPV
-1000
-1500
-2000
-2500
Analysis and Interpretation:
From the above graph we can see that the NPV has been fluctuating over the
past five financial years. It stood at about -2144.33 for the current financial year
as compared to the previous financial year’s figure of about -2339.33. The NPV
is negative for two years where the company is not able to get the cash inflows
out of the fund invested.
Table no.4. 2
Table showing comparison of Pay Back period for five years from 2016 to 2020
YEAR 2020 2019 2018 2017 2016

Cost of 850000 615000 585000 568000 515000

machinery
Annual 185000 165000 145000 136000 127000
cash flow
PBP 4.59 3.72 4.0 4.17 4.05
Graph no. 4.2
Graph showing comparison of Pay Back period for five years from 2016 to 2020
PBP
2016
2017
PBP
2018
2019
2020
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Analysis and Interpretation: From the above graph we can see that the PBP
has been fluctuating over the past five financial years. It stood at about 4.59 for
the current financial year as compared to the previous financial year’s figure of
about 4.05
Table no. 4.3
Table showing Comparison of accounting rate of return for five years 2016 to
2020
YEAR 2020 2019 2018 2017 2016

Average accounting 662.59 558.08 489.28 347.83 261.63

profit
Average investment 748.12 519.52 493.27 259.84 98.49
ARR 0.88 1.07 0.99 1.33 2.65
Graph no 4.3: Graph showing the comparison of accounting rate of return for five
years from 2016 to 2020
ARR
2016
2017
ARR
2018
2019
2020
0 0.5 1 1.5 2 2.5 3
Interpretation:
From the above graph we can see that the Accounting rate of return figures
have come down from 2.65 in the financial year of 2016 to about 0.88 for the
current financial year of 2020.
Table no 4.4
Table is showing comparison of cash flow statement for five years 2016 to 2020
YEAR 2020 2019 2018 2017 2016
Net Profit/Loss Before 698.68 565.97 456.16 348.45 162.79

Extraordinary Items And

Tax
Net Cash Flow From 723.93 845.65 84.84 523.79 418.12

Operating Activities
Net Cash Used In Investing -748.12 -519.52 -493.27 -259.84 -98.49

Activities
Net Cash Used From -72.70 -300.64 330.82 -198.38 -146.25

Financing
Activities
Net Inc/Dec In Cash And -96.89 25.49 -77.61 65.57 173.38

Cash
Equivalents
Cash And Cash Equivalents -131.95 2.85 80.46 14.89 -207.65

Begin of Year
Cash And Cash Equivalents -228.84 28.34 2.85 80.46 -34.27

End Of
Year
Graph no 4.5
Graph showing the comparison of Net CashFlow from Operating Activitiesfor

five years from 2016 to 2020

900
800
700
600
Activities
500
400
300
200
100
0
2020 2019 2018 2017 2016
Interpretation:
From the above graph we can see that the net cash flow from operating activates
has increased which stood at its lowest in the financial year of
2016.Theonwards, it started to increase and stands at 723.93 for the current
finance year of 2020.
Graph no.4. 6
Graph is showing comparison net cash used in investing activities for five years
2016 to 2020

2016
2017
2018
2019 Activities
2020
YEAR
-800 -700 -600 -500 -400 -300 -200 -100 0
Interpretation:
From the above graph we can see that the net cash used in investing activities
has been almost nil for the past 2 financial years. It was highest in the financial
year of 2016.
Graph no.4. 7

Graph is showing comparison of net cash used from financing activities for five
years 2016 to 2020
400
300
200
100
0 Activities
YEAR 2020 2019 2018 2017 2016
-100
-200
-300
-400
Interpretation:
From the above graph we can see that the net cash used from financing
activities has seen a lot of fluctuation over the last 5 financial years. It was
positive in the financial year of 2018 and it came to a negative value for the
financial year of 2020.
Table no. 4.5

Table is showing comparison of return on net worth for five years from 2016 to
2020
Year 2020 2019 2018 2017 2016
Net income 12308.68 11295.1 10130.8 7992.06 7088.84

8 3
Shareholder equity 2408.33 1936.80 1645.36 1415.28 1224.67
Return on Networth / 30.02 32.25 31.16 27.38 25.96

Equity (%)
Return on Networth / Equity = Net Income / Shareholders equity
Graph no.4.8
Graph is showing return on net worth and equity for five years from to 2020
Return on Networth / Equity (%)

2016
2017
Return on Networth / Equity (%)
2018
2019
2020
0 5 10 15 20 25 30 35
Interpretation:From the above graph we can see that the return on net worth or
equity percentage has stood at 30.02 for the current financial year of 2020.
Table no. 4.6

Table is showing comparison of return on capital and employed for five years
from 2016 to 2020

Year 2020 2019 2018 2017 2016

Net operating
profit 12009 11106 9916.6 7854.5 6965.4
Capital employed 2408.3 1936.8 1645.4 1415.3 1224.7

Return on Capital
Employed (%) 18.27 16.32 14.73 12.85 6.22
Return on Capital Employed = Net Operating Profit / (Total assets – Current

Liabilities)
Graph 4. 9
Graph is showing the comparison of return on capital and employed for five
years 2016 to 2020
Return on Capital Employed (%)

20
15 Return on Capital
Employed (%)
10
5
0
2020 2019 2018 2017 2016
Interpretation
From the above graph we can see that the return on capital employed percentage
has seen an increasing trend and stands almost at triple for the financial year of
2020.
Table no.4.7
Table is showing comparison of return on assets for five years from 2016 to
2020
Return on Assets = Net Income / Total Assets
Graph no.4.10
Graph is showing the return on assets for five years 2016 to 2020
Year 2020 2019 2018 2017 2016
Net income 12308.6 11295.1 10130.8 7992.06 7088.84

8 8 3
Total assets 5904.67 4962.57 4604.20 3564.70 3119.27
Return on Assets (%) 9.45 8.70 7.55 7.33 3.71
Return on Assets (%)

Return on Assets (%)
9.45
8.7
7.55
7.33
3.71
2020
2019
2018
2017
2016
Interpretation: From the above graph we can see that the return on assets
percentage has been increasing after the financial year of 2016. It is the highest
in the financial years 2020.
Table no. 4.8
Table is showing comparisonof cash earnings rention ratio for five years 2016 to
2020
Year 2020 2019 2018 2017 2016

Retained earnings 2360.82 1889.29 1597.85 1367.77 1177.16
12308.6 10130.8
Net income 11295.18 7992.06 7088.84
8 3
Cash earnings retention ratio 19.18 16.72 15.77 17.11 16.60
Cash Earnings Retention Ratio = Retained Earnings / Net Income
Graph no. 4.11
Graph is showing comparison of cash earnings retention ratio for five years
2016 to 2020
Cash earnings retention ratio

25
20
15 Cash earnings retention ratio
10
0
2020 2019 2018 2017 2016
Interpretation: From the above graph we can see that the cash earnings
retention ratio percentage has been almost constant over the last 4 financial
years from 2016 to 2020. However it increased for the current financial year
and stood highest.
Table no. 4.9
Table is showing comparison of valuation ratio for five years 2016 to 2020
Valuation Ratios
Year 2020 2019 2018 2017 2016

Net operating revenue 12009.07 11106.2 9916.57 7854.45 6965.40

5
Capital 47.51 47.51 47.51 47.51 47.51
Market capital 0.39 0.42 0.47 0.60 0.68
Market Cap/Net Operating Revenue = Revenue generated by real estate -

Operating expenses
Graph no. 4.12
Graph is showing comparison of valuation ratio for five years 2016 to 2020
Market capital
0.8
0.7
0.6
0.5 Market capital
0.4
0.3
0.2
0.1
0
2020 2019 2018 2017 2016
Interpretation: From the above graph we can see that the market cap or net
operating revenue has been steadily increasing for the last 5 financial years and
for the current financial year of 2020 it has stood at about 0.39.
Table no.4.10
Table is showing comparisons of retention ratio for five years 2016 to 2020
Year 2020 2019 2018 2017 2016

Retention Ratios (%) 78.71 72.51 74.04 74.57 50.85
Graph no 4.13
Graph showing the comparison of Retention Ratios (%) for five years from
2016 to 2020
Retention Ratios (%)

90
80
70
60
Retention Ratios (%)
50
40
30
20
10
0
2020 2019 2018 2017 2016
Interpretation:
From the above graph we can see that the retention ratio percentage has been
showing a slight fluctuating trend over the past five financial years and for the
current financial year of 2020 it is about 78.71.
CHAPTER-5
FINDINGS AND SUGGESTION
5.1FINDINGS:
1. Speculation put resources into property is recouped amid a brief

timeframe, and the offer is suitable for an organization

2. Paid benefit is useful for the organization the review rate to come back to
2020 is 56.94%. The capital returns the expense of their costs. ARR has a
standard rate.
3. Since the net present esteem is sure, the venture will in the long run be
practical by the organization
4. The reimbursement time frame gives some data about the danger of
venture. Be that as it may, the solid choice does not give the criteria to
demonstrate whether speculation will build the estimation of the
organizations.
5. The capital spending technique gives crude liquidity of liquidity yet
overlooks the danger of money streams, cash time valuation and future
income past the expansion time frame.
6. This technique likewise needs to evaluate the expense of money to
ascertain recompense yet disregard money streams over the limited
reimbursement time frame
7. Net present esteem estimation of the capital spending states that the
speculation can expand the estimation of the firm, however the expense of
the capital expense is required to compute the net present esteem.
8. The inner rate of return procedure for the capital spending plan may not be
esteemed - augmenting the choice utilized when contrasted with one
another's individual tasks.
5.2 SUGGESTIONS
• The exhortation made for the organization is that the accompanying

counsel ought to be embraced in the organization's every day exercises.
• This is a valid justification to receive the NPV strategy in settling on a

budgetary choice since it depends on the present esteem. Supplanted PBP
• The organization must have a decent match between various offices.
• It is important to keep up an arrangement of book books that can enable
you to settle on a superior choice.
• The organization must have a similar procedure to compute the venture
choice, generally befuddling it.
• Cost components ought to be viewed as when choosing what is ideal, for
example, work costs, bookkeeping costs, and so forth.
5.3 CONCLUSION
The spending plan is one of the key procedures for budgetary administration to
assess the proficiency of the undertaking. So purchasing new hardware,
beginning business, extending, was changing the oldness of old apparatus. The
cutting edge approach is more successful than the customary technique on the
grounds that the advanced strategy is thinking about the time estimation of cash.
The Capital Budget has its own impediment however its favorable
circumstances spread its unfriendly impacts with its utilization. In any case, in
India, the capital spending procedure cannot be utilized legitimately at the
dimension of institutional and administrative administration.
Subsequent to considering this theme, I comprehend the hugeness of the

spending plan. I figure capital aptitudes can be used in government organization
ventures like corporate and open organization administrations, open
transportation administrations.
I for one figure the open dislike to utilize this strategy later on because of
absence of information. Capital spending plans can be utilized from local
dimensions to MNCs and this sentence can express the significance of the
capital spending plan.

BIBLIOGRAPHY
BOOKS:
Financial Management by: I.M. Pandey.
Accounting for managers: S. P. Jain K.L. Narang and

SimmiAgarwal.
Kalyani publisher’s third edition 2007.
JOURNALS & MAGAZINES
Five years Annual reports of shaukar motors.
Website’s :
www.honda.com
www.google.com
www.twowheeler.com
ANNEXURE
Government First Grade College Sindhanur Page 36
Balance sheet – 5 years comparison
2020 2019 2018 2017 2016
EQUITIES AN
LIABILITIES D
SHAREHOLDER'S
FUNDS
Equity Share Capital 47.51 47.51 47.51 47.51 47.51
Total Share Capital 47.51 47.51 47.51 47.51 47.51
Reserves and Surplus 2,360.8 1,889.2 1,597.8 1,367.7 1,177.1

2 9 5 7 6
Total Reserves and 2,360.8 1,889.2 1,597.8 1,367.7 1,177.1

Surplus 2 9 5 7 6
Total Shareholders’ 2,408.3 1,936.8 1,645.3 1,415.2 1,224.6

Funds 3 0 6 8 7
NON-CURRENT LIABILITIES
Long Term Borrowings 468.76 494.23 518.98 442.41 494.14
Deferred Tax Liabilities 125.70 175.67 152.75 124.68 93.12

[Net]
Long Term Provisions 50.80 39.99 43.73 53.17 53.17
Total Non-Current 645.26 709.89 715.46 620.26 640.43

Liabilities

CURRENT LIABILITIES
Short Term Borrowings 616.38 264.23 399.76 33.47 51.72
Trade Payables 1,859.36 1,543.71 1,263.82 998.91 822.80
Other Current Liabilities 312.47 449.47 474.77 428.82 326.23
Short Term Provisions 62.87 58.47 105.03 67.96 53.42
Total Current Liabilities 2,851.08 2,315.88 2,243.38 1,529.16 1,254.17
Total Capital And 5,904.67 4,962.57 4,604.20 3,564.70 3,119.27

Liabilities
ASSETS
NON-CURRENT ASSETS
Tangible Assets 1,930.64 1,545.93 1,294.93 1,105.94 1,006.85
Intangible Assets 53.23 46.92 34.70 19.77 4.63
Capital Work-In-Progress 62.28 30.96 89.36 48.08 36.09
Fixed Assets 2,046.15 1,623.81 1,418.99 1,173.79 1,047.57
Non-Current Investments 1,587.90 1,184.57 1,012.46 895.92 868.84
Long Term Loans And 0.12 136.65 143.73 86.27 73.35

Advances

Other Non-Current Assets 83.61 0.00 0.00 0.00 0.00
Total Non-Current Assets 3,717.78 2,945.03 2,575.18 2,155.98 1,989.76
CURRENT ASSETS
Inventories 966.95 825.97 819.68 548.15 509.66
Trade Receivables 723.77 578.69 503.86 334.12 300.52
Cash And Cash Equivalents 8.51 32.84 5.39 82.57 17.45
Short Term Loans And 0.00 521.91 632.78 364.31 178.44

Advances
OtherCurrentAssets 487.66 58.13 67.31 79.57 123.44
Total Current Assets 2,186.89 2,017.54 2,029.02 1,408.72 1,129.51
Total Assets 5,904.67 4,962.57 4,604.20 3,564.70 3,119.27
Profit and Loss A/c – 5 years comparison

2020 2019 2018 2017 2016
INCOME
Revenue From 13,063.8 12,094.5 10,632.2 8,544.69 7,633.28

Operations 2 0 1
[Gross]

Less: Excise/Service 1,054.75 988.25 715.64 690.24 667.88

Tax/Other
Levies
Revenue From 12,009.0 11,106.2 9,916.57 7,854.45 6,965.40
Operations 7 5
[Net]
Other Operating Revenues 126.24 137.62 181.65 107.40 99.60
Total Operating 12,135.3 11,243.8 10,098.2 7,961.85 7,065.00

Revenues 1 7 2
Other Income 173.37 51.31 32.61 30.21 23.84
Total Revenue 12,308.6 11,295.1 10,130.8 7,992.06 7,088.84

8 8 3
EXPENSES
Cost Of Materials 8,620.88 7,703.54 7,162.32 5,418.82 4,912.32

Consumed
Purchase Of Stock-In 291.22 251.41 226.88 244.35 151.49
Trade
Changes In Inventories -58.73 70.53 -92.07 9.65 32.70
Of
FG,WIP And Stock-In
Trade
Employee Benefit 745.64 664.23 585.42 476.11 407.13
Expenses
Finance Costs 43.95 46.24 27.42 25.40 48.04
Depreciation And 287.81 189.84 153.33 131.65 130.41

Amortization
Expenses
Other Expenses 1,679.23 1,803.42 1,611.37 1,334.82 1,152.33
Total Expenses 11,610.0 10,729.2 9,674.67 7,640.80 6,834.42

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“A Study On Capital Budgeting Of Honda Co Pvt Ltd”

CHAPTER TITLE PAGE

Chapter 1 INTRODUCTION 2-8

Chapter 2 RESEARCH MEATHODOLOGY 9-11

Chapter 3 COMPANY PROFILE 12-19

Chapter 4 DATA ANALYSIS AND INTERPRETATION 20-32

Chapter 5 FINDIINGS, CONCLUSION AND 33-35

LIST OF TABLES AND GRAPH

Table No. Particulars PageNo

4.1 Table and Graph showing Net present value 20

Government First Grade Degree College Page 1

1.1INTRODUCTION TO CAPITAL BUDGETING:

1.1 Introduction In competitive business environment in order to sustain in the

1. Short term investment decision

Capital budgeting is primarily concerned with sizable investments in long-term

Investments in processes such as research, design, development and testing –

Government First Grade Degree College Page 2

Capital budgeting, which is also called “investment appraisal,” is the planning

2. Discounted cash flow method

This technique has two methods. They include:

Government First Grade Degree College Page 3

2. Average rate of return (ARR):The accounting rate of return (ARR)

Discounted cash flow methods

Discounted methods are also known as “time-adjusted techniques.” They consider

 Net present value

 Real options analysis

Net Present Value

A common practice in choosing a discount rate for a project is to apply a WACC

Internal Rate of Return

One shortcoming of the IRR method is that it is commonly misunderstood to

Government First Grade Degree College Page 5

Real Options Analysis

Government First Grade Degree College Page 6

Advantages of Capital Budgeting:

 Capital budgeting helps a company to understand the various risks involved

Disadvantages of Capital Budgeting:

Process of Capital Budgeting

Government First Grade Degree College Page 7

Following are the steps of capital budgeting process:

 Analyzing Individual Proposals:

 Planning Capital Budget:

 Monitoring and Conducting a Post Audit:

2.1. Title of the study

2.2Statement of the Problem:

2.3 NEED FOR THE STUDY

Capital Planning is critical on the grounds that it makes responsibility and

2.4 Objectives of the study:

• To evaluate the cash inflows and out flows of the company

2.5Scope of the study :

Government First Grade Degree College Page 9

The method I used for research methodology was

Sources of data collection:

Company yearly Reports.

Company audited financial statements.

Government First Grade Degree College Page 10

• A strong unwillingness on the part of the company officials, to participate

• The study was limited to the geographical region of sindhanur.

• The study is limited only to one company sahukar Motorspvt ltd.

Capital planning is the apparatus for amplifying an organization future benefit

Honda is headquartered in Minato, Tokyo, Japan. Their shares trade on the

American Honda Motor Company is based in Torrance, California. Honda

Racing Corporation (HRC) is Honda’s motorcycle racing division. Honda

Government First Grade Degree College Page 13