Chapter 26: Financial Planning & Strategy

Problem 1

Bajaj Auto Ltd.

% of sales 2001 2000 1999 1998 1997 Average
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
PBDIT 15.7% 31.5% 30.2% 31.8% 30.4% 27.9%
Depreciation 5.9% 4.7% 4.5% 5.4% 4.5% 5.0%
Interest 0.2% 0.1% 0.2% 0.3% 0.3% 0.2%
Other Income 12.1% 16.5% 12.8% 13.5% 11.3% 13.2%
PBT 9.6% 26.7% 25.6% 26.1% 25.7% 22.7%
Tax Provision 0.9% 6.8% 7.3% 8.5% 9.0% 6.5%
Net Profit 8.7% 19.9% 18.2% 17.6% 16.7% 16.2%
Equity Dividend 2.7% 3.9% 3.2% 3.6% 3.0% 3.3%
Retained Profit 6.0% 16.0% 15.0% 13.9% 13.7% 12.9%
Current Assets 68.2% 76.8% 74.2% 68.5% 51.7% 67.9%
Net Fixed Assets 45.1% 36.1% 31.1% 25.8% 22.9% 32.2%
Other assets 39.7% 63.2% 49.3% 43.3% 37.7% 46.6%
Current Liabilities 48.8% 56.3% 51.6% 47.7% 37.5% 48.4%
Secured Loans 1.9% 3.3% 1.4% 1.0% 0.8% 1.7%
Unsecured Loans 15.1% 12.8% 10.4% 8.7% 7.3% 10.9%
Total Liabilities 153.0% 176.1% 154.6% 137.6% 112.3% 146.7%
Net Worth 87.2% 103.7% 91.2% 80.1% 66.7% 85.8%
2001 2000 1999 1998 1997
Sales growth (historical) -2.1% 4.3% 12.1% 0.2% -

Assumptions: 2006 2005 2004 2003 2002

Sales growth 10.0% 7.5% 5.0% 2.0% 0.0%
Net margin 9%
Equity dividend 3%
Net fixed assets 45%
Current assets 68%
Other assets 45%
Current liabilities 49%
Secured loan 2%
Unsecured loan 15%

Financial Forecasts 2006 2005 2004 2003 2002

Sales 3,828.65 3,480.59 3,237.76 3,083.58 3,023.12
Net profit 333.09 302.81 281.69 268.27 263.01
Equity dividend 114.86 104.42 97.13 92.51 90.69
Retained earnings 218.23 198.39 184.55 175.76 172.32

Net fixed assets 1,722.89 1,566.27 1,456.99 1,387.61 1,360.40

Current assets 2,603.48 2,366.80 2,201.68 2,096.84 2,055.72
Other assets 1,722.89 1,566.27 1,456.99 1,387.61 1,360.40
6,049.27 5,499.34 5,115.66 4,872.06 4,776.53

Net worth 3,585.79 3,367.56 3,169.16 2,984.61 2,808.85

Current liabilities 1,876.04 1,705.49 1,586.50 1,510.96 1,481.33
5,461.83 5,073.05 4,755.67 4,495.57 4,290.18
Funds needed (borrowings) 587.44 426.29 360.00 376.49 486.35
6,049.27 5,499.34 5,115.66 4,872.06 4,776.53
Problem 2
2001 2000 1999 1998 1997 1996 1995 Average Coeff. Var.
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 0.0%
Other Income 4.8% 7.3% 7.2% 4.6% 6.2% 6.4% 8.1% 6.4% 18.8%
Total Income 104.8% 107.3% 107.2% 104.6% 106.2% 106.4% 108.1% 106.4% 1.1%
PBDIT 27.2% 35.4% 38.2% 36.9% 37.8% 41.5% 41.9% 37.0% 12.3%
Depreciation 7.7% 9.5% 9.8% 8.5% 8.0% 8.0% 7.2% 8.4% 10.8%
PBIT 19.5% 25.9% 28.3% 28.4% 29.8% 33.5% 34.7% 28.6% 16.3%
Interest 5.9% 7.5% 8.4% 6.4% 3.3% 2.6% 7.2% 5.9% 34.1%
PBT 13.6% 18.4% 19.9% 21.9% 26.5% 30.9% 27.5% 22.7% 24.5%
Tax 0.7% 0.4% 0.3% 0.8% 0.9% 0.0% 0.0% 0.4% 74.5%
PAT 12.9% 17.9% 19.6% 21.1% 25.6% 30.9% 27.5% 22.2% 25.7%

Additional Information
Equity Dividend 2.2% 2.9% 4.0% 4.2% 5.8% 6.5% 5.1% 4.4% 32.8%
Preference Dividend 0.0% 0.3% 0.3% 0.1% 0.0% 0.7% 0.0% 0.2% 110.8%
Corporate Dividend Tax 0.2% 0.3% 0.5% 0.8% 0.0% 0.0% 0.0% 0.3% 106.9%

RELIANCE INDUSTRIES LTD: BALANCE SHEET AS AT 31 MARCH

(%)
2001 2000 1999 1998 1997 1996 1995
CAPITAL & LIABILITIES
Total Shareholders Funds
Equity Share Capital 5.2% 7.9% 10.7% 11.9% 8.9% 10.9% 11.8% 9.6% 23.7%
Preference Capital Paid Up 0.0% 2.2% 2.9% 2.4% 0.0% 4.7% 0.1% 1.8% 94.6%
Reserves & Surplus 67.1% 94.3% 128.6% 138.8% 155.3% 183.6% 173.9% 134.5% 28.9%
72.2% 104.4% 142.3% 153.1% 164.2% 199.2% 185.8% 145.9% 28.4%
Borrowings
Term Loans - Institutions 0.3% 1.2% 0.5% 0.7% 16.7% 9.8% 7.4% 5.2% 111.7%
Term Loans - Banks 0.0% 10.5% 17.6% 2.6% 18.4% 14.4% 4.1% 9.6% 71.9%
Non Convertible Debentures 18.4% 28.2% 41.2% 30.8% 39.0% 42.2% 32.9% 33.2% 23.5%
Working Capital Advances 1.2% 4.8% 3.8% 0.8% 8.3% 14.0% 10.5% 6.2% 73.6%
Other Loans 29.7% 41.3% 59.9% 70.4% 65.5% 31.5% 21.1% 45.6% 39.6%
Total Borrowings 49.6% 86.0% 122.9% 105.4% 147.8% 111.9% 75.9% 99.9% 30.0%
Current Liabilities & Provisions

Creditors 18.9% 22.1% 38.4% 39.5% 46.3% 30.9% 28.9% 32.1% 28.4%
Provisions 4.2% 2.0% 6.3% 6.1% 6.8% 6.7% 5.2% 5.3% 30.1%
Other 1.2% 4.8% 14.0% 7.5% 13.6% 7.7% 2.0% 7.3% 65.0%
Total Current Liabilities 24.3% 28.9% 58.7% 53.1% 66.7% 45.3% 36.1% 44.7% 32.6%
Total Liabilities 146.1% 219.2% 323.8% 311.6% 378.8% 356.5% 297.8% 290.6% 25.9%
ASSETS
Fixed assets
Gross Block 124.0% 181.6% 214.5% 228.1% 212.4% 163.2% 137.3% 180.2% 20.8%
Less: Accum. Depreciation 57.9% 68.8% 77.0% 63.2% 67.7% 50.8% 46.6% 61.7% 16.0%
Net Block 66.1% 112.8% 137.5% 164.9% 144.7% 112.5% 90.7% 118.5% 26.3%
Capital Work in Progress 2.5% 2.5% 39.5% 26.4% 71.9% 106.4% 79.4% 47.0% 79.0%
Total Fixed assets 68.6% 115.3% 177.1% 191.3% 216.6% 218.8% 170.1% 165.4% 30.8%
Investments 32.9% 45.3% 49.4% 54.7% 86.4% 46.3% 51.5% 52.4% 29.2%
Current Assets 44.6% 58.6% 97.4% 65.6% 75.8% 91.3% 76.2% 72.8% 23.3%
Total Assets 146.1% 219.2% 323.8% 311.6% 378.8% 356.5% 297.8% 290.6% 25.9%

Net sales growth 52.6% 54.1% 11.1% 51.7% 22.3% 9.0% -

Forecasts assumptions:
Sales growth 15%
Net profit margin 13%
Equity dividend 2.20%
Corporate dividend tax 0.20%
Fixed assets 69%
Investments 33%
Current assets 45%
Current liabilities 24%

2006 2005 2004 2003 2002

Net sales 41,122.72 35,758.89 31,094.68 27,038.86 23,512.05
Net profit 5,345.95 4,648.66 4,042.31 3,515.05 3,056.57
Equity dividend 904.70 786.70 684.08 594.85 517.27
Corporate dividend tax 82.25 71.52 62.19 54.08 47.02
Retained earnings 4,359.01 3,790.44 3,296.04 2,866.12 2,492.28

2006 2005 2004 2003 2002

Net fixed assets 28,374.68 24,673.63 21,455.33 18,656.81 16,223.31
Investment 13,570.50 11,800.43 10,261.25 8,922.82 7,758.98
Current assets 18,505.22 16,091.50 13,992.61 12,167.49 10,580.42
Total assets 60,450.40 52,565.56 45,709.19 39,747.12 34,562.71

Net worth 31,569.25 27,210.24 23,419.80 20,123.77 17,257.65

Current liabilities 9,869.45 8,582.13 7,462.72 6,489.33 5,642.89
Borrowings (balancing fugure) 19,011.69 16,773.19 14,826.66 13,134.03 11,662.17
Total liabilities 60,450.40 52,565.56 45,709.19 39,747.12 34,562.71

Problem 3

Mason Industry
Net margin 25.0%
Retention ratio 1
Leverage, (1 + D/E) 1.6
Assets/sales 2.79
Sustainable growth 16.7%

Assumptions:
No taxes are paid
No dividends are distributed

Problem 4

Debt ratio 45%

Equity ratio 55%
Payout 60%
Retention 40%
After-tax interest rate 5%
Required growth 20%

Require after-tax ROI 29.8%