Financial Analysis

Financial Analysis of Ashok Leyland Limited

Table of Contents
Company Profile............................................................................................................................................ 3 Companys last 3 yrs Balance sheet .............................................................................................................. 4 Companys last 3 yrs Income statement ....................................................................................................... 5 Ratio Analysis ................................................................................................................................................ 6 Comments ..................................................................................................................................................... 7 Profitability ratios ..................................................................................................................................... 7 Turnover Ratios ......................................................................................................................................... 8 Liquidity Ratios ........................................................................................................................................ 10 Leverage Ratios ....................................................................................................................................... 11 Valuation Ratios ...................................................................................................................................... 15

Company Profile
Ashok Leyland is an India-based company engaged in the manufacturing of commercial vehicles and related components. The Companys products range from 18 seater to 82 seater doubledecker buses, from 7.5 tons to 49 tons in haulage vehicles, from special application vehicles to diesel engines for industrial, marine and genset applications. Its product categories include buses, trucks, engines, and defence and special vehicles. It offers bus models, such as compressed natural gas (CNG), double decker and vestibule bus. It also offers trucks and tractor-trailers. In addition, the Company offers diesel engines for industrial, genset and marine applications. It offers logistic vehicles to the Indian army.

2009

2008

2007

Source of funds
Shareholders' funds Capital Reserves and Surplus Loan funds Secured loans Unsecured loans Deferred tax liability - net Foreign currency monetary item translation difference net 13303.42 334086.5 347389.9 30441.33 165373.1 195814.39 26343.69 384.11 25381.97 19024 69726.12 88750.12 19692.90 13303.42 201594.8 3 214898.25 36021.60 28018.20 64039.80 13238.70 176218.10 189456.80

Total Applicatsion of Funds

Fixed assets Gross block Less Depreciation Net Block Capital WIP Investments Current Assets, loans and advances Inventories Sundry Debtors Cash and bank balances Loans and advances 133001.4 95797.42 8808.36 78954.35 361561.6 Less Current Liabilities and provisions Liabilities Provisions 186886.4 26808.17 213694.6 Net current assets Miscellaneous expenditure 495327.2 155415.6 339911.6 99828.94

569932.1

329030.3

273189.5

294243.8 141688.7 8 152555.0 2 52924.47 439740.57 26355.71 122391.4 4 37583.51 45137.01 82413.85 287525.8 1 192670.8 4 34523.09 227193.9 3 102866.99 968.82 60331.88 2229.1 205479.49 60989.87

262019.7 131316.2 130703.3 23749.1 154452.4 22109.4 107032.1 52287.5 43493.9 66957.9 269771.4

165162.5 10423.0 175585.5 94185.9 2441.8

273189.5

Total

569932.1

329030.3

Companys last 3 yrs Income statement

2009 Income Sales and services Less Excise duty Other income Expenditure Manufacturing and other expenses Depreciation, amortization and impairment Financial expenses Profit before exceptional item Exceptional item Voluntary retirement scheme compensation amortized Profit before tax provision for taxation - current tax - Deferred tax - Fringe benefit tax Profit after tax Excess provision written back Dividend Corporate dividend tax thereon Balance profit from last year Transfer from / (to) - Debenture redemption reserve - General reserve Dividede-Interim -Proposed final Corporate dividend tax thereon Balance profit carried to balance sheet Earnings per share (F.V. Rs. 1) - Basic (in Rs.) 666664 68556.64 598107.4 4962.28 603069.7 551163.9 17841.42 11870.87 580876.2 22193.5 692219.7 17736.12 4974.01 714929.8 65088.74 894714.7 120456.7 774258 5760.52 780018.5 646549.1 15077.4 533.2 662139.7 61758.2 1307.6 1348.87 20844.63 1245 600 18999.63 22.05 3.75 50227.38 (2958.33) (2500) 63794.48 1303.38 1273.72 63815.02 10140 6044 700 46931.02 60450.6 13505.0 2302.0 515 44128.6 259.8 36.4 36168.59 500 (10000) 73599.61 19977.12 23037.0 1350.0 (10000) 58811.8 19858.1 2008 830471.7 113654.5 716817.6 7080.3 723897.9 2007

2260.91
48230.19 1.43

3395.11
50227.38 3.53

2785.1
36168.6 3.38

Ratio Analysis

Sr. No. 1 2 3 4 5 6 7 8 9 10

Ratio Return on equity Gross profit margin Operating profit margin Net profit margin Return on Assets Return on Investment Capital turnover ratio Inventory turnover ratio Debtors turnover ratio Average collection period Current Ratio Acid Test ratio Inventory to working capital ratio Cash Flow margin

Formula Profitability Ratios PAT/Net worth Gross profit / Net sales Operating profit / Net sales Net profit / Net sales PAT / Total assets PAT/Capital employed Turnover Ratios Sales/Capital employed Cost of goods sold/ Average inventory Net sales / Debtors 365/Debtors turnover ratio Liquidity Ratios Current assets / Current Liabilities Quick assets / current liabilities Inventory / Net current assets Cash flow from operating activities / net sales Leverage Ratios Total loan funds / total shareholder funds EBIT/Interest charges Valuation Ratios (Equity capital + Reserves and surplus)/No. of equity shares DPS/CMP*100 Profit available to equity/ No. of shares Total profit distributed/No. of shares Price of the share/EPS

2009 5.47 14.00 4.90 3.18 2.43 3.50 1.10 3.87 6.24 58.46 1.11 0.49 1.29 (8.76) 0.56 2.42

2008 21.84 15.50 8.30 6.06 8.47 15.57 2.57 5.35 20.60 17.72 0.90 0.36 2.03

2007 23.29 10.36 8.62 6.16 9.89 16.15 2.62 6.55 13.71 26.62

11 12 13 14

1.54 0.93 1.14 6.98

13.72 0.41 10.46 0.34 26.29 14.13

15 16 17 18 19 20 21

Debt equity ratio Interest Coverage ratio

Book value per share Dividend yield ratio Earnings Per Share Dividend Per Share Price Earnings ratio

15.85 1.86 1.43 1.00 37.62

15.98 10.80 3.53 1.50 3.94

3.88 3.38 1.49 11.39

Comments
Profitability ratios
Profitability is a result of a larger number of policies and decisions. The profitability ratios show the combined effects of liquidity, asset management (activity) and debt management (gearing) on operating results. The overall measure of success of a business is the profitability which results from the effective use of its resources.

Sr. Ratios No. 1

2009

2008

2007

Return on equity

23.29
5.47 2 21.84

This ratio shows the profit attributable to the amount invested by the owners of the business. It also shows potential investors into the business what they might hope to receive as a return. This ratio has decreased as the net profit margin has almost halved and also the net worth has increased by more than 50%. The gross profit ratio indicates how much of total sales are available to meet operating and non-operating expenses and earning profits after merely paying for the goods that were sold. The ratio is quite stable for the years 2008 and 2009. Operating profit margin indicates how effective a company is at controlling the costs and expenses associated with their normal business operations. The operating profit margin has halved because of less sales but relatively high operating expenses. It is used to measure the overall profitability and hence it is very useful to proprietors. The net profit margin has declined on account of slow down in the economic activity

Gross profit margin 10.36

14.00 15.50 3

Operating profit margin 8.62

4.90 4 8.30

Net profit margin

6.16

3.18 5

6.06

9.89 Return on Assets

2.43 8.47

ROA tells you what earnings were generated from invested capital (assets). The higher the ROA number, the better, because the company is earning more

money on less investment. As the profits of the company have reduced, the ROA has gone down and the assets have increased.
6

Return on Investment

ROI evaluates the efficiency of an investment or to compare the efficiency of a number of different investments. The ratio again has gone down due to reduction in profits and increase in 16.15 Reserves and Surplus.
3.50 15.57

Turnover Ratios

If a business does not use its assets effectively, investors in the business would rather take their money and place it somewhere else. In order for the assets to be used effectively, the business needs a high turnover. Unless the business continues to generate high turnover, assets will be idle as it is impossible to buy and sell fixed assets continuously as turnover changes. Activity ratios are therefore used to assess how active various assets are in the business.

Turnover Ratios 7

2007 2009 2008

2.62 Capital turnover ratio

This ratio indicates the firms ability of generating sales per rupee of long term investment. Higher the ratio, the more efficient the utilization of owners and long term creditors funds. On account of reduction in sales, this ratio has reduced significantly This ratio establishes the relationship between the cost of goods sold during the year and average inventory held during the year. Decrease in the ratio is on account of high inventory and less sales. This ratio throws light on the collection and credit policies of the firm. Similarly, this ratio has been hit badly as the debtors have increased but the sales have reduced. Average collection period is the credit period that the firm allows to its debtors. It thus indicates the speed of collection. The increase in the average collection period signifies that the company has been comparatively unsuccessful to collect its debt as compared to the previous year.

1.10 8

2.57

6.55 Inventory turnover ratio

3.87 5.35

13.71 Debtors turnover ratio

6.24 20.60

10

26.62

Average collection period

58.46

17.72

Liquidity Ratios

Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due. The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. Failure to do this will result in the total failure of the
Liquidity Ratios 2009 2008 2007

1.54

11

Current Ratio

It indicates the availability of current assets to meet its current liabilities. Higher the ratio better is the coverage. Traditionally, it is also called 2:1 ratio. The current ratio has increased, which shows that the liquidity of the firm has improved. However, it is majorly due to decrease in current liabilities rather than increase in current assets Measures assets that are quickly converted into cash and they are compared with current liabilities. The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its shortterm obligations from its quick assets only. The increase in the quick ratio indicates that the company is in a better position cover its short term obligations. It indicates how much of the funds are tied up in the inventory of the business. Inventory is considered not near cash assets. The composition of the inventory in the working capital of the company is seen to be decreasing. However, this is majorly due to reduction in the current liabilities rather than better management of inventories. It expresses relationship between cash generated from operating activities and sales. Knowing that a company is continually improving its Cash Flow Margin is extremely valuable and is a key indicator of performance. The cash flow margin has become negative for 2009. This is majorly due to the increase in working capital as a result of tremendous increase in the debtors.

1.11

0.90

0.93

12

Acid Test ratio

0.49

0.36

1.14

13

Inventory to working capital ratio

1.29

2.03

6.98

14

Cash Flow margin

-8.76

13.72

business, as it would be forced into liquidation.

Leverage Ratios
The ratios indicate the degree to which the activities of a firm are supported by creditors funds as opposed to owners. The relationship of owners equity to borrowed funds is an important indicator of financial strength. The debt requires fixed interest payments and repayment of the loan and legal action can be taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicate a cushion (surplus) which shields creditors against possible losses from default in payment. Note: The greater the proportion of equity funds, the greater the degree of financial strength. Financial leverage will be to the advantage of the ordinary shareholders as long as the rate of earnings on capital employed is greater than the rate payable on borrowed funds

Leverage Ratios 15

2009

2008

2007

0.34

Debt equity ratio

0.56 16 0.41

This ratio indicates the extent to which debt is covered by shareholders funds. It reflects the relative position of the equity holders and the lenders and indicates the companys policy on the mix of capital funds. The increase in debt equity ratio in spite of increase in the Reserves and surplus of the company indicates heavy borrowings by the company. This ratio measure the extent to which earnings can decline without causing financial losses to the firm and creating an inability to meet the interest cost. The sharp decline in interest coverage ratio is because of the lower profits and high borrowing during the year.

26.29

Interest Coverage ratio

2.42 10.46

Valuation Ratios
A valuation ratio is a measure of how cheap or expensive a security or business is, compared to some measure of profit or value. Investment valuation ratios attempt to simplify this evaluation process by comparing relevant data that help users gain an estimate of valuation. Valuation ratios are important, in particular to a stockholder of the company as these ratios deal with the returns that a shareholder of the company would get.

Valuation Ratios 17

2009

2008

2007

14.13

Book value per share

15.85 18 15.98

Book value per share represents the intrinsic value of the share. The ratio is more or less constant indication that the intrinsic value of the company has not suffered even though other operations of the company have been impacted considerably. This is due to the revaluation reserve created for land and building during the year. It represents how much dividend is paid in relation to the market price of the share rather than the face value of the share. The ratio is impacted because of the low share price prevalent in 2008. The share was priced at Rs 14/- in 2008 and is currently priced at Rs. 53/It represents the earnings which are available for distribution among the shareholders after making all other payments such as interest, preference dividend etc. Earnings per share have reduced due to reduction in PAT It is the rate of dividend declared by the company. It represents how a share of particular company is perceived in the market. It is the times at which the share is priced in comparison to the earnings that a share earns. When seen in context of the industry, it helps us to determine which share is undervalued or overvalued. The increase in the price of the share by almost 4 times is the reason for such a significant change in this ratio.

3.88

Dividend yield ratio

1.86 19 10.80

3.38

Earnings Per Share

1.43 20 3.53

1.49 Dividend Per Share

1.00 1.50

21

11.39

Price Earnings ratio

37.62 3.94