+A STUDY ON

RATIO ANALYSIS
With reference to
SRI HARSHA HERO MOTORS PVT LTD. VISAKHAPATNAM
Project Report Submitted To
INTEGRAL INSTITUTE OF ADVANCED MANAGEMENT, VISAKHAPATNAM .

In partial fulfillment for the Award of the Degree of

Post-Graduate Diploma in Management
(2017-19)
Submitted by
S. VAMSI PRIYA
Registration No: 31049
Under the esteemed guidance of
Mrs.B. SRAVANI
Assistant Professor,IIAM
and
Mr.P.SATISH

General Manager

SRI HARSHA HERO MOTORS PVT LTD.

INTEGRAL INSTITUTE OF ADVANCED MANAGEMENT

(Approved by AICTE New Delhi, India)
Visakhapatnam(2017-2019)

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 CERTIFICATE FROM THE COMPANY

On the letter head of the company

With date of issue

TO WHOMSOEVER IT MAY CONCERN

This is to certify that S. VAMSI PRIYA, a student of PGDM, Integral Institute of

Advanced Management (IIAM), Visakhapatnam, has undergone project work on “RATIO
ANALYSIS’’ in our organization from 11.06.2018 to 26.07.2018.

Her conduct has been found good during the project work period.

Signature: ……………………...

Name: ………………………….

Designation: ……………………

Date: ……………………………

2
 DECLARATION

I, S. VAMSI PRIYA hereby, declare that the project report titled “RATIO ANALYSIS” have
been submitted to, Integral Institute of Advanced Management, in partial fulfillment of Post-
Graduation Diploma in Management under the guidance of Mrs.B. SRAVANI, Asst. Professor,
IIAM Visakhapatnam.

Signature of the Student

Name………………………… Date……………………

3
 CERTIFICATE

This is to certify that the project report titled “RATIO ANALYSIS” submitted by S. VAMSI
PRIYA in partial fulfillment of two-year Post Graduate Diploma in Management is a
bonafide work undertaken by her under the guidance of Mrs.B. SRAVANI, Asst. Professor
Faculty, IIAM.

Faculty Guide Name & Signature Director’s Name & Signature

Asst.Prof.B. SRAVANI Dr.Vijaya Rudra Raju

Faculty Guide DIRECTOR
IIAM Business School IIAM Business School

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 ACKNOWLEDGEMENT

I wish to acknowledge my sincere thanks to Mr. SATISH (Company Guide), General

Manager of SRI HARSHA HERO MOTORS PVT LTD for giving me an opportunity to
do the project titled as “RATIO ANALYSIS” in their esteemed organization and sparing his
valuable time in guiding me on the project.

I am thankful to our Director Dr.Vijaya Rudra Raju, for permitting me to do the project at
SRI HARSHA HERO MOTORS PVT LTD.

I am grateful to my faculty guide, Asst. Professor Mrs. B.Sravani for giving me valuable
guidance and suggestions to complete the study.

Name: S. VAMSI PRIYA

Registration No: 31049

Signature

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 INDEX

CHAPTERS PAGE NO.

CHAPTER-1 07-15

 INTRODUCTION 08
 OBJECTIVES OF THE STUDY 12
 NEED FOR THE STUDY 13
 RESEARCH METHODOLOGY 14
 LIMITATIONS OF THE STUDY 15

CHAPTER-2 16-39

 INDUSTRY PROFILE & COMPANY PROFILE

CHAPTER-3 40-55

 THEORETICAL FRAMEWORK

CHAPTER-4 56-70

 DATA ANALYSIS AND INTERPRETATION

CHAPTER-5 71-77

 SUMMARY 72
 FINDINGS 74
 SUGGESTIONS 75
 CONCLUSION 76
 BIBLIOGRAPHY 77

93

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 CHAPTER -1
 INTRODUCTION
 OBJECTIVE OF THE STUDY
 NEED FOR THE STUDY
 RESEARCH METHODOLOGY
 LIMITATIONS OF THE STUDY

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 INTRODUCTION

The reasons for financial analysis are planning and decision making in financial
activities. A business firm prepares its final accounts viz., Balance sheet and Profit and Loss
Accounts which provides useful financial information for decision making. Financial
information is needed to predict, compare and evaluate the firm’s earning ability. The former
statement Profit and Loss Account shows the operating activities of the concern and later
Balance Sheet depicts the balance value of the acquired assets liabilities at a point of time.

Management, creditors, investors and others to form judgment about the operating
performance and financial position of the firm use the information contained in these statements.
Users of financial statements can get further insight about financial strengths and Hero Motor
Corp weaknesses of the firm if they properly analyses information reported in these statements.
Management should be particularly interested in knowing financial strengths of the firm to make
their best use and to be able to spot out financial Hero Motor Corp weaknesses of the firm to take
suitable corrective actions. The future plans of the firm should be laid down in view of the
firm’s financial strengths and Hero Motor Corp weaknesses. Thus, financial analysis is the
starting point for making plans, before using any sophisticated forecasting and planning
procedures. Understanding the past is a prerequisite for anticipating the future.

USERS OF FINANCIAL ANALYSIS:

Financial analysis is the process of identifying the financial strengths and Hero Motor
Corp weaknesses of the firm by properly establishing relationships between the items of the
balance sheet and the profit and loss account. Financial analysis can be undertaken by
management of the firm, or by parties outside the firm, viz., owners, creditors, investors and
others. The nature of analysis will differ depending on the purpose of the analyst.

BALANCE SHEET:

Balance sheet is the most significant financial statement. It indicates the financial
condition or the state of affairs of a business at a particular moment of time. More specifically,

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balance sheet contains information about resources and obligations of a business entity and about
its owners’ interests in the business at a particular point of time. Thus, the balance sheet of a
firm prepared on 31st March reveals the firm’s financial position on this specific date. In the
language of accounting, balance sheet communicates information about assets, liabilities and
owner’s equity for a business firm as on a specific date. It provides a snapshot of the financial
position of the firm at the close of the firm’s accounting period.

PROFIT AND LOSS ACCOUNT:

Profit and loss account present the summary of revenues, expenses and net income (or net
loss) of a firm. It serves as a measure of the firm’s profitability. Revenues are amounts that the
customers pay to the firm for providing them goods and services. The firm uses economic
resources in providing them goods and services to customers. The cost of the economic
resources used to earn revenues during a period of time is called expenses. Thus, to determine
net profit, the accounting system matches expenses incurred during the accounting period against
revenues earned during that period. This matching of expenses with revenues earned during that
period. This matching of expenses with revenue is called matching concept. The time period for
which matching is done is called the accounting period. Normally, the accounting period for the
business firms is of one year’s duration. Net profit or net income, which is an indicator of the
firm’s profitable operations, is the amount by which revenues earned during a period exceed
expenses incurred during that period. If the firm’s operations prove to be unprofitable, total
expenses will exceed total revenues and the difference is referred to as net loss.

CHANGES IN FINANCIAL POSITION:

The balance sheet gives a ‘static’ view of the sources and use of finances. But it does not
indicate the causes of changes or the movement of finances between two periods. The change in
owners’ equity is partly reflected through the profit and loss account, but besides profits, owners’
equity may change due to other factors such as additional investment or withdrawal of profits.
Therefore, an additional statement is needed to show the changes in assets, liabilities and
owners’ equity between dates of two balance sheets. Such a statement is referred to as the
statement of changes in financial position. This statement summarizes:

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  Changes in assets and liabilities resulting from financial and investment transactions
during the period, as those changes which resulted due to change in owners’ equity; and
 The way which the firm used its financial resources during the period (for example to
acquire fixed assets, to pay debts, to pay dividend; to shareholders and so on).

The most commonly used forms of the statement of changes in financial position are
called the funds flow statement and the cash flow statement. The cash flow statement is now
regarded as an important part of financial reporting by companies. It is mandatory for listed
company to include cash flow statement in their annual accounts.

PURPOSE OF FINANCIAL STATEMENT ANALYSIS:

Financial Statement Analysis is the meaningful interpretation of ‘Financial Statements’

for Parties Demanding Financial Information’. It is not necessary for the proprietors alone.

Following are the examples of the purposes of Financial Statement Analysis:

a) The Government may be interested in knowing the comparative energy consumption of

some private sector and public sector cement companies.
b) A nationalized bank may be keen to know the possible debt coverage out of profit at the
time of lending.
c) Prospective investors may be desirous to know the actual and forecasted yield data.
d) Customers want to know the business viability before entering into a long-term contrast.

This list is not exhaustive for obvious reasons. In general, the purpose of financial
statement analysis is to aid decision making by the users of accounts.

TYPES OF FINANCIAL STATEMENT ANALYSIS:

The main objective of financial analysis is to determine the financial health of a business
enterprise. The analysis may be of the following types:

1. External analysis: This analysis is performed by outside parties such as trade creditors,

investors, suppliers of long-term debt etc.

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2. Internal analysis: This analysis is performed by the corporate finance and accounting

department and is more detailed than external analysis.

3. Horizontal analysis: This analysis compares the financial statements viz., Profit and

Loss Account and Balance Sheet of previous year along with the current year.

4. Vertical analysis: This analysis converts each element of the information into a

percentage of the total amount of statement so as to establish relationship with other

components of the same statement.

5. Trend analysis: This analysis compares ratios of different components of the financial

statements related to different period to those of a base year.

6. Ratio analysis: This analysis establishes the numerical or quantitative relationship

between two items / variables of financial statement so that the strengths and weaknesses

of a firm as its historical performance and current financial position can be determined.

7. Funds flow statement: This statement provides comprehensive idea about the

movement of finance in a business unit during a particular period of time.

8. Break-even analysis: This type of analysis refers to the interpretation of financial data

that represent operating activities.

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 OBJECTIVES OF THE STUDY

1. To find out the financial stability of the company.

2. To evaluate the fixed, current assets and current liabilities.

3. To evaluate the firms’ ability to repay loans.

4. To estimate the future growth of the company.

5. To compare the funds generated in HERO MOTOCORP for the past 5 years.

6. To study and analyse the changes in ratio analysis position of the corporation.

7. To study the growth perspective of HERO MOTOCORP.

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 NEED OF THE STUDY

The main aim of every firm is to maximize the company wealth. This can be achieved
only by flow of profits, which depend on successful sales activity. To generate sales, investment
of sufficient funds in Fixed and current assets is required.

Mainly the need of the study is:

 To know the liquidity position of the company whether it is good or bad.

 To know the leverage position of the company.
 To know the activity and profitability position of the company whether good or bad.
 To analyse ratio analysis.
 To find out financial position, development and problems of the company.

The Ratio analysis is another part of ‘analysis of financial operations of HERO

MOTOCORP’ which is mainly studied as it reveals how much cash is generated from HERO
MOTOCORP activities or operations activities and from financing and investing activities of
HERO MOTOCORP, and it discloses all the movements of cash and also discloses the success
or failure of cash planning. It also reveals the credit capacity of the corporation and it is a
measure of credit worthiness.

The above utilities of financial operations are necessary to make a study of

financial operations of HERO MOTOCORP.

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 RESEARCH METHODOLOGY OF THE STUDY

The study has been made with the help of information got from Two sources: -
 Primary sources.
 Secondary sources.

 Primary sources: -

A primary source mainly includes the information given by various executives and other
staff members and also through the discussions and orientation classes given by the
executives of various section of the organization. The information got through personal
observation also include in this.

 Secondary sources: -

Secondary sources mainly include the audited annual reports of HERO

MOTOCORP which it re published, various annual manual of HERO MOTOCORP,
through the journals, old records of HERO MOTOCORP. From these sources, necessary
information is obtained. With the help of this, the ratio analysis of funds flow statement,
cash flow statements, Ratio Analysis has been made.

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 LIMITATIONS OF THE STUDY

1. Financial statements are prepared based on book values not on market value.

2. As some information is so confidential, the manager is reluctant to share.

3. Financial analysis is based upon only monetary information and non-monetary factors are

ignored.

4. The time period for the project work is very less for getting more detailed information

about the organization.

5. The study only relates to financial data and other areas of the company are not taken into

consideration.

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 CHAPTER-2
 INDUSTRY PROFILE
 COMPANY PROFILE

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 INDUSTRY PROFILE

HISTORY

The history of the two wheelers in India dates back to the year 1955. The 350 cc
'Bullet' manufactured by the Royal Enfield Company of United Kingdom was the first batch
of motorcycles Enfield Bullet had a close competition with another sturdy bike named
Rajdoot.  The segment of motorcycles in India brought a tremendous change in the two-
wheeler market. The main cause of the growth in the Two wheelers in India segment is the
fuel efficient 4 stroke engine. The first scooters in India are the Lamberts models
manufactured by the Italian Innocent Company in 1975. Very effective in the urban set-up,
as they could cleverly tackle the congested roads and streets. The company sold the
enterprise to the Government of India in1975 and the Scooters India Limited was
established.

This company introduced its first product known as the Vijay Super. New companies
emerged such as Bajaj Auto, LMLVespa (now changed to LML) and the public was
offered with a wide array of options. Bajaj Chetak, till today it remains one of the
most successful brands to come out of the Bajaj stable. Today new models of two-wheeler
are entering the market every day, slowly pushing these names down the memory lane.

However,names like Chetak, Rajdoot and Bullet will always find a mention in the
history of two-wheelers in the country.

INDUSTRY SCENARIO

India is seeing the penetration of two-wheelers increasing at a rapid pace driven by

the rise in the household incomes, reducing trend in excise duties and hitherto easy
availability of two-wheeler finance. Though the two-wheeler industry is presently passing
through a rough patch, the long-term outlook to be healthy with increase in penetration
levels.

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 This report on ‘The Indian Two-Wheeler Industry’ which gives valuable insight of the
industry encompassing its evolution in India, its characteristics, demand drivers, Government
regulations and trends in duties, commentary on industry players and competition and the
trends in domestic sales and exports. The trends are analyzed in depth for various vehicle
segments, namely motorcycles, scooters, mopeds and electric two wheelers, further sub-
classified based on the engine capacity. Various segments and sub-segments are
appropriately associated with the relevant products and companies for enhancing the
understanding of the competitive scenario in the industry. The cost analysis presented in the
report will help the reader identify the critical cost items and their trends. The company
section in the report provides detailed profiles of the top three players in the industry,
including their financial and operational data and product range.

The report presents our forecasts of domestic as export sales for each of the next five
years till FY 2014, separately for all the segments. Hero Motor Corp have developed a robust
model for forecasting domestic sales. It considers the cost of owning a two-wheeler, age
demographics and income distribution of the population. It also attempts to quantitatively
adjust for qualitative factors like current economic scenario and outlook, consumer
confidence level and persuasive sales techniques of dealers and vehicle financers.

Hero Motor Corp have done a cross country analysis and penetration of two wheelers
for the 20 big cities viathe income levels in those cities, other urban areas and rural areas and
quantified the opportunity in each of these markets. This analysis helps gauging the
opportunity for two-wheeler manufacturers in different regions across India.

The Indian two-wheeler industry has come long way since its humble beginning in
1948 when Bajaj Auto started importing and sellingVespa Scooters in India. Since then, the
customer preferences have changed in favor of motorcycles and gearless scooters that score
higher on technology, fuel economy and aesthetic appeal, at the expense of metal-bodied
geared scooters and mopeds. These changes in customer preferences have had an impact on
fortunes of the players.

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 The erstwhile leaders have either perished or have significantly lost market share,
whereas new leaders have emerged. Rising income levels, reducing excise duties, higher loan
tenure and loan-to-value offered by the financing companies have all fueled the growth of
two-wheeler sales in the country. Besides, mounting traffic chaos and limited parking space
has also increased the demand for two-wheelers from households that can afford or actually
do own a car. Furthermore, with increasing women working population, changing social
philosophy and broad-mindedness, the penetration of two-wheelers that is currently at
abysmally low level is expected to increase significantly

MAJOR PLAYERS

HONDA

 Started production in January 2001.

 It’s based in Japan with its headquarters in Tokyo.

 Manufacturing operations in 32 countries.

 Big players in the manufacturing of two-wheeler across the world

MODELS

 Unicorn

 Eterno

 Dio

 Honda Activa

 Shine

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HERO

Hero Moto Corp 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 Moto Corp Ltd. continues to maintain this position till date.

MODELS

 Ambition

 CBZ 

 C D100 SS 

 C DDawn

 C D100 

 Deluxe Dawn

 Glamour Electric start

 Karizma

 PassionPro

 Passion Plus

 Splendor 

 Splendor +

 Hero Glamour

 Hero Splendorismart

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YAMAHA

 In November 1995 Yamaha Motor Corporation entered into a 50:50 joint venture with
the Escorts group.
 In August 2001 Yamaha Motor India Pvt. Ltd. (YMI) was incorporated as a 100%
subsidiary of Yamaha Motors Corporation.
 YMI's manufacturing facilities comprises of 2 state-of-art plants at Faridabad
(Haryana) and Surajpur (UP).
 The infrastructure at both the plants supports production of motorcycles for the
domestic as well as overseas market.

MODELS

 Crux 
 Crux r 
 Enticer 
 Fazer
 G5 
 Yd-125 
 Libero
 Libero lx 
 Rx 135 
 Rx-z 
 Ybx-125

ROYAL ENFIELD

 It came to India in 1949 with the launch of 350 cc Bullet.

 In 1955 the Enfield India Company was formed. 

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  In 1994, March Eicher Group acquired Enfield India Company and its name was
changed to Royal Enfield Motors Ltd. 

 The manufacturing of Royal Enfield is located at Tiruvottiyur in Chennai.

MODELS
 Bullet 350 

 Bullet 500 

 BulletElectraS 

 Bullet Electra 5S 

 Lightening 535 

 Machismo A350 

 Machismo Standard 

 Tarus

 Thunderbird

TVS

 Established in 1911 by Sri T.V. Sundaram Iyengar.

 TVS Motor Company's first launch was 50 cc Moped TVS 50 in August 1980.

 First Indian company to introduce 100 ccs Indo-Japanese Motorcycles in India in

1984.

 Also, the first Indian company to launch indigenous scooter in India in 1994.

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MODELS

 Centra

 Fiero F2 

 Fiero FX 

 Max 100/R

 Samurai 

 Scooty 

 Scooty Pep

 Spectra

 Star 

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 COMPANY PROFILE

GENERAL PROFILE

Hero Moto Corp 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 Moto Corp Ltd. continues to maintain this
position till date.

MISSION
Hero Moto Corp'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. 

VISION
The story of Hero Honda began with a simple vision - the vision of a mobile and an
empowered India, powered by its bikes. Hero Moto Corp 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. 

STRATEGY

Hero Moto Corp's key strategies are to build a robust product portfolio across
categories, explore growth opportunities globally, continuously improve its operational
efficiency, aggressively expand its reach to customers, continue to invest in brand building
activities and ensure customer and shareholder delight.

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TECHNOLOGY

In the 1980's the Company pioneered the introduction of fuel-efficient, environment

friendly four-stroke motorcycles in the country. It became the first company to launch the
Fuel Injection (FI) technology in Indian motorcycles, with the launch of the Glamour FI in
June 2006

Its plants use world class equipment and processes and have become a benchmark in
productivity. Hero Moto Corp, in its endeavor to remain a pioneer in technology, will
continue to innovate and develop cutting edge products and processes.

PRODUCTS

Hero Moto Corp offers wide range of two wheeler products that

include motorcycles and scooters, and has set the industry standards across all the market
segments. 

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 Moto Corp's
extensive sales and service network now spans over to 5000 customer touch points. These
comprise a mix of authorized dealerships, service & spare parts outlets and dealer-appointed
outlets across the country

BRAND

The new Hero is rising and is poised to shine on the global arena. Company's new
identity "Hero Moto Corp 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.

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MILESTONES
1983

 Joint Collaboration Agreement with Honda Motor Co. Ltd. Japan signed Shareholders
Agreement signed

1984

 Hero Honda Motors Ltd. incorporated

1985

 First motorcycle "CD 100" rolled out

1987

 100,000th motorcycle produced

1989

 New motorcycle model - "Sleek" introduced

1991

 New motorcycle model - "CD 100 SS" introduced 500,000th motorcycle produced

1992

 Raman Munjal Vidya Mandir inaugurated - A School in the memory of founder

Managing Director, Mr. Raman Kant Munjal.

1994

 New motorcycle model - "Splendor" introduced 1,000,000th motorcycle produced

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1997

 New motorcycle model - "Street" introduced Hero Honda's 2nd

manufacturing plant at Gurgaon inaugurated.

1998

 2,000,000th motorcycle produced

19990

 New motorcycle model "CBZ" introduced Environment Management System of

Dharuhera Plant certified with ISO-14001 by DNV Holland Raman Munjal
Memorial Hospital inaugurated - A Hospital in the memory of founder Managing
Director, Mr. Raman Kant Munjal.

2000

 4,000,000th motorcycle produced Environment Management System of Gurgaon

Plant certified ISO-14001 by DNV Holland Splendor declared 'World No. 1'
largest selling single two-wheeler model "Hero Honda Passport Programme" -
CRM Programme launched.

2001

 New motorcycle model - "Passion" introduced One million bikes in one single
year.

 New motorcycle model - "Joy" introduced.

 5,000,000th motorcycle produced.

2002

 New motorcycle model - "Dawn" introduced

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  New motorcycle model - "Ambition" introduced

 Appointed Virender Sehwag, Mohammad Kaif, Yuvraj Singh, Harbhajan Singh

and Zaheer Khan as Brand Ambassadors

2003

 Becomes the first Indian Company to cross the cumulative 7 million sales mark.
Splendor has emerged as the World's largest selling model for the third calendar
year in a row (2000, 2001, and 2002) new motorcycle model - "CD Dawn"
introduced

 New motorcycle model - "Splendor +" introduced

 New motorcycle model - "Passion Plus" introduced

 New motorcycle model - "Karizma" introduced

2004

 New motorcycle model - "Ambition 135" introduced. Hero Honda became the
World No. 1 Company for the third consecutive year. Crossed sales of over 2
million units in a single year, it is a global record. Splendor - World's largest
selling motorcycle crossed the 5 million mark

2005

 Hero Honda is the World No. 1 for the 4th year in a row

 New motorcycle model - "Super Splendor" introduced

 New motorcycle model - "CD Deluxe" introduced

 New motorcycle model - "Glamour" introduced

 New motorcycle model - "Achiever" introduced

 First Scooter model from Hero Honda - "Pleasure" introduced

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2006

 Hero Honda is the World No. 1 for the 5th year in a row 15 million
production milestone achieved

2007

 Hero Honda is the World No. 1 for the 6th year in a row

 New 'Splendor NXG' launched

 New 'CD Deluxe' launched

 New 'Passion Plus' launched

 New motorcycle model 'Hunk' launched

 20 million production mile-stone achieved

2008

 Hero Honda Haridwar Plant inauguration

 New 'Pleasure' launched

 Splendor NXG launched with power start feature

 New motorcycle model 'Passion Pro' launched

 New 'CBZ Xtreme' launched

 25 million production mile-stone achieved

 CD Deluxe launched with power start feature

 New 'Glamour' launched

 New 'GlamourFi' launched

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2009

 Hero Honda Good Life Program launched 

 Hunk' (Limited Edition) launched

 Splendor completed 11 million production land-mark

 New motorcycle model 'Karizma - ZMR' launched 

 Silver jubilee celebrations

2010

 New model Splendor Pro launched

 Launch of new Super Splendor and New Hunk

2011

 New licensing arrangement signed between Hero and Honda (Hero Honda
is renamed as Hero)

UNIQUE ACHIEVEMENTS
2011
Two-wheeler Manufacturer of the Year award by Bike India magazine Adjudged the
"Bike Manufacturer of the Year" at the Economic Times ZigWheels Car and Bike Awards.

CNBC Awaaz - Storyboard special commendation for "Effective rebranding of a new

Corporate entity" by CNBC Awaaz Consumer Awards "Most Recommended Two-Wheeler
Brand of the Year" award by CNBC Awaaz Consumer Awards Colloquy Loyalty
Awards "Innovation in LoyaltyMarketingInternational2011" for
HeroGoodLife.

30
"Best Activity Generating Short or Long-Term Brand Loyalty" by the Promotion Marketing
Award of Asia Order of Merit for Hero “Good Life” Ranked No 1 brand in the Auto (Two-
Wheelers) category in the Brand Equity "Most Trusted Brand"2011 survey.

2010

 Rated as Top Indian Company in Automobile - Two Wheelers sector by Dun

& Bradstreet - Rolta Corporate Awards 2009 

 Most Preferred Brand of Two-Wheelers" award at the CNBC Awaaz

Consumer Awards.

 Adjudged at top of the two-wheeler category in the Brand Equity. Most

Trusted Brands 2010. Survey Ranked No. 3. Most Trusted Brand across
categories amongst Young Adult Males; Company of the Year awarded by
Economic Times Awards for Corporate Excellence 2008-09

CNBC TV18 Overdrive Awards 2010 'Hall of Fame' to Splendor NDTV Profit Car & Bike
Awards 2010

 Two-wheeler Manufacturer of the Year

 Car and Bike Viewers’ Choice Two-wheeler of the Year (Karizma

ZMR)
 Bike Maker of the Year by ET-ZigWheels Car & Bike of the Year
Awards 2009

2009

'Two-wheeler Manufacturer of the Year' by NDTV Profit Car & Bike Awards
2009 and Passion Pro. Adjudged as Car and Bike Viewers' Choice. Two-wheeler Top Indian
Company under the 'Automobile - Two-wheelers' sector by the Dun & Bradstreet-Rolta
Corporate Awards Won Gold in the Reader's Digest Trusted Brand 2009 in the 'Motorcycles'
category.

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 NDTV Profit Business Leadership Awards 2009 - two-wheeler category
2008.NDTV Profit Business Leadership Award 2008 - Hero Honda Wins the Coveted
"NDTV Profit Business Leadership Award 2008" Top Gear Design Awards 2008 - Hunk
wins Bike of the Year.

NDTV Profit Car India & Bike India Awards - NDTV "Viewers' Choice
Award" to Hunk in Bike category India Times Mindscape and Savile Row ( A Forbes Group
Venture ) Loyalty Awards - "Customer and Brand Loyalty Award" in Automobile (two-
wheeler) sector.

Asian Retail Congress Award for Retail Excellence (Strategies and Solutions of

business innovation and transformation) - Best Customer Loyalty Program in Automobile
category. NDTV Profit Car India & Bike India Awards - Bike Manufacturer of the
year. Overdrive Magazine - Bike Manufacturer of the year.

 TNS Voice of the Customer Awards:

 No.1 executive motorcycle Splendor NXG

 No.1 standard motorcycle CD Deluxe
 No. premium motorcycle CBZ Xtreme

2007

The NDTV Profit Car India & Bike India Awards 2007 in the following category:

 Overall "Bike of the Year" - CBZ X-treme

 "Bike of the Year" - CBZ X-treme (up to 150 cc category)
 "Bike Technology of the Year" - Glamour PGM FI

"Auto Tech of the Year" - Glamour PGM FI by Overdrive Magazine

"Bike of the Year" - CBZ Xtreme by Overdrive Magazine

32
Ranked CBZ Xtreme "Bike of the Year" - by B S Motoring Magazine

"Most Trusted Company", by TNS Voice of the Customer Awards 2006.

CD Deluxe rated as "No 1 standard motorcycle" by TNS Voice of the Customer
Awards2006.

2006

Adjudged 7th Top Indian Company by Wall street Journal Asia (Top Indian Two-
Wheeler Company) one of the 8 Indian companies to enter the Forbes top 200 list of world's
most reputed companies. 

No. 1 in automobile industry by TNS Corporate Social Responsibility Award.

Best in its class awards for each category by TNS Total Customer Satisfaction
Awards 2006: 

 Splendor Plus (Executive)

 CD Deluxe (Entry)
 Pleasure (Gearless Scooters)

 Splendor & Passion - Top two models in two-wheeler category by ET Brand Equity
Survey 2006.

 Adjudged 7th Top Indian Company by Wall street Journal Asia (Top Indian Two-
Wheeler Company)

 Top Indian company in the Automobile - Two-Wheeler sector by Dun &

Bradstreet - American Express Corporate Awards 2006

 Hero Honda Splendor rated as India's most preferred two-wheeler brand at the Awaaz
Consumer Awards 2006. 

33
  Certificate of Export Excellence for outstanding export performance during 2008-09
for two-wheeler& three- wheelers - Complete (Non SSI) by Engineering Export
Promotion Council.

The NDTV Profit Car India & Bike India Awards 2006 in the following category:

 Bike Maker of the Year.

 Bike of the Year – Achiever.
 Bike of the Year - Achiever (up to 150 cc category).
 Bike of the Year - Glamour (up to 125 cc category).
 NDTV Viewers' Choice Award to Glamour in the bike category.

2005

 Awaaz Consumer Awards 2005 - India's most preferred two-wheeler brand by

CNBC in the 'Automobiles' category.

 Bike Maker of the Year Award by Overdrive Magazine ICWAI National Award
for Excellence (Second) in Cost Management 2004 in the private sector category
by ICWAI.

 10th Motilal OswalWealth Creator Award for as the most consistent Wealth
creator for the period 1991-2005.

2004

 Winner of the Review 200 - Asia's Leading Companies Award (3rd Rank
amongst the top 10Indian companies).

 GVC Level 1 (Highest Rating) by CRISIL for Corporate Governance

 Adjudged as the Best Value Creator - Large Size Companies 2008-09 by the
Outlook Money Corporate Excellence Award 2004 by Indian Institute of
Materials Management.

34
2003

 Winner of the Review 200 - Asia’s Leading Companies Award (3rd Rank amongst
the top 10 Indian companies). Most Respected Company in Automobile Sector by
Business World.

 Bike Maker of the Year by Overdrive Magazine.

2002

 Bike Maker of the Year by Overdrive Magazine.

 Winner of the Review 200 - Asia’s Leading Companies Award (4th Rank amongst
the top 10 Indian companies).

 Company of the Year of ET Awards for Corporate Excellence.

 Ranked 4th in 'Overall Best Managed Company' category, ranked 3rd in Best
Financial Management' and 'Best Operational Efficiency' category, and ranked 6th
in 'Overall Best Investor Relations' category, by Asia money.

2001

 Bike Maker of the Year by Overdrive Magazine.

 Winner of the Review 200 - Asia’s Leading Companies Award (9th Rank amongst
the top 10 Indian Companies).

 Winner of Three Leaves Award for showing Corporate Environment Responsibility in

the Automobile Sector by Centre for Science & Environment.

1999

 National Productivity Award for the Best Productivity Award in the category of
Automobile & Tractor presented by Vice President of India.

35
SWOT ANALYSIS
Strengths:

 HERO brand name.

 Ability to launch product quickly.
 Tremendous growth in manufacturing capacity from 3 million to 25 million bearing
in a short period.
 Presently have a wide spectrum of satisfied customers all over the country.
 Exceptional quality of bearings.

Weakness:

 Does not have a wide product range.

 Technical tie – up is not there.
 Product validation.
 Dependency on limited number of customers.
 Rising cost.

Opportunities:

There is a tremendous opportunity for expansion in the bearing industry.

 The company has also scope in the international market.

 Collaboration with other domestic firms for expansion and for approaching new
customers.
 Expanding into untouched market.

Threats:

 Competitive price.
 Challenge of maintaining quality.

36
BOARD OF DIRECTORS

Name Designation

Mr.Pawan Munjal Chairman Managing Director & CEO

Mr. Suman Kant Munjal Non-Executive Director

GEN. (RETD.) V P Malik Ind. Non-Executive Director

Mr.M Damodaran Ind. Non-Executive Director

Mr.Pradeep Dinodia Ind. Non-Executive Director

Dr.Anand C Burman Ind. Non-Executive Director

Name Designation

Ms. Shobana Kamineni Non-Executive and Independent Director 

Sunil Kant Munjal Joint Managing Director

Mr.Paul Edgerley Non-Executive Director

Analjit Singh Ind. Non-Executive Director

Mr.Ravi Nath Ind. Non-Executive Director

Dr.Pritam Singh Ind. Non-Executive Director

QUALITY POLICY
Excellence in quality is the core value of Hero Moto Corp philosophy. 
Hero Motor Corp are committed at all levels to achieve high quality in whatever Hero Motor
Corp do, particularly in products and services which will meet and exceed customer's
growing aspirations through:

37
  Innovation in products, processes and services.
 Continuous improvement in our total quality management systems.
 Teamwork and responsibility.

ENVIRONMENT POLICY

Hero Moto Corp have been committed to demonstrate excellence in environmental

performance on a continuous basis, as an intrinsic element of our corporate.

To achieve this Hero Motor Corp commits to:

 Integrate environmental attributes and cleaner production in all business processes

and practices with specific consideration to substitution of hazardous chemicals
and strengthening the greening of supply chain.
 Continue product innovations to improve environmental compatibility.
 Comply with all applicable environmental legislation and also controlling our
environmental discharges through the principles of "alara" (as low as reasonably
achievable).

HEALTH AND SAFETY POLICY

Hero Motor Corp believe that safe work practices lead to better business performance,
motivated workforce and higher productivity. 

Hero Motor Corp shall create a safety culture in the organization by: 

 Integrating safety and health matters in all activities.

38
 Promoting safety and health awareness amongst employees, suppliers and
contractors.
 Continuous improvements in safety performance through precautions besides
participation and training of employees.
 Ensuring compliance with all applicable legislative requirements.
 Empowering employees to ensure safety in their respective work places.

CHAPTER-3
39
  THEORETICAL FRAMEWORK

THEORETICAL FRAMEWORK
INTRODUCTION:

Financial analysis is the process of determining financial strengths and weakness of the
company by establishing strategic relationship between the components of Balance Sheet and
Profit and loss statement and other operative data. Financial analysis is, thus, an attempt to
dissect the financial statements into their components on the basis of the purpose in hand and
establish relationship between individual components and totals of these items, on the other.
Alongside this, a study of trends of various important factors over the past several years is also
undertaken of changing profitability and financial condition of the business organization.

40
 The analysis of financial statements involves the three major steps:

1. The first step is the reorganization and rearrangement of the entire financial data as
contained in the financial statements. This calls for the breaking down of individual
components of financial statements and regrouping them into few principal elements
according to their resemblances and affinities. Thus, the balance sheet and profit and loss
account are completely recasted and presented in the condensed form entirely different
from the original shape.
2. The next step is the establishment of significant relationships between the individual
components of balance sheet and profit and loss account. This is done through application
of tools of financial analysis like common size statement, ratio analysis, trend analysis,
fund flow statement, etc.
3. Finally, significance of result obtained by means of financial tools is evaluated. This
requires establishment of standard against which actual are evaluated.

TYPES OF ANALYSIS:
Two types of analysis are undertaken to interpret the financial position of an enterprise, are:

1. Analysis of relationship as between different individual components and their totals for a
given period of time. Such an analysis is known as ‘vertical Analysis’. Since this sort of
analysis examines relationship as between different components for a given point of time
and does not shed light on the changing behaviour of the above relationships, it is also
regarded as ‘static Analysis’. Comparison of current assets to current liabilities or
comparison of debt to total assets for one point of time is concrete example of vertical
analysis.
2. Analysis of changes in different components of the financial statements over different
periods with the help of series of the statements. This sort of analysis is known as
‘Horizontal Analysis’. Such an analysis makes it possible to study periodic fluctuations
in different components of the financial statements. Study of trends in debt or share
capital or in their relationship over the past ten years periods or study of profitability
trends for a period five or ten years are examples of horizontal type of analysis.

41
 Horizontal analysis is also known as ‘Dynamic Analysis’ since this reflects changes in
financial position of the firm over a long period of time.

Methods employed to examine the vertical as well as horizontal relationships of different

financial variables with a view to studying profitability and financial position of a business
firm are called ‘techniques of financial analyses. A number of techniques are used to
undertake financial analysis. Important among these are: Common size statement, Ratio
Analysis, Trend Analysis, Funds flow Analysis and Break-even Analysis.

UTILITY OF FINANCIAL ANALYSIS:

Financial analysis seeks to spotlight the significant facts and relationships concerning
managerial performance, corporate efficiency, financial strengths and weakness and
creditworthiness of the company.

The tools of analysis are used to study accounting data to determine the continuity of the
operating policies, investment value of the business, credit ratings and testing the efficiency
of operations. A finance manager must equip himself with the different tools of analysis in
order to reach rational decisions for the firm. These tools of analysis are immensely helpful
to the finance manager in carrying out his planning and controlling functions. While
preparing financial plan for the firm, finance manager must know the impact of financial
decision he is taking on financial condition and profitability of the business enterprise. The
techniques of financial analysis can serve as handmade to the management in determining the
effect of his decisions. These techniques are equally useful in the sphere of financial control
in as much as they enable the finance manager to make constant reviews of the actual
financial operations of the firm as a whole and of the various divisions of the firm against the
performance of balance sheet and profit and loss statement and to analyze the causes of
major deviations which result in corrective action where indicated. Thus, with the help of
tools of financial analysis, finance manager can rationalize his decisions and achieve the
business goal easily.

The utility of tools of financial analysis is not limited to the finance manager. They are
equally useful to the top management, creditors, investors and laborers.

42
 By analyzing and interpreting financial statements, top management can measure the
success or otherwise of a company’s operations, determine the relative efficiency of various
departments, processes and products, appraise the individual’s performance and evaluate the
system of internal control.

It is not necessary to employ all the techniques for analytical purposes. The choice of a
particular tool would depend, by and large, on the purpose in hand. A technique that is used
frequently by an analyst may not prove useful to other analysts because of differences in the
particular interests of the analysts.

TOOLS OF FINANCIAL ANALYSIS:

1. Ratio Analysis
2. Trend Analysis
3. Funds flow Analysis
4. Cash flow Analysis
5. Comparative Analysis
6. Common size Analysis

RATIO ANALYSIS

Ratios are among the best known and most widely used tools of financial analysis. Ratio
is defined formally as “the indicated quotient of two mathematical expressions.” An operational
definition of a financial ratio is the relationship between two financial values. The word
relationship implies that a financial ratio is the result of comparing mathematically two values.
A company’s total asset turnover is calculated by dividing the company’s total asset value into
its sales figure. This ratio is the quantified relationship between sales and total assets. The
resulting figure is also an index because it tells us how many times the value of total assets was
incorporated into the firm’s products.

43
 It is worthwhile to mention that the ratio must express a relationship that has significance.
Thus, there is a clear-cut direct and understandable relationship between the sale price of an item
on the one hand and its cost on the other hand. Consequently, ratio of cost of goods sold to sales
is a significant one. In a sharper contrast to this, there is no understandable relationship between
freight costs incurred and the marketable securities held by an enterprise and hence a ratio of one
to the other has no significance.

When the relationship between two figures of the balance sheet is established, the ratio
thus calculated is called “Balance Sheet Ratios.” The ratio of current assets to current liabilities
is an example of balance sheet ratio. If relationship between the figures of profit and loss account
is established, the result so found is regarded as “Income Statement Ratio.” When the
relationship of figures in the profit and loss account and the balance sheet is established, e.g., the
ratio of net profit to capital employed, the ratio is known as “Inter Statements Ratio.”

44
Significance of Ratio as Tool of Financial Analysis:

An absolute figure does not convey anything unless it is related with the other relevant
figure. Magnitude of current liabilities of a company does not tell anything about solvency
position of the company. It is only when it is related with current assets figures of the same
company an idea about the solvency position of the company can be held. Ratios make a humble
attempt in this direction.

Ratios are significant both in vertical and horizontal analysis. In vertical analysis, ratios
help the analyst to form a judgement whether performance of the firm at a point of time is good,
questionable or poor. Likewise, use of ratios in horizontal analysis indicates whether the
financial condition of the firm over a period of time is improving or deteriorating and whether
cost, profitability or efficiency is showing an upward or downward trend.

Analysis of ratio involves two types of comparison:

First, a comparison of present ratio with the past and expected future ratios for the same
firm. When financial ratios for several preceding years are computed, the analyst can determine
the composition of changes and determine whether there has been an improvement or
deterioration in the financial position of the firm over the period of time. The second method of
comparison involves comparing the ratios of the company with those of similar type of company
or with industry averages at the same point of time. Such a comparison would provide
considerable insight into the relative financial condition and performance of the company.

ADVANTAGES:
 Simplifies financial statements:
Ratio Analysis simplifies the comprehension of financial statements. Ratios tell the whole
story of changes in the financial condition of the business. It gives reader full idea about over all
situations of the firm without going deep in to the financial statement.

45
 Facilitates inter – firm comparison:
Ratio Analysis provides data for inter – firm comparison. Ratios highlight the factors
associatedwith successful and unsuccessful firms.They also reveal strong firms and overvalued
and undervalued firms.

 Makes intra – firm comparison possible:

Ratio Analysis also makes possible comparison of the performance of the different divisions
ofthe firm. The ratios are helpful in deciding about their efficiency or otherwise in the past
andlikely performance in the future.

 Helps in planning:
Ratio analysis helps in planning and forecasting. Over a period of time a firm or
industrydevelops certain norms that may indicate future success or failure. If relationship
changes infirm’s data over different time periods, the ratios may provide clues on trends and
futureproblems.

 Helps in decision making:

Sometimes ratio may indicate better guideline for decision making.

LIMITATIONS

 Comparative study required:

Ratios are useful in judging the efficiency of the business only when they are compared
withthe past results of the business or with the results of a similar business. However, such
acomparison only provides a glimpse of the past performance, and forecasts for future may
notbe correct since several other factors like market conditions, management policies,
competition,local factors etc., may affect the future operations.

46
 Ratios alone are not adequate:
Ratios are only indicators; they cannot be taken as final judgment regarding good or bad
financial position of the business. Other things have also to be seen. For example, a high current
ratio does not necessarily mean that the concern has a good liquid position in case current
assets mostly comprise of outdated stocks.

 Window dressing:
The term window dressing means manipulation of accounts in a way so as to conceal
vital facts and present the financial statements in a way to show a better position than what it
actually is. On account of such a situation, presence of a particular ratio may not be a definite
indicator of good or bad management. For example, a high stock turnover ratio is generally
considered to be an indication of operational efficiency of the business.

 Problems of price level changes:

Financial analysis based on accounting ratios will give misleading results if the effects of
changes in price level are not taken into account. For example, two companies set up
indifferent years, having plant and machinery of different ages, cannot be compared, on the
basis of traditional accounting statements. This is because the depreciation charged on plant
and machinery in case of old company would be at a much lower figure as compared to the
company which has been set up recently.

 No fixed standards:
No fixed standards can be laid down for ideal ratios. For example, current ratio is
generally considered to be ideal if current assets are twice the current liabilities. However, in
case of those concerns which have adequate arrangements with their banks for providing funds
when they require, it may be perfectly ideal if current assets are equal to slightly more than
current liabilities.

47
 It is therefore necessary to avoid many rules of thumb. Financial analysis is an individual
matter and value for a ratio which is perfectly acceptable for one company or one industry may
not be at all acceptable in case of another.

 Inaccurate base:
The accounting ratios can never be more correct than the information from which they
are computed. If the accounting data is not accurate, the accounting ratios based on these
figures would give misleading results.

CLASSIFICATION OF RATIOS:
Ratio as tools of measuring liquidity, profitability, efficiency and financial position of a
company can be classified into four basic categories:

 Liquidity Ratios
 Leverage Ratios
 Activity Ratios
 Profitability Ratios

LIQUIDITY RATIOS:
Liquidity refers to the ability of a firm to meet its obligations in the short run, usually one
year. Liquidity ratios are based on the relationship between current assets and current liabilities.,
a firm should ensure that it does not suffer from lack liquidity, and also that it is not too much
highly liquid. The failure of a company to meet its obligations due to lack of sufficient liquidity
will result in bad credit image loss of creditor’s confidence, or even in law suits resulting in the
closure of the company. The most common ratios, which indicate the extent of liquidity or lack
of it, are:

 Current ratio
 Quick ratio
 Cash or absolute liquid ratio

48
Current Ratio:
The current ratio is calculated by dividing current assets by current liabilities. Current
assets include cash and those assets which can be converted into cash within a year such as
marketable securities, debtors and inventories, prepaid expenses are also included in current
assets as they represent the payments that will have not to be made by the firms in near future.

All obligations maturing within a year are included in current liabilities. Thus, current
liabilities include creditors, short term, bank loan, income tax liability and long-term debt
maturing in the current year. The current ratio is a measure of the firm’s short-term solvency.
The current ratio represents a margin of safety.

Current ratio = current assets/current liabilities

Quick Ratio:

This ratio establishes a relationship between quick or liquid assets and current liabilities.
An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss
of value. Cash is the most liquid asset. Other assets are book debts and marketable securities.
Inventories are considered to be less liquid. Inventories normally require sometime of realizing
into cash; their value also has a tendency tofluctuate. Dividing the total of the quick assets by
total current liabilities forms the quick ratio.

Quick Ratio = Quick assets/current liabilities

Cash (or) Absolute Liquid Ratio:

The absolute liquid ratio shows the relationship between absolute liquid assets and
current liabilities. The components of the ratio are highly liquid assets and current liabilities.
Absolute liquid assets include cash and near cash assets. It indicates the ability of the firm to
meet the short-term obligations immediately without any loss in realization of assets.

Absolute liquid ratio = Absolute liquid assets/current liabilities

49
LEVERAGE RATIOS:

The short-term creditors like bankers and suppliers of 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
strength. To fudge the long-term financial position of the firm, financial leverage ratios are
calculated. These ratios indicate mix funds provided by owners and lenders. As a general rule,
these should be an appropriate mix of debt and owner’s equity financing the firm’s assets. The
firm has a legal obligation to pay interest to debt-holders, irrespective of the profits made or
losses incurred by the firm. Employment of debt is advantageous for shareholders. The process
of magnifying the shareholder’s return through the employment of debt is called “financial
leverage”.

Debt-Equity Ratio:

Total debt ratio is used to know the proportion of the interest-bearing debt in capital
structure. One can compute debt ratio by capital employed or total net assets.

Debt ratio = Total debt + Net worth

Proprietary Ratio:

Proprietary ratio establishes the relationship between shareholders’ funds to total assets
of the firm. It indicates what part of the total assets is financed by shareholder’s funds.

Proprietary ratio = shareholder’s fund (or) Net worth/Total assets

The components of net worth include share capital, reserves and surplus excluding
miscellaneous expenditure not written off and accumulated losses.

The components of total assets include fixed assets and current assets.

50
Capital Gearing Ratio:

The capital-gearing ratio indicates the relationship between fixed income bearing funds to
equity shareholders fund. It indicates about sources available to raise funds.

Capital gearing ratio = Fixed income bearing funds/Equity shareholder fund

Capital gearing ratio = Secured loans + unsecured loans/Equity shareholder’s funds

Interest Coverage Ratio:

Interest coverage ratio is used to test the firm’s debt-servicing capacity. The interest
coverage ratio is computed by dividing earnings before interest and taxes (EBIT) by interest
charges.

Interest coverage ratio = EBIT/Interest

The interest coverage ratio shows the number of times, the interest charges are covered
by funds that are ordinarily available for their payment.

Debt to Total Capital Ratio:

The relationship between creditor’s funds and owners’ capital can be expressed in terms
of another leverage rates. This is the debt to total capital ratio. The outside liabilities are related
to the total capitalization of the firm and not merely to the shareholder’s equity.

Debt to total capital ratio = Long-term debt/ Permanent capital

Dividend Coverage Ratio:

It measures the ability of a firm to pay dividend on preference shares, which carry a
stated rate of return. This ratio of net profit after tax (EAT) and the amount of preference
dividend.

Debt to total capital ratio = Earnings after tax/Preference dividend

51
ACTIVITY RATIOS:

Activity ratios also referred as turnover ratios measure how efficiently a firm employs the
assets. These ratios are based on the relationship between the level of activity, represented by the
sales or cost of goods sold, and levels of various assets. A proper balance between sales and
assets generally reflects that assets are managed properly.

Inventory Turnover Ratio:

This ratio indicates the efficiency of the firm in selling its products. It is calculated by
dividing the cost of goods sold by the average inventory. The higher the ratio, the more efficient
the management of inventories and vice versa.

Inventory turnover = Cost of goods sold/Average inventory

Debtors Turnover Ratio:

This ratio shows how many times accounts receivable turns over during the year. Book
debts are expected to be converted into cash over a short period and they included in current
assets. The liquidity position of the firm depends on the quality of debtors to a great extent.

Debtors turnover ratio = Net Sales/Average debtors

The debtor’s turnover indicates the number of times on the average of debtor’s turnover
each year. Generally, the higher the value of the debtor’s turnover, the more efficient is the
management of credit.

Debtors Average Collection Period:

The average collection period represents the number of days’ worth of credit sales that is locked
in debtors. It is defined as:

Average collection period = Average debtors/Average daily credit sales

52
Total Assets Turnover Ratio:

This ratio measures sales per rupee of investment in total assets. A high rate indicates a
high degree of efficiency in asset utilization and low ratio reflects inefficient use of asset.

Total asset turnover = Net sales/Average total assets

Net Working Capital Ratio:

The difference between current assets and current liabilities is called net working capital
(NWC). Net working capital is used as a measure of a firm’s liquidity. Net working capital
measures the firm’s potential reservoir of funds. It can be related to net assets or capital
employed.

Net working capital ratio = Net working capital/Net assets

PROFITABILITY RATIOS:

The management of the firm is naturally eager to measure its operating efficiency.
Similarly, the owners invest their funds in the expectation of reasonable returns. The operating
efficiency of a firm and its ability to ensure adequate returns to its shareholders/owners depends
on the profits earned by it. The profitability of a firm can be measured by its profitability ratios.

1. Profitability ratios in relation to sales.

2. Profitability ratios in relation to investment.

PROFITABILITY RATIOS IN RELATION TO SALES:

Gross Profit Ratio:

The first profitability ratio in relation to sales in the gross profit margin.

Gross profit ratio = Gross Profit/Sales*100

A high ratio of gross profit to sales is a sign of good management as it implies that the
cost of production of the firm is relatively low. A relatively low gross margin is a danger sign
warranting a careful detailed analysis of the factors responsible for it.

53
Net Profit Ratio:
It is known as a net margin. This measures the relationship between net profits and sales
of a firm.

Net profit ratio = Earnings after interest and taxes/Net sales*100

The net profit margin is indicative or management’s ability to operate the business with
sufficient success not only to recover from revenues of the period, the cost of merchandise of
services, but also to leave a margin of reasonable compensation to the owners for providing their
capital at risk.

Operating Expenses Ratio:

The operating expenses ratio is an important ratio that explains the changes in the profit
margin (EBIT to sales). This ratio is computed by dividing operating expenses by sales.

Operating expense ratio = Operating expenses/Sales*100

PROFITABILITY RATIOS IN RELATION TO INVESTMENT:

Return on Assets (ROA):
The profitability ratio is measured in terms of the relationship between net profits and
assets. The ROA may be called profit to-asset ratio.

ROA = Net profit after taxes/Average total assets*100

Return on Equity:
Return on equity shows the relationship between net profit after tax (excluding preference
dividend) and equity shareholders fund. It is an indicator of the efficiency with which the equity
capital is employed in concern.

Return on equity = Net profit after tax/Equity shareholder’s fund*100

54
Earnings per Share:

The earning per share shows the relationship between profit and after tax (excludes preference
dividend) and number of equity shares. It isan indicator of the per share profitability.

Earnings per share = Net profit after tax/No. Of equity shares*100

Return on Capital Employed (ROCE):
The profits are related to the total capital employed in the returnon capital employed. Thus, the
capital employed basis provides test of profitability related to the sources of long-term funds. A
comparison of this ratio with similar firms with the industry average and over time would
provide sufficient insight into how efficiently the long-term funds of owners and lenders are
being used. The higher the ratio, the more efficient is the use of capital employed.

ROCE = Earnings before interest and taxes/Average total capital employed*100

Return on Shareholder’s Equity:

This profitability ratio carries the relationship of return to the sources of funds yet
another step further. The return on shareholder’s equity measures exclusively the return on the
owner’s funds.

55
 CHAPTER-4
 DATA ANALYSIS AND INTERPRETATION

56
 RATIO ANALYSIS

CURRENT RATIO:
A current ratio of 2:1 is considered to be ideal. The ratio is an indicator of firm’s
commitment to meet its short-term liabilities. It indicates the rupees if current assets
available for each rupee of current liability. The higher is current ratio the higher the funds
available for a rupee of current liability. As a convention rule, a current ratio of 2:1 or more
is considered satisfactory.

The higher is the current ratio the higher the funds available for a firm

Year Current assets Current liabilities Current ratio

2013-14 4082.01 3998.79 1.02

2014-15 4083.58 3699.99 1.10

2015-16 4237.60 3808.72 1.11

2016-17 13701.89 5453.66 2.51

2017-18 36962.44 6768.78 5.46

Current Ratio = Current Assets / Current Liabilities

57
INTERPRETATION:
The current ratio of Hero Motors was 1.02 in the year 2013-14 where in the year 2014-15

it was increased to 1.10. It finally reached to 5.46 in the year 2017-18.

CURRENT RATIOS IN VARIOUS YEARS

45000

40000

35000

30000

25000

20000

15000

10000

5000

0
Year 2013- 2014- 2015- 2016- 2017-
14 15 16 17 18

58
 2. Quick Ratio:

Quick Ratio = Quick Assets / Current Liabilities

Year wise Quick Assets & Current Liabilities

Year Quick Assets Current Liabilities Ratio

2013-14 826.01 512.8 1.61

2014-15 1003.95 730.57 1.37

2015-16 978.59 878.23 1.11

2016-17 829.84 677.73 1.22

2017-18 1795.56 878.89 2.04

INTERPRETATION:
The quick ratio of Hero motors was favorable in the years of 2013-14 as 1.61, where
as in the year of 2014-15, it was in decreased to 1.37 and in the year of 2016-17, it was
increased to 2.04 in the year 2017-18.

6000

5000

4000

3000

2000

1000

0
Year 2006- 2007- 2008- 2009- 2010-
07 08 09 10 11

59
 3. Sales to Net Working Capital Ratio :-
Sales

Sales to Net Working Capital Ratio =

Net Working Capital

Year Sales Net Working

(Rs. in Lakhs) Capital Ratio

2013-14 5214.83 1020.05 5.11

2014-15 6553.88 1264.25 5.18

2015-16 8746.55 1511.32 5.79
2016-17 6497.69 1316.70 4.93
2017-18 10157.83 1954.74 5.19

INTERPRETATION:

The ratio indicates the relationship between the sales and the net working capital.
Hero Motor Corp ltd has increased over the years. It has decreased to 4.93 in the year of
2012-13.

25000

20000

15000

10000

5000

0
Year
2006- 2007- 2008- 2009- 2010-
07 08 09 10 11

4. Working Capital Turnover Ratio:

60
Working Capital Turnover Ratio =

Net Sales / Net working capital Year wise Net Sales & Net Current Assets
(Rs in lakhs)

YEAR NET SALES NET WORKING CAPITAL RATIO

2012-13 12716 187753 6.77
2013-14 16619.65 2562.24 6.48
2014-15 24362.28 8060.06 3.02
2015-16 26102.74 9660.47 2.70
2016-17 26935.09 8222.72 3.27
2017-18 39901.34 11448.58 3.49
INTERPRETATION:

This ratio helps to know as many times the working capital is used in its business. It is
6.77 in the year 2012-13-. It come down slowly during the years 2013-14 & 2015-16and 2017-
2018. It again decreases to 2.70 in 2012-13. Again up high to 3.49 in the year 2017.18. It shows
that the investment in net working capital is not satisfactory.

250000

200000

150000
RATIO
NET WORKING CAPITAL
100000 NET SALES

50000

0
2012- 2013- 2014- 2015- 2016- 2017-
13 14 15 16 17 18

5. Inventory Turnover Ratio

61
Inventory Turnover Ratio = Net Sales / Inventories

Year wise Net Sales & Net Current Assets (Rs in lakhs)

YEAR NET SALES INVENTORIES RATIO

2012-13 12716 1891.03 6.72:1
2013-14 16619.65 1714.77 9.69:1
2014-15 24362.28 2231.30 10.92:1
2015-16 26102.74 2408.82 10.52:1
2016-17 26935.09 2312.71 11.65:1
2017-18 39901.34 5312.22 7.51:1

INTERPRETATION:

It is also called stock turnover ratio. It indicates the number of times the average stock is
being sold during a given account period. The higher the inventory turnover ratio, the better is
the performance of the firm in selling its stocks. The inventory turnover ratio in the year 2012-13
is 6.72:1.and it was increased yearly as shown. It was as high as 11.65 in 2016-2017. It came
down to 7.51 in 2017-18. As a whole, the inventory ratio is satisfactory.

Chart Title
6
5
4 2017-18 39901.34 5312.22

3
2
1
0
RATIO 6.72:1 9.69:1 10.92:1 10.52:1 11.65:1

6. Fixed Assets Turnover Ratio:

Fixed Assets Turnover Ratio = Net Sales / Fixed Assets

62
Year wise Net Sales & Fixed Assets (Rs in lakhs)

YEAR NET SALES FIXED ASSETS RATIO

2012-13 12716 1950.87 6.52:1
2013-14 16619.65 1728.23 9.62:1
2014-15 24362.28 1105.12 22.04:1
2015-16 26102.74 1856.99 14.06:1
2016-17 26935.09 1715.75 15.09:1
2017-18 39901.34 3070.92 12.99:1

INTERPRETATION:

This ratio is used to highlight the extent of utilization of the company’s plant machinery. The
ratio is 6.52 in 2013-14. It went up to 9.62 & 22.04 in the two years 2014-15 and 2015-16. But
again it came down to 14.06 and 15.09 in 2016-17-&2016-17. But come down a little to 12.99 in
2017-18. As a whole, it shows a good utilization of fixed assets (Plant & Machinery).

2017-18 39901.34 3070.92

1
0.8
2017-18 39901.34 3070.92
0.6
0.4
0.2
0
RATIO 6.52:1 9.62:1 22.04:1 14.06:1 15.09:1

7. Current assets to fixed assets ratio:

This ratio helps in understanding firm’s investment in current assets and fixed assets
and its liquidity preference.

63
 Year Current assets Fixed assets Ratio

2013-14 4082.01 7857.85 0.51

2014-15 4083.58 9112.24 0.44

2015-16 4237.60 9865.05 0.42

2016-17 13701.89 11040.56 1.24

2017-18 36962.44 12623.56 2.92

INTERPRETATION:
By analyzing the above data Hero Motor Corp can say that the organizations current assets
are increasing constantly. Whereas the fixed assets of the organization is decreasing
gradually this affects the ratio to increase year by year.

100%
90%
80%
70%
60% 2017-18
2016-17
50%
2015-16
40% 2014-15
30% 2013-14
20%
10%
0%
Current Fixed assets Ratio
assets

8. Return on Capital

Return on Capital =Net Profit after Interest before Tax / Fixed Assets

Year wise NPAIBT& Share Capital (Rs in lakhs)

64
 YEAR NPAIBT SHARE CAPITAL RATIO
2012-13 782.01 1950.87 0.40:1
2013-14 1242.07 1728.23 0.72:1
2014-15 7919.39 1105.12 7.17:1
2015-16 4124.28 1856.99 2.22:1
2016-17 2186.29 1715.75 1.27:1
2017-18 4983.34 3070.92 1.62:1

INTERPRETATION:

This ratio shows overall performance of a corporation. It is 0.40 in 2005-06 and it went
up in its next two years 0.72&7.17 in 2014-15&2015-08, again it came down to 1.27 in 2016-17
and 1.62 in 2017-18. It represents an unsatisfactory utilization of funds.

Chart Title
6
5
4 2017-18 4983.34 3070.92

3
2
1
0
RATIO 0.40:1 0.72:1 7.17:1 2.22:1 1.27:1

9. Proprietary Ratio

Proprietary Ratio =Shareholders Fund*100/ Total Assets

Year wise Shareholders Fund Total Assets (Rs in lakhs)

YEAR SHAREHOLDERS FUND TOTAL ASSETS RATIO

2012-13 14030.94 1984.50 707
2013-14 14030.65 1761.89 796

65
 2014-15 13323.51 1138.70 1170
2015-16 13323.51 1877.13 709
2016-17 13323.51 3285.63 405
2017-18 13819.88 4946.93 279

INTERPRETATION:

The idle ratio is 1:3. Here it is more than 1/3. It is 707 in 2012-13 and it increased to 1170
in 2014-15.and it decreased to 709 & 405 and 279 in 2015 -16 to 2017-2018.It means it using a
major portion of shareholders’ funds for purchase of total assets.

20000
18000
16000
14000
12000 RATIO
10000 TOTAL ASSETS
SHAREHOLDERS FUND
8000
6000
4000
2000
0
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

10. Fixed Assets Ratio

Fixed Assets Ratio =Fixed Assets*100 / Shareholders Fund

Year wise Fixed Assets & Shareholders Fund (Rs in lakhs)

YEAR FIXED ASSETS SHAREHOLDERS FUND RATIO

2012-13 1950.87 14030.94 13.90
2013-14 1728.23 14030.65 12.32
2014-15 1105.12 13323.51 8.29
2015-16 1856.99 13323.51 13.94
2016-17 1715.75 13323.51 12.88

66
 2017-18 3070.92 13819.88 22.22

INTERPRETATION:
This ratio explains if fixed assets have been brought from proprietor’s funds or not. This
ratio shows if percentage of proprietor’s funds locked up in fixed assets namely for in detail
establishment, this can be 22 percent of the proprietors funds. It is 13.90 in 2014-15. Even
though it is ratio to 12.32 in the year 2015-16 but came down drastically in the next 3 year. It’s
almost touched 22.22 in the year 2017-18. So steps should be taken to improve this position.

18000
16000
14000
12000
RATIO
10000 SHAREHOLDERS FUND
8000 FIXED ASSETS
6000
4000
2000
0
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

11. Current Assets to Fixed Assets Ratio

Current Assets to Fixed Assets Ratio =Current Assets / Fixed Assets

Year wise Current Assets & Fixed Assets (Rs in lakhs)

YEAR CURRENT ASSETS FIXED ASSETS RATIO

2012-13 4179.18 1950.87 2.14
2013-14 5496.83 1728.23 3.18
2014-15 11636.21 1105.12 10.53
2015-16 13275.41 1856.99 7.16

67
 2016-17 14029.31 1715.75 8.18
2017-18 20373.92 3070.92 6.63

INTERPRETATION:

There is no standard ratio for this. It differs from one industry to another. It is 2.14 in the
year 2012-13. It went up slowly during the year 2013-14 and 2014-15.Again it fall down to 8.18
and 6.63 during two years 2016-17 and 2017-18. It indicates that business is grip on average or
mechanization is introduced rapidly.

25000

20000

15000 RATIO
FIXED ASSETS
CURRENT ASSETS
10000

5000

0
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

12. Return on Investments

Return on Capital Employed Ratio = Net Profit *100/ shareholders fund

Year wise Net Profit & Capital Employed (Rs in lakhs)

YEAR NET PROFIT Shareholders fund RATIO

2005-06 794.78 14030.94 5.66
2006-07 1296.58 14030.65 9.24
2007-08 7698.43 13323.51 57.78
2008-09 3814.70 13323.51 28.63
2009-10 1403.11 13323.51 10.53
2010-11 3311.78 13819.88 23.96

68
INTERPRETATION:

This ratio shows overall performance of a corporate investments. It is 5.66 in 2012-13.

Even though it went up in its next there year, again it came down to 10.53 in 2015-17 and then
again to 23.96 in 2010-18. It represents a better investments.

25000

20000

15000 RATIO
Share holders fund
NET PROFIT
10000

5000

0
2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

13. Return on Total Assets Ratio

Return on Total Assets Ratio =Net Profit*100 / Total Assets

Year wise Net Profit & Total Assets (Rs in lakhs)

YEAR NET PROFIT TOTAL ASSETS RATIO

2012-13 794.78 1984.50 40.05
2013-14 1296.58 1761.89 73.59
2014-15 7698.43 1138.70 676.07
2015-16 3814.70 1877.13 203.21
2016-17 1403.11 3285.63 42.70
2017-18 3311.78 4946.93 66.94

INTERPRETATION:
69
 This ratio shows how best if company’s total assets are used to get net profit. It is 40.05
in the year 2012-13. It gradually went up from 2014-15 to 2015-16. But again it came down to
42.70 in the year 2016-17. There is gradual growth of 2016-17 to 2017-18. It means that the
company is making every effort to improve net profit position of the company.

10000
9000
8000
7000
6000 RATIO
5000 TOTAL ASSETS
NET PROFIT
4000
3000
2000
1000
0
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

CHAPTER -5
 SUMMARY

70
 FINDINGS
 SUGGESTIONS
 CONCLUSION
 BIBLIOGRAPHY

71
 SUMMARY

Financial analysis is the process of identifying the financial strengths and weakness of the
firm by properly establishing relationships between the items of the balance sheet and the profit
and loss account. Financial analysis can be undertaken by management of the firm or by parties
outside the firm viz., owners, creditors, investors and others.

Ratio Analysis is a powerful tool of financial analysis. A ratio is defined as the indicated
quotient of two mathematical expressions and as the relationship between two or more things. In
financial analysis, a ratio is used as an index or yardstick for evaluating the financial position and
performance of a firm.

The relationship between two accounting figures, expressed mathematically is known as

financial ratio. A ratio helps the analyst to make qualitative judgement about the firm’s financial
position and performance.

Ratio analysis involves comparison for a useful interpretation of the financial statements.
A single ratio is itself does not indicate favorable or unfavorable condition. It should be
compared with some standard. Standards of comparison may consist of

 Ratios calculated from the past financial statements of the same firm.

 Ratios developed using the projected or preformed financial statement of the same firm.

 Ratios of some selected firms, especially the most progressive and successful at the
same point in time.

 Ratios of the industry to which the firm belong.

Several ratios can be calculated from the accounting data contained in the financial
statements. These ratios can be grouped in to various classes according to the financial activity or
function to be evaluated. In view of the requirements of the various users of ratios.

72
Hero Motor Corp may classify them into the following four important categories, they are:

 Liquidity Ratios.

 Leverage Ratios.

 Activity Ratios.

 Profitability Ratios.

The present study has been carried out with same objectives i.e,

To know the liquidity position of Hero Motor Corp Limited. To study the long-term
solvency of Hero Motor Corp Limited.

To know how efficiently the company is utilizing its assets.

To know the profitability of the company.

To identify problems, if any, in the financial performance of the company, and to make
suggestions.

73
 FINDINGS

 The total sales of HERO MOTOCORP are showing a positive trend despite cut down in
the hero’s prices across the globe. The rise in sales is 10.94 in terms of net sales in 2015
compared to 2014 and 13.24during 2014 compared to 2013.

 The gross margin of HERO MOTOCORP has increased from Rs. 2222 crores in 2016-17
to Rs. 2995 crores in 2017-18(An increase of 34.78)

 The gross ratio analysis is increasing from 2013-14 to 2017-18. In 2017-18 gross
working capital is36962.44. Its highest amount among past Hero Motor Corp years.

 The net ratio analysis is also increasing from 2014-15to 2016-17. In the year 2017-18 net
working capital is 30193.66. It’s the highest of all time in the history.

 Cash and bank balances is increasing from 2012-13to 2014-18. In 2015-16 cash and bank
balances have decreased. It is all time highest in 2011-12 amounted to 7681-35 crores.

 Current ratio is showing and increasing trend from the year 2013-14 to 2016-17. It is the
highest in the year 2017-18.

 The tables shows the net increase of working capital from the year 2015-16 to 2017-18.

74
 SUGGESTIONS

 The turnover ratio is decreasing from the year 2017-18; it’s a very bad sign for HERO
MOTOCORP. So, it may be chance to misuse the funds. It is suggested that the
company should concentrate on management of ratio analysis (current assets and
current liabilities) more effectively.

 The credit sales of HERO MOTOCORP are below 5% of total sales. In this
competitive world selling the goods on credit is very essential for getting the market
leadership. It is suggested to increase the credit sales.

 At present every rupee of current liability there is five rupees of current assets are
available, so current assets have become ideal. It is suggested to utilize the cash for
increasing of production capacity.

 The investment is blocked in the inventory of stores and spares in the form of slow
moving and non-moving items. It would be definitely affecting the profitability of the
company. Hence, immediate steps are to be taken for overall reduction of investors of
stores and spares.

75
 CONCLUSION

Though the ratio analysis is increasing year by year and the ideal cash is
also increasing. So, the company must exercise a lot of proper control and proper system of
the ratio analysis management to manage such cash and inventory in a profitable way.

For this purpose, the company may consider the above suggestion for
effective management of working capital. A proper ratio analysis management system helps
to achieving the objectives of the company and for its continuous improvement.

76
 BIBLIOGRAPHY

Books &References: -

 Annual Reports of HERO MOTOCORP METALIKS LIMITED of the past 5 years,

from 2008 to 2013.

 I.M.Pandey – “Financial Management- Theory & Practice”- Kalyani Publishers, New

Delhi, 2003.

 M.Y.Khan&P.K.Jain – “Financial management- Theory & Problem”- HERO

MOTOCORP McGraw- Hill Publication Company Limited, New Delhi, 2007.

 Financial Accounting- 1, book relating to School of Distance Education.

 Cost & Management accounting, book relating to School of Distance Education.

Internet: -

Official Hero Motor Corp website of HERO MOTOCORP LIMITED

www.HEROMOTOCORP.com

77