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Profitability Analysis of Lease Financing Company (A study with Reference to

Bajaj Finance Limited)

Article  in  JAC: A Journal of Composition Theory · November 2019

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A JOURNAL OF COMPOSITION THEORY ISSN : 0731-6755

PROFITABILITY ANALYSIS OF LEASE FINANCING

COMPANY
(A Study with reference to Bajaj Finance Limited)
R.SATHISHKUMAR
Assistant Professor of Commerce,
RVS College of Arts and Science, Trichy – 9
G.BALAMURUGAN
Guest Lecturer in Commerce,
Govt. Arts and Science College, Thiruvennainallur
__________________________________________________________________________________
Abstract: Measuring the performance of the lease and higher purchase financing company or
institution is very important to know the company’s position in the aspect of profitability. In
this paper, the researchers made an attempt to find out the profitability of the private lease
company by particularly taking Bajaj Finance Limited. By using the secondary data, the
researchers offer suggestion to improve the profitability position of Bajaj Finance Limited.
Keywords: Financial Performance, Lease Company.

I INTRODUCTION
In the short span of a decade and half the Indian leasing industry has seen several ups
and downs. After humble beginnings in the seventies, the eighties witnessed high growth and
popularity of the industry when several hundred leasing companies were formed. Very
quickly the momentum of growth slowed down and the industry tapered down into a plateau.
In this aftermath several fly-by-night leasing companies lowered their shutters. Only the
mature leasing companies and banking subsidiaries doing leasing business survived. Early
1992 again saw leasing companies carried on another boom cycle.
The literatures related to the financial performance of different sectors industries.
Amalendu Bhunia, Sri Somnath Mukhuti and Sri Gautam Roy (2011) measured liquidity,
profitability and stability of two public sector drug and pharmaceutical enterprises listed on
BSE and ensured that both the companies have enough returns to the shareholders to
maintain at least its market value. Dhevika, Latasri and Gayathiri (2013) studied the financial
performance of City Union Bank and found that the bank was able to meet its entire
requirements for capital expenditures and higher level of working capital commitment with
higher volume of operations and from its operating cash flows. Idhayajothi et al (2014)
analysed the performance of Ashok Leyland Company Ltd and suggested that the company
should increase sales volume as well as gross profit. Ravichandran and Venkata
Subramanian (2016) identified the individual ratios which are affecting the profitability and

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suggested that the company might concentrate on its operating, Administrative and selling
expenses and by reducing expenses. Hoang Van Hai1 and Nguyen Truong Son (2019)
showed that internal logistics, inbound logistics, outbound logistics, support activities, and
cost of logistics have significantly positive relationship with sound financial performance.
Interestingly, the cost of logistics becomes the main factor affecting the firm financial
performance in the textile industry. No one has made an attempt to analyse the profitability of
leasing companies. Hence, the study attempted to know the profitability position of the Bajaj
Finance Limited.
II STATEMENT OF THE PROBLEM
Every enterprise whether big, medium or small, needs finance to carry on its
operations and to achieve its targets. In fact, finance is so indispensable for business that is
rightly said that it is life-blood of the industry. Without adequate finance, no enterprise can
possible to accomplish its objectives. Right from the very beginning, that is conceiving an
idea to business, finance is needed to promote or establish the business, acquire fixed assets,
make investigations such as market surveys, develop product, keep men and machine at
work, encourage management to make progress and create values. Finance is viewed as the
most important factor in every enterprise; therefore, the management requires special mention
and attention. The management has to take in to every nook and corner of each project, to
find the amount of fund necessary for them and the source from which to arrange. Finance
management plays a vital role procurement, allocation and control of funds.
Financial information is needed to predict, compare and evaluate the firm’s earning
ability. It is also required to aid in economic decision-making, investment and financial
statements or accounting reports. They are the means to present the firm’s financial situation
to owners, creditors and the public. Based on the profitability of the firm, the investors will
decide to invest in the company’s securities. Profitability analysis is the process of identifying
the financial strengths and weakness of the firm by properly establishing relationship among
various financial items.
III OBJECTIVES OF THE STUDY
1. To know the profitability and efficiency of Bajaj Finance Limited
2. To suggest suitable measures to improve the profitability of Bajaj Finance Limited.
IV METHODOLOGY
This is case study and so, only one unit is selected for the study. Secondary data are
obtained from audited report and financial statements of Bajaj Finance Limited for the period

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of five years from 2012-13 to 2017-18. In addition to this, data are collected from different
journals, books and newspapers. Ratios, trend percentage are used for analysis.

V ANALYSIS AND DISCUSSION

Table 1: Return on Capital Employed
Return on Capital
Operating Profit Capital Employed
Year Employed
(in crore) (in crore)
(in per cent)
2,077.28 10,961.66
2012-2013 18.95
(100.00) (100.00)
2,664.40 14,636.44
2013-2014 18.20
(128.26) (133.52)
3,605.24 23,361.17
2014-2015 15.43
(173.56) (213.12)
4,891.53 33,403.96
2015-2016 14.64
(235.48) (304.73)
6,620.89 43,563.35
2016-2017 15.20
(318.73) (397.42)
8,641.10 61,295.39
2017-2018 14.10
(415.98) (559.18)
Source: Computed from Annual Report of Bajaj Finance Limited.
It is interpreted form the table 1 that the operating profit and capital employed show
an increasing trend during the study period and the return on return on capital employed
ranges from 14.10 per cent to 18.95 per cent. Both the revenues and capital employed of the
business increased but the capital turnover ratio of the company is not efficient. It indicated
that the study unit has not utilized the capital in an efficient way as per ratio norms because a
higher ratio would indicate that the company used the capital efficient way and lower ratio is
the indicator for inefficiency in capital utilization.
Table 2: Return on Shareholders Fund
Return on
Net Profit Shareholders Fund
Year Shareholders Fund
(in crores) (in crores)
(in per cent)
591.31 3351.98
2012-13 17.64
(100.00) (100.00)
719.01 3990.86
2013-14 18.02
(121.60) (119.06)
897.87 4799.70
2014-15 18.71
(151.84) (143.19)
1278.63 7426.76
2015-16 17.22
(216.24) (221.56)
1836.55 9600.31
2016-17 19.13
(310.59) (286.41)
2646.70 16518.29
2017-18 16.02
(447.60) (492.79)
Source: Computed from Annual Report of Bajaj Finance Limited.

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It is observed form the table 2 that the net profit and shareholders fund show an
increasing trend but the return on shareholder’s fund ratio shows a fluctuating trend. The
highest ratio of profit earned on shareholders fund is 19.13 per cent and lowest ratio is 16.02
per cent.
Table 3: Return on Total Assets
Return on Total
Net Profit Total Assets
Year Assets Ratio
(in crores) (in crores)
(in per cent)
591.31 17806.27
2012-13 3.32
(100.00) (100.00)
719.01 24618.00
2013-14 2.92
(121.60) (138.25)
897.87 32811.20
2014-15 2.74
(151.84) (184.27)
1278.63 46456.60
2015-16 2.75
(216.24) (260.90)
1836.55 63724.56
2016-17 2.88
(310.59) (357.88)
2646.70 83629.02
2017-18 3.16
(447.60) (469.66)
Source: Computed from Annual Report of Bajaj Finance Limited
The above table shows that both the total assets and net profit shows an increasing
trend and the return on total assets ranges from 2.74 per cent to 3.32 per cent. The highest
ratio indicates that the company has potentially utilised the assets effectively during the study
period and vice versa.
Table 4: Operating Ratio
Total Operating
Revenue Operating Ratio
Year Expenses
(in crores) (In Per cent)
(in crores)
3109.66 2238.06
2012-13 71.97
(100.00) (100.00)
4073.33 2982.17
2013-14 73.21
(130.99) (133.25)
5418.23 4061.29
2014-15 74.96
(174.24) (181.46)
7383.66 5418.98
2015-16 73.36
(237.44) (242.13)
10003.31 7185.79
2016-17 71.83
(321.69) (321.07)
13329.22 9272.86
2017-18 69.57
(428.64) (414.33)
Source: Computed from Annual Report of Bajaj Finance Limited
Table 4 shows that the operating ratio ranges from 69.57 per cent to 74.96 per cent
and it shows fluctuating trend. The operating expense is increasing year by year and also the
revenue shows increasing trend.

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Table 5: Net Profit Ratio

Revenue Net Profit Net Profit Ratio
Year
(in crores) (in crores) (In Per cent)
2012-13 3109.66 591.31 19.02
(100.00) (100.00)
2013-14 4073.33 719.01 17.65
(130.99) (121.60)
2014-15 5418.23 897.87 16.57
(174.24) (151.84)
2015-16 7383.66 1278.63 17.32
(237.44) (216.24)
2016-17 10003.31 1836.55 18.36
(321.69) (310.59)
2017-18 13329.22 2646.70 19.86
(428.64) (447.60)
Source: Computed from Annual Report of Bajaj Finance Limited
Table 5 interpreted that the net profit ratio shows a fluctuating trend and ranges from
16.57 per cent to 19.86 per cent during the study period. The revenue of the company is
increasing year by year and is reflected in net profit.
Table 6: Interest Coverage Ratio
Interest
Earnings Before
Interest Coverage
Year Interest and Tax
(in crores) Ratio
(in crores)
(in times)
2077.28 1205.68
2012-13 1.72
(100.00) (100.00)
2664.40 1573.24
2013-14 1.69
(128.26) (130.49)
3605.24 2248.30
2014-15 1.60
(173.56) (186.48)
4891.53 2926.85
2015-16 1.67
(235.48) (242.76)
6620.89 3803.37
2016-17 1.74
(318.73) (315.45)
8641.10 4584.74
2017-18 1.88
(415.98) (380.26)
Source: Computed from Annual Report of Bajaj Finance Limited
It is clear from table 6 that the interest coverage ratio of the company ranges from
1.60 to 1.88 percent which means the company is capable of paying the interest during the
study period. The highest interest coverage ratio recorded in the year 2017-18 but the rest of
the study period, it shows fluctuating in trend because the company has some low-level
interest bearing debt. Hence, the company should adopt methods to decrease the interest
payment in order to boost the earnings available to the shareholders of the company. The
payment of interest of the company increased year by year and also the earnings before
interest and tax.

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Table 7: Working Capital Turnover Ratio

Working
Capital
Revenue Working Capital
Year Turnover
(in crores) (in crores)
Ratio
(in times)
3109.66 1068.83
2012-13 2.91
(100.00) (100.00)
4073.33 312.55
2013-14 13.03
(130.99) (29.24)
5418.23 4516.35
2014-15 1.20
(174.24) (422.55)
7383.66 7498.11
2015-16 0.99
(237.44) (701.53)
10003.31 9654.89
2016-17 1.04
(321.69) (903.31)
13329.22 14191.51
2017-18 0.94
(428.64) (1327.76)
Source: Computed from Annual Report of Bajaj Finance Limited
It is observed from the table 7 that the working capital turnover ratio ranges from 0.94
to 13.03 times. The company has low level of working capital investment in the year 2013-14
and also has more profit compare to the working capital requirements of the company. The
working capital shows fluctuating trend over the study period.
Table 8: Fixed Assets Turnover Ratio
Fixed Assets
Revenue Fixed Assets
Year Turnover Ratio
(in crores) (in crores)
(in times)
3109.66 176.21
2012-13 17.65
(100.00) (100.00)
4073.33 219.87
2013-14 18.53
(130.99) (124.78)
5418.23 249.18
2014-15 21.74
(174.24) (141.41)
7383.66 287.00
2015-16 25.74
(237.44) (162.87)
10003.31 361.13
2016-17 27.70
(321.69) (204.94)
13329.22 464.41
2017-18 28.70
(428.64) (263.55)
Source: Computed from Annual Report of Bajaj Finance Limited
It is observed from the table 8 that the revenue and fixed assets shows an increasing
trend and that is reflected in fixed assets turnover ratio too that shows an increasing trend
ranges from 17.65 to 28.70 and the revenue . It can be inferred that the company’s efficiency
in the utilization of fixed assets is good in all the years of the study period.

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Table 9: Current Asset Turnover Ratio

Current Assets
Revenue Current Assets
Year Turnover Ratio
(in crores) (in crores)
(in times)
3109.66 7913.44
2012-13 0.39
(100.00) (100.00)
4073.33 10294.11
2013-14 0.40
(130.99) (130.08)
5418.23 13966.38
2014-15 0.39
(174.24) (176.49)
7383.66 20550.75
2015-16 0.36
(237.44) (259.69)
10003.31 29816.10
2016-17 0.34
(321.69) (376.78)
13329.22 36525.14
2017-18 0.36
(428.64) (461.56)
Source: Computed from Annual Report of Bajaj Finance Limited
It is observed from the table 9 that the current assets turnover ratio is highest in the
year 2013-14 as 0.40 times and the lowest ratio recorded in the year 2016-17 as 0.33 times. It
is inferred from that the company’s efficiency in the utilization of current assets is fluctuating
trend and it does not follow any constant increase or decrease in the effective utilization of
current assets of the company.
Table 10: Capital Turnover Ratio
Capital Turnover
Revenue Capital Employed
Year Ratio
(in crores) (in crores)
(in times)
3109.66 10,961.66
2012-2013 0.28
(100.00) (100.00)
4073.33 14,636.44
2013-2014 0.28
(130.99) (133.52)
5418.23 23,361.17
2014-2015 0.23
(174.24) (213.12)
7383.66 33,403.96
2015-2016 0.22
(237.44) (304.73)
10003.31 43,563.35
2016-2017 0.23
(321.69) (397.42)
13329.22 61,295.39
2017-2018 0.22
(428.64) (559.18)
Source: Computed from Annual Report of Bajaj Finance Limited.
Table 10 indicates that the capital turnover ratio ranges from 0.22 times to 0.28 times
during the study period. The utilization of capital employed shows an increasing trend. The
revenue generated by the company also shows an increasing trend. Both the revenues and
capital employed by the business increased but the capital turnover ratio is comparatively low
that indicated that the company’s inefficiency in utilising capital employed for generating
revenue.

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VI SUGGESTIONS
The company may concentrate on the following areas to improve in the aspect of
profitability position.
1. The company should take steps in controlling operating expenses in the future
because it affects the capital employed, shareholders returns and operating profit as
the operating expenses highly increased year by year which is reflected in the
operating ratio.
2. The company might take effort to minimize the debt and borrowed capital because the
interest cost payable by the company shows an increasing trend over the study period.
To reduce the highest interest cost, the company may arrange fund from internal
sources.
VII CONCLUSION
The Bajaj Finance Limited Company was promoted by Bajaj Auto Ltd and Bajaj and
Auto Holdings Limited. It involved in the Higher Purchase Finance and Lease Finance
activity. It offered so many products services to the individuals and institutions based on their
requirements. If the company takes some additional steps as per suggestions given in the
study, it may increase the performance well in the competitive world. Apart from this, the
company success and failures in the hands of performance provided to their customers, hence
the company should take some special care in customer point of view to make success in the
competitive world.
References
1. Amalendu Bhunia, Sri Somnath Mukhuti and Sri Gautam Roy, “Financial
Performance Analysis-A Case Study,” Current Research Journal of Social Sciences 3,
no. 3 (2011): 269-275.
2. V.P.T. Dhevika, O.T.V. Latasri and H. Gayathiri, “A Study on Financial Performance
Analysis at City Union Bank,” International Journal of Advanced Research in
Management and Social Sciences 2, no. 7 (July 2013): 53-67.
3. R. Idhayajothi, O.T.V. Latasri, N. Manjula, A.Meharaj Banu and R. Malini, “A Study
on Financial Performance of Ashok Leyland Limited at Chennai,” IOSR Journal of
Business and Management (IOSR-JBM) 16, no. 6 (I) (Jun. 2014): 83-89.
4. M. Ravichandran and M. Venkata Subramanian, “A Study on Financial Performance
Analysis of Force Motors Limited,” IJIRST-International Journal for Innovative
Research in Science & Technology 2, no. 11 (April 2016).
5. Hoang Van Hai1 and Nguyen Truong Son, “The Effect of Logistics Service on Firm
Financial Performance in Textile Industry: Evidence from Da Nang City, Vietnam,”
MATEC Web of Conferences 259, no. 04002 (2019): 1-6.
https://doi.org/10.1051/matecconf/201925904002

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