CHAPTER – 1

1.1 ASHOK LEYLAND

An organizational study refers to the complete understanding of an organization in all dimensions.

Ashok Leyland is a well known automobile manufacturing company in India. Ashok Leyland
believe that its historical success and future prospects are directly related to combination of
strengths. The referred unit is a core limb of Ashok Leyland, the nation’s pioneering automobile
manufacturer.

Ashok Leyland is an Indian multinational automotive manufacturer. It is headquartered

in Chennai. It is owned by the Hinduja Group. It was founded in 1948 as Ashok Motors and
became Ashok Leyland in the year 1955. Ashok Leyland is the second-largest manufacturer of
commercial vehicles in India, the third-largest manufacturer of buses in the world, and the tenth-
largest manufacturers of trucks.

With the corporate office located in Chennai, its manufacturing facilities are in Ennore (Tamil
Nadu), Bhandara (Maharashtra), two in Hosur (Tamil Nadu), Alwar (Rajasthan) and Pantnagar
(Uttarakhand). Ashok Leyland also has overseas manufacturing units with a bus manufacturing
facility in Ras Al Khaimah (UAE), one at Leeds, United Kingdom and a joint venture with the
Alteams Group for the manufacture of high-press die-casting extruded Aluminium components for
the automotive and telecommunications sectors. Operating nine plants, Ashok Leyland also makes
spare parts and engines for industrial and marine applications.

Ashok Leyland has a product range from 1T GVW (Gross Vehicle Weight) to 55T GTW (Gross
Trailer Weight) in trucks, 9 to 80-seater buses, vehicles for defence and special applications, and
diesel engines for industrial, genset and marine applications. In 2019, Ashok Leyland claimed to
be in the top 10 global commercial vehicle makers. It sold approximately 140,000 vehicles in FY
2016. It is the second largest commercial vehicle company in India in the medium and heavy
commercial vehicle segment, with a market share of 32.1%. With passenger transportation options
ranging from 10 seaters to 74 seaters, Ashok Leyland is a market leader in the bus segment. In the
trucks segment Ashok Leyland primarily concentrates on the 16 to 25-ton range and has a presence
in the 7.5 to 49 ton range.
 CAPITAL STRUCTURE OF ASHOK LEYLAND LTD.

Authorized Issued
Period Instrument -PAIDUP-
Capital Capital

Face
FromTo (Rs. cr) (Rs. cr) Shares (nos) Capital
Value

2020-2021 Equity Share 2785.6 293.55 2,935,527,276 1 293.55

2019-2020 Equity Share 2785.6 293.55 2,935,527,276 1 293.55

2018-2019 Equity Share 2785.6 293.55 2,935,527,276 1 293.55

2017-2018 Equity Share 2785.6 292.71 2,927,104,101 1 292.71

2016-2017 Equity Share 2785.6 284.61 2,845,876,634 1 284.59

2015-2016 Equity Share 2535.6 284.61 2,845,876,634 1 284.59

2014-2015 Equity Share 2535.6 284.61 2,845,876,634 1 284.59

2013-2014 Equity Share 2535.6 266.09 2,660,676,634 1 266.07

2012-2013 Equity Share 400 266.09 2,660,676,634 1 266.07

2011-2012 Equity Share 300 266.09 2,660,676,634 1 266.07

2010-2011 Equity Share 200 133.05 1,330,338,317 1 133.03

2009-2010 Equity Share 200 133.05 1,330,338,317 1 133.03

2008-2009 Equity Share 150 133.05 1,330,338,317 1 133.03

 HISTORY OF ASHOK LEYLAND

A 2018 stamp sheet of India dedicated to the 70th anniversary of Ashok Leyland

Ashok Motors

Ashok Motors was founded in 1948 by Raghunandan Saran. He was an Indian freedom fighter
from Punjab. After Independence, he was persuaded by India's first Prime Minister Nehru to invest
in a modern industrial venture. Ashok Motors was incorporated in 1948 as a company to assemble
and manufacture Austin cars from England, and the company was named after the founder's only
son, Ashok Saran. The company had its headquarters in Chennai, with the manufacturing plant in
Chennai. The company was engaged in the assembly and distribution of Austin A40 passenger cars
in India.

The collaboration ended sometime in 1975 but the holding of British Leyland, now a major British
auto conglomerate as a result of several mergers, agreed to assist in technology, which continued
until the 1980s. After 1975, changes in management structures saw the company launch various
vehicles in the Indian market, with many of these models continuing to this day with numerous
upgrades over the years.

Under Iveco and Hinduja partnership

In 1987, the overseas holding by Land Rover Leyland International Holdings Limited (LRLIH)
was taken over by a joint venture between the Hinduja Group, the Non-Resident Indian
transnational group and Iveco, part of the Fiat Group.

Hinduja Group

In 2007, the Hinduja Group also bought out Iveco's indirect stake in Ashok Leyland. The promoter
shareholding now stands at 51%. Today the company is the flagship of the Hinduja Group, a
British-based and Indian originated trans-national conglomerate.

Ashok Leyland launched India's first electric bus and Euro 6 compliant truck in 2016.

In June 2020, Ashok Leyland launched its new range of modular trucks, AVTR.

In September 2020, Ashok Leyland launched the Bada Dost based on its indigenously developed
LCV platform called Phoenix.
 1.2 SWOT ANALYSIS OF ASHOK LEYLAND LTD.

STRENGHTS WEAKNESSES

 Spare parts  Market Share

 Bus segment  Financial Analysis

 Persistent Product Portfolio  Interest Rates on Loans

 Strong Manufacturing Capability

OPPORTUNITIES THREATS

 Electric Vehicles  Competitors

 Capital Incentives  Government Rules

 Economic Condition  Economic Condition

 International Markets  Government Norms Affecting

Sales

Ashok Leyland is a leading company in automotive manufacturing and has a well-diversified

portfolio across the automobile industry. If the company lowers their interest rates, it will result in
higher commercial vehicle sales hence beneficial for the company and their shareholders.

The company has a bright future ahead in the commercial vehicle industry and this company has
already made plans according to future requirements and demands of the customers. They are also
creating new models and designs according to a new trend that will prevail over the markets across
the world.
 1.3 OBJECTIVES

1) To study in detail about balance sheet, Profit and Loss Account, Cash flow statement of Ashok
Leyland Ltd.

2) Comparative analysis over 5 years (2017-18, 2018-19, 2019-20, 2020-21, 2021-22) which has
been divided into 3 eras (pre covid, during covid and post covid).

3) To study the in detail the importance of Ratio Analysis in analyzing the financial statement of
Ashok Leyland Ltd.

4) To analysis the profitability position, financial position and liquidity position of Ashok Leyland
Ltd.
 1.4 RESEARCH METHODOLOGY

The methodology used for the study is through the collection of secondary data.

Secondary data

 Annual Reports

 Business Journals

 Existing Records

 Website of the company

1.5 RESEARCH PERIOD

1) The research period is going to over 5 years (2017-18, 2018-19, 2019-20, 2020-21,
2021-22)

2) The research period has been divided into 3 eras (pre covid, during covid and post covid).
 1.6 RESEARCH DESIGN

 Financial statements that are Profit and Loss account, Balance Sheet and Cash Flow
Statement of 5 years has been taken from the website.

 An attempt has been made to evaluate the financial Ratio, Profitability Ratio and Liquidity
Ratio and this company over a period of 5 years.

 To understand the effect of pre covid and post covid.

 1.7 RESEARCH TOOLS

Tools of Financial Analysis

Ratio Analysis:

 Turnover Ratios

 Profitability Ratio

 Financial Position Ratios

 Liquidity Ratios

 Leverage/Debt Ratios

Statistical tools like:

 Mean

 Percentage

 Graphs

 Tables

 Pie charts
 1.8 LITERATURE REVIEW

 The Role of the State in Financial Markets 

By: Joseph E. Stiglitz
This paper reexamines the role of the state in financial markets and identifies seven major
market failures that provide a potential rationale for government intervention. In practice,
government interventions in capital markets, even in industrial countries, have been
pervasive. The paper provides a taxonomy of those interventions with respect to both the
objectives they serve and the instruments they employ.
 An examination of the substitutability of founders human and financial capital in emerging
business ventures
By: Gaylen N.Chandler
In this study, we seek to better understand and provide insight into the factors that
determine the amount of money needed to start a business, and the factors that drive the
decisions of whether such funding should come from founder savings or from outside
sources.
 Ratio Analysis and Equity Valuation

By: Doron Nissim & Stephen H. Penman 

The analysis of current financial statements is then seen as a matter of identifying current
ratios as predictors of the future ratios that determine equity payoffs. The financial
statement analysis is hierarchical, with ratios lower in the ordering identified as finer
information about those higher up.

 Referencing strategies and techniques in stable isotope ratio analysis

By: Roland A. Werner,Willi A. Brand

This paper reviews an attempt to unify the strategy for referencing isotopic measurements.
In particular, emphasis is given to the importance of identical treatment of sample and
reference material, which should guide all isotope ratio determinations and evaluations.

 Financial Ratio Analysis

By: Pamela P. Drake PhD, CFA,Frank J. Fabozzi PhD, CFA, CPA

The financial condition of a company is a measure of its ability to satisfy its obligations,
such as the payment of interest on its debt in a timely manner. The analyst has many tools
available in the analysis of financial information. These tools include financial ratio
analysis and quantitative analysis.

CHAPTER – 2

FINANCIAL STATEMENT ANALYSIS OF ASHOK LEYLAND LTD.

Financial statement analysis is the process of analyzing a company's financial statements for
decision-making purposes. External stakeholders use it to understand the overall health of an
organization as well as to evaluate financial performance and business value. Internal constituents
use it as a monitoring tool for managing the finances.

 Financial statement analysis is used by internal and external stakeholders to evaluate

business performance and value.

 Financial accounting calls for all companies to create a balance sheet, income statement,
and cash flow statement which form the basis for financial statement analysis.

 Horizontal, vertical, and ratio analysis are three techniques analysts use when analyzing
financial statements.

2.1 PROFIT AND LOSS ACCOUNT

The term Profit and Loss (P&L) statement refers to a financial statement that summarizes
the revenues, costs, and expenses incurred during a specified period, usually a quarter or fiscal
year. These records provide information about a company's ability or inability to generate profit
by increasing revenue, reducing costs, or both. These statements are often presented on a cash or
accrual basis.

 The profit and loss statement is a financial statement that summarizes the revenues, costs,
and expenses incurred during a specified period.

 The P&L statement is one of three financial statements every public company issues
quarterly and annually, along with the balance sheet and the cash flow statement.

 When used together, the P&L statement, balance sheet, and cash flow statement

 Provide an in-depth look at a company's financial performance together.

 Statements are prepared using the cash or accrual method of accounting.

 It is important to compare P&L statements from different accounting periods, as any

changes over time become more meaningful than the numbers themselves.

IMOPRTANCE OF PROFIT AND LOSS ACCOUNT

A P&L statement is one of the three types of financial statements prepared by companies. The
other two are the balance sheet and the cash flow statement. The purpose of the P&L statement is
to show a company's revenues and expenditures over a specified period of time, usually over one
fiscal year.

Investors and analysts can use this information to assess the profitability of the company, often
combining this information with insights from the other two financial statements. For instance, an
investor might calculate a company’s return on equity (ROE) by comparing its net income (as
shown on the P&L) to its level of shareholder’s equity.

Profit and Loss Account of Ashok Leyland Ltd. ( from 2021 – 2022)

PROFIT & LOSS ACCOUNT OF MAR 22 MAR 21

ASHOK LEYLAND (in Rs. Cr.)

12 mths 12 mths

INCOME

REVENUE FROM OPERATIONS 21,567.75 15,301.45

[GROSS]

Less: Excise/Service Tax/Other Levies 0.00 0.00

REVENUE FROM OPERATIONS 21,567.75 15,301.45

[NET]

TOTAL OPERATING REVENUES 21,688.29 15,301.45

Other Income 76.13 119.50

TOTAL REVENUE 21,764.42 15,420.95

EXPENSES

Cost Of Materials Consumed 15,913.16 11,118.96

Purchase Of Stock-In Trade 896.90 746.66

Operating And Direct Expenses 0.00 0.00

Changes In Inventories Of FG,WIP And -48.99 -462.31

Stock-In Trade
Employee Benefit Expenses 1,694.60 1,583.89

Finance Costs 301.11 306.79

Depreciation And Amortization 752.76 747.71

Expenses

Other Expenses 2,238.10 1,779.11

TOTAL EXPENSES 21,747.64 15,820.81

PROFIT/LOSS BEFORE 16.78 -399.86

EXCEPTIONAL, EXTRAORDINARY
ITEMS AND TAX

Exceptional Items 510.83 -12.05

PROFIT/LOSS BEFORE TAX 527.61 -411.91

TAX EXPENSES-CONTINUED
OPERATIONS

Current Tax -14.22 0.02

Less: MAT Credit Entitlement 0.00 0.00

Deferred Tax 0.00 -98.25

Tax For Earlier Years 0.00 0.00

TOTAL TAX EXPENSES -14.22 -98.23

PROFIT/LOSS AFTER TAX AND 541.83 -313.68

BEFORE EXTRAORDINARY ITEMS

PROFIT/LOSS FROM CONTINUING 541.83 -313.68

OPERATIONS

PROFIT/LOSS FOR THE PERIOD 541.83 -313.68

OTHER ADDITIONAL INFORMATION

EARNINGS PER SHARE

Basic EPS (Rs.) 1.85 -1.07

Diluted EPS (Rs.) 1.84 -1.07

VALUE OF IMPORTED AND

INDIGENIOUS RAW MATERIALS
STORES, SPARES AND LOOSE
TOOLS

Imported Raw Materials 0.00 0.00

Indigenous Raw Materials 0.00 0.00

STORES, SPARES AND LOOSE

TOOLS

Imported Stores And Spares 0.00 0.00

Indigenous Stores And Spares 0.00 0.00

DIVIDEND AND DIVIDEND

PERCENTAGE

Equity Share Dividend 0.00 0.00

Tax On Dividend 0.00 0.00

Equity Dividend Rate (%) 100.00 60.00

2.2 BALANCE SHEET

The term balance sheet refers to a financial statement that reports a company's assets, liabilities,
and shareholder equity at a specific point in time. Balance sheets provide the basis for computing
rates of return for investors and evaluating a company's capital structure.

In short, the balance sheet is a financial statement that provides a snapshot of what a company
owns and owes, as well as the amount invested by shareholders. Balance sheets can be used with
other important financial statements to conduct fundamental analysis or calculate financial ratios.

 A balance sheet is a financial statement that reports a company's assets, liabilities, and
shareholder equity.

 The balance sheet is one of the three core financial statements that are used to evaluate a
business.

 It provides a snapshot of a company's finances (what it owns and owes) as of the date of
publication.

 The balance sheet adheres to an equation that equates assets with the sum of liabilities and
shareholder equity.

 Fundamental analysts use balance sheets to calculate financial ratios.

IMPORTANCE OF BALANCE SHEET

The balance sheet is an essential tool used by executives, investors, analysts, and regulators to
understand the current financial health of a business. It is generally used alongside the two other
types of financial statements: the income statement and the cash flow statement.

Balance sheets allow the user to get an at-a-glance view of the assets and liabilities of the
company. The balance sheet can help users answer questions such as whether the company has a
positive net worth, whether it has enough cash and short-term assets to cover its obligations, and
whether the company is highly indebted relative to its peers.

Balance Sheet of Ashok Leyland Ltd. ( from 2021 – 2022)

Standalone Balance Sheet ---- in Rs. Cr. ---

Mar 22 Mar 21

12 mths 12 mths

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS

Equity Share Capital 293.55 293.55

Total Share Capital 293.55 293.55

Reserves and Surplus 7,043.35 6,683.65

Total Reserves and Surplus 7,043.35 6,683.65

Employees Stock Options 0.00 0.00

Total Shareholders Funds 7,336.90 6,977.20

NON-CURRENT LIABILITIES

Long Term Borrowings 2,885.03 2,558.01

Deferred Tax Liabilities [Net] 144.36 384.29

Other Long Term Liabilities 219.99 67.00

Long Term Provisions 200.21 189.57

Total Non-Current Liabilities 3,449.59 3,198.87

CURRENT LIABILITIES

Short Term Borrowings 668.85 1,158.24

Trade Payables 6,875.23 5,164.69

Other Current Liabilities 1,532.96 1,485.95

Short Term Provisions 470.25 464.96

Total Current Liabilities 9,547.29 8,273.84

Total Capital And Liabilities 20,333.78 18,449.91

ASSETS

NON-CURRENT ASSETS

Tangible Assets 6,795.17 5,599.20

Intangible Assets 0.00 1,451.19

Capital Work-In-Progress 0.00 228.78

Intangible Assets Under Development 0.00 143.07

Fixed Assets 6,795.17 7,422.24

Non-Current Investments 3,521.58 3,068.72

Deferred Tax Assets [Net] 88.75 0.00

Long Term Loans And Advances 0.00 20.50

Other Non-Current Assets 406.47 486.92

Total Non-Current Assets 10,811.97 10,998.38

CURRENT ASSETS

Current Investments 1,298.05 0.00

Inventories 2,075.20 2,142.29

Trade Receivables 3,111.02 2,816.00

Cash And Cash Equivalents 1,046.96 822.95

Short Term Loans And Advances 0.00 20.62

OtherCurrentAssets 1,990.58 1,649.67

Total Current Assets 9,521.81 7,451.53

Total Assets 20,333.78 18,449.91

OTHER ADDITIONAL INFORMATION

CONTINGENT LIABILITIES, COMMITMENTS

Contingent Liabilities 0.00 0.00

CIF VALUE OF IMPORTS

EXPENDITURE IN FOREIGN EXCHANGE

Expenditure In Foreign Currency 0.00 0.00

REMITTANCES IN FOREIGN CURRENCIES FOR DIVIDENDS

Dividend Remittance In Foreign Currency - -

EARNINGS IN FOREIGN EXCHANGE

FOB Value Of Goods - -

Other Earnings - -

BONUS DETAILS

Bonus Equity Share Capital - 139.26

NON-CURRENT INVESTMENTS

Non-Current Investments Quoted Market

- -
Value

Non-Current Investments Unquoted Book

- -
Value

CURRENT INVESTMENTS

Current Investments Quoted Market Value - -

Current Investments Unquoted Book Value - -

 2.3 CASH FLOW STATEMENT

The cash flow statement (CFS), is a financial statement that summarizes the movement of cash
and cash equivalents (CCE) that come in and go out of a company. The CFS measures how well a
company manages its cash position, meaning how well the company generates cash to pay its debt
obligations and fund its operating expenses. As one of the three main financial statements, the
CFS complements the balance sheet and the income statement. In this article, we’ll show you how
the CFS is structured and how you can use it when analyzing a company.

 A cash flow statement summarizes the amount of cash and cash equivalents entering and
leaving a company. 

 The CFS highlights a company's cash management, including how well it generates cash. 

 This financial statement complements the balance sheet and the income statement. 

 The main components of the CFS are cash from three areas: Operating activities, investing
activities, and financing activities.

 The two methods of calculating cash flow are the direct method and the indirect method.
 IMPORTANCE OF CASH FLOW STATEMENT

For a business to be successful, it should always have sufficient cash. This enables it to pay
back bank loans, buy commodities, or invest to get profitable returns. A business is declared
bankrupt if it doesn’t have enough cash to pay its debts. Here are some of the benefits of a cash
flow statement:
 Gives details about spending: A cash flow statement gives a clear understanding of the principal
payments that the company makes to its creditors. It also shows transactions which are recorded in
cash and not reflected in the other financial statements.
 Helps maintain optimum cash balance: A cash flow statement helps in maintaining the optimum
level of cash on hand. It is important for the company to determine if too much of its cash is lying
idle, or if there’s a shortage or excess of funds
 Helps you focus on generating cash: Profit plays a key role in the growth of a company by
generating cash.
 Useful for short-term planning: A cash flow statement is an important tool for controlling cash
flow. A successful business must always have sufficient liquid cash to fulfill short-term obligations
like upcoming payments.  

Cash Flow Statement of Ashok Leyland Ltd. (from 2021-2022)

Cash Flow ----- in Rs. Cr. ------

Mar 22 Mar 21
12 mths 12 mths
Net Profit/Loss Before Extraordinary Items And
0.00 -313.68
Tax
Net CashFlow From Operating Activities 0.00 21.13
Net Cash Used In Investing Activities 0.00 -975.19
Net Cash Used From Financing Activities 0.00 205.97
Foreign Exchange Gains / Losses 0.00 -0.82
Net Inc/Dec In Cash And Cash Equivalents 0.00 -748.91
Cash And Cash Equivalents Begin of Year 0.00 1,279.04
Cash And Cash Equivalents End Of Year 0.00 530.13
 CHAPTER – 3
TOOLS OF FINANCIAL ANALYSIS – RATIO ANALYSIS

Accounting ratios are an important tool of financial statements analysis. A ratio is a mathematical
number calculated as a reference to relationship of two or more numbers and can be expressed as a
fraction, proportion, percentage and a number of times. When the number is calculated by referring
to two accounting numbers derived from the financial statements, it is termed as accounting ratio.

Objectives of Ratio Analysis

Ratio analysis is indispensable part of interpretation of results revealed by the financial statements.
It provides users with crucial financial information and points out the areas which require
investigation. Ratio analysis is a technique which involves regrouping of data by application of
arithmetical relationships, though its interpretation is a complex matter. It requires a fine
understanding of the way and the rules used for preparing financial statements. Once done
effectively, it provides a lot of information which helps the analyst:

1. To know the areas of the business which need more attention

2. To know about the potential areas which can be improved with the effort in the desired direction
3. To provide a deeper analysis of the profitability, liquidity, solvency and efficiency levels in the
business

4. To provide information for making cross-sectional analysis by comparing the performance with
the best industry standards

5. To provide information derived from financial statements useful for making projections and
estimates for the future

Advantages of Ratio Analysis

The ratio analysis if properly done improves the user’s understanding of the efficiency with which
the business is being conducted. The numerical relationships throw light on many latent aspects of
the business. If properly analysed, the ratios make us understand various problem areas as well as
the bright spots of the business. The knowledge of problem areas help management take care of
them in future. The knowledge of areas which are working better helps you improve the situation
further. It must be emphasised that ratios are means to an end rather than the end in themselves.
Their role is essentially indicative and that of a whistle blower. There are many advantages derived
from ratio analysis. These are summarised as follows:

1. Helps to understand efficacy of decisions: The ratio analysis helps you to understand whether
the business firm has taken the right kind of operating, investing and financing decisions. It
indicates how far they have helped in improving the performance.

2. Simplify complex figures and establish relationships: Ratios help in simplifying the complex
accounting figures and bring out their relationships. They help summarise the financial information
effectively and assess the managerial efficiency, firm’s credit worthiness, earning capacity, etc.

3. Helpful in comparative analysis: The ratios are not be calculated for one year only. When many
year figures are kept side by side, they help a great deal in exploring the trends visible in the
business. The knowledge of trend helps in making projections about the business which is a very
useful feature.
4. Identification of problem areas: Ratios help business in identifying the problem areas as well as
the bright areas of the business. Problem areas would need more attention and bright areas will
need polishing to have still better results.

5. Enables SWOT analysis: Ratios help a great deal in explaining the changes occurring in the
business. The information of change helps the management a great deal in understanding the
current threats and opportunities and allows business to do its own SWOT (Strength -Weakness-
Opportunity-Threat) analysis.

6. Various comparisons: Ratios help comparisons with certain bench marks to assess as to whether
firm’s performance is better or otherwise. For this purpose, the profitability, liquidity, solvency,
etc., of a business, may be compared: (i) over a number of accounting periods with itself, (ii) with
other business enterprises and (iii) with standards set for that firm/industry.

Limitations of Ratio Analysis

Since the ratios are derived from the financial statements, any weakness in the original financial
statements will also creep in the derived analysis in the form of ratio analysis. Thus, the limitations
of financial statements also form the limitations of the ratio analysis. The limitations of ratio
analysis which arise primarily from the nature of financial statements are as under:

1. Limitations of Accounting Data: Accounting data give an unwarranted impression of precision

and finality. The soundness of the judgement necessarily depends on the competence and integrity
of those who make them and on their adherence to Generally Accepted Accounting Principles and
Conventions”. Thus, the financial statements may not reveal the true state of affairs of the
enterprises and so the ratios will also not give the true picture.

2. Ignores Price-level Changes: The financial accounting is based on stable money measurement
principle. It implicitly assumes that price level changes are either non-existent or minimal. But the
truth is otherwise. We are normally living in inflationary economies where the power of money
declines constantly. A change in the price-level makes analysis of financial statement of different
accounting years meaningless because accounting records ignore changes in value of money.
3. Ignore Qualitative or Non-monetary Aspects: Accounting provides information about
quantitative (or monetary) aspects of business. Hence, the ratios also reflect only the monetary
aspects, ignoring completely the non-monetary (qualitative) factors.

4. Variations in Accounting Practices: There are differing accounting policies for valuation of
inventory, calculation of depreciation, treatment of intangibles Assets definition of certain
financial variables etc., available for various aspects of business transactions.

5. Forecasting: Forecasting of future trends based only on historical analysis is not feasible. Proper
forecasting requires consideration of non-financial factors as well.
Types of Ratios

Based on the purpose for which a ratio is computed, is the most commonly used classification
which is as follows:

1. Liquidity Ratios: To meet its commitments, business needs liquid funds. The ability of the
business to pay the amount due to stakeholders as and when it is due is known as liquidity, and the
ratios calculated to measure it are known as ‘Liquidity Ratios’. These are essentially short-term in
nature.

2. Solvency Ratios: Solvency of business is determined by its ability to meet its contractual
obligations towards stakeholders, particularly towards external stakeholders, and the ratios
calculated to measure solvency position are known as ‘Solvency Ratios’. These are essentially
long-term in nature.

3. Activity (or Turnover) Ratios: This refers to the ratios that are calculated for measuring the
efficiency of operations of business based on effective utilisation of resources. Hence, these are
also known as ‘Efficiency Ratios’.

4. Profitability Ratios: It refers to the analysis of profits in relation to revenue from operations or
funds (or assets) employed in the business and the ratios calculated to meet this objective are
known as ‘Profitability Ratios’.
5. Leverage (or Debt) Ratio : A leverage ratio is any kind of financial ratio that indicates the level
of debt incurred by a business entity against several other accounts in its balance sheet, income
statement, or cash flow statement.  These ratios provide an indication of how the company’s assets
and business operations are financed (using debt or equity).

6. Valuation Ratio : A valuation ratio shows the relationship between the market value of a
company or its equity and some fundamental financial metric. The point of a valuation ratio is to
show the price you are paying for some stream of earnings, revenue, or cash flow.

CHAPTER – 4
FINANCIAL ANALYSIS USING RATIO ANALYSIS

1) Liquidity Ratio

 Current Ratio: Current ratio is the proportion of current assets to current liabilities. It is
expressed as follows:

Current Ratio = Current Assets / Current Liabilities

Current Ratio of Ashok Leyland Ltd.

2017 2018 2019 2020 2021

 In the following data given above, we can see that the current ratio of Ashok Leyland Ltd.
is given. As we know that current ratio is calculated with the help of current assets and
current liabilities given of the following company.

 As we can see, during the pre-covid 19 period (i.e. from 2017 – 2019), the current ratio is
comparatively high as it is between 1.2 to 1.8 which indicates that the current assets were
in a good quantity as compared to the current liabilities.

 During the Covid 19 period (i.e. 2020), the current ratio decreases to 1.03 compared to the
previous years.

 And hence in the post Covid 19 period (i.e. 2021), the current ratio went to the lowest to
0.98 compared to all the previous years as the current assets were in a low quantity
compared to the previous years.
 Quick or Liquid Ratio : It is the ratio of quick (or liquid) asset to current liabilities. It is
expressed as

Quick ratio = Quick Assets / Current Liabilities

Quick or Liquid Ratio of Ashok Leyland Ltd.

2017 2018 2019 2020 2021

  In the following data given above, we can see that the Quick ratio of Ashok Leyland Ltd. is
given. As we know that Quick ratio is calculated with the help quick assets and current
liabilities given of the following company.
 As we can see, during the pre-covid 19 period (i.e. from 2017 – 2019), the quick ratio is
kind of constant as it is between 0.79 to 0.88.
 During the Covid 19 period (i.e. 2020), the quick ratio is at it’s highest of 0.93 compared to
the previous years which indicates that the quick assets were in a good quantity as
compared to the current liabilities.
 And hence in the post Covid 19 period (i.e. 2021), the quick ratio went low to 0.83
compared to all the previous years as the quick assets were in a low quantity compared to
the previous years.

2) SOLVENCY RATIO

 Interest Coverage Ratio : It is a ratio which deals with the servicing of interest on loan. It
is calculated as follows:

Interest Coverage Ratio = Net Profit before Interest and Tax / Interest on long-term debts

Interest Coverage Ratio of Ashok Leyland Ltd.

 2017 2018 2019 2020 2021

 In the following data given above, we can see that the Interest coverage ratio of Ashok
Leyland Ltd. is given. As we know that interest coverage ratio is calculated with the help of
Net Profit before Interest and Tax and Interest on long-term debts given of the following
company.
 As we can see, during the pre-covid 19 period (i.e. from 2017 – 2019), the interest
coverage ratio is at it’s highest that is from 2.75 to 3.08 as the profit before interest and tax
is more compared to the long term debts.
 During the Covid 19 period (i.e. 2020), the interest coverage ratio went down to 1.41
compared to the previous years which indicates that the net profit before interest and tax is
comparatively less.
 And hence in the post Covid 19 period (i.e. 2021), the interest coverage ratio went to the
lowest to 0.96 compared to all the previous years.
3) Turnover Ratios

 Inventory Turnover Ratio : The formula for its calculation is as follows:

Inventory Turnover Ratio = Cost of Revenue from Operations / Average Inventory

Inventory Turnover Ratio of Ashok Leyland Ltd.

 2017 2018 2019 2020 2021

 In the following data given above, we can see that the Inventory turnover ratio of Ashok
Leyland Ltd. is given. As we know that interest coverage ratio is calculated with the help of
Cost of Revenue from Operations and Average Inventory given of the following company.
 As we can see, during the pre-covid 19 period (i.e. from 2017 – 2019), the inventory
turnover ratio is at it’s highest that is from 10.19 to 12.76 as the cost of revenue from
operations is more compared to the average inventory.
 During the Covid 19 period (i.e. 2020), the inventory turnover ratio went down to 9.74
compared to the previous years which indicates that the cost of revenue from operations is
comparatively less.
 And hence in the post Covid 19 period (i.e. 2021), the inventory turnover ratio went to 9.80
with a very little difference compared to the previous years.
 Fixed Assets Turnover Ratio : The asset turnover ratio measures the efficiency of a
company's assets in generating revenue or sales. Thus, to calculate the asset turnover ratio,
divide net sales or revenue by the average total assets.

Asset Turnover Ratio = Net Sales / Average Total Assets

Fixed Assets Turnover Ratio of Ashok Leyland Ltd.

 2017 2018 2019 2020
2021

 In the following data given above, we can see that the Fixed Assets Turnover Ratio of
Ashok Leyland Ltd. is given. As we know that it is calculated with the help of Net Sales
and Average Total Assets given of the following company.
 As we can see, during the pre-covid 19 period (i.e. from 2017 – 2019), the Fixed Assets
Turnover Ratio is at it’s highest that is from 1.01 to 0.93 as the net sales is more compared
to the average total assets.
 During the Covid 19 period (i.e. 2020), the asset turnover ratio went down to 0.58
compared to the previous years which indicates that the net sales is comparatively less.
 And hence in the post Covid 19 period (i.e. 2021), the inventory turnover ratio went to the
lowest to 0.49.
 Trade Receivables Turnover Ratio :It expresses the relationship between credit revenue
from operations and trade receivable. It is calculated as follows :

Trade Receivable Turnover ratio = Net Credit Revenue from Operations/Average Trade
Receivable

Trade Receivable Turnover Ratio of Ashok Leyland Ltd.

2017 2018 2019 2020 2021

 In the following data given above, we can see that the Trade Receivable Turnover Ratio of
Ashok Leyland Ltd. is given. As we know that it is calculated with the help of Net Sales
and Average Total Assets given of the following company.
 As we can see, during the pre-covid 19 period (i.e. from 2017 – 2019), the Trade
Receivable Turnover Ratio is from 14.52 to 21.13 as the net credit revenue from operations
is more compared to the average trade receivables.
 During the Covid 19 period (i.e. 2020), the Trade Receivable ratio went up to 34.38
compared to the previous years which indicates that the net credit revenue from operations
is comparatively more.
 And hence in the post Covid 19 period (i.e. 2021), the Trade Receivable ratio went up to
the highest to 41.81.

 Trade Payable Turnover Ratio : Trade payables turnover ratio indicates the pattern of
payment of trade payable. As trade payable arise on account of credit purchases, it
expresses relationship between credit purchases and trade payable. It is calculated as
follows:

Trade Payables Turnover ratio = Net Credit purchases/ Average trade payable

Trade Payable Turnover Ratio of Ashok Leyland Ltd.

2017 2018 2019 2020 2021

  In the following data given above, we can see that the Trade payable Turnover Ratio of
Ashok Leyland Ltd. is given. As we know that it is calculated with the help of Net Credit
purchases and Average trade payable given of the following company.
 As we can see, during the pre-covid 19 period (i.e. from 2017 – 2019), the Trade payable
Turnover Ratio is from 76.19 to 66.24.
 During the Covid 19 period (i.e. 2020), the Trade payable ratio went up to 92.49 compared
to the previous years which indicates that the net credit purchases is comparatively more.
 And hence in the post Covid 19 period (i.e. 2021), the Trade payable ratio went up to the
highest to 130.62.

4) Profitability Ratio
 Return on Capital Employed : It explains the overall utilisation of funds by a business
enterprise. It is computed as follows:

Return on Investment (or Capital Employed) = Profit before Interest and Tax/
Capital capital employed × 100

Return on Investment (or Capital Employed) of Ashok Leyland Ltd.

2017 2018 2019 2020

2021
 In the following data given above, we can see that the Return on investment of Ashok
Leyland Ltd. is given. As we know that it is calculated with the help of Profit before
Interest and Tax and capital employed given of the following company.
 As we can see, during the pre-covid 19 period (i.e. from 2017 – 2019), the Return on
investment is from 16.10 to 17.07.
 During the Covid 19 period (i.e. 2020), the Return on investment went down to 8.76 which
indicates that the profit before interest and tax is comparatively less than the previous
years.
 And hence in the post Covid 19 period (i.e. 2021), the Return on investment went more
down to 5.94.
 Net Profit Growth : Net profit ratio is based on all inclusive concept of profit. It relates
revenue from operations to net profit after operational as well as non-operational expenses
and incomes. It is calculated as under:

Net Profit Ratio = Net profit/Revenue from Operations *100

Net profit growth of Ashok Leyland Ltd.

2017 2018 2019 2020

2021
 In the following data given above, we can see that the Net profit growth of Ashok Leyland
Ltd. is given. As we know that it is calculated with the help of Net profit and Revenue from
Operations given of the following company.
 As we can see, during the pre-covid 19 period (i.e. from 2017 – 2019), the Net profit
growth went from 107.77 to 20.81 which is decreasing at a high rate.
 During the Covid 19 period (i.e. 2020), the Net profit growth went down to -79.07 which
indicates that the net profit is nothing and the revenue from operations is very high.
 And hence in the post Covid 19 period (i.e. 2021), the Net profit growth went more down
to -115.

 Earnings per Share : The ratio is computed as:

EPS = Profit available for equity shareholders/Number of Equity Shares

Earnings per share of Ashok Leyland Ltd.

2017 2018 2019 2020 2021

 In the following data given above, we can see that the earnings per share of Ashok Leyland
Ltd. is given. As we know that it is calculated with the help of Profit available for equity
shareholders and Number of Equity Shares Net profit and Revenue from given of the
following company.
 As we can see, during the pre-covid 19 period (i.e. from 2017 – 2019), the earnings per
share went from 5.58 to 7.08 which is increasing at a constant rate.
 During the Covid 19 period (i.e. 2020), the earnings per share went down to 1.15 which
indicates that the profit available for equity shareholders’ is decreasing
 And hence in the post Covid 19 period (i.e. 2021), the earnings per share went more down
to -0.56.

 Dividend Payout Ratio : This refers to the proportion of earning that are distributed to the
shareholders. It is calculated as –
Dividend Payout Ratio = Dividend per share / Earnings per share

Dividend payout ratio of Ashok Leyland Ltd.

 2017 2018 2019 2020
2021

 In the following data given above, we can see that the Dividend payout ratio of Ashok
Leyland Ltd. is given. As we know that it is calculated with the help of Dividend per share
and Earnings per share from given of the following company.
 As we can see, during the pre-covid period ( i.e. from 2017–2019), the Dividend payout
ratio went from 27.93 to 43.78 which is increasing.
 During the Covid 19 period (i.e. 2020), the Dividend payout ratio remains constant as the
previous year of 2019 i.e. 43.60 which indicates that the dividend per share remains
constant.
 And hence in the post Covid 19 period (i.e. 2021), the Dividend payout ratio went down to
-107 which indicates that the divided per is nothing and is comparatively less than earnings
per share.
 Return on Equity: ROE is expressed as a percentage. Net income is calculated before
dividends paid to common shareholders and after dividends to preferred shareholders and
interest to lenders.

Return on Equity= Net Income / Average Shareholders’ Equity

Return on Equity ratio of Ashok Leyland Ltd.

 2017 2018 2019 2020
2021

 In the following data given above, we can see that the return on equity of Ashok Leyland
Ltd. is given. As we know that it is calculated with the help of Net Income and
average Shareholders’ Equity from given of the following company.
 As we can see, during the pre-covid period (i.e. from 2017–2019), the return on equity
went from 28.25 to 27.14 which is decreasing.
 During the Covid 19 period (i.e. 2020), the return on equity went down to 5.54 which
indicates that the net income is decreasing.
 And hence in the post Covid 19 period (i.e. 2021), the return on equity went down to -0.89
which indicates that the net income is nothing.

5) Leverage (or Debt) Ratio

 Debt to Equity Ratio : The debt-to-equity ratio is used to evaluate a company's financial
leverage and is calculated by dividing a company’s total liabilities by its shareholder
equity.
 Debt to Equity ratio =Total Shareholders’ Equity / Total Liabilities

Debt to equity Ratio of Ashok Leyland Ltd.

2017 2018 2019 2020

2021

 Debt to assets ratio : It is calculated using the following formula: 

Debt-to-Assets Ratio = Total Debt / Total Assets

 Debt to assets Ratio of Ashok Leyland Ltd.

2017 2018 2019 2020

2021

6) Valuation Ratio

 Price to earnings ratio : The formula and calculation used for this process are as follows.
P/E Ratio= Market value per share / Earnings per share

Price to earnings ratio of Ashok Leyland Ltd.

2017 2018 2019 2020