INTRODUCTION

Force Motors Limited is an public sector Indian automotive manufacturer, the flagship
company of the Dr. Abhay Firodia Group. From 1958 until 2005 the company was known as
Baja Tempo Motors, because it originated as a joint venture between Bachraj Trading Ltd. and
Germany’s Tempo.
Ashok Leyland is an Indian automobile company headquartered in Chennai, India. It is owned
by the Hinduja Group. Founded in 1948, it is the second largest commercial vehicle
manufacturer in India, fourth largest manufacturer of buses in the world and 10th largest
manufacturer of trucks globally.
Financial performance is a subjective measure of how well a firm can use assets from its primary
mode of business and generate revenues. The term is also used as a general measure of a firm’s
overall financial health over a given period.
Non-financial performance measures means the information on a company’s performance in
non-monetary or non-monetary terms. Though one can’t express non-financial measures in
money terms, these measures can be qualitative and quantitative. These measures help to
understand the quality of the product or services that a company offers.
 ACCOUNTING STANDARD
An accounting standard is a common set of principles, standards and procedures that define the
basis of financial accounting policies and practices. Accounting standards improve the
transparency of financial reporting in all countries. International companies follow the
International Financial Reporting Standards, which is set by the International Accounting
Standards Board.

IFRS 9 – Financial Instruments

IFRS 9 is an International Financial Reporting Standard (IFRS) published by the International

Accounting Standard Board (IASB). It addresses the accounting for financial instruments. It
contains three main topics: classification and measurement of financial instruments, impairment
of financial assets and hedge accounting. The standard came into force on 1 January 2018,
replacing the earlier IFRS for financial instruments, IAS 39. Focuses on the accounting
requirements relating to financial assets and financial liabilities only.
IAS 32 specifies presentation for financial instruments. Financial assets and financial liabilities
are offset only when the entity has a legally enforceable right to set off the recognized amounts,
and intends either to settle on a net basis or to realize the asset and settle the liability
simultaneously. The standard also provide guidance on the classification of related interest,
dividends and gain or losses and when financial assets and financial liabilities can be offset.
IFRS 7 Financial Instruments: Disclosures requires disclosure of information about the
significance of financial instruments to an entity, and the nature and extent of risks arising from
those financial instruments, both in qualitative and quantitative terms. Specific disclosures are
required in relation to transferred financial assets and a number of other matters. An entity shall
disclose information that enables users of its financial statements to evaluate the significance of
financial instruments for its financial position and performance.
 IAS 12 – Income Taxes

IAS 12 Income Taxes implements a so – called ‘comprehensive balance sheet method’ of

accounting for income taxes which recognizes both the current tax consequences of transactions
and events and the future tax consequences of the future recovery or settlement of the carrying
amount of an entity’s assets and liabilities. Difference between the carrying amount and tax base
of assets and liabilities, and carried forward tax losses and credits, are recognized, with limited
exceptions, as deferred tax liabilities or deferred tax assets, with the latter also being subject to a
‘probable profits’ test.

Objective of IAS 12
The objective of IAS 12 is to prescribe the accounting treatment for income taxes. In meeting
this objectives, IAS 12 notes the following:
 It is inherent in the recognition of an asset or liability that the asset or liability will be
recovered or settled, and this recovery or settlement may give rise to future tax
consequences which should be recognized at the same time as the asset or liability.
 An entity should account for the tax consequences of transactions and other events in the
same way it accounts for the transactions or other event themselves.
 IFRS 2 – Share Based Payment

IFRS 2 Share – based payment requires an entity to recognize share – based payment
transactions such as granted shares, share options, or share appreciation rights in its financial
statements, including transactions with employees or other parties to be settled in cash, other
assets, or equity instruments of the entity. Specific requirements are included for equity – settled
and cash – settled share – based payment transactions, as well as those where the entity or
supplier has a choice of cash or equity instruments.

Recognition and Measurement

The Issuance of share or rights, to shares requires an increase in a component of equity. IFRS 2
requires offsetting debit entry to be expensed when the payment for goods or services does not
represent as asset. The expense should be recognized as the goods or services are consumed.

IFRS 2 Disclosure Requirements

This standard prescribes various disclosure requirements to enable the users of financial
statements to understand:
1. The nature and extent of Share based payment arrangements that existed during the
period.
2. How the fair value of goods or services received, or the fair value of the equity
instruments granted, during the period was determined.
3. The effect of share based transactions on the entity’s profit or loss for the period and on
its financial position.
 IAS 14 – Segment Reporting

IAS 14 Segment Reporting requires reporting of financial information by business or

geographical area. It requires disclosures for ‘primary’ and ‘secondary’ segment reporting
formats, with the primary format based on whether the entity’s risks and returns are affected
predominantly by the products and services it produces or by the fact that it operates in different
geographical areas.

Objective of IAS 14
The objective of IAS 14 is to establish principles for reporting financial information by line of
business and by geographical area. It applies to entities whose equity or debt securities are
publicly traded and to entities in the process of issuing securities to the public. In addition, any
entity voluntarily providing segment information should comply with the requirement of the
Standard.

IAS 24 – Related Party Disclosures

IAS 24 Related Party Disclosures requires disclosures about transactions and outstanding
balances with an entity’s related parties. The standard defines various classes of entities and
people as related parties and sets out the disclosures required in respect of those parties,
including the compensation of key management personnel

Objective of IAS 24
The objective of IAS 24 is to ensure that an entity’s financial statements contain the disclosures
necessary to draw attention to the possibility that its financial position and profit or loss may
have been affected by the existence of related parties and by transactions and outstanding
balances with such parties.
FINANCIAL PERFORMANCE ANALYSIS OF FORCE
MOTORS LIMITED & ASHOK LEYLAND LIMITED

Financial Performance means ensuring the results of a firm’s policies and operations in monetary
terms. These results are reflected in the firm’s return on investment, return on assets, value added
etc. Financial performance analysis is prepared mainly for decision-making purposes. The
information given in the financial statements is of immense use is making decisions through
analysis and interpretation of financial statements. Financial analysis is the process of identifying
the financial strengths and weakness of a firm by properly establishing relationship between the
items of the balance sheet and profit and loss account.

A. Ratio Analysis
1) Profitability Ratio
I. Operating profit ratio
II. Net profit ratio
III. Return on capital employed
IV. Return on net worth
2) Liquidity and Solvency ratio
I. Current ratio
II. Quick ratio
III. Debt equity ratio
Equations:
 Operating Profit Margin = Operating Profit x 100
Sales
 Net Profit Margin = Net Profit x 100
Sales
 Return On Capital Employed (ROCE) = Operating Profit x 100
Capital Employed*
*Capital Employed = total Assets – Total Current Liabilities
 Return On Net Worth = Net Income x 100
Shareholder’s Equity
 Current Ratio = Current Assets
Current liabilities
 Quick Ratio = Current Assets – Inventories
Current Liabilities
 Debt – Equity Ratio = Debt
Equity
FINANCIAL PERFORMANCE ANALYSIS OF FORCE MOTORS LIMITED & ASHOK
LEYLAND LIMITED

FINANCIAL PERFORMANCE ANALYSIS OF FORCE MOTORS LIMITED

Ratios (%) 2019 2018

Operating Profit 278.44 / 3733.72 *100 267.44 / 3491.32 *100
= 7.46% = 7.66%
Net Profit 147.18 / 3733.72 *100 146.95 / 3491.32 *100
= 3. 94% = 4.21%
ROCE 278.44 / 2182.79 *100 267.44 / 1836.05
=12.76% = 14.57%
Return On Net Worth 193.81 / 1934.87 *100 200.23 / 1798.79
= 10.02% = 11.13%
Current Ratio 1086.24 / 653.11 1121.80 / 682.98 *100
= 1.66 = 1.64
Quick Ratio 582.68 / 653.11 644.7 / 682.98
= 0.89 = 0.94
Debt – Equity Ratio 247.92 / 1934.87 37.26 / 1798.79
= 0.13 = 0.02

Interpretation:
 FINANCIAL PERFORMANCE ANALYSIS OF ASHOK LEYLAND LIMITED

Ratios (%) 2019 2018

Operating Profit 3135.74 / 29164.89 *100 2963.52 / 26552.98 *100
= 10.75% = 11.16%
Net Profit 1983.20 / 29164.89 *100 1717.73 / 26552.98 *100
= 6.80% = 6.47%
ROCE 3135.74 / 9435.44 *100 2963.52 / 8516.89 *100
= 33.23% = 34.80%
Return On Net Worth 2554.29 / 8332.43 *100 2414.34 / 7245.54 *100
= 30.65% = 33.32%
Current Ratio 8186.34 / 8788.96 8063.47 / 8819.50
= 0.93 = 0.91
Quick Ratio 5501.67 / 8788.96 6305.14 / 8788.96
= 0.63 = 0.72
Debt – Equity Ratio 1103.01 / 8332.43 1271.35 / 7245.54
= 0.13 = 0.18

Interpretation:
NON – FINANCIAL PERFORMANCE INDICATORS

Automotive Industry’s 11 Most Critical Metrics

1. Number of Units Manufactured

This metric measures how many vehicles were produced by a car manufacturer in a given
period.
Calculation
This metric is calculated by adding the total number of vehicles produced in a month, year,
etc.
Why is this metric important?
This metric is important because it can help an automotive manufacturer determine if it is
keeping up with customer demand and potentially if there is an oversupply of specific models
within its inventory.
2. Total Cost To Manufacture
This metric measures the amount of money spent by an automotive company to produce
vehicles.
Calculation
This metric is calculated by adding up the total costs of resources involved in producing
vehicles including material, labor and overhead.
Why is this metric important?
This metric is important because it can indicate an automotive company’s ability to produce
vehicles efficiently.
3. Utilization Rate
This metric expresses the capacity rate a vehicle manufacturer is utilizing during available
production time.
Calculation
This metric is calculated by taking the actual vehicle output and dividing by the potential
vehicle output within the tim