Q No.

1
As the chairman and managing director of Bajaj Auto, I would evaluate the company’s
performance based on a range of relevant financial ratios.

1. Return on Equity (ROE): ROE measures the amount of profit generated by the company
for each unit of shareholder’s equity. A higher ROE indicates better performance. The
average ROE for the automobile industry is around 14%. If Bajaj Auto has an ROE higher
than the industry average, it can be considered a good performance.

2. Debt-to-Equity Ratio (D/E): D/E ratio measures the amount of debt used to finance the
company’s operations relative to shareholder’s equity. A higher D/E ratio indicates
higher financial risk. The average D/E ratio for the automobile industry is around 0.5. If
Bajaj Auto has a lower D/E ratio than the industry average, it can be considered a good
performance.

3. Gross Margin: Gross margin measures the percentage of revenue that remains after
deducting the cost of goods sold. A higher gross margin indicates better pricing power
and cost management. The average gross margin for the automobile industry is around
20%. If Bajaj Auto has a higher gross margin than the industry average, it can be
considered a good performance.

4. Market Share: Market share measures the percentage of total sales in the industry that
Bajaj Auto captures. A higher market share indicates better product positioning and
competitive advantage. If Bajaj Auto has a higher market share than its competitors, it
can be considered a good performance.

Overall, as the CMD of Bajaj Auto, I would rate the company’s performance based on these
ratios and other relevant metrics to assess its financial health and competitiveness in the
market.

Q No. 2
As a shareholder in Bajaj Auto, my comments on the company’s performance would depend on
the specific financial and operational results and the context in which they are evaluated.
However, here are some potential comments I might have:

1. Financial Performance: Shareholders would examine the company’s revenue growth,

profit margins, and return on investment (ROI) to assess its financial health. Positive
trends in these areas would indicate favorable performance.

2. Market Share: Shareholders would be interested in Bajaj Auto’s market position and its
ability to gain or maintain market share in a competitive environment. A growing market
share implies success in capturing consumer demand.

3. Innovation and Product Portfolio: Shareholders would assess the company’s ability to
develop and introduce new and innovative products or models that address customer
needs and preferences. A diverse and updated product portfolio would be favorable.

4. Operational Efficiency: Shareholders would scrutinize the company’s operational

efficiency, including manufacturing processes, supply chain management, and cost
control measures. Improved efficiency can lead to higher profitability.

5. Corporate Governance: Shareholders would evaluate the company’s corporate

governance practices, transparency, and compliance with regulations. Strong corporate
governance ensures ethical conduct and protects shareholder interests.

6. Sustainability and Social Responsibility: Increasingly, shareholders are interested in the

company’s commitment to sustainability, environmental stewardship, and social
responsibility. Positive corporate citizenship and sustainability initiatives can enhance
brand reputation.
These considerations, along with comprehensive analysis of financial statements and
performance metrics, would provide a basis for shareholders to assess Bajaj Auto’s performance
and the potential value of their investments.

Q No. 3
To perform a DuPont analysis for Bajaj Auto, we need to break down its return on equity (ROE)
into its three constituent components: profitability, efficiency, and leverage.

ROE = Net Profit Margin × Asset Turnover × Equity Multiplier

1. Net Profit Margin: This ratio measures the company’s profitability by calculating how
much profit it generates for each rupee of revenue.

Net Profit Margin = Net Profit / Total Revenue

2. Asset Turnover: This ratio measures the company’s efficiency in utilizing its assets to
generate sales.

Asset Turnover = Total Revenue / Total Assets

3. Equity Multiplier: This ratio measures the company’s leverage or the amount of debt it
uses to finance its operations.

Equity Multiplier = Total Assets / Shareholders’ Equity

By multiplying the three components together, we can obtain the DuPont analysis of Bajaj
Auto’s ROE.

DuPont ROE = Net Profit Margin × Asset Turnover × Equity Multiplier

Q No. 4
A share price refers to the market value of a single share of a publicly-traded company. It
reflects the price at which buyers and sellers agree to trade the stock at a particular point in
time. The share price can fluctuate depending on various factors such as the company’s financial
performance, industry trends, economic conditions, and investor sentiment. Investors use share
prices to determine whether a stock is overvalued or undervalued and make informed
investment decisions. Companies can also track their share prices to monitor investor interest
and evaluate market performance.
Some relevant ratios that may help while analyzing the company’s performance:

1. Price-to-earnings (P/E) Ratio: This ratio compares the company’s share price to its
earnings per share (EPS) and reflects how the market values the company’s stock. The
formula for P/E ratio is:

P/E Ratio = Share Price / Earnings Per Share (EPS)

A high P/E ratio indicates that the market has high growth expectations for the
company, while a low ratio suggests that the market is not optimistic about the
company’s growth prospects.

2. Price-to-Book (P/B) Ratio: This ratio compares the company’s share price to its book
value per share (BVPS) and indicates whether a stock is over or undervalued. The
formula for P/B ratio is:

P/B Ratio = Share Price / Book Value Per Share (BVPS)

A P/B ratio greater than one suggests that the market values the company higher than
its book value, while a ratio lower than one indicates the opposite.

3. Debt-to-Equity (D/E) Ratio: The Debt-to-Equity (D/E) ratio is a financial ratio that
measures the proportion of a company’s total debt to its total equity. It reflects the
company’s use of debt financing relative to its own equity financing.
The formula for calculating the D/E ratio is:

D/E Ratio = Total Debt / Total Equity

4. Return on Equity (ROE): This ratio measures how efficiently the company uses its
shareholder equity to generate profits. The formula for ROE is:
 ROE = Net Income / Shareholders’ Equity

A high ROE indicates that the company is generating a higher return for its
shareholders, while a low ratio suggests otherwise.

It’s important to consider various ratios in combination and analyze them in the context of the
company’s financial and operational results.

*DuPont ROE and other relevant ratios are calculated in Spreadsheet.