Honda Atlas And Indus Motor

By
Shariq Rameez
Nabeel Aftab
Faizan Ali
Ali Asghar Larik
 1) CURRENT RATIO
2009 2008

Honda 0.70 0.79

INDUS 1.69 2.56

Industry 2.04 2.60

• This ratio is more indicative of the short-term debt paying ability of an

entity. The comparative data of both the companies is as under:
•  Significantly, Indus is better placed in terms of current ratio. Indus is twice
better than Honda in term of current ratio, thus INDUS has a better ability
to payoff its short term debts as compare to Honda. Despite that. INDUS is
still lower than the market average which is 2.04 times. Overall others in the
market has a better ability to payoff it shortterm debt than Honda or Indus.
•  Conclusion: Indus appears to be more in line with the industry average of
2.04 X. However, current ratio should be viewed in conjunction with
inventory & receivables turnover ratios. Both turnover ratios are good.
Therefore, there is no liquidity issue in receivables & inventory.
 2) QUICK RATIO
2009 2008

Honda 0.16 0.24

INDUS 0.99 1.16

Industry 0.93 0.97

• This ratio is conservative than current ratio in

determining the short-term debt paying ability
of a company. Inventory is excluded on the
assumption being slow moving, obsolete or
pledged to creditors.
 3) CASH RATIO
2009 2008

Honda 0.04 0.08

0.98 1.14

Industry 0.80 0.79

• Cash Ratio is ratio seldom used by the analysts. It is unrealistic to have cash
equivalents and marketable securities to cover the current liabilities. The
comparative numbers are as under:
• This ratio is useful when inventory & receivables are slow moving & indicate
towards immediate liquidity of the firm.
• Conclusion: Overall, the cash ratios of Indus are better than Honda. For both
years, Indus is well above the industry average of 0.79. The main reasons are as
under:
• All sales are on cash basis.
• Cash & investments in marketable securities are used for borrowing from banks
at cheap rates.
4) CASH FLOW FROM OPERATIONS RATIO

2009 2008

Honda (0.26) 0.48

0.66 (0.21)

Industry 0.33 (0.18)

 
• INDUS has a better ability to pay off its short
term liability through its operations as
compare Honda. Also Indus has a better ability
to pay off as compare to its competitors.
 5) ACCOUNT RECEIVIBLE TURNOVER
2009 2008

Honda 20.79 24.24

15.24 20.41

Industry 17.09 23.83

•  This ratio indicates the efficiency of an entity in managing its trade

receivables. Higher the ratio more efficient is the company. The ratios
for both the companies are as under:
•  The receivable turnover ratios of both Honda and Indus reflect a
declining trend for the years in comparison but Honda still above the
industry average of 17.09 times. Sales increased for both the companies
in 2009 because of increase in demand for automobiles and better
economic conditions as compare to 2008. This ratio indicates that how
efficient an enterprise is in managing its receivables.
 6) AVERAGE COLLECTION PERIOD
2009 2008

Honda 18 days 15 days

24 days 18 days

Industry 22 days 16 days

 
• This indicates the length of time that the average trade receivables have been outstanding
at the end of the year
• Comparison of both the companies is as under:
• The above comparison depicts that there is an increasing trend in Days’ Sales in
Receivables of both Honda & Indus. However, the rate of increase in case of INDUS is
more prominent and is above the industry average of 22 days. Honda is still within the
industry norm.
• The quality of receivables of both the companies is good because all mostly sales are
through cash and pay-order.
• Conclusion: Overall receivables of both the companies are secured & are considered
good. Therefore, provisioning is seldom required. The data reveals that Honda is managing
its receivables more efficiently than INDUS.
 7) INVENTORY TURNOVER
2009 2008

Honda 4.57 8.31

10.57 13.67

Industry 6.31 9.01

• Inventory turnover indicates the efficiency of the

company in managing its inventory.
• The turnover figures of INDUS and Honda show an
increasing trend, but the figures of INDUS as compared
to Honda are well above the industry average of 6.31
times which clearly reflects that INDUS is efficient in
managing its inventory as compared to Honda.
 8)AVERAGE NO. OF DAYS IN STOCK
2009 2008

Honda 80 days 44 days

35 days 27 days

Industry 70 days 48 days

• This ratio estimates the number of days required to sell the current
inventory.
• Overall ratios of INDUS are better than Honda because INDUS has a larger
distribution network in the Country as compared to Honda.
• The ratios computed substantiate that INDUS inventory management is
better than Honda.
• Conclusion: It takes on average 80 days for the inventory to be turned into
sales for Honda and 35 days for INDUS. It also shows that the marketing
strategies of INDUS are very effective. These ratios are likely to improve
with the increase in purchasing power of the automobiles buyers.
 9) PAYABLE TURNOVER RATIO
2009 2008

Honda 3.52 3.72

5.41 6.68

Industry 5.74 6.03

•  INDUS credit rating is much more improved as

compare to Honda as Indus avail credit for
much longer days from its suppliers as
compare to its competitors. The more credit
suppliers gave to its clients shows higher
rating of clients.
10) AVERAGE NO. OF DAYS PAYABLE OUTSTANDING

2009 2008

Honda 104 days 98 days

67 days 55 days

Industry 72 days 67 days

•  Honda took much longer to pay off it

suppliers as compare to Indus. Indus payoff
period is almost the same as compare to the
industry made it a benchmark company for
the whole automobile industry.
 11) CASH CONVERSION CYCLE
2009 2008

Honda (6.31) (39.21)

(8.92) (10.09)

Industry 2.34 (3.71)

•  Automobile industry normally has a negative cash cycle

because most of the automobile companies took their
payments upfront. Last years, this ratio was much higher
because automobile companies have started taking longer
period advance payments. INDUS has much better
conversion ratios as compare to Honda, Indus converted its
investment into sales at a higher rate as compare to Honda.
Negative cash conversion cycle gives more flexibility to the
companies and its very attractive for the investors.
 12) GROSS PROFIT MARGIN
2009 2008

Honda 1.25% 4.26%

6.13% 9.29%

Industry 3.18% 5.01%

• This ratio shows the efficiency with which the resources

have been utilized to make finished goods and create sales
keeping costs at a minimum.
• The Gross profit for both the companies shows a decreasing
trend because of the appreciation of JPYPKR rate as well as
the overall inflation which has decrease the purchasing
power of automobiles buyers. The ratios show that the
gross profit margin for INDUS is better than HONDA.
 13) OPERATING PROFIT MARGIN
2009 2008

Honda (2.82)% 2.02%

5.47% 8.50%

Industry 1.44% 4.39%

•  INDUS is better off in paying its fixed cost such as

interest on debt etc as compare to Honda. Operating
margin is leftover after paying for variable costs of
production such as wages, raw materials, etc. A
healthy operating margin is considered as a positive
indicator for investment point of view. Indus has a
much better ability to pay off its fixed cost relative to
its competitors.
 14) PRE TAX MARGIN
2009 2008

Honda (4.40)% 0.43%

5.40% 8.55%

Industry 0.88% 3.83%

• INDUS has a much better profitability as

compare to Honda.
 15) NET PROFIT MARGIN
2009 2008

Honda (2.84)% 0.51%

3.60% 5.50%

Industry 0.58% 2.53%

•  Net profit margin for Indus shows decreasing trend

but still the numbers are positive as compare to
Honda whose net profitability in 2009 is in negative.
Overall Indus profitability is better than its
competitors with respect to the overall sales.
• Conclusion: Profitability margins of both the
companies are volatile but INDUS is still much better
placed.
 RETURN ON INVESTMENT RATIOS
 
16) RETURN ON ASSETS

2009 2008

Honda (0.05) 0.04

0.12 0.24

Industry 0.04 0.10

•  INDUS is effectively managing its assets to

generate earnings relative to Honda and the
whole Automobile Industry.
 17) RETURN ON COMMON EQUITY
2009 2008

Honda (0.28) 0.07

1.76 2.91

Industry 0.60 1.25

• INDUS gives a much better return to its

stakeholders as compare to Honda.
 18) RETURN ON TOTAL EQUITY
2009 2008

Honda (0.13) 0.03

0.14 0.26

Industry 0.01 0.11

• This ratio shows the firms efficiency in utilizing the

permanently invested capital (equity) in generating sales.
The higher the efficiency in investing equity for a long
time period in fixed assets, the higher the capacity to
produce, leading to higher revenue and lower costs. It is
an indirect channel for increasing net profit. It should
ideally be used for expansion and long-term purposes.
The return to shareholders of INDUS is higher than
Honda.
 EEFICIENCY RATIOS
 
19) TOTAL ASSET TURNOVER

2009 2008

Honda 1.69 1.95

2.20 2.82

Industry 1.80 2.28

• Comparative figures are as under:

• Indus average assets are converted almost
80% more than Honda. The more average
assets conversion into sales, the better it is.
• Conclusion: Overall asset turnover ratio of
Indus is better than Honda.
 20) FIXED ASSETS TURNOVER
2009 2008

Honda 2.72 3.27

9.40 13.34

Industry 5.73 8.14

•  INDUS ability to convert sales through fixed

assets investment is much better than Honda.
Indus comparison with the industry in terms
of Fixed assets turnover ratio is far better than
any other ratio, thus Indus is much better
placed.
 21) EQUITY TURNOVER
2009 2008

Honda 4.67 5.19

3.84 4.74

Industry 3.45 4.25

• Honda conversion to sales in terms of equity is

much better than Indus. Honda converted to
sales more repeatedly than Indus with respect
to equity of both companies.
 FINANCIAL RISK RATIOS
22) DEBT TO TOTAL CAPITAL

2009 2008

Honda 0.72 0.53

0.50 0.31

Industry 0.47 0.34

 
• Leverage is the use of fixed cost to magnify profit. Leverage
Ratios measure the extent to which firms finance their assets
through debt and they indicate the financial leverage of the firm.
• Honda debt ratios are high as compared to Indus. Honda ratios
indicate that more than 70% of assets are financed by the
creditors.
• Conclusion: The creditors of Indus are well protected as
compared to Honda.
 23) DEBT TO EQUITY
2009 2008

Honda 0.53 0.15

0.05 0.06

Industry 0.27 0.14

•  This ratio also determines the entity long-term debt

paying ability. Comparative figures are as under:
•  The ratio is another computation that determines
the entity’s long-term debt paying ability. This ratio
indicates that the creditors of Honda are well
protected as compared to INDUS.
•  Conclusion: Honda are well protected as compared
to INDUS.
 24) INTEREST COVERAGE RATIO
2009 2008

Honda (1.79) 1.27

0.78 1.28

Industry (0.22) 0.92

• This ratio indicates the firm’s long-term debt paying ability.

Comparison reveals that both the companies have
impressive coverage of their interest obligations.
•  
• Conclusion: In case of Honda there is a major decline in
2009 even the earning turned red, However INDUS have an
edge in both the years. Ratios indicate Indus has a better
long term debt paying ability as compare to Honda, also
Indus is well above the market.
 26) RETENTION RATE
2009 2008

Honda 100% 100%

43.25% 63.97%

Industry 75.75% 83.66%

•  Higher retention rate means more investments from the

companies own profits but from the investor point of
view it would be considered as negative indicator. Those
who has invested in the company need more returns from
their investment and most important return is dividend.
Honda retains all of its profit, thus indicates a negative
sign to its investor as compare to Indus which payout
around 57% of its profits in 2009. Indus is much better
placed in terms of retention and dividend payout policy.
 INDUS
CFO
• Major improvement in terms of the
management of operations for INDUS. Overall
company reliability on short terms debts
decreased to major extent. Effective
management of operating activities was the
main reason for better profitability of INDUS
relative to its competitors.
  
INDUS CFI

• Overall investments have decreased in 2009,

mainly because of heavy investments in 2008.
Reasonable investments, all that is needed for
a company to grow at a stable rate.
 INDUS CFF

• A very good sign for the investors as the

company is paying of its long term debt both
in 2008 and 2009. Thus shows the overall
strength of the company relative to its
competitors who has taken more finances to
cover up for the slow down in demand and
poor operations management.
 HONDA
CFO
• Honda CFO appears to be in very bad shape as
their 2009 cash utilization on operating activities
increased more than 200% showing the overall
inefficient management from the operation side.
Working capital is not managed properly which
shows that company heavily rely on short term
debts. Overall CFO indicates weak standing of the
company relative to Indus.
 Honda CFI
• Capital investments is always considered a
good sign for the company and same is the
case with Honda which has invested major
amount in 2009 for investing activities. Fixed
cost would be higher this year, but prospects
of growth are visible with such high
investments.
 Honda CFF
• Company has taken additional loan to finance
its investment. Additional loan is always
considered as negative indicator for the
company and may create a cautious approach
from the investor point of view.