fin her honda

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IntroductionFinancial statements are prepared primarily for decision-making. They play

a dominant role in setting the framework of the managerial decisions. But

the information provided in the financial statements is not an end in itself as

no meaningful conclusions can be drawn from these statements alone.

However the information provided in the financial statements is of immense

use in decision – making through analysis and interpretation of financial

statements. Financial analysis is the process of identifying the financial

strength & weaknesses of the Firm by property, establishing relationship

between the items of the Balance Sheet and the Profit and Loss Account.

After analyzing the ratios of the HERO HONDA the interpretation is made

in the form of graphical presentation and also in the form of the text. In

conclusion part it is effort to know overall strength and weaknesses of the

company and the suggestions are maintained in the form of liquidity,

solvency, profitability ratios of the company.

Just like a doctor examines his patient by recording his body temperature,

blood pressure etc. before making his conclusion regarding the illness and

before giving his treatment, a financial analyst analysis the financial

statements with various tools of analysis before commenting upon the

financial wealth or weaknesses of an enterprise. The analysis and

interpretation of financial statements is essential to bring out the mystery

behind the figures in financial statements. Financial statements analysis is an

so that

_______________________________________________________________________ Sri Basaveshwara Degree College, Siruguppa B.B.M.6th sem 1

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OBJECTIVES OF THE STUDY

To make comparative analysis or the financial position

To diagnose the information contained in financial statements

To judge the profitability and financial soundness of the firm.

To determine the significance and meaning of the financial statement

data

To forecast the future earnings, ability to pay interest and debt

maturities (both current and the long term) and profitability of a sound

dividend policy.

SCOPE OF THE STUDY

The main objective of carrying out this project is an effort to study Financial

Analysis of HERO HONDA at Bellary. The study that I concluded is

Financial Analysis of HERO HONDA Limited is limited to analysis of

Secondary data only. All the information used for analysis of financial

analysis of the firm has been collected from Firms Balance sheet.


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RESEARCH METHODOLOGY

For carrying out the study of this particular topic the data has been collected

basically by two major sources. These are: -

(a) Primary sources

The primary sources consist of the basic information collected from the staff

people of various departments, the officers as well as the managers of the

international tractors limited. It has been collected by consulting.

(b) Secondary sources

The secondary sources consist of the data and information collected from the

annual reports, magazines, journals, and the scheduled ledgers of

international tractors limited.

LIMITATIONS OF THE STUDY

Although there were many limitations that come across during this study but

the major limitation that was faced by me was that the major portion of my

collected data was from the secondary sources.

a) Limited use of a single ratio

A single ratio usually does not convey much of the sense. To make a

better interpretation a large number of ratios have to be calculated, which is

likely to confuse the analyst than help him in making any meaningful

conclusions.


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b) Lack of Adequate standards

There are no well-accepted standards or rules of thumb for all ratios,

which can be accepted as norms. It renders interpretations of ratios difficult.

c) Window dressing

Financial statements can easily be window dressed to present a better

picture of profitability to the outsiders. Hence one has to be very careful

while making decisions from ratios calculated from such financial

statements.

d) Price level changes

While making ratio analysis no consideration is given to the price

level and this makes the interpretations of the ratios invalid.

TECHNIQUE USED

Although the ratio analysis has so many limitations but this is best

techniques, which is used internationally, used for measuring the strength

and weaknesses of the company. This is modern method, which shows the

overall profitability of the company, to know the better results the ratios are

compared with the ratios of the other companies.


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COMPANY PROFILE

HERO HONDA

Hero, the brand name synonymous with two wheelers in India, is a multi-

unit multi-product, geographically diversified, group of companies the

reflection of the steely ambition and indomitable grid of the Munjul family.

Trace the sags of “Hero” through more than 45 of Enterprise &

Achievements, of version and planning. Always blazing through the trials of

success.

HISTORY OF HERO HONDA

The legend of Hero Honda

What started out joint venture between Hero group, the worlds largest

bicycle manufacturer and the company of Japans, has today become the

world’s dingle largest two wheelers company .coming in to existence

January 19, 1948, Hero Motors limited gave India nothing less than are

evaluation on two wheelers, the made famous by “fill it shut it and forget it”

campaign .Driven by the trust of over 5 million customers. The Honda

product range today command market share 48% making it veritable giant in

the industry. Add to that technologic excellence, an expansive dealer

network, and reliable after sale service, and you have one of the customer-

friendly companies.


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This is provided by the company’s over the year:

1985-86 43000 units

1989-90 96,200 units

1998-99 5, 30,600 units

1999-0 7,61,210 units

2000-01 10,29,555 units

2001-02 14, 25,195 units

2002-03 16, 77,537 units

2003-04 17, 62,587 units

2004-05 18, 29,928 units

2005-06 19, 11,141 units

2006-07 19, 93,432 units

2007-0 20, 95,143 units

2008-09 25, 56,856 units

Customer satisfaction, high quality product, the strength of Honda,

technology and the Hero group dynamic helped HHML sales new frontiers

and exceed limits.

In the word of Mr. Brijmohan Lall Munjal, the chairman and managing Director

“we will continue to make afford required for the development, of motorcycle

industry, through new product development, technology innovation, investment in

equipment of facilities and through efficient management”


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MILESTONE OF HERO HONDA:-

Year Event

2007

Bike maker of the year by overdrive Magazine

Winner of review 200-Asia’s leading companies award (9th Rank

Amongst top 10 Indian companies).

Passion model introduced

Achieved OM-One million productions in one single year.

Entrepreneur of the year Award conferred upon the chairman,

Mr.Brijmohan Lall by Ernst & Young.

2008

Bike maker of the year by overdrive Magazine.

Winner of review 200-Asia’s leading companies award (4th Rank

amongst top 10 Indian companies).

Sponsored India, England Women’s cricket series.

Sponsored ‘Hero Honda master golf championship..

Entrepreneur of the year award conferred upon chairman,

Mr. Brijmohn Lall by Business standard.

2009

Winner of the review 200-Asian leading company Award (3rd Rank

among top 10 Indian company)

Most Respected Company in automobile sector by Business World.


________________________________________________________________________ Bike maker of the year by overdrive magazine

THE CHAIRMAN:-

Brijimohan Lall Munjal-The king of Road

The venerated patriarch and visionary of the Hero group, Mr.

Brijimohan Lall Munjal is the first generation entrepreneur who stared very

small and through sheer hard work and perseverance today made this two

wheelers venture the No1two wheelers company.

THE STORY OF THE INDOMITABLE ENTREPRENEUR:-

One the brightest stories of Indian entrepreneurship began seventy one

years ago when a six year old boy quietly walked in to a newly opened

Gurkul (Indian value based school) near his home in Kamalia (now in

Pakistan) determined to again admission instantly. Thus began an

extraordinary saga of Entrepreneurial achievement. Today, we know that

boy as Brijmohan Lall Munjal, the much venerated Patriarch of the Hero

Group one of the largest corporation group in country.

Brijmohan Lall inspirations to enter the two wheelers world come

from a desire to prove the cheapest from transport for the poorest of the

poor. Post –Partition, Brijmohan Lall Munjal and his brother relocated to

Ludhiana. Thy had to began from scratch. They set up manufactures of

bicycle components .From then on there was no looking back. In typically

modest manner B.M.Munjal accords a great deal of credit for high success to

his family and team. He traversed the road success fallowing these

principles:

Trusting his uncanny instincts.


________________________________________________________________________ A unique approach to people –one from the heart.

His leadership and sagacity has earned his great respect and he

has personally been responsible for kindling the spirit of entrepreneurship

amongst his employees who today constitute a family of about forty

successful Entrepreneurs.

ADDRESSES

SOUTH ZONE

Hero Honda Motors Limited

35-A, M.G. Road , Banglore-560 001

PRODUCT PROFILE

Following are the products of Hero Honda:

1. Splendor+

2. Karizma

3. CBZ

4. Ambition 135

5. Passion +

6. CD-Down

7. Pleasure

8. Super Splendor

9. Glamour

10.CD Deluxe

11.Achiever


________________________________________________________________________12.Glamour FI

SERVICE STATEMENT

Our constant Endeavour is support the company’s mandate of

providing highest level of customer satisfaction by taking care of your

motorcycle service & maintenance through our vast network of more

than 1000 committed dealer & service outlets spread across the

country.

Our state-of-the-art authorized workshop have well laid out

standard for motorcycle servicing supported by fully equipped

infrastructure in terms of quality precision instruments ,pneumatic tools

& team of highly trained service technicians. Having your motorcycle

serviced at an authorized workshop ensures highest standards of service

quality.

INITIATIVES

An Environment Social, Aware Company At Hero Honda, our goal

is not to sell you bike, but also to help you every step of the way in

making your world better place to live in. besides its will to provide a high

quality service to all of its customers, Hero Honda takes a stand as socially

responsible enterprise respectful of its environment and respectful of the

important issues.

“We must do something for the community from whose land we

generate our wealth”. A famous quote of Mr.Brijmohan Lall Munjal, our

CMD.

ORGANIZATION CHART


http://www.herohonda.com/glamournew/

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Chairman Mr. Brijmohan Lall Munjal

Managing Director Mr. Pawan Munjal

Joint Managing Director Mr. Toshiaki Nakagawa

Whole time Director Mr. Takao Eguchi

Non-Executive Director Mr. Satyanand Munjal

Non-Executive Director Mr. Om Prakash Munjal

Non-Executive & Independent

DirectorMr. Tatsuhiro Ovama


DirectorMr. Masahiro Takedagawa


DirectorMr. Narinder Nath Vohra


DirectorMr. Pradeep Dinodia


DirectorGen. (Retd.) Ved Prakash Malik


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DirectorMr. Analjit Singh


DirectorDr. Pritam Singh


DirectorDr. Vijay Laxman Kelkar


DirectorMs. Shobhana Bhartia


DirectorMr. Sunil Bharti Mittal

CONCEPTUAL FRAMEWORK


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Meaning

The term “Financial Analysis” also known as analysis and interpretation of

financial statements refer to the process of determining financial strength

and weaknesses of the firm by establishing strategic relationship between the

items of the balance sheet, profit and loss account and other operative data.

In the words of Myers, “Financial statement analysis is largely a study of

relationship among the various financial factors in a business as disclosed by

a single set of statements, and a study of the trend of these factors as shown

in a series of statements”.

2.4 Types of financial analysis

However, we can classify various types of financial analysis into different

categories depending upon (i) the material used, and (ii) the method of

operation followed in the analysis or the modus operandi of analysis.

(i) On the basis of Material used:


Types of Financial Analysis

On the basis of material used

On the basis of modus operandi

External analysis

Internal analysis

Horizontal analysis

Vertical analysis

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a. External analysis

b. Internal analysis

a. External analysis

This analysis is done by outsiders who do not have access detailed

internal accounting records of the business firm. These outsiders include

investors, potential investors, creditors, potential creditors, government

agencies, credit agencies, and the general public. For financial analysis,

these external parties to the firm depend almost entirely on the published

financial statements.

b. Internal analysis

The analysis conducted by persons who have access to the internal

accounting records of a business firm is known as internal analysis. Such an

analysis can therefore, be performed by executives and employees of the

organization as well as government agencies which have statutory powers

vested in them. Financial analysis for managerial purposes is the internal

type of analysis that can be affected depending upon the purpose to be

achieved.

(ii) On the basis of modus operandi

a. Horizontal analysis

b. Vertical analysis

a. Horizontal analysis


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Horizontal analysis refers to the comparison of financial data of a

company for several years. The figure for this type of analysis are presented

horizontally over a number of columns. The figures of the various years are

compared with standard or base year. A base year is a year of analysis is also

called ‘Dynamic analysis’ as it is based on the data from year to year rather

than on data of any one year.

b. Vertical analysis

Vertical analysis refers to relationship of the various items in the

financial statements of one accounting period. In this type of analysis the

figures from financial statements of the year are compared with a base

selected from the same years statement. It is also known as ‘static analysis’.

Common size financial statements and financial ratios are the two tools

employed in vertical analysis. Since vertical analysis considers data for one

time period only. It is not very conducive to a proper analysis of financial

statements.

The following procedure is adopted for the analysis and interpretation of

financial statements: -

1. The analyst should acquaint himself with the principles and postulants

of accounting. He should know the plans and policies of the

management so that he may be able to find out whether these plans

are properly executed or not.

2. The extent of analysis should be determined so that the sphere of work

may be decided. If the aim is to find out the earning capacity of the

enterprise then analysis of income statement will be undertaken. On


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the other hand, if financial position is to be studied then Balance sheet

analysis will be necessary.

3. The financial data given in the statements should be re-organized and

re-arranged. It will involve the grouping of similar data under same

heads, breaking down of individual components or statements

according to the nature. The data is reduced to a standard form.

4. A relationship is established among financial statements with the help

of tools and techniques of analysis such as ratios, trends, common

size, funds flow etc.

5. The information is interpreted in a simple and understandable way.

The significance and utility of financial data is explained for helping

decision taking.

6. The conclusions drawn from interpretation are presented to the

management in the form of reports.

Methods or devices of financial analysis: -

The analysis and interpretation of financial statements is used to determine

the financial position and results of operations as well. A number of methods

or devices are used to study the relationship between different statements.

The following methods of analysis are generally used:

1. Comparative statements

2. Trend analysis

3. Common size statements

4. Funds flow analysis

5. Cash flow analysis

6. Ratio analysis


________________________________________________________________________7. Cost volume profit analysis

These are explained as follows:

1. Comparative statements

The comparative financial statements are statements of the financial

position at different periods of time. The elements of financial position are

shown in a comparative form so as to give an idea of financial position at

two or more periods. Any statement prepared in a comparative form will be

covered in comparative statements. From practical point of view. Generally,

two financial statements (Balance Sheet and the Income Statement) are

prepared in comparative form for financial analysis purposes.

2. Trend analysis

The financial statements may be analyzed by computing trends of

series of information. This method determines the direction upwards or

downwards and involves the computation of the percentage relationship that

each statement items bears to the same in the base year. The information for

a number of years is taken up and one year, generally taken for the base

year. In figures for the base year are taken as 100 and trend ratios for other

years are calculated on the basis of the base year. The analyst is able to see

the trend of the figures, whether upward or downward.

3. Common size statements

The common size statements, balance sheet and the income statements

are shown in analytical percentages. The figures are shown as percentages of

total assets, total liabilities and the total sales. The total sales are taken as


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100 and different assets are expressed as a percentage of the total. Similarly

various liabilities are taken as a part of the total liabilities. These statements

are also known as component percentage as 100 percent statements because

every individual item is stated as a percentage of the total 100.

4. Funds flow analysis

The fund flow statement is a statement, which shows the movement of

the funds and is the report of the financial operations of the business

undertaking. It indicates various means by which funds were obtained during

a particular period and the ways in which these funds were employed. In

simple words, it is a statement of sources and application of funds.

5. Cash flow analysis

Cash flow statement is a statement, which describes the inflow

(sources) and outflow (uses) of the cash and cash equivalents in an

enterprise during the specified period of time. Such a statement enumerates

net effects of the various business transactions on cash and its equivalents

and takes into account receipts and disbursements of cash. A cash flow

statement summarizes the causes of changes in cash position of a business

enterprise between the dates of the two balance sheets.

6. Ratio analysis

Ratio analysis is a technique of analysis and interpretation of financial

statements. It is the process of establishing and interpreting various ratios for

helping in making certain decisions. However ratio is not end itself. It is

only a means of better understanding of financial strengths and weaknesses

of a firm. A ratio is a simple arithmetical expression of the relationship of


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one number to another. It may be defined as the indicated quotient of the two

mathematical expressions.

7. Cost volume profit analysis

Profit is the most important measure of a firm’s performance. In the

free market economy, profit is a guide for allocating resources efficiently.

An analysis of the effects of various factors on profit is an essential step in

financial planning and decision-making.

The analytical techniques used to study the behavior of profit in

response to the changes in the volume costs and price is called the Cost

Volume Profit (CVP) analysis.

The most common ratios which indicates the extent of liquidity or lack of it

are:

Current ratio

Quick ratio

Absolute ratio

1. CURRENT RATIO


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The current ratio is calculated by dividing current assets by liabilities with

the help of following formula:

Current ratio= Current Assets

Current Liabilities

This ratio is an indicator of the firm’s commitment to meet its short-

term liabilities. Current assets means assets that will either be used up or

converted into cash within a years’ time or norms, operating cycle or the

business, whichever is longer. Current liabilities means liabilities payable

within a year or during the operating cycle of business, whichever is longer,

out of existing current assets or by creation of other current liabilities.

An ideal current ratio is (2:1). The ratio of 2 is considered as a safe

margin of solvency due to the fact that if the current assets are reduced to

half i.e. 1 instead of 2, then also the creditors will be able to get their payable

in full.

Some of the current assets and current liabilities are as follows:

Current Assets Current Liabilities

Marketable Securities Bank overdraft

Sundry Debtor (less provision) Income tax

Billing Receivable Payable

Advances (recoverable)

Pre-paid expenses

Book debts outstanding for more than 6 months and loose tools should

not be included in current assets.


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2. QUICK RATIO: (Acid Test Ratio or Liquid Ratio)

This ratio establishes a relationship between quick or liquid assets and

current liabilities.

Quick Ratio = Quick Assets

Quick Liabilities

Quick Assets = Current Assets – Inventories (i.e. stock) – prepaid

expenses

An asset is liquid if it can be converted into cash immediately or

reasonably soon without a loss of value. Cash is (the most liquid asset).

Generally, a quick ratio is (1:1) is considered to represent a

satisfactory current financial condition. A quick ratio of (1:1) or more does

not necessarily imply sound liquidity position of dead stock is fairly low.

3. ABSOLUTE LIQUID RATIO / CASH RATIO:

As all book debts may not be liquid, and cash may be immediately needed to

pay operating expenses and moreover, inventories are not absolutely non-

liquid. To a measurable extent, inventories are available to meet current

obligation.

It would be appreciated that a company with a lower quick ratio may

be quite solvent in case its inventory has a ready market; its realizable value

is even above the book value and the portion.

Since cash is the most liquid asset, a financial analyst may examine

the ratio of cash and its equivalent to current liabilities.


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An absolute liquid ratio of (0:5:1) may be adequate. The higher the

ratio, the more solvent is the business.

A. LEVERAGE RATIO (Test of long term solvency)

Solvency of a business means its ability to meet its long – term liabilities

debenture holder; mortgagors and other long – term depositors are primarily

interested in ascertaining whether the company is having adequate profit to

pay its interest obligation regularly. They would very much like to study the

financial structure, the contribution of long-term depositors, vie a vie the

owner to the total capital employed.

1. DEBT – EQUITY RATIO

The ratio is also called ‘External Internal Equity Ratio’. It indicates the

comparative claims of outsiders and owner in the concern’s total equities the

claim of depositors, mortgagors, bondholders, suppliers, and other creditors

are matched with those of owner, i.e. shareholders or proprietors. The

management has to keep healthy balance between the two equities: external

and internal.

Debt Equity Ratio = Total Debt

Net worth

TOTAL DEBT NET WORTH

Debentures and Bonus Equity share capital

Loan and Mortgage Pref. Share capital

Security deposit with company Reserve capital & Revenue

Fixed Deposit / Unsecured loans Profit and Loss (Cr.)

All Current Liabilities


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These funds are available at the rate of the interest generally lower

than the market rate. They are used along with share capital funds; the entire

balance is then left for distribution among shareholders.

If the proportion of outside fund is quite high, the company is

technically said to be highly leveraged. In case the ratio is 1, it is considered

quit satisfactory.

High – Debt Company is able to borrow funds on very restrictive

terms and conditions.

1. EQUITY RATIO / PROPRIETORY RATIO

It is variant of debt – equity ratio. It is an important test to judge the long-

term solvency of a concern. It establishes relationship between the proprietor

or shareholder’s funds and the total assets. It may be expressed as:

Equity ratio = Proprietor’s funds

Total Assets

Proprietor’s fund or Net worth = Equity Share Capital + Reserve and

Surplus + Preference Share Capital.

Total Assets = Total Equities or Total Resources of the concern.

If we take the total assets as 100, the percentage of proprietor’s funds

indicates the contribution made by the owners towards total assets. The

nearer the percentage of proprietor’s funds to 100, the larger is their


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contribution and the greater is the securities for creditors, depositors,

mortgagors, and debenture holders.

2. FUNDED DEBT TO TOTAL CAPITALISATION RATIO

Funded debt to total capitalization ratio reveals what portion of total

capitalization is provided by founded debt and is formulated as:

Funded debt to total capitalization = Funded debt * 100

Total capitalization

Funded Debt = Debentures + Bonus + Mortgage Loan + Other Loan – Term

Loans

Total Capitalization = Proprietor’s Fund’s + Funded Debt

This ratio depicts the extent of dependence on outside sources for

providing long term finance 67% dependence may be reasonable for trading

and industrial concerns. The less the better, for long-term solvency. Beyond

67% it would be too risky. A high percentage reduces the security for

depositors.

3. FIXED ASSET RATIO:

The ratio is expressed as follows:

Fixed Asset Ratio = Fixed Asset

Long Term Funds

The ratio should not be more than 1 if it is less than 1, it shows that a

part of the working capital has been financed through long-term funds. This


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is desirable to some extent because a part of working capital is termed, as

“Core Working Capital” is more or less of a fixed nature. The ideal ratio

is .67.

Fixed Assets = Net Fixed Assets (i.e. Original Cost – Depreciation to date) +

Trade Investments

Long Term Funds = Share Capital + Reserves + Long Term Loans.

4. DEBT SERVICE RATIO / INTEREST COVERAGE RATIO:

Debit ratio discussed earlier is static in nature, and fails to indicate the

firm’s ability to meet interest obligations. Debt-service means regular and

timely permanent interest due on loans and debentures. Since interest is paid

out of the earning), he more the earning available, (he less is the risk as to

the payment of interest. The interest coverage ratio is computed by dividing

earnings before interest and taxes (EBIT) by interest changed:

Interest Coverage = EBIT

Interest

B. ACTIVITY RATIOS (Efficiency Ratio):

Funds of creditors and owners are invested in various assets to

generate sales and profits. The better the management of assets, the larger

the amount of sales. Activity ratios are employed to evaluate the efficiency

with which the firm manages and utilizes its assets. These ratios are also

called turnover ratios because they indicate the speed with which assets are

being converted or turned over into sales and assets.


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1. DEBTORS TURNOVER / RECEIVABLE TURNOVER RATIO:

A firm sells goods for cash and credit. Credit is used as a marketing tool by

a number of companies. When the firm extends credits to its customers,

book debts are expressed to be converted into cash over a short period acid,

therefore, are included in current assets. The liquidity position to the firm

depends upon the quality of debtors to a great extent.

Debtors Turnover Ratio = Credit Sales

Average debtors

Account Receivable = Sundry Debtors + Bills Receivable

The higher the ratio, the better it is, since it would indicate that debts

are being collected more promptly. For measuring the efficiency, it is

necessary to set up a standard figure; ratio lower than the standard will

indicate inefficiency.

2. COLLECTION PERIOD / AVERAGE AGE OF DEBTORS

VELOCITY:

Debtor’s collection period represents the time segment, which is generally

required to recover the debts due from customers and amount realizable on

bills.

Debtor Collection Period = 365 days

Debtors Turnover Ratio

Debtor collection period measures the quality of debtors since it

measures the rapidly or slowness with which money is collected from then.

A shorter collection period implies prompt payment by debtors. It reduces

the chances of bad debts. A longer collection period implies neither too


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liberal nor too restrictive. A restrictive policy results in lower sales, which

will reduce profits.

In general, the amount of the receivable should not exceed 3-4

month’s credit sales.

3. TOTAL ASSETS TURNOVER RATIO:

Some analysis like to compute the total assets turnover. This ratio shows the

firm’s ability in generating sales from all financial resources committed to

total assets.

Total Assets Turnover Ratio = Sales

Total Assets

C. PROFITABILITY RATIO:

A Company should earn profits to survive and grow over a long period of

time. Profit is the difference between revenues and expenses over a period of

time. Profit is ultimate output of the company and it with has no future if it

fails to make sufficient profits. Therefore, the financial manager should

continuously evaluate the efficiency of its company in term of profits. The

profitability ratios are calculated to measure the operating efficiency of the

company..

Profitability ratios, deals with two aspects ‘profits’ or earning and

‘expenses’ incurred to earn that profit. ‘Sales’ has been the main source of

recovery of expenses and earning of profit. These ratios thus study the

relationship of profits as well as expenses with sales. These have

accordingly been divided into categories:


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DATA ANALYSIS AND INTERPRETATION

CALCULATION OF RATIOS

1. CURRENT RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio1.22 1.41 1.37 2.58

Ratio

0

0.5

1

1.5

2

2.5

3

2006-07 2007-08 2008-09 2009-10

Ratio

Current Ratio:The current ratio of the company is increasing in all the

years, with the highest increase in the year 2009-2010. This is due to

increase in the current assets of the company namely sundry debtors and

the loans and the advances made by the company.


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2. LIQUID RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio0.82 0.86 0.83 2.03

Ratio

0

0.5

1

1.5

2

2.5

2006-07 2007-08 2008-09 2009-10

Ratio

Liquid / Quick Ratio: Sundry debtors and loan and advances also

affect the quick ratio of the company. The increase in these sundry

debtors and the loans and advances may decrease the profitability of the

company. Usually, a high acid test ratio / quick ratio is an indication that

the firm is liquid and has the ability to meet its current liabilities in time.

As a rule of thumb is 1:1 is considered satisfactory.


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3. ABSOLUTE LIQUID RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio0.27 0.23 0.21 0.59

Absolute Liquid Ratio: Absolute liquid ratio of the company is according

to the rule of thumb i.e. 0.5:1 in the year 2009-10 which is due to heavy cash

& bank balances maintained by the company.


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EFFICIENCY RATIOS4. DEBTORS TURNOVER RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio17.82 10.21 9.22 8.02

Debtors Turnover Ratio: The Debtors turnover ratio, which shows

that the number of times the debtors are turned over during a year. But the

debtor of the company is reducing which shows that the company is not

properly managing its debtors. There is no rule of thumb, which may be used

as a norm to interpret the ratio, as it may be different from firm to firm

depending upon the nature of the business.


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5. INVENTORY TURNOVER RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio12.98 9.90 9.33 10.89

Inventory turnover ratio: The inventory turnover ratio shows how

rapidly the inventory is turning into receivables through sales. This ratio has

been increased as compared to the last year 2009 - 2010. A high inventory

turnover indicates the efficient management of inventory because more

frequently the stocks are sold.


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6. INVENTORY CONVERSION PERIOD

Year 2006-07 2007-08 2008-09 2009-10

Ratio28.12 36.86 39.12 33.51

Inventory conversion period: Inventory conversion period of the company

on an average slightly increasing


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7. CREDITORS TURNOVER RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio7.56 8.65 5.52 9.41

Creditors turnover ratio: This ratio shows the time period of the

company to pay its debts. This company’s creditors ratio is increasing,

which shows the company is efficiently managing its reserves by increasing

its time period to pay its debts.


________________________________________________________________________

8. AVERAGE PAYMENT PERIOD

Year 2006-07 2007-08 2008-09 2009-10

Ratio48.28

Days

42.19

Days

66.12

Days

38.66

Days

Average payment period: Average payment period shows the average

number of days taken by the firm to pay its creditors. Average payment

period of the company is decreased as compared to the previous year 2007 –

2008 that shows that the company is efficiently managing its creditors in the

year 2008 - 2009.


________________________________________________________________________

SOLVENCY RATIOS

9. DEBT-EQUITY RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio1.93 1.23 1.45 0.57

Debt equity ratio:Debt equity ratio is calculated to measure the extent to

which the debt financing has been used in the business. A ratio of 1:1 may

be usually considered to be satisfactory ratio although there cannot be any

rule of thumb for all types of business.


________________________________________________________________________

10.FUNDED DEBT TO TOTAL CAPITALISATION

Year 2006-07 2007-08 2008-09 2009-10

Ratio10.89 27.78 17.96 28.78

Funded debt to total capitalization: In this company this ratio is

increasing which is not better for the company. So the company should

adopt the measures to reduce this ratio. There is no rule of thumb but still the

lesser the reliance on outsiders the better it will be. If the ratio is smaller,

better it will be up to 50% to 55% this ratio may be tolerable and not

beyond.


________________________________________________________________________

11.EQUITY RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio0.31 0.37 0.35 0.50

Equity ratio: Equity ratio is the proprietary ratio of the company,

which shows the relationship between the shareholders and the fund to total

assets of the company. In the company this ratio is varied in different years.


________________________________________________________________________

12.SOLVENCY RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio0.61 0.46 0.51 0.29

Solvency ratio: Solvency ratio is the ratio of the total liabilities to total

assets. In the company the solvency ratio of the company is reducing which

shows the satisfactory or stable is the long-term solvency position of the

firm.


________________________________________________________________________

13.FIXED ASSETS TO NET WORTH RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio0.79 0.84 0.72 0.46

Fixed assets to Net Worth ratio: This ratio established the relationship

between the fixed assets and shareholders funds to the company. This ratio is

on an average but is slightly decreasing in the last two years. There is no rule

of thumb to interpret this ratio but 60 to 65 % is considered to be satisfactory

ratio.


________________________________________________________________________

14.FIXED ASSETS TO LONG TERM FUND RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio0.70 0.61 0.59 0.33

Fixed assets to long-term fund ratio: This ratio indicates the extent

to which the total of fixed assets are financed by long term funds of the

company. But at this company this ratio is declining which shows that the

company is working on its short-term sources.


________________________________________________________________________

15.RATIO OF CURRENT ASSETS TO PROPRIETORS FUND

Year 2006-07 2007-08 2008-09 2009-10

Ratio236.92 175.78 199.98 148.85

Ratio of current assets to proprietors fund: There is no rule of thumb

is established for this ratio but in this company this ratio is slightly varied

between different years.


________________________________________________________________________

PROFITABILITY RATIO

16.NET PROFIT RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio7.67 8.60 7.62 12.49

Net profit ratio: Net profit ratio of the company is increasing which is a

healthy sign for the company. This ratio is increased due to the liberal credit

policy of the company and increase in the sales of the company.


________________________________________________________________________

17.RETURN ON INVESTMENT

Year 2006-07 2007-08 2008-09 2009-10

Ratio53.69 47.32 44.48 52.40

Return on investment: This ratio is one of the most important ratios used

for measuring the overall efficiency of the firm. As compared to the previous

years this ratio is on an average but it is better to compare with the other

similar firms for better results.


________________________________________________________________________

18.EARNING PER SHARE RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio19.82 29.95 30.34 46.44

Earning per share: Earning per share is good measure of profitability

in this company. This ratio is increasing every year in this company, which

shows the earning capacity of the invertors.


________________________________________________________________________

19.RETURN ON EQUITY CAPITAL

Year 2006-07 2007-08 2008-09 2009-10

Ratio198 299 303.49 464.46

Return on equity capital: Return on equity capital, which is the

relationship between profits of a company and its equity capital. In this

company this ratio is increasing every year.


________________________________________________________________________

20.DIVIDEND PAYOUT RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio0 0.033 0.313 0.753

Dividend payment ratio: This ratio is calculated to know the

relationship between dividend per share paid and the market value of the

share. In the company this ratio is increasing year by year.


________________________________________________________________________

21.RETURN ON GROSS CAPITAL EMPLOYED

Year 2006-07 2007-08 2008-09 2009-10

Ratio23.07 31.57 29.85 38.25

Return on gross capital employed: Return on capital employed

established the relationship between the profits and the capital employed.

This ratio shows the overall profitability of the company. But the company

has to increase this ratio to increase the profitability.


________________________________________________________________________

22.RETURN ON NET CAPITAL EMPLOYED

Year 2006-07 2007-08 2008-09 2009-10

Ratio59.67 59.47 62.06 53.96

Return on the net capital employed:The term net capital employed

comprises the total assets used less current liabilities. This ratio is decreasing

which is the good sign for the company.


________________________________________________________________________

LEVERAGE RATIOS

23.CAPITAL GEARING RATIO

Year 2006-07 2007-08 2008-09 2009-10

Ratio8.17 2.59 4.56 0.71

Capital gearing ratio: This ratio shows the relationship between the

equity share capital and the other fixed interest bearing loans. This company

is low-geared company because long-term debt was less than the equity and

reserves.


________________________________________________________________________

24.RATIO OF RESERVES TO EQUITY CAPITAL

Year 2006-07 2007-08 2008-09 2009-10

Ratio269.10 554.08 796.36 1454.1

Ratio of reserves to equity capital: The ratio establishes relationship

between the reserves and the equity capital. This ratio shows the better

position of the company, which is highly increasing every year.


________________________________________________________________________

25.FINANCIAL LEVERAGE

Year 2006-07 2007-08 2008-09 2009-10

Ratio1.02 1.04 1.21 1.80

Financial leverage: Use of long-term debts along with equity shares is

Financial Leverage. This shows the capital structure of the company.


________________________________________________________________________

26.RATIO OF CURRENT LIABILITIES TO SHAREHOLDERS FUND

Year 2006-07 2007-08 2008-09 2009-10

Ratio1.93 1.23 1.45 0.57

Ratio of current liabilities to shareholders fund: This ratio shows that the

how much amount of current liabilities is financed from the fixed assets.

This ratio is decreasing which is positive sign for the company.

27.AVERAGE COLLECTION PERIOD


________________________________________________________________________

Year 2006-07 2007-08 2008-09 2009-10

Ratio20.48 35.74 39.58 45.51

Average collection period: This ratio represents the average number of

days for which it has to wait for its receivables are converted into cash. In

this firm the ratio of average collection period is increasing which is not a

good sign for the company’s profitability position.

28.WORKING CAPTIAL TURNOVER RATIO


________________________________________________________________________

Year 2006-07 2007-08 2008-09 2009-10

Ratio16.23 10.60 10.68 4.59

Working capital turnover ratio: This indicates the number of times the

working capital is turned over in the course of a year. Working capital

turnover ratio is reducing of this company. So the company should have to

improve it.


__________________________________________________________________________

FINDINGS

The current ratio of the company is increasing in all the years, with the highest increase in the year 2009-2010.

The increase in these sundry debtors and the loans and advances may decrease the profitability of the company.

Absolute liquid ratio of the company is according to the rule of thumb i.e. 0.5:1 in the year 2009-10 which is due to heavy cash & bank balances maintained by the company.

The inventory turnover ratio shows how rapidly the inventory is turning into receivables through sales.

Inventory conversion period of the company on an average slightly increasing

Average payment period of the company is decreased as compared to the previous year 2007 – 2008 that shows that the company is efficiently managing its creditors in the year 2008 - 2009.

Equity ratio is the proprietary ratio of the company, which shows the relationship between the shareholders and the fund to total assets of the company. In the company this ratio is varied in different years.

In the company the solvency ratio of the company is reducing which shows the satisfactory or stable is the long-term solvency position of the firm.

Net profit ratio of the company is increasing which is a healthy sign for the company.

Return on equity capital, which is the relationship between profits of a company and its equity capital. In this company this ratio is increasing every year.

In this firm the ratio of average collection period is increasing which is not a good sign for the company’s profitability position.

Working capital turnover ratio is reducing of this company. So the company should have to improve it.


__________________________________________________________________________

CONCLUSION

The conclusion derived from the study of financial analysis of international

tractors limited shows that the overall financial strength of the company is

extremely good. Because the current assets exceeds the current liabilities in all

the financial years of the company. But current assets of the company are

heavily increased during the year 2006-2007 which boosted the current ratio of

the company. The working capital position of the company is better in the

financial year 2006-2007 as compared to the previous years. The overall

profitability of the company is good.


__________________________________________________________________________

SUGGESTIONS1. Liquidity Ratios:

Liquidity refers to the ability of the concern to meet its current

obligations as and when these become due. The short-term obligations are met

by realizing amounts from current floating or circulating assets. The liquidity

position of the company is better as compared to the previous years. The ratios

such as current ratio, liquid ratio and absolute liquid ratio has been increased as

compared to the previous year 2005-06,2006-07,2007-08,2008-09. This

increases due to the sundry debtors, loan and advances and heavy cash and

bank balances maintained by the company. Although company is heaving better

liquidity position, but there is still a scope to improve it.

2. Solvency Ratios:

The term solvency refers to the ability of a concern to meet its long-term

obligations. Due to the heavy liquidity position maintained by the company.

But the long-term position is not much better. All the ratios including equity

ratio, fixed assets to net worth, fixed assets to the long-term funds ratios are

decreasing. So the company is recommended to make the balance between

liquidity and solvency position of the company.

3. Profitability Ratios:

The primary objective of the business undertaking is to earn profits.

Profit earning is considered essential for the survival of the business. The net

profits of the company is increased as compared to the previous years but this is

due to the increase in the credit sales of the company which shows that the

company is adopting liberal credit policy to increase its profits but the company

is also suffered from the increase in average days of collection so the company


__________________________________________________________________________should maintain its credit policy to make a balance between the cash and credit

sales and take some measures its average days of collection. For improving its

collections, the company may adopt the services of the factors (factoring).

4. Efficient utilization of resources:

The company is having better short-term financial position. It has more

current assets as compared to the current liabilities, which will effect the overall

profitability position of the company so the company should manage its current

assets properly.

5. Management of debtors:

The increase in the current assets is due to the increase in the debtors of

the company. So the company is recommended to manage its debtors properly.

Increase in debtors may create certain problems in the long-term run of the

company.

SOME GENERAL SUGGESTIONS FOR THE SUCCESS OF THE

COMPANY:

1. Increasing the market area or developing the new market:

The company is having better financial strength. So by efficiently using

these resources company can increase the area of operation or develop new

markets by adopting international standards.

2. Quality control:

By providing good and the cost control measure with the objectives to

attain the desired level of the sales volume.


__________________________________________________________________________

BIBLIOGRAPHY

WEBSITE

1. www.herohonda.com.

2. www.google.com


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