financial ratio analysis of indus motor company ltd
TRANSCRIPT
[
]CENTER FOR ADVANCE STUDIES IN ENGINEERING
2009
UMAR IFTIKHAR KIYANI (SP-08-CE-125)
SULEMAN AHMAD AWAN (SP-09-CE-118)
ACKNOWLEDGEMENT
In the name of “Allah”, the most beneficent and merciful who
gave us strength and knowledge to complete this report. This
report is a part of our course “Finance for Technical Managers”.
This has proved to be a great experience.
We would like to express our gratitude to our teacher Mr.
Mazhar Hussain who gave us this opportunity to fulfill this
report.
CASE 2
VISION OF INDUS MOTOR COMPANY LTD.
"IMC’s Vision is to be the most respected and successful enterprise, delighting customers with a wide range of products and solutions in the automobile industry with the best people and the best technology".
CASE 3
MISSION OF INDUS MOTOR COMPANY LTD.
IMC’s mission is reflected in company’s slogan
ACT # 1
Action, Commitment and Teamwork to become #1 in Pakistan.
The Indus team is committed to ACT so that it achieves #1 position in the auto industry in
Respect & Corporate Image Quality & Safety Customer Satisfaction Production & Sales Profitability Best Employer
CASE 4
COMPANY PROFILEINDUS MOTOR COMPANY LTD has been selected for financial analysis as project. Financial
report of yr 2007-2008 has been picked for analysis purpose. A brief history of the company is
stated below.
Indus Motor Company (IMC) is a joint venture between the House of Habib, Toyota Motor
Corporation Japan (TMC) , and Toyota Tsusho Corporation Japan (TTC) for assembling,
progressive manufacturing and marketing of Toyota vehicles in Pakistan since July 01, 1990.
IMC is engaged in sole distributorship of Toyota and Daihatsu Motor Company Ltd vehicles in
Pakistan through its dealership network.
The company was incorporated in Pakistan as a public limited company in December 1989 and
started commercial production in May 1993. The shares of company are quoted on the stock
exchanges of Pakistan i.e. Karachi, Lahore and Islamabad stock exchanges. The stock code for
dealer in equity shares of Indus Motor Company Limited at KSE, LSE and ISE is INDU. Toyota
Motor Corporation and Toyota Tsusho Corporation have 25 % stake in the company equity. The
majority shareholder is the House of Habib.
IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area
measuring over 105 acres.
Indus Motor Company’s plant is the only manufacturing site in the world where both Toyota
and Daihatsu brands are being manufactured.
Heavy investment was made to build its production facilities based on state of art technologies.
To ensure highest level of productivity world-renowned Toyota Production Systems are
implemented.
IMC's Product line includes 6 variants of the newly introduced Toyota Corolla, Toyota Hilux
Single Cabin 4x2 and 4 versions of Daihatsu Cuore.
CASE 5
RATIO ANALYSIS
A statistic has little value in isolation. Hence, a profit figure of Rs.100 million is meaningless
unless it is related to either the firm’s turnover (sales revenue) or the value of its assets.
Accounting ratios attempt to highlight the relationships between significant items in the
accounts of a firm. Financial ratios are the analyst’s microscope; they allow them to get a better
view of the firm’s financial health than just looking at the raw financial statements.
Ratios are used by both internal and external analysts
Internal uses Planning Evaluation of management
External uses Credit granting Performance monitoring Investment decisions Making of policies
CASE 6
CATEGORIES OF FINANCIAL RATIOS
The accounting ratios can be grouped in to five categories:
1. Liquidity Ratios shows the extent to which the firm can meet its financial obligations.2. Asset Management Ratios shows that how effectively the firm is managing its assets.3. Debt Management Ratios shows the extent to which a firm uses debt financing or
financial leverages.4. Profitability Ratios relates profits to sales and assets.5. Market Value Ratios are a measure of the return on investment.
CASE 7
LIQUIDITY ANALYSIS RATIOS
CASE 8
NET WORKING CAPITAL RATIO
Ratio Formula Calculation Value ‘08 Calculation Value ‘07Net Working Capital Ratio
Working Capital / Total Assets (Rs in ‘000)
5,885,153 / 13,748,109
0.428 6,125,156/ 15,665,050
0.391
Analysis:
There is an increase in the net working capital in 2008 as compared to in 2007. The company can easily utilize the amount for other profit related activities after paying off its debts. Also we can see that it is due to decrease in total assets in 2008, thus meaning that company is effectively utilizing its inventories.
CASE 9
WORKING CAPITAL
Ratio Formula Calculation Value ‘08 Calculation Value ‘07Working Capital Current Assets - Current Liabilities
(Rs in ‘000)9,664,784 - 3,779,631
5885153 13,536,082 - 7,410,926
6125156
Analysis:
There is a decrease in the working capital in 2008 as compared to in 2007. The company current assets have decreased in 2008 as well as its current liabilities. Although company still has enough working capital after paying off its debts in 2008, it also means that company is effectively utilizing its inventory.
CASE 10
CURRENT RATIO
Ratio Formula Calculation Value ‘08 Calculation Value ‘07Current Ratio Current Assets / Current
Liabilities (Rs in ‘000)9,664,784 / 3,779,631
2.557 13,536,082 / 7,410,926
1.826
Analysis:
There is an increase in the current ratio in 2008 as compared to in 2007. The company can easily pay off its debts. Moreover company current liabilities have also decreased from 2007.
ACID TEST / QUICK RATIO
CASE 11
Ratio Formula Calculation Value ‘08 Calculation Value ‘07Acid Test/ Quick Ratio
Quick Assets / Current Liabilities (Rs in ‘000)
8,406,562 / 3,779,631
2.224 12,304,238 / 7,410,926
1.660
Analysis:
There is an increase in the quick ratio/ acid test in 2008 as compared to in 2007. The company can easily meet its current liabilities with its most liquid current assets.
QUICK ASSETS
CASE 12
Ratio Formula Calculation Value ‘08 Calculation Value ‘07Quick Assets Current Assets –
Inventories (Rs in ‘000)9,664,784 - 1,258,222
8406562 13,536,082 - 1,231,844
12304238
Analysis:
There is a decrease in the quick assets in 2008 as compared to in 2007. This is due to decrease in the current assets from 2007 to 2008.
CASE 13
ACTIVITY ANALYSIS / TURNOVER RATIOS
CASE 14
INVENTORY TURNOVER RATIO
Ratio Formula Calculation Value ‘08 Calculation Value ‘07Inventory Turnover Cost of Goods Sold /
Average Inventories (Rs in ‘000)
37,575,356 / 1,245,033
30.18 34,620,632 / 1,849,648
18.717
Analysis:
There is an increase in the inventory turnover ratio in 2008 as compared to in 2007. It means that company changed inventory 30.18 times during the year which is a very good sign and sold more cars as compared to in 2007.
CASE 15
ASSET TURNOVER RATIO
Ratio Formula Calculation Value ‘08 Calculation Value ‘07Asset Turnover Sales / Average Total Assets
(Rs in ‘000)41,423,843/ 14,706,580
2.816 39,061,226/ 15,743,759
2.481
Analysis:
There is an increase in the asset turnover ratio in 2008 as compared to in 2007. The company has increased sales as compared to in 2007 thus it has sold more services to customer and in this case it is the company product cars.
CASE 16
ACCOUNT RECEIVABLE TURNOVER RATIO
Ratio Formula Calculation Value’08 Calculation Value‘07A/R Turnover
Sales / Average Account Receivables (Rs in ‘000)
41,423,843 / 340,043
121.81 39,061,226 / 927,971
42.093
Analysis:
There is an increase in the account receivable turnover ratio in 2008 as compared to in 2007. The company has less account receivables as compared to in 2007 and is getting more cash.
CASE 17
PROFITIABILITY RATIOS
CASE 18
RETURN ON ASSETS
Ratio Formula Calculation Value’08 Calculation Value‘07Return on Assets
Net Income / Average Total Assets ( Rs in ‘000)
2,290,845 / 14,706,580
0.155 2,745,701 / 15,743,759
0.174
Analysis:
There is a decrease in the return on asset in 2008 as compared to in 2007. The company total assets have decreased in 2008 as compared to in 2007 and are due to fewer inventories.
RETURN ON EQUITY
CASE 19
Ratio Formula Calculation Value’08 Calculation Value‘07Return on Equity Net Income / Average
Stockholder's Equity (Rs in ‘000)
2,290,845 / 8,740,158
0.262 2,745,701 / 7,150,927
0.383
Analysis:
There is a decrease in the return on equity in 2008 as compared to in 2007. The company average total equity has increased from 2007 and has resulted in decrease.
RETURN ON COMMON EQUITY
CASE 20
Ratio Formula Calculation Value’08 Calculation Value‘07Return on Common Equity
Net Income / Average Common Stockholder's Equity (Rs in ‘000)
2,290,845 / 786,000
2.914 2,745,701 / 786,000
3.493
Analysis:
There is a decrease in the return on common equity in 2008 as compared to in 2007. The company net income has increased from 2007 and has resulted in decrease.
EARNINGS PER SHARE
CASE 21
Ratio Formula Calculation Value’08 Calculation Value‘07Earnings Per Share
Net Income / No of Shares Outstanding (in Rs)
2,290,845,000 / 78,600,000
29.14 2,745,701,000/ 78,600,000
34.93
Analysis:
There is a decrease in the earnings per share in 2008 as compared to in 2007. The company earning per share is Rs 29.14 as compared to Rs 34.93 and is due to fall of stock market.
PROFIT MARGIN
CASE 22
Ratio Formula Calculation Value’08 Calculation Value‘07Profit Margin Net Income / Sales
(Rs in ‘000)2,290,845 / 41,423,843
0.055 2,745,701 / 39,061,226
0.070
Analysis:
There is a decrease in the profit margin in 2008 as compared to in 2007. This is due to increase in net income and sales of the company in 2008 and giving fewer margins for profit.
CASE 23
CAPITAL MARKET ANALYSIS RATIOS
CASE 24
PRICE EARNINGS RATIO
Ratio Formula Calculation Value’08 Calculation Value‘07Price Earnings Ratio
Market Price of Common Stock / Earnings Per Share (in Rs)
200.1 / 29.14 6.866 305.5 / 34.93 8.746
Analysis:
There is a decrease in the price earning ratio in 2008 as compared to in 2007. The company market price of common stock has decreased considerably in 2008 and resulting in decrease of earning per share.
CASE 25
MARKET TO BOOK RATIO
Ratio Formula Calculation Value’08 Calculation Value‘07Market to Book Ratio
Market Price of Common Stock / Book Value of Equity per Common Stock
200.1 / 12.01 16.66 305.5 / 10.23 29.86
Analysis:
There is a decrease in the market to book ratio in 2008 as compared to in 2007. Due to decrease in market price of share, the market to book ratio has decreased.
CASE 26
BOOK VALUE OF EQUITY PER COMMON STOCK
Ratio Formula Calculation Value’08 Calculation Value‘07Book Value of Equity per Common Stock
Common Equity / No of Shares Outstanding (Rs in ‘000)
9,436,340 / 786,000
12.00 8,043,975 / 786,000
10.23
Analysis:
There is an increase in the book value of equity per common stock in 2008 as compared to in 2007. This is due to increase in equity in 2008.
CASE 27
DIVIDEND YIELD RATIO
Ratio Formula Calculation Value’08 Calculation Value‘07Dividend Yield Annual Dividends per
Common Share / Market Price of Common Stock (in Rs)
10.5 / 200.1 0.052 13 / 305.5 0.042
Analysis:
There is an increase in the dividend yield ratio in 2008 as compared to in 2007. The company paid fewer dividends in 2008 of Rs 10.5 per share only.
CASE 28
DIVIDEND PAYOUT RATIO
Ratio Formula Calculation Value’08 Calculation Value‘07Dividend Payout Ratio
Cash Dividends / Net Income (Rs in ‘000)
940,118 / 2,290,845
0.410 939,844 / 2,745,701
0.342
Analysis:
There is an increase in the dividend payout ratio in 2008 as compared to in 2007. The company paid more cash dividends in 2008 as evident from the calculations.
CASE 29
CAPITAL STRUCTURE ANLYSIS RATIO
CASE 30
DEBT TO EQUITY RATIO
Ratio Formula Calculation Value’08 Calculation Value‘07Debt to Equity Ratio
Total Liabilities / Total Stockholder's Equity (Rs in ‘000)
4,311,769 / 9,436,340
0.456 7,621,075 / 8,043,975
0.947
Analysis:
There is a decrease in the debt to equity ratio in 2008 as compared to in 2007. This is due to considerable decrease in the total liabilities of the company in 2008.
CASE 31
DEBT RATIO
Ratio Formula Calculation Value’08 Calculation Value‘07Debt Ratio Long Term Debts / (Long
Term Debt + Stockholder's Equity) (Rs in ‘000)
532,138 / (532,138 + 9,436,340)
0.053 210,149 / (210,149 + 8,043,975)
0.025
Analysis:
There is an increase in the debt ratio in 2008 as compared to in 2007. The company long term debts have increased from 2007.
CASE 32
INTEREST COVERAGE RATIO
Ratio Formula Calculation Value’08 Calculation Value‘07Interest Coverage Ratio
Income before Interest and Income Tax Expenses / Interest Expense (Rs in ‘000)
3,545,138 / 3,427
1034.473 4,272,892 / 43,411
98.428
Analysis:
There is an increase in the interest coverage ratio in 2008 as compared to in 2007. The company paid more interest expense in 2007 as compared to in 2008.
INCOME BEFORE INTEREST AND INCOME TAX EXPENSES
CASE 33
Ratio Formula Calculation Value’08 Calculation Value‘07Income before Interest and Income Tax Expenses
Income before Income Taxes + Interest Expense (Rs in ‘000)
3,541,711 + 3,427 3545138 4,229,481 + 43,411
4272892
Analysis:
There is a decrease in the income before interest and income tax expenses in 2008 as compared to in 2007. This is due to less debt by the company in 2008 as compared to in 2007.
ROA
CASE 34
Ratio Formula Calculation Value’08 Calculation Value‘07ROA Profit Margin x Asset Turnover
Ratio0.0553 / 2.816 0.019 0.0702 / 2.656 0.026
Analysis:
There is a decrease in the ROA ratio in 2008 as compared to in 2007. This is due to fewer profit margins in 2008.
CASE 35
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REFERENCES
1. www.toyota-indus.com
2. Fundamentals of Financial Management by Brigham & Houston 10th edition.
CASE 40