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SUMMER TRAINING REPORT
RATIO ANALYSIS’
At
YAMAHA MOTORS INDIA PVT. LTD.
Summer Training Project Report
Session : 2011-12
Submitted To: Submitted by:
TABLE OF CONTENTS
Introduction
Objective of the Study
Research Methodology
Company Profile
Review of Literature
Data analysis & Interpretation
Findings
Suggestions & Recommendations
Conclusion
Bibliography
1
ACKNOWLEDGEMENT
2
Introduction
The Two –Wheeler Market Globally
Globally, the Two-wheeler Industry is concentrated in the developing world, especially China and
India, Which together account for over half the total worldwide sales of Two-wheelers.
The Japanese Manufacturers, Honda, Yamaha, Suzuki and Kawasaki, dominate the Two-Wheeler
Industry globally currently, all major two wheeler market, except India are dominated either by
Japanese firms or their joint ventures. However, in the leading markets, such as China and India
and South-Asia, a host of local players exists.
Globally, four-Stroke engines are fast replacing the Two-Stroke variants with stricter
emission norms being imposed and vehicles powered by two-stroke being banned, four-stroke
powered two-wheeler have found increasing favor.
3
Powered Two-Wheeler Popular in Asian Countries such as China and India where
Motorcycle dominate the PTW market. Outside India, presence of Scooters is limited. Scooters are
far more popular in Europe than in the US. Europe has very High fuel prices, congested city streets
with limited parking space, and a long history of accepting scooters as a respectable mode of
transportation, all leading to a considerable interest in scooters.
Two-wheeler Industries: The Indian scenario
The Indian two-wheeler industry can be divided into three broad categories: scooters, motorcycles
and mopeds. Each of these categories can be further segmented on the basis of several variables,
like price, engine power, type of ignition and engine capacity.
The two-wheeler industry has come a long way since its inception in the early 1950s when scooters
were first produced in the country. Today, India is the second largest producer and consumer of
two-wheeler in the world; the Indian two-wheeler industry has grown rapidly over the past 15
years. The demand for two-wheelers increased at a CAGR of around 11% from 0.44million
vehicles in FY 1981 to over 4.23 million in FY2002.
4
The Indian two-wheeler industry has undergone a significant change over the
past 10 years with the practical changing from mopeds to scooters and more recently, from scooters
to motorcycles. Scooters, which were considered the family vehicle for middle class Indians, are
increasingly losing their position as a cheap mode of personal transportation. With the reduction in
the price differential between scooters and motorcycles, there has been a perceptible shift towards
motorcycle motorcycles because of their better styling, higher fuel efficiency, and higher load
carrying capacity. Further, the decline in excise duty on scooters and motorcycles has reduced their
price differential in comparison with mopeds. The change in customer preferences, better fuel
efficiency and increased affordability of motorcycles has titled the demand in favour of
motorcycles. The share of scooters sales in two-wheeler sales has been reducing steadily since
FY1990 when scooters accounted for more than half of all two-wheelers sold in the country.
Till FY1998, scooters formed the largest segment accounting for 41% of total industry sales, while
motorcycles and mopeds accounted for 37% and 21% of all two-wheelers sales respectively.
However, during FY1999, for the first time, the sales of motorcycle outperformed scooter sales.
The shares of scooters, motorcycles and mopeds inFY2000 were 33%, 48%, and 19%, respectively.
Although, the shares of scooters and mopeds declined in FY2001 and
FY2002, the shares of motorcycles increased to 58% and 69% respectively in these years
5
In FY2003, motorcycle sales in India increased at the rate of 28% Vis-à-vis FY2002.
A significant development in the motorcycle industry during the late 1990s was the shift from
two-stroke to four-stroke technology.
6
OBJECTIVE OF THE STUDY
The study was conducted at YAMAHA MOTOR, keeping in mind the following objectives:-
It is helpful in analysis of financial statement.
It helps in simplification of accounting data.
It helps in locating weak spots of the business.
Estimate about trends in business.
To study about the financial soundness.
Helps in fixation of ideal standards.
Scope of the study
The ability of the firm to meet current obligation;
The extent to which firm has used its long term solvency by borrowing funds;
The efficiency to which firm is utilizing its assets in generating sales revenue; and
The overall operating efficiency and performance of the firm.
7
RESEARCH METHODOLOGY
The success of any study calls for the development of most efficient plan for gathering the desired
information. Therefore a properly defined research methodology is a prerequisite for carrying out
the successful research which in turn demands clear objectives.
Research is a Process of Systematic Study or Search for any particular topic, subject or area of
investigation, backed by the collection, compilation and presentation of relevant details or data.
It is careful search or inquiry into any subject which is an endeavor to discover or find out valuable
facts which would be useful for the further application or utilization.
8
METHODS OF DATA COLLECTION
There are several ways of collecting the appropriate data, which differ considerably in context of
money, cost, time and other resources. They can be broadly divided into two categories:-
PRIMARY DATA: - It refers to information obtained firsthand by the researcher on the variables
of interest for the specific purpose of the study. This includes individuals, focus groups, interviews,
and observations, Panels etc.
SECONDARY DATA: - It refers to information gathered from sources already existing. This
includes Company records, web sites, Internet, various Publications etc.
During my study I used both the sources of data collection i.e. Primary & Secondary source of data.
As far as secondary data is concerned, it included company profile, company records, brochures,
and various publications, Internet etc.
Besides secondary data collections, primary sources like Interview and observations are used for
undertakings the study.
9
CHAPTER -2
COMPANY PROFILE
ABOUT INDIAN YAMAHA MOTORS PVT.LTD
Yamaha made its initial foray into India in 1985. Subsequently, it entered into a 50:50 joint venture
with the Escorts Group in 1996. However, in August 2001, Yamaha acquired its remaining stake as
well, bringing the Indian operations under its complete control as a 100% subsidiary of Yamaha
Motor Co., Ltd, Japan.
India Yamaha Motor operates from its state-of-the-art-manufacturing units at Faridabad in Haryana
and Surajpur in Uttar Pradesh and produces motorcycles both for domestic and export markets.
With a strong workforce of 2000 employees, India Yamaha Motor is highly customer-driven and
has a countrywide network of over 400 dealers.
10
The company pioneered the volume bike segment with the launch of its 100 cc 2-stroke motorcycle
RX 100. Since then, it has introduced an entire range of 2-stroke and 4-stroke bikes in India.
Presently, its product portfolio includes Crux (100cc), Alba (106cc) and Gladiator (125cc).
MISSION OF YAMAHA
We are committed to:
Be the Exclusive & Trusted Brand renowned for marketing and manufacturing of YAMAHA
products, focusing on serving our customer where we can build long term relationships by raising
their lifestyle through performance excellence, proactive design & innovative technology. Our
innovative solutions will always exceed the changing needs of our customers and provide value
added vehicles.
Build the Winning Team with capabilities for success, thriving in a climate for action and
delivering results. Our employees are the most valuable assets and we intend to develop them to
achieve international level of professionalism with progressive career development. As a good
11
corporate citizen, we will conduct our business ethically and socially in a responsible manner with
concerns for the environment.
Grow through continuously innovating our business processes for creating value and knowledge
across our customers thereby earning the loyalty of our partners & increasing our stakeholder
value.
C0RE COMPETENCIES OF YAMAHA
Customer #1
We put customers first in everything we do. We take decisions keeping the customer in mind.
Challenging Spirit
We strive for excellence in everything we do and in the quality of goods & services we provide.
We work hard to achieve what we commit & achieve results faster than our competitors and we
never give up.
Team-work
12
We work cohesively with our colleagues as a multi-cultural team built on trust, respect,
understanding & mutual co-operation. Everyone's contribution is equally important for our success.
Frank & Fair Organization
We are honest, sincere, open minded, fair & transparent in our dealings. We actively listen to others
and participate in healthy & frank discussions to achieve the organization's goals
13
HISTORY OF YAMAHA
Paving the Road to Yamaha Motor Corporation
Genichi Kawakami
"I want to carry out trial manufacture of motorcycle engines." It was from these words spoken by
Genichi Kawakami (Yamaha Motor's first president) in 1953, that today's Yamaha Motor Company
was born.
"If you're going to do something, be the best."
Genichi Kawakami was the first son of Kaichi Kawakami, the third-generation president of Nippon
Gakki (musical instruments and electronics; presently Yamaha Corporation). Genichi studied and
graduated from Takachiho Higher Commercial School in March of 1934. In July of 1937, he was
the second Kawakami to join the Nippon Gakki Company.
He quickly rose to positions of manager of the company's Tenryu Factory Company (musical
instruments) and then Senior General Manager, before assuming the position of fourth-generation
President in 1950 at the young age of 38.
14
In 1953, Genichi was looking for a way to make use of idle machining equipment that had
previously been used to make aircraft propellers. Looking back on the founding of Yamaha Motor
Company, Genichi had this to say "While the company was performing well and had some
financial leeway, I felt the need to look for our next area of business. So, I did some research." He
explored producing many products, including sewing machines, auto parts, scooters, three-wheeled
utility vehicles, and motorcycles. Market and competitive factors led him to focus on the
motorcycle market. Genichi actually visited the United States many times during this period.
When asked about this decision, he said, "I had my research division chief and other managers visit
leading motorcycle factories around the country. They came back and told me there was still plenty
of opportunity, even if we were entering the market late. I didn't want to be completely unprepared
in this unfamiliar business so we toured to German factories before setting out to build our first
125cc bike. I joined in this tour around Europe during which my chief engineers learned how to
build motorbikes. We did as much research as possible to insure that we could build a bike as good
as any out there. Once we had that confidence, we started going."
15
OVERVIEW OF YMC
Ever since it’s founding as a motorcycle manufacturer on July 1, 1955, Yamaha Motor Company
has worked to build its products which stands among the very best in the world through its constant
pursuit of quality; and at the same time, through these products it has sought to contribute to the
quality of life of people all over the world. Following are the success of our motorcycle, Yamaha
being manufacturing Powerboats and outboards Motors in 1960, since then, Engine and FRP
Technology were used as a base to actively diversify and Globalize the area of business. Today, our
field of influence extends from the land to the sea and even into skies as our business divisions
have grown motorcycle operations to include Automotive Operations, Power Product Operations,
and Intelligent machinery Operations and PAS Operations.
Persuing The Ultimate In
Personal Vehicle
Ever since the founding Yamaha Motor Company has been a company that continues to develop its
expertise in the field of small Engines and Fiber Glass Reinforced Plastic (FRP) Manufacturing as
well as Electronic Control Technologies Yamaha Pursues the ideals of building products of “High
Quality” and “High Performance”.
Environment friendly and People friendly
16
In product building and promotional efforts Yamaha takes as one of the fundamental ideals the
concept that products, which are people friendly, should be Environment Friendly and products that
are environment friendly should also be people friendly. This concept is born of our awareness that
“ It is the Earth and Possible”. Yamaha Motor Company Supplies the “Power” that moves people
and helps them to live to their fullest as human beings. Yamaha vehicles have the practical
advantage of using the minimum of energy for human transport that means less negative impact on
the Environment.
Technological Advantages
At the hearts of the efforts of environmental preservation are the environmental management
system designed and implemented under the ISO 14001 international standard. Under the slogan
“Absolute Quality Control”. Yamaha was the early adopter of comprehensive Quality Control
System and quick to put in a place or Total Productive Management.
Producing means to an active Life
At Yamaha business and leisure are treated as insuperable parts of life that is a reason of striving to
help bring people around the world a more active life.
Founded July 1, 1955
17
Capital 48,302 million yen (as of March 31, 2011)
President Takashi Kajikawa
Employees
(Consolidated)
46,850 (as of December 31, 2011)
Parent: 9,019 (as of December 31, 2011
Sales
(Consolidated)
1,756,707 million yen
( from January 1, 2011 to December 31, 2011)
Parent: 799,209 million yen
(from January 1, 2011 to December 31, 2011)
Sales Profile Sales (%) by product category (consolidated)
Sales (%) by region (consolidated)
Headquarters 2500 Shingai, Iwata-shi, Shizuoka-ken, Japan
Major Products & Manufacture and sales of motorcycles, scooters, electro-hybrid
bicycles, boats, sail boats, Water Vehicles, pools, utility boats, fishing
18
Services boats, outboard motors, diesel engines, 4-wheel ATVs, side-by-side
vehicles, racing karts, golf cars, multi-purpose engines, generators, water
pumps, snowmobiles, small-sized snow throwers, automotive engines,
intelligent machinery, industrial-use remote control helicopters, electrical
power units for wheelchairs, helmets. Biotechnological production,
processing and sales of agricultural and marine products and
microorganisms. Import and sales of various types of products,
development of tourist businesses and management of leisure,
recreational facilities and related services.
Affiliated
Companies
Consolidated subsidiaries: 112
Non-consolidated subsidiaries: 8
(by the equity method)
Affiliates: 27
(by the equity method)
CORPORATE PHILOSPHY
For society, for the world …
Yamaha works to realize
our corporate mission of creating Kando
19
Yamaha Motor is a company that has worked ever since its founding to build products defined by
the concepts of “high-quality and high-performance” and “light weight and compactness” as we
have continued to develop new technologies in the areas of small engine technology and FRP
processing technology as well as control and component technologies.
It can also be said that our corporate history has taken a path where “people” are the fundamental
element and our product creation and other corporate activities have always been aimed at touching
people’s hearts. Our goal has always been to provide products that empower each and every
customer and make their lives more fulfilling by offering greater speed, greater mobility and
greater potential.
Said in another way, our aim is to bring people greater joy, happiness and create Kando* in their
lives.
As a company that makes the world its field and offers products for the land, the water, the
snowfields and the sky, Yamaha Motor strives to be a company that “offers new excitement and a
more fulfilling life for people all over the world” and to use our ingenuity and passion to realize
peoples’ dreams and always be the ones they look to for “the next Kando.”
20
BIKES PRODUCED BY YAMAHA
YZF-R15 YZF-R1
21
GLADIATOR ALBA
G5
FUTURE OF YAMAHA
India Yamaha Motor is all set to launch its next season of YAMAHA RACING as “YAMAHA
R15 ONE MAKE RACE” as a part of the SIDVIN FMSCI INDIAN NATIONAL
CHAMPIONSHIP, 2013 at Madras Motor Race Track from 4th June, at Chennai.
22
After kick starting the trend two years back, Yamaha is back to fuel the growing
appetite for superbikes in India with the launch of Super Sports 2013 in the Indian market. With the
launch of this machine, Yamaha is all set to enhance the joy of Indian riders and experience true
‘Art of Engineering’, which lies at the heart of Yamaha’s creations
This time we shifted our focus to the 150 cc range, through which we sought to reestablish our
brand. We have spent around IRs 6 billion in the last two years on infrastructure, new moulds, parts
and assembly units. We now manufacture 600,000 units a year working in two shifts. If demand
rises even more, we can add another shift. Next year, we hope to increase our total exports to
150,000 units. In Nepal, Yamaha expect a growth this year to equal last year´s
23
CHAPTER -3
LITRETURE REVIEW
Ratio analysis
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient
of two mathematical expressions” and “as the relations between two or more things”.
24
In financial analysis, a ratio is used as a benchmark for evaluating the financial position and
performance. The absolute accounting figures reported in the financial statement do not provide a
meaningful understanding of the performance and financial position of a firm. For example, a Rs.
5 crores net profit may look impressive, but firm’s performance can be said to be good or bad only
when the net profit figure is related to firm’s investment.
Ratio helps to summarize large quantities of financial data and to make qualitative judgment about
the firm’s performance.
Standards of comparison
The ratio analysis involves comparison for a useful interpretation of the financial statements. A
single ratio in itself does not indicate favorable or unfavorable condition. It should be compared
with some standards. Standards of comparison may consist of:
Past ratios, i.e., ratios calculated from past financial statements of the firm
Competitors ratio, i.e., ratio of some selected firms, especially the most progressive and
successful competitor, at the same point of time;
Industry ratios ,i.e., ratio of industry which the firm belongs; an
Projected ratios, i.e., ratios developed using the projected, Performa, financial statements of
the same firm.
Time ratio analysis:
The easiest way to evaluate the performance of the firm is to compare its present ratio with the past
ratios. When financial ratios over a period of time are compared, it is known as time series analysis.
It gives an indication of the direction of change and reflects whether firms financial performance
has improved, deteriorated or remain constant over time.
25
Cross sectional analysis;
Another way of comparison is to compare ratio of the firm with some selected firms in the same
industry at the same point in time. The kind of comparison is known as the cross-sectional analysis.
The kind of comparison indicates the relative financial position and performance of the firm. A
firm can easily report to such a comparison, as it is not difficult to get the published financial
statements of the similar firms.
Industry analysis:
To determine financial condition and performance of a firm, its ratio may be compared with
average ratio of the industry of which firm is a member. The sort of analysis is known as industrial
analysis, help member to ascertain the financial standing and capabilities of the firm vis-à-vis other
firms in the industry. Industry ratios are important standard in the view of the fact that each
industry has its characteristics, which influence the financial and operating relationships.
Practical difficulties:-
1. It is difficult to get average ratio for the industry.
2. Even if industry ratios are available they are average ratios of string and weak firms. Some time
difference is so wide that average is of small utility.
26
3. Averages may be meaning less and comparison will be futile if firm within the same industry
widely differ in their accounting policies and practices.
According to R.N. Anthony:
“A ratio is simply one number expressed in terms of another. It is found by dividing one number
into the other”.
Thus, we can say that the relationship between two figures, expressed in arithmetical terms is
called a ‘ratio’.
Objective of ratio analysis
It is helpful in analysis of financial statement.
It helps in simplification of accounting data.
Helpful in comparative studies.
It helps in locating weak spots of the business.
Helpful in forecasting.
27
Estimate about trends in business.
To have effective control
To study about the financial soundness.
Helps in fixation of ideal standards.
Scope of ratio analysis
The financial analyst use ratio to determine those financial characteristics of the firm in which they
are interested.
With the help of ratios, one can determine:
The ability of the firm to meet current obligation;
The extent to which firm has used its long term solvency by borrowing funds;
The efficiency to which firm is utilizing its assets in generating sales revenue; and
The overall operating efficiency and performance of the firm.
Performance analysis: In fact, it has to be realized that the short and long term financial position
and the profitability of the firm are tested in every kind of financial analysis, but the emphasis
would differ. Some ratios are more important in one kind of analysis than other. If a short term
creditor analysis only the current position and find it satisfactory, he cannot be certain about about
the safety of his claim if the firm’s long term financial position or profitability is unfavorable. The
satisfactory current position would become adverse in future if the current resources are consumed
by the long term financial condition. Similarly, the ‘good’ long-term financial position is no
28
guarantee for the long term creditor’s claims if the current position or the profitability of the firm is
‘bad’.
Credit analysis: in credit analysis, the analyst will usually select a few important ratios. It may use
the current ratio or quick-asset ratio to judge the liquidity or debt-paying ability; debt-equity ratio
to determine the stake of the owners in the business and the firm’s capacity to survive in the long
run and any one of the profitability. For example, return on capital employed, to determine the
firms earning prospects.
Security analysis: the major focus of security analysis is on the long term profitability.
Profitability is dependent on number of factors. One would certainly be concerned with the
efficiency with which the firm utilizes its assets and the financial risk to which the firm is exposed.
So along with profitability ratio one would also analyze the activity ratio and leverage ratio.
Competitive analysis: the ratio of the firm does not revel by themselves do not reveal anything.
For meaningful interpretation, the ratios of firm should be compared with the ratios of similar firms
and industry. The comparison will reveal whether the firm is significantly out of line with its
competitors.
Trend analysis: The ratio analysis will reveal the financial condition of the firm more reliably
when trend in ratio over time are analyzed. The trend analysis of the ratio adds considerable
significance to the financial analysis because it studies ratio of several years and isolates the
exceptional instances occurring in one or two periods. Although the trend analysis of company’s
ratio is itself informative, but it is more informative to compare the trend in company’s ratio with
the trend in industries ratios.
29
Caution in using ratio analysis
The ratio analysis is widely used technique to evaluate financial position and performance of a
business. But there are certain problems in using these ratios.
The following are certain limitations of using ratio analysis:
It is difficult to decide proper basis of comparison
The comparison is rendered difficult because of difference in situation of two companies
The price level changes make the interpretation of ratios invalid
The difference in the definition of items in the balance sheet and the profit and loss
statement make the interpretation ratios more difficult.
The ratios calculated at a point of time are less informative and defective as they suffer from
short term changes.
The ratios are generally calculated from past financial statement and, thus are no indicators
of future.
Standards of comparison: Ratios of a company have meaning only when they are compared with
some standards. It is difficult to find out a proper basis of comparison. Usually it is recommended
that ratios will be compared with industry averages. But industry averages are not easily available.
Compare differences: Situations of two companies are never same. Similarly, the factors
influencing the performance of a company in one year may change in another. Thus, the
comparison of ratios of the companies becomes difficult and meaningless when they are operating
in different situations.
Price level changes: The accounting figures, presented in financial statements, are expressed in the
momentary unit, which is used to remain constant. The prices change over years, which effects
accounting earnings. At least three effects of inflation can be identified; first, nominal value of
inventory increase, second, asset is stated at original cost (less depreciation) in the balance sheet.
30
Because of inflation, their current value or replacement cost will be much higher than book value,
third, inflation affects accounting profits of the firms, which borrow. If the interest rates is fixed,
shareholders gains at the cost of lenders.
Different definitions of variables: In practice, differences exist as to the meaning of certain terms.
Diversity of views exists as to what would be included in the net worth or shareholders equity,
current assets or liability.
Historical data: The basis to calculate ratios are historical financial statements. The financial
analyst is more interested in what happens in future, while the ratios indicate in the past.
Management of the company has information about the company’s future plan and policies and be
able to predict future happenings to a certain extend. But the outside analyst has to rely on the past
ratios, which may not necessarily reflect the firm’s financial positions and performance in the
future.
Types of ratios
Usually ratios are calculated from the accounting data, can be grouped into various classes
according to financial activity or functions to be evaluated.
Parties interested in the financial analysis are
Short term creditors
Long term creditors
Owners
Management
Short term creditors: - mainly interested in the liquidity and short term solvency of the
firm.
31
Long term creditors: - more interested in the solvency and profitability of the firm.
Owners: - concentrate on the firm’s profitability and financial condition.
Management: - is interested in evaluating every aspect of the firm’s performance. They
have to protect the interests of all parties and see that firms grow profitability.
Liquidity ratios
“Liquidity” refers to the ability of the firm to meet its current obligations. It is also called as ‘short
term solvency ratios’. These ratios are used to assess the short-term financial position of the
concern. They indicate the firm’s ability to meet its current obligation out of the current resources.
According to Saloman J. Flink
“Liquidity is the ability of the firm to meet its current obligations as they fall due”.
According to Herbert B. Mayo
“Liquidity is the ease with which assets may be converted into cash without loss”.
Liquidity Ratios are:
1. Current Ratio.
2. Quick Ratio.
32
3. Cash Ratio.
Leverage ratios
Long term creditors like the debentures holders; financial institutions etc. are interested in the
firm’s long-term financial strength. These ratios are calculated to assess the ability of the firm to
meet its long-term liability as and when they become due.
To judge the financial position of the , financial leverage, or capital structure ratio are calculated.
These ratios indicate mix of funds provided by owners and lenders.
Leverage ratios are as:
33
1. Debt-equity ratio
2. Debt to total funds ratio
3. Proprietary ratio
4. Interest coverage ratio.
Activity ratios
34
Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes
the assets. These are also called the turnover ratios, because they indicate the speed with which
assets are being inverted or turned over into sales. Higher turnover ratios indicate the better
utilization of capital or resources and in turn lead to higher profitability.
Several activity ratios are calculated to judge the effectiveness of assets utilisation. These are:-
1. Inventory Turnover Ratio.
2. Debtors Turnover Ratio.
3. Fixed assets Turnover Ratio.
4. Average collection Period.
35
Profitability ratios
A company should earn profits to survive and grow over a long period of time. Profit is the
measurement of the efficiency of the business.
Generally there are two types of profitability ratios calculated:
Profitability in relation to sales.
Profitability in relation to investment.
Profitability ratios include the following:-
1. Gross Profit Ratio.
2. Net Profit Ratio.
3. Operating Profit Ratio.
4. Return on Investment.
5. Return on Equity.
36
CHAPTER -4
DATA ANALYSIS
&
INTERPRETATION
Solvency Ratios
37
Current Ratio
This ratio explains the relationship between current assets and current liabilities of a business. The
formula of calculating the ratio is :-
Current Assets
Current ratio = ───────────────
Current Liabilities
Current Assets include those assets which can be converted into cash within a year’s time and
current liabilities include those liabilities which are repayable in a year’s time. This ratio indicates
the availability of current assets in rupees for every one rupee of current liability.
Current Assets = Cash in hand + Cash at Bank + short term investments +
Debtors + stock + prepaid expenses.
Current Liabilities = Bank overdraft + Bills payable + Creditors + Provision
for Taxation + Proposed dividend + Unclaimed dividend
+ Outstanding dividend + Loans payable within a year.
105.5
For the year 2007 - 2008(in crore) = ─────── = 5.02:1
21.03
125.17
For the year 2008 - 2009 (in crore) = ─────── = 3.57:1
35.06
110
For the year 2009 -2010(in crore) = ─────── = 3.47:1
38
31.74
135.56
For the year 2010 -2011(in crore) = ─────── = 4.79:1
28.31
Current ratio Graph
Significance: As a conventional rule, a ratio of 2:1 or more is considered satisfactory. It means that
current assets should, at least, be twice of its current liabilities. The higher ratio, the better it is,
because the firm will be able to pay its current liabilities more easily.
Comments:-
39
Year
Although the high ratio shown by the graph says that we can easily meet up our current liabilities
but too high ratio is also not beneficial for the company as it shows that because of poor investment
policies of the management and poor control of inventory, assets are lying idle and they should be
further invested.
Quick ratio
Quick ratio indicates whether the firm is in a position to pay its current liabilities within a month or
immediately.
Liquid assets
Quick Ratio = ──────────────
Current liabilities
Liquid assets = Current assets – Stock – Prepaid Expenses
Liquid assets mean those assets which will cash very shortly. All current assets accept stock and
prepaid expenses are included in liquid assets. Stock is excluded from liquid assets because it has to
be sold before it converted into cash. Prepaid expenses are also excluded from it because they are
not expected to be converted into cash.
83.96
40
For the year2007 - 08 (in crore) = ─────── = 4:1
21.03
98.15
For the year 2008 - 09 (in crore) = ───────= 2.8:1
35.06
79.71
For the year 2009 -10 (in crore) = ──────── = 2.51:1
31.34
97.85
For the year 2010 – 11 (in crore) =───────── = 3.46:1
28.31
Quick Ratio Graph
41
Significance: Generally, the quick ratio of 1:1 is considered to be satisfactory. Quick ratio thus
more rigorous test of liquidity than the current ratio ands, when used together with current ratio, it
gives a better picture of short term financial position of the firm.
Comments:-
Since quick ratio is increasing over the years, it gives a better picture of firm’s short term financial
position so firm is in a position to pay its current liabilities immediately or within a month.
42
Year
Cash Ratio
Since cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to
current liabilities. Trade investments and marketable securities equivalent to cash; so they may be
included in cash ratio.
Cash + Marketable securities
Cash Ratio = ──────────────────────
Current Liabilities
26.90
For the year 2007 - 08 (in crore) = ───────── = 1.28:1
21.03
38.19
For the year 2008 - 09(in crore) = ───────── = 1.08:1
35.06
15.35
For the year 2009 - 10 (in crore) = ──────── = 0.48:1
31.74
13.31
For the year 2010 - 11(in crore) = ──────── = 0.47:1
43
28.31
Cash Ratio Graph
44
Significance : cash ratio generally helps in finding out whether the cash is being proper utilized in
the business or not and to check that whether or not cash is lying ideal in the firm, if yes then to
make proper utilization of cash.
Comments:
As we can see that circulation of cash has decreased over the past years. It shows that debtors are
not making prompt payments and company is not able to make better utilization of cash.
45
Year
Leverage ratios
Debt-Equity Ratio
Several debt ratios may be used to analyse the long term solvency of the firm. The firm may be
interested in knowing the portion of the interest-bearing debt (also called funding debt) in the
capital structure. It indicates the proportion of funds which are acquired by long term borrowings in
comparison to shareholders funds.
Debt Long term Loans
Debt Equity Ratio = ─────── OR ────────────
Equity Shareholders Funds
Long Term Loans = Debentures + Mortgage Loans + Bank Loan + Loan from Financial
Institution + Public Deposits.
Shareholder’s Funds = Equity Share Capital + Preference Share Capital + Share Premium +
General Reserves + Capital Reserves + Credit Balance of Profit and Loss Accounts – Accumulated
Losses and Fictitious Assets .
22.36
For the year 2007 -08(in crore) = ─────── = 0.11
194.07
22.13
For the year 2008 - 09 (in crore) = ─────── = 0.12
177.61
46
16.04
For the year 2009 - 10 (in crore) = ─────── = 0.10
154.82
72
For the year 2010 - 11 (in crore) = ─────── = 0.55
129.35
Debt Equity Ratio Graph
Year
47
Significance: The normally accepted debt equity ratio is 2:1. if this ratio is higher than 2:1, it
means that long term borrowing is more than twice in comparison to funds to provide by owners
and it will indicate a risky financial position.
Comments:-
As we can see that the debt ratio of firm is decreasing over the years rather it borrowed some funds
in 2008 -09 but previous data is very sound, so it indicates that firm has a better financial position
to pay its long term debts and the ratio of previous year is less than the required standards, which is
satisfactory but it should control this increase in the last year so that the firm can make use of
market fund and increase activity.
Debt to Total Funds Ratio
This ratio expresses the relationship between long term debt and shareholders fund. It indicates the
proportion of funds which are acquired by long term borrowings in comparison to shareholder’s
funds. This ratio is calculated to assess the ability of the firm to meet its long term liabilities.
Debt
Debt to Total Funds Ratio = ──────────
Debt + Equity
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Long Term Loans (Debt) = Debentures + Mortgage Loans + Bank Loan + Loan from Financial
Institution + Public Deposits.
Shareholder’s Funds (Equity) = Equity Share Capital + Preference Share Capital + Share
Premium + General Reserves + Capital Reserves + Credit Balance of Profit and Loss Accounts –
Accumulated Losses and Fictitious Assets .
22.36
For the year 2007 – 08 (in crore) = ─────── = 10.33 %
216.43
22.13
For the year 2008 – 09 (in crore) = ─────── = 11 %
199.74
16.04
For the year 2009 – 10(in crore) = ─────── = 9 %
170.86
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For the year 2010 – 11(in crore) = ─────── = 35 %
201.35
Debt to Total Funds Ratio Graph
49
Year
Significance: Debt to total funds ratios of 0.67:1 (or 67 %) is considered satisfactory. A higher
ratio than this is generally considered as the indicator of risk. Because it means that the firm
depends too much on outsides loans for the existence. Any withdrawal of funds by the lenders will
put the company in difficulties.
Comments:-
As we see that firm is able to make prompt payments since the debt-equity ratio shows a gradual
decrease and lastly firm has paid its debt in the current year 2007 -08 As it has a sound position and
the ratio was much lower compared to required standards which indicates a good payment system.
Now the company is free from any market liability.
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Proprietary Ratio
This ratio indicates the proportion of total funds provided by owners or shareholders.
Equity
Proprietary Ratio = ─────────────
Debt + Equity
Or
Shareholder’s Funds
= ──────────────────────────
Shareholder’s Funds + Long-Term Loans
129.35
For the year 2007 -08 (in crore) = ─────── × 100 = 85.3%
151.71
154.82
For the year 2008 - 09 (in crore) = ─────── × 100 = 87.5%
176.95
177.61
For the year 2009 - 10 (in crore) = ─────── × 100 = 91.7%
193.65
51
194.07
For the year 2010 - 11 (in crore) = ─────── × 100 = 72.9%
266.07
Proprietary Ratio Graph
52
year
Significance: The ratio should be 33% or more than that. A higher proprietary ratio is generally
treated as an indicator of sound financial position from long term point of view. Because it means
that firm is less dependent on external sources of finance. On the other hand lower the ratio, the less
secured are the long term loans and face the risk of losing their money.
Comments:
Higher proprietary ratio is treated as the indicator of sound financial position from the long-term
point of view because it is less depended on external sources of finance. The company’s proprietary
ratio is ranging between 92% to 100% which is quite good. As clearly depicted by the calculations.
53
Interest Coverage Ratio
This ratio is also termed as ‘debt service Ratio’ or ‘Fixed Charge Coverage Ratio’. This ratio is
calculated by dividing the net profit before charging interest and Income Tax by ‘Fixed interest
charges’.
Net Profit before interest and taxes
Interest Coverage Ratio = ─────────────────────────
Fixed Interest Charges
Net profit before interest and taxes is to be taken for the calculation of this ratio because this is the
amount of profit out of which interest and taxes are to be paid out. Fixed interest charges include
interest on fixed (long term) loans or debentures.
37.94
For the year 2007 - 08 (in crore) = ────── = 20.62 times.
1.84
40.07
For the year 2008 - 09(in crore) = ────── = 42.18 times.
0.95
31.10
For the year 2009 - 10(in crore) = ────── = 50.16 times.
0.62
54
30.62
For the year 2010- 11(in crore) = ────── = 31.24 times.
0.98
Interest Coverage Ratio Graph
Years
Significance: This ratio indicates how many times the interests charges are covered by the profits
available to pay interest charges. A long term lender is interested in findings out whether the
business will earn sufficient interest to pay the interest charges regularly. The higher the ratio, more
55
secure the lender is in respect of payment of interest regularly. An interest coverage ratio of 6 to 7
times is considered appropriate.
Comments:
Normally acceptable interest coverage ratio is 6 to 7 times, where as the actual of the company is
31.24 times in current year, it means that profits of the company are 31 times in comparison to
fixed interest charges. So the firm is able to pay the interest on long term loans regularly, though
the ratio was 50.16 times in the year 2003-04, since the ratio has decreased from the last years, still
the company is in sound financial position but company should take corrective measures to increase
profits.
Activity Ratio
Inventory Turnover Ratio
Inventory turnover indicates the efficiency of the firm in producing and selling its products. It is
calculated by dividing the cost of goods sold by the average inventory.
Cost of Goods Sold
Inventory Turnover Ratio = ────────────────
Average inventory
Cost of goods Sold = Opening Stock + Purchases + Direct Charges – Closing
Stock.
56
Cost of Goods Sold = Net Sales – Gross Profit.
158.14
For the year 2007 - 08(in crore) = ─────── = 7.34 times
21.54
173.44
For the year 2008– 09 (in crore) = ─────── = 7.14 times
24.28
178.95
For the year 2009 - 10(in crore) = ─────── = 6.22 times
28.73
211.93
For the year 2010 - 11 (in crore) = ─────── = 6.21 times
34.08
Inventory Turnover Ratio Graph
57
Years
Significance: This ratio indicates whether or not the stock has been efficiently utilized. It shows the
speed with which the stock is rotated into sales. The higher the ratio, the better it is, since it
indicates that the stock is selling quickly. In business where stock turnover is high goods can be
sold at low margin of profit and even then the profitability can be high.
Comments:
Inventory turnover ratio of the company is quite good earlier it means that there is proper outflow
of the stock and goods do not remain in the go down for a long time. As we can see that inventory
turnover is decreasing which shows that there is overspending in stock which is left unused.
58
Debtors Turnover Ratio
This ratio indicates the relationship between the credit sales and average debtors or debtor of the
current year.
Net Credit Sales
Debtors turnover Ratio = ───────────────────────
Average Debtors + Average B/R
Bills receivables are added in debtors for the purpose of calculation of this ratio. While calculating
this ratio, provision for bad debt and doubtful debt is not deducted from total debtors, so that it may
not give a false impression that debtors are collected quickly.
Net Credit Sales = Total Sales – Cash Sales.
Average Debtors = (Opening Debtors + Closing Debtors) / 2
Average Bills Receivables = (Opening B/R + Closing B/R) / 2
114.59
For the year 2007 - 08(in crore) = ─────── = 3.47 times
32.98
77.86
For the year 2008 - 09 (in crore) = ─────── = 2.38 times
59
32.67
89.79
For the year 2009 - 10(in crore) = ─────── = 2.38 times
37.57
123.51
For the year 2010 - 11 (in crore) = ─────── = 2.72 times
45.25
Debtors Turnover Ratio Graph
Years
60
Significance: This ratio indicates the speed with which the amount is collected from debtors. The
higher the ratio, the better it is, since it indicates that amount from debtors is being collected more
quickly. The less the risk from bad debt, and so the lower the expenses of collection and increase in
the liquidity of the firm.
Comment - turnover ratio of the company is 2.72 which is quite good it means there is efficient
credits sales policy of the management. So there is less risk of bad debts but there is increase in the
ratio from the last year. But still the ratio is low as compared to year 2007- 08 which was 3.47
times, so company should take appropriate steps to increase the ratio.
Average Collection Period
This ratio indicates the time within which the amount is collected from debtor and bills receivable.
Average Debtors
Average Collection Period = ────────────── × 365
Credit Sales
Or
365
= ─────────────
Debtors Turnover
61
365
For the year 2007 - 08 (in crore) = ─────── = 105 days
3.47
365
For the year 2008 - 09 (in crore) = ─────── = 153 days
2.38
365
For the year 2009 - 10 (in crore) = ─────── = 153 days
2.38
365
For the year 2010 - 11 (in crore) = ─────── = 134 days
2.72
62
Average Collection Period Graph
Years
Comments:
Although the average collection period of the firm decreased from 153 days in 2007 -09, still the
collection period of the company is 134 days. The current year is good according to the functioning
of the firm because it has been noticed that the inventory turnover (10.91 times) and the Debtor
turnover (2.93 times), which fully satisfies the activities of the firm. This ratio is an indication of
efficient working of the management.
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Fixed Assets Turnover Ratio
Assets are used to generate sales. Therefore, a firm should manage its assets efficiently to
maximize sales. The relationship between sales and assets is called assets turnover ratio. Assets
turnover ratios can be calculated.
Cost of Goods Sold
Fixed Assets Turnover Ratio = ────────────────
Net Fixed Assets
Net Fixed Assets = Fixed Assets – Depreciation + Capital Work-in-Progress
158.14
For the year 2007 - 08(in crore) = ─────── = 2.24 times
70.70
173.41
For the year 2008 - 09(in crore) = ─────── = 1.91 times
90.95
178.95
For the year 2009 - 10(in crore) = ─────── = 1.48 times
120.86
64
211.93
For the year 2010 - 11 (in crore) = ─────── = 1.27 times
168.45
Fixed Assets Turnover Ratio Graph
Years
65
Significance: This ratio is of particular importance in manufacturing concerns where the
investment in fixed assets is quite high. This ratio reveals how effectively the fixed assets are being
utilized, compared with previous year.
Comments:
The graph clearly depicts that the fixed assets were 2.24 times in 2007 -08 which shows a gradual
decrease till 20010 - 11 which was 1.27 times this was due to sale of fixed assets and improper
utilization of resources. But after that the ratio momentum which currently stood at 2.99 times
which depicts efficient use of fixed assets.
Profitability Ratio
Gross Profit Ratio
The ratio shows the relationship between gross profit and sales.
Gross Profit
Gross Profit Ratio = ────────── × 100
66
Net Sales
Net Sales = Sales – Sales Return
17.85
For the year 2007 - 08(in crore) = ────── × 100 = 22.94%
77.86
20
For the year 2008 - 09 (in crore) = ────── × 100 = 22.28%
89.79
27.58
For the year 2009 - 10 (in crore) = ────── × 100 = 22.33 %
123.51
25.67
For the year 2010 - 11 (in crore) = ────── × 100 = 20.03 %
128.17
67
Gross Profit Ratio Graph
Years
Significance: This ratio measures the margin of profit available on sales. No ideal standard is fixed
for this ratio, but it should be adequate enough to meet not only operating expenses but also to
provide for depreciation, interest on loans, dividends and creation of reserve.
Comments:
As the figure clearly states that the revenue generated from sales is increasing but the profit is
going down by few digits because of increase in manufacturing activities. But still the ratio of the
current year is quite significant but still the company need to find the reason for this continuous
decrease in the ratio which might be problematic in near future.
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Net Profit Ratio
This ratio shows the relationship between the net profit and the sales. Net profit is used to measure
the overall profitability of business. Net profit margin is considered as an indicator of the success of
management to operate the business successfully.
Net Profit
Net Profit Ratio = ──────────── × 100
Net Sales
16.25
For the Year 2007 - 08 (in crore) = ──────── × 100 = 14.19 %
114.59
9.43
For the Year 2008 - 09 (in crore) = ──────── × 100 = 11.61 %
77.86
10.35
For the Year 2009 - 10 (in crore) = ──────── × 100 = 11.5 %
89.79
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15.43
For the Year 2010 - 11 (in crore) = ──────── × 100 = 12.49 %
123.51
Net Profit Ratio Graph
70
Years
Significance: Net Profit ratio is used to measure the overall profitability of business. Net profit
margin is considered as an indicator of the success of management to operate the business
successfully. It is possible the groos profit ratio may be increasing but net profit ratio may not be
increasing or even show a decreasing trend.
Operating Profit Ratio
71
This ratio establishes the relationship between all the operating expenses and sales.
Operating Profit
Operating Profit Ratio = ────────────── × 100
Net Sales
Operating Profit = Gross profit – Operating expenses (offices and administrative expenses, selling
and distribution expenses, discount, interest on short-term debts, etc.)
29.79
For the year 2007 - 08 (in crore) = ─────── × 100 = 26 %
114.59
18.10
For the year 2008 - 09 (in crore) = ─────── × 100 = 20.41 %
77.86
20.21
For the year 2009 - 10 (in crore) = ─────── × 100 = 22.51 %
89.79
27.72
For the year 2010 - 11 (in crore) = ─────── × 100 = 22.45 %
123.51
72
Operating Profit Ratio Graph
Years
Significance: This ratio measure the rate of net profit earned on sales. It helps in determining the
overall efficiency of the business operations. An increase in the ratio over the previous shows
improvement in the overall efficiency and profitability of the business.
73
Comments:
The net profit ratio also shoes a decrease the operating expenses have increased in comparison to
past year. So they should keep a watch on their operating activities and try to reduce the
expenditure incurred on them.
As the figure clearly states that the revenue generated from sales is increasing but the profit is
going down by few digits because of increase in operational activities. But still the ratio of the
current year is quite significant but this continuous decrease in the ratio might problematic Quantity
is decreasing but rate increased that is why there is profit otherwise there would have been loss.
Return on Investment (ROI)
This ratio reflects the overall profitability of the business. It is calculated by comparing the profit
earned and the capital employed to earn it.
Profit before tax, interest and dividends
Return on investment = ────────────────────────── × 100
Net worth
29.79
For the year 2007 - 08 (in crore) = ─────── × 100 = 64 %
74
46.29
18.10
For the year 2008 - 09 (in crore) = ─────── × 100 = 36 %
49.50
20.21
For the year 2009 - 10 (in crore) = ─────── × 100 = 38 %
52.85
27.73
For the year 2010 – 11 (in crore) = ─────── × 100 = 48 %
57.64
Return on Investment Graph
75
Years
Significance: This ratio helps in taking decisions regarding capital investment in the new projects.
The new projects will be commenced only if the rate of return on capital employed / net worth in
such projects is expected to be more than the rate of borrowings.
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Findings
After collection and analyzing the data, the researcher has to accomplish the task of drawing
inferences. Its only through interpretation that researcher can expose relations and processes that
underlie his findings. Thus interpretations a device through which the factor that seems to explain
what has been observed by researcher in the course of the study can be understood better. So for the
simplification I have divided my findings in four parts:
Liquidity Ratio
Current ratio increases over the year which shows good sign on the part of management functions,
as we notice that it is below the required standard. But idleness of assets have to be taken care of.
They should be utilized in some beneficial investments.
Quick Ratio also increases which shows that company is carrying enough amount of liquid assets.
Cash ratio has also gone down which means debtors are not making prompt payments.
Leverage Ratio
Debt ratio of the firm is decreasing which indicates that the firm is able to pay its debts in time.
Debt to total funds ratio is also decreasing and firm is finally paid all of its debt in the current
years which tell that firm is free from all outside liabilities. And now it can invest its money in
market or it can also easily take loans from lenders.
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Proprietary ratio of the firm is also much higher than 33 % which is the indicator of sound
financial position as firm is less dependent on external sources of finance.
Turnover Ratios
Fixed assets ratio revels how efficiently the fixed assets are being utilized in the business. As
indicated by an increase this shows proper utilization of assets.
Inventory turnover ratio is quite high which indicates that stock is regulated into business at
regular intervals and one can also measure the sales polices of the firm.
Debtor turnover ratio also shows an increase which indicates that the amount is regularly
collected by the debtors so there is less risk of bad debts and collection period also satisfies the
requirement of the company.
Profitability Ratios
Gross profit ratio compared with the previous years shows a gradual decrease which sounds
problematic for the company.
Net profit ratio decrease with the high volumes compared to the previous years. This is due to
depreciation provision and increase in manufacturing and operating expenses.
Operating profit ratio also shows a decrease in comparison to past years.
78
CHAPTER 5
SUGGESTIONS
&
RECOMMENDATIONS
Suggestions and Recommendations
The liquidity ratio shows that the liquidator’s position of the company is quite satisfactory.
All the ratios such as the current ratio, quick ratio and cash ratio show a significant increase
in comparison with past years. The company has to make full utilization of its assets.
79
Leverage position of the company is good as we can see that the ratio continuously
decreases and lastly the firm is able to pay all its debt in current year. So the firm should try
to maintain it and should invest its money in some profitable activities.
Gross profit ratio of the company is declining, this could be due to:
Increase in the prices of raw material.
Increase in the manufacturing expenses.
There is fall in prices of unsold goods, there by reducing the value of unsold goods.
Focused attention should be paid by initiating a special drive to expatiate recoveries from
sundry debtors.
The net profit ratio of the firm also decreases. It shows the inefficiency and unpredictability
of the business. This decline is because in expenses borne by operating activities.
The operating profit ratio is less than previous year.
Conclusion
These were some of the ratio that was very regularly used at Thomson press for the necessary
analysis activities performed by it from time to time. Thomson press uses this technique usually to
check out its current functioning and to compare its performance on regular basis with the past
years.
80
This technique is useful in inter-firm analysis and to judge once performance standard as ratio helps
to set some standard marks which the firm target to achieve in the given span of time.
Chapter – 6
BIBLIOGRAPHY
BIBLIOGRAPHYBIBLIOGRAPHY
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www.Yamaha-motor-india.com
www.india-today.com
Analysis of Financial Statements-D.K Goel
Fundamentals of Accounting-T.S. Grewal
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